SATO

SATO Technologies Corp.

Consolidated Financial Statements
For the years ended December 31, 2024 and 2023

(expressed in Canadian dollars)

Raymond Chabot
Grant Thornton

Independent Auditor’s Report

To the Shareholders of
SATO Technologies Corp.

Raymond Chabot
Grant Thornton LLP
Suite 2000
600 De La Gauchetière Street West
Montréal, Quebec
H3B 4L8
T 514-878-2691

Opinion

We have audited the consolidated financial statements of SATO Technologies Corp. (hereafter "the Company"), which comprise the consolidated statements of financial position as at December 31, 2024 and 2023, and the consolidated statements of income and comprehensive income, the consolidated statements of changes in shareholders' equity and the consolidated statements of cash flows for the years then ended, and notes to consolidated financial statements, including material accounting policy information.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2024 and 2023, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (hereafter "IFRS Accounting Standards").

Basis for opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditor’s responsibilities for the audit of the consolidated financial statements" section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Material uncertainty related to going concern

We draw attention to Note 1 to the consolidated financial statements, which indicates the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

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Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the "Material uncertainty related to going concern" section, we have determined the matters described below to be the key audit matters to be communicated in our report.

Revenue from digital assets earned

As described in Note 3 to the consolidated financial statements, the Company generates revenue from the sale of digital assets earned. We identified the revenue from sale of digital assets earned as a key audit matter.

Why the matter was determined to be a key audit matter

Revenue from sale of digital assets earned is significant to our audit because the sale of digital assets earned is an emerging industry with unique technological aspects that raise a number of auditing challenges. Given the nature of this source of revenue, significant audit efforts are required. The revenue from sale of digital assets earned during the year ended December 31, 2024 totals $16,053,612.

How the matter was addressed in the audit

Our audit procedures related to revenue from sale of digital assets earned included, among others, the following:

We evaluated management's rationale for the application of IFRS 15 to account for its digital assets received, which included evaluating the provisions of the contract between the Company and the mining pools;
We conducted substantive analytical procedures with a high degree of precision, which include tests of the accuracy and completeness of the underlying data, such as confirmation of certain data with a third party;
We tested digital assets received directly to the blockchain using our own node and the corresponding cash settlement using the third-party exchange data and the Company's bank statements;
We assessed the adequacy of the Company's disclosures in the consolidated financial statements about revenue from sale of digital assets earned.

Existence and rights and obligations of digital assets

As described in Note 3 to the consolidated financial statements, the Company holds digital assets, which are identifiable non-monetary assets without physical substance. We identified the existence and rights and obligations of the digital assets as a key audit matter.

Why the matter was determined to be a key audit matter

Digital assets are significant to our audit because the total balance as at December 31, 2024 is material to the consolidated financial statements and because of the complexities involved in auditing existence and rights and obligations of the digital assets recognized. Given these considerations, the related audit effort in evaluating management's judgments was extensive and required a high degree of auditor judgment.

How the matter was addressed in the audit

Our audit procedures related to the existence and rights and obligations of the digital assets included, among others, the following:

We assigned professionals with specialized skills in blockchain, digital assets and cryptography;
We tested the design and operating effectiveness of internal controls related to the existence and rights and obligations of digital assets, including customer key management by obtaining and evaluating the report attesting that those controls at the service organizations (custodian) are operating effectively;
We obtained confirmation on digital assets with a third party.

Information other than the consolidated financial statements and the auditor's report thereon

Management is responsible for the other information. The other information comprises the information included in Management's Discussion and Analysis.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We obtained Management's Discussion and Analysis prior to the date of this auditor's report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor's report. We have nothing to report in this regard.

Responsibilities of management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS Accounting Standards, and for such internal control as management determines is necessary to enable the

preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company's financial reporting process.

Auditor's responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control;
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management;
Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we

conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern;

Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation;
Plan and perform the group audit to obtain sufficient appropriate audit evidence regarding the financial information of the entities or business units within the group as a basis for forming an opinion on the group financial statements. We are responsible for the direction, supervision and review of the audit work performed for purposes of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are, therefore, the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor's report is Louis Roy.

Raymond Chobot Grant Thornton LLP

Montréal
April 29, 2025

1 CPA auditor, public accountancy permit no. A125741

SATO Technologies Corp.
Consolidated Statements of Financial Position
As at December 31, 2024 and 2023
(In Canadian dollars)

		December 31, 2024	December 31, 2023
		$	$
Assets
Current assets
Cash		658,488	583,151
Restricted cash	(Note 14)	58,673	431,607
Trades and other receivables	(Note 6)	726,883	2,876,331
Digital assets	(Note 7)	3,094,216	1,964,570
Prepaid expenses		301,823	109,238
		4,840,083	5,964,897
Non-current assets
Restricted cash	(Note 14)	31,639	1,182,143
Restricted digital assets	(Note 7)	1,462,648	280,160
Deposits	(Note 8)	432,486	432,486
Property and equipment	(Note 9)	9,228,790	11,367,676
Intangible assets	(Note 10)	-	219,326
Right-of-use assets	(Note 11)	2,013,361	2,237,069
Total assets		18,009,007	21,683,757
Liabilities
Current liabilities
Accounts payable and accrued liabilities	(Note 12)	916,072	1,110,175
Customer deposits	(Note 13)	-	2,316,677
Current portion of borrowings	(Note 14)	3,748,785	3,402,730
Current portion of lease liability	(Note 11)	283,874	307,711
		4,948,731	7,137,293
Non-current liabilities
Borrowings	(Note 14)	2,595,100	5,721,983
Lease liability	(Note 11)	2,125,308	2,204,070
Total liabilities		9,669,139	15,063,346
Shareholders' equity
Share capital	(Note 15)	14,643,659	14,430,320
Contributed surplus		3,713,716	3,665,926
Digital currency revaluation reserve		283,681	-
Accumulated deficit		(10,301,188)	(11,475,835)
Total shareholders' equity		8,339,868	6,620,411
Total liabilities and shareholders' equity		18,009,007	21,683,757

The accompanying notes are an integral part of these consolidated financial statements.

Approved on behalf of the Board:

"Romain Nouzareth"
Chair of the Board and CEO

"Frank DiTomaso"
Director

SATO Technologies Corp.

Consolidated Statements of Income and Comprehensive Income

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

		2024	2023
		$	$
Revenue
Digital assets earned	(Note 7)	16,053,612	10,843,066
Hosting		-	6,663,085
Other		43,611	54,505
		16,097,223	17,560,656
Cost of operations
Site operating costs		9,942,714	9,691,933
Salary and benefits		154,452	157,283
Depreciation and amortization	(Note 9 and 10)	2,953,057	2,540,121
		13,050,223	12,389,337
Gross profit		3,047,000	5,171,319
Gain on use of digital assets	(Note 7)	918,356	778,437
Unrealized gain on revaluation of digital assets	(Note 7)	1,613,542	519,008
		5,578,898	6,468,764
Expenses
Share based compensation	(Note 15)	176,997	899,020
General and administration	(Note 17)	3,156,166	3,417,227
		3,333,163	4,316,247
Operating income		2,245,735	2,152,517
Other charges (income)
Foreign exchange loss (gain)		79,797	42,764
Gain on disposal of property and equipment		-	(39,940)
Impairment of property and equipment	(Note 9)	16,102	-
Impairment of intangible assets	(Note 10)	83,144	-
Interest income		(63,236)	-
Loss on modification of long term loan		-	78,567
Unrealized foreign exchange loss (gain)		24,074	393,329
Finance expense	(Note 14)	1,033,486	901,301
		1,173,367	1,376,021
Income before income taxes		1,072,368	776,496
Deferred income tax recovery		102,279	-
Net Income		1,174,647	776,496
Other comprehensive income
Items that will not be reclassified to net income
Revaluation of digital asset, net of tax	(Note 7)	283,681	-
Total comprehensive income		1,458,328	776,496
Basic net income per share	(Note 16)	0.02	0.01
Diluted net income per share	(Note 16)	0.02	0.01

The accompanying notes are an integral part of these consolidated financial statements.

SATO Technologies Corp.

Consolidated Statements of Cash Flows

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

	2024	2023
	$	$
		(Restated –
		Note 4)
Operating activities
Net income	1,174,647	776,496
Change in non-cash operating items:
Digital assets earned	(16,053,612)	(10,843,066)
Digital assets used to pay for services	170,472	373,796
Digital assets given as donation	10,000	20,000
Gain on use of digital assets	(918,356)	(778,437)
Write-off of property and equipment	16,102	-
Impairment of intangible assets	83,144	-
Loss on modification of long term loan	-	78,567
Unrealized gain on revaluation of digital assets	(1,613,542)	(519,008)
Gain on disposal of property and equipment	-	(39,940)
Depreciation and amortization	2,953,057	2,540,121
Share-based compensation	176,997	899,020
Foreign exchange loss (gain)	(327,762)	-
Unrealized foreign exchange loss	-	393,329
Deferred income tax recovery	(102,279)	-
Interest on lease liabilities	283,306	293,057
Net cash used in operating activities (restated)	(14,147,826)	(6,806,065)
Change in working capital
Trades and other receivables	2,484,183	(1,172,781)
Prepaid expenses	(192,585)	73,847
Accounts payable and accrued liabilities	(165,531)	(616,235)
Deferred revenue and customer deposits	(1,935,290)	(161,909)
Total change in operating working capital (restated)	190,777	(1,877,078)
Net cash provided by operating activities (restated)	(13,957,049)	(8,683,143)
Investing activities
Change in restricted cash	1,390,699	(1,613,750)
Disposal of digital assets (restated)	16,481,220	10,494,027
Purchase of digital assets (restated)	(2,356)	(1,440)
Disposal of property and equipment	-	90,000
Purchase of property and equipment	(805,117)	(4,688,280)
Development of intangible assets	-	(46,863)
Net cash provided by investing activities (restated)	17,064,446	4,233,694
Financing activities
Repayment of long term loan	(3,322,471)	(2,085,688)
Issuance of long term loan, net of financing costs	-	7,032,672
Exercise of warrants and stock options	80,950	560
Exercise of compensation warrants	3,182	-
Issuance of shares and warrants	-	170,804
Proceeds from line of credit	831,843	-
Repayment of line of credit	(316,359)	-
Repayment of lease liabilities	(385,905)	(372,711)
Net cash provided by (used in) financing activities	(3,108,760)	4,745,637
Change in cash	(1,363)	296,188
Cash, beginning of period	583,151	359,387
Effect of exchange rate changes on cash	76,700	(72,424)
Cash, end of period	658,488	583,151
Interest paid	750,180	608,244

The accompanying notes are an integral part of these consolidated financial statements.

SATO Technologies Corp.

Consolidated Statements of Changes in Shareholders' Equity

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

	Common shares	Share capital	Contributed surplus	Digital asset revaluation reserve	Accumulated deficit	Total
		$	$	$	$	$
Balance as at December 31, 2023	72,589,465	14,430,320	3,665,926	-	(11,475,835)	6,620,411
Net income for the year	-	-	-	-	1,174,647	1,174,647
Revaluation of digital assets, net of tax	-	-	-	283,681	-	283,681
Common shares issued following the exercise compensation warrants	(Note 15)	318,218	61,351	(58,169)	-	3,182
Common shares issued following the exercise of stock options	(Note 15)	370,000	151,988	(71,038)	-	80,950
Stock-based compensation expense	(Note 15)	-	-	176,997	-	176,997
Balance as at December 31, 2024	73,277,683	14,643,659	3,713,716	283,681	(10,301,188)	8,339,868
Balance as at December 31, 2022	72,585,465	14,429,238	2,596,624	-	(12,252,331)	4,773,531
Net income for the year	-	-	-	-	776,496	776,496
Common shares issued following the exercise stock options	(Note 15)	4,000	1,082	(522)	-	560
Stock-based compensation expense	-	-	899,020	-	-	899,020
Issuance of warrants	(Note 15)	-	-	170,804	-	170,804
Balance as at December 31, 2023	72,589,465	14,430,320	3,665,926	-	(11,475,835)	6,620,411

The accompanying notes are an integral part of these consolidated financial statements.

SATO Technologies Corp.

Notes to Consolidated Financial Statements (Restated)

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

1. INCORPORATION, BUSINESS ACTIVITIES AND GOING CONCERN

SATO Technologies Corp. (the "Company" or "SATO") was incorporated under the Ontario Business Corporations Act on May 7, 2008 as Capricorn Business Acquisitions Inc. ("Capricorn"). The Company's shares are listed for trading on the TSX Venture Exchange ("TSXV") on September 16, 2021. The Group's head office is located at 66 Wellington Street West, Suite 5300, Toronto, Ontario M5K 1E6 and its only place of business is located at 289 Dugas Joliette, Québec, Canada, J6E 4H1.

The subsidiary Canada Computational Unlimited Inc. was incorporated under the Business Corporations Act of Québec on November 16, 2017. The Company carried on the business of Canada Computational Unlimited Inc. as a Tier 2 technology issuer under the symbol "SATO". SATO Corp., the Company's US based subsidiary was incorporated under the Delaware General Corporation Law on October 11, 2023.

The Company and its subsidiaries ("the Group") are in the business of utilizing specialized equipment to solve complex computational problems to validate transactions on the bitcoin blockchain. The Group receives digital assets in return for computing power and is primarily engaged in the cryptocurrency mining industry, a highly volatile market with significant inherent risk. A significant decline in the market prices of cryptocurrencies, an increase in the difficulty of cryptocurrency mining, changes in the regulatory environment and adverse changes in other inherent risks can significantly and negatively impact the Group's operations. In addition, adverse changes to the factors mentioned above may impact the carrying value of the Group's property and equipment resulting in impairment charges being recorded. All the assets of the Group are located in Joliette, Quebec, Canada and there is one operating segment being provider of compute power for Bitcoin Mining.

Going Concern

As at December 31, 2024, the Group had an accumulated deficit of $10,301,188 as at December 31, 2024 and $11,475,835 as at December 31, 2023. Net income for the year ended December 31, 2024 was $1,174,647 and net income for the year ended December 31, 2023, was $776,496. The Group had a working capital deficiency of $108,648 as at December 31, 2024 and a working capital deficiency of $1,172,396 as at December 31, 2023. These conditions raise material uncertainties which may cast significant doubt as to whether the Group will be able to continue as a going concern.

The cryptocurrency mining industry is subject to halving events, which are pre-determined and scheduled occurrences that reduce the reward for mining transactions by half. The halving event occurred on April 19th, 2024. This event has had an impact on the Group's revenues. These conditions indicate the existence of material uncertainties that may cast significant doubt on the Group's ability to continue as a going concern.

In assessing the Group's ability to continue as a going concern, management has made significant judgments and estimates. These include projections of digital assets prices, the impact of the halving event on the Group's revenues, the exchange rate and the effectiveness of the mitigation actions mentioned below. These judgments are subject to a high degree of inherent uncertainty, given the volatile nature of the cryptocurrency market and regulatory environment.

These consolidated financial statements have been prepared on a going concern basis, which presumes realization of assets and discharge of liabilities in the normal course of business for the foreseeable future. The Group's ability to continue as a going concern depends on its ability to generate sufficient cash resources to meet its obligations for at least twelve months from the end of the reporting period.

Management has implemented in the past a series of measures to address this concern and will continue to do so if required in order to improve the Group's financial position, including:

Cost review initiatives: the Group has undertaken a comprehensive review of its cost structure and would implement possible measures to reduce its cost of operations and general and administration expenses.

SATO Technologies Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

INCORPORATION, BUSINESS ACTIVITIES AND GOING CONCERN (continued)
Equity financing: Management regularly monitors capital markets and considers opportunities presented to it for equity offerings, and believes, based on these offers and recent activity among other companies in the industry, that there are reasonable prospects for obtaining equity financing.

As a result, these consolidated financial statements do not include adjustments to the amounts and classification of assets and liabilities that might be necessary should the Group be unable to continue a going concern. Such adjustments could be material.

STATEMENT OF COMPLIANCE AND BASIS OF PRESENTATION

Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (hereafter "IFRS Accounting Standards") issued effective for the Group's reporting for the year ended December 31, 2024.

These financial statements of the Group were reviewed, approved and authorized for issue by the Board of Directors on April 29, 2025.

Basis of presentation

These consolidated financial statements have been prepared on an accrual basis and under the historical cost basis, except for some financial instruments and some assets that have been measured at fair value.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries, Canada Computational Unlimited Inc. and SATO Corp.

A subsidiary is an entity which the Group has control. The Group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is acquired and de-consolidated from the date that control ceases.

The financial statements of the subsidiaries are prepared for the same reporting year as the Group, using consistent accounting policies. All intercompany transactions and balances are eliminated upon consolidation.

MATERIAL ACCOUNTING POLICIES

Functional currency

These consolidated financial statements are presented in Canadian dollars, which is also the functional currency of the Group because it represents its primary economic environment in which it operates.

Foreign currency translation

Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at exchange rates in effect at the reporting date. Non-monetary assets and liabilities are translated at historical exchange rates at the respective transaction dates. Revenue and expenses are translated at the rate of exchange at each transaction date. Gains or losses on translation are included in foreign exchange in profit and loss.

Revenue recognition

The Group records revenue from contracts with customers in accordance with IFRS 15, Revenue from Contracts with Customers ("IFRS 15"). The core principle of this standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:

SATO Technologies Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

3. MATERIAL ACCOUNTING POLICIES (continued)

Step 1 - Identifying the contract with and its customer;
Step 2 - Identifying the performance obligations in the contract;
Step 3 - Determining the transaction price, which is the total consideration provided by the customer;
Step 4 - Allocating the transaction price among the performance obligations in the contract based on their relative fair values; and
Step 5 - Recognizing revenue when (or as) the Group satisfies a performance obligation.

Digital assets earned

The Group has entered into arrangements, as amended from time to time, with mining pools operators and has undertaken the performance obligation of performing hash computations (i.e., hashrate) to the mining pools in exchange for non-cash consideration in the form of digital assets. The provision of computing power to mining pools is an output of the Group's ordinary activities. The Group has the right to decide the point in time and duration for which it will provide hash computation services to the mining pools. As a result, the Company's enforceable right to compensation only begins when, and continues as long as, the Company provides computing power to the mining pool operator. The contracts are terminable at any time by either party without substantive compensation to the other party for such termination. Upon termination, the mining pool operator (i.e., the customer) is required to pay the Group any amount due related to previously satisfied performance obligations. Therefore, the Group has determined that the duration of the contract is less than 24 hours and that the contract continuously renews throughout the day. The Company has determined that this renewal right is not a material right as the terms, conditions, and compensation amounts are at then market rates. There is no significant financing component in these transactions.

In exchange for providing computing power, which represents the Group's only performance obligation, the Group is entitled to non-cash consideration in the form of digital assets, calculated under a payout methods, depending on the mining pool. The payout method used by the mining pools in which the Group participated are the Full Pay Per Share ("FPPS"). This payout methods contain three components, (1) a fractional share of the fixed cryptocurrency award from the mining pool operator (referred to as a "block reward"), (2) transaction fees generated from (paid by) blockchain users to execute transactions and distributed (paid out) to individual miners by the mining pool operator, and (3) mining pool operating fees retained by the mining pool operator for operating the mining pool. The Company's total compensation is the sum of the Company's share of (1) block rewards and (2) transaction fees, less (3) mining pool operating fees:

(1) Block rewards earned by the Group are calculated by the mining pool operator based on the proportion of hashrate the Group contributed to the mining pool to the total network hashrate used in solving the current algorithm. The Group is entitled to its relative share of consideration even if a block is not successfully added to the blockchain by the mining pool.
(2) Transaction fees refer to the total fees paid by users of the network to execute transactions. Under FPPS, the Company is entitled to a pro-rata share of the total network transaction fees. The transaction fees paid out by the mining pool operator to the Group is based on the proportion of hashrate the Group contributed to the mining pool to the total network hashrate. The Group is entitled to its relative share of consideration even if a block is not successfully added to the blockchain by the mining pool.
(3) Mining pool operating fees are charged by the mining pool operator for operating the mining pool as set forth in a rate schedule to the mining pool contract. The mining pool operating fees reduce the total amount of compensation the Group receives and are only incurred to the extent that the Group has generated mining revenue pursuant to the mining pool operators' payout calculation.

SATO Technologies Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

3. MATERIAL ACCOUNTING POLICIES (continued)

Because the consideration to which the Group expects to be entitled for providing computing power is entirely variable (block rewards, transaction fees and pool operating fees), as well as being non-cash consideration, the Group assesses the estimated amount of the variable non-cash consideration to which it expects to be entitled for providing computing power at contract inception and subsequently, to determine when and to what extent it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur once the uncertainty associated with the variable consideration is subsequently resolved. For each contract under the FPPS payout method, the Company recognizes the non-cash consideration on the same day that control of the contracted service transfers to the mining pool operator, which is the same day as the contract inception. The Group measures non-cash consideration at the cryptocurrency closing price of the day on the date of contract inception, as determined by the Company's principal market, which is Coinbase Prime.

Management considers the prices quoted on Coinbase Prime to be a Level 1 input under IFRS 13, Fair Value Measurement ("IFRS 13"). Any difference between the fair value of digital assets recorded upon receipt from selling hashrate activities and the actual realized price upon disposal are recorded as a gain or loss on disposition of digital assets.

Hosting

The Group provided hosting services during the year ended December 31, 2023. The Group did not provide hosting services during the year ended December 31, 2024. The Group's hosting contracts were service contracts that contain a single performance obligation. The service the Group provided included the provision of mining equipment, energized space typically includes monitoring and various maintenance levels for the mining equipment.

Hosting revenue was recognized over time as the customer simultaneously receives and consumes the benefits of the Group's performance. The Group recognized hosting revenue to the extent that a significant reversal of such revenue will not occur. All consideration to which the Group is entitled under its hosting services agreements is in the form of cash. Customer contracts can include advance payment terms in the form of monthly prepayments and/or upfront payments at contract inception. Advance payments were recorded as deferred revenue and recognized over time (generally, the month of hosting service to which they relate) as the customer simultaneously receives and consumes the benefits of the Group's performance.

The Group's hosting contracts contained service level agreement clauses, which guarantee a certain percentage of time the power will be available to its customer. In the rare case that the Group may incur penalties under these clauses, the Company recognizes the payment as variable consideration and a reduction of the transaction price and, therefore, of revenue, when not in exchange for a good or service from the customer.

Digital assets

Digital assets consist of Bitcoin and other cryptocurrencies. Digital assets meet the definition of intangible assets in IAS 38 Intangible Assets as they are identifiable non-monetary assets without physical substance. They are initially recorded at cost and the revaluation method is used to measure the digital assets subsequently. Where digital assets are recognized as revenue, the fair value of the digital asset received is considered to be the cost of the digital assets. Under the revaluation method, increases in fair value are recorded in other comprehensive income, while decreases are recorded in profit or loss. The Group revalues its digital assets at the end of each quarter. There is no recycling of gains from other comprehensive income to profit or loss. However, to the extent that an increase in fair value reverses a previous decrease in fair value that has been recorded in profit or loss, that increase is recorded in profit or loss. Decreases in fair value that reverse gains previously recorded in other comprehensive income are recorded in other comprehensive income. Gains and losses on digital assets sold between revaluation dates are included in profit or loss.

Digital assets are measured at fair value using the quoted price on Coinbase Prime. The Group has determined Coinbase Prime as the most advantageous market due to its liquidity, market accessibility, and competitive transaction fees, as no principal market has been identified for the digital assets. The most advantageous market is defined as the market that maximizes the net proceeds from selling the asset, after considering transaction costs. Management considers this fair value measurement to be a Level 1 input under IFRS 13, as Coinbase Prime provides quoted prices directly observable in active markets for identical digital assets without adjustments.

SATO Technologies Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

3. MATERIAL ACCOUNTING POLICIES (continued)

Non-monetary transactions

Where the Group is settling with digital assets, a liability for the purchase of goods and services where the price was established in a quantity of digital assets, the difference between the liability's initial fair value of the quantity of digital assets settled and the fair value of the digital assets transferred is recognized as a gain or loss on settlement.

Restricted cash

Escrow deposits held for a long-term loan, intended for pending acquisitions and future expenditures, are classified as restricted cash. These funds are segregated on the financial position from other cash, reflecting their restricted nature due to specific release conditions outlined in the loan agreement.

Property and equipment

Details as to the Group's policies for property and equipment are as follows:

Asset	Depreciation method	Depreciation % or period
Miners	Declining	33% - 55%
Computer equipment	Declining	55%
Industrial equipment	Straight-line	10 years
Small equipment	Declining	20%
Leasehold improvement	Straight-line	10 years

Property and equipment are recorded at cost less accumulated depreciation. Cost includes all expenditures incurred to bring assets to the location and condition necessary for them to be operated in the manner intended by management. Material residual value estimates and estimates of useful life are updated as required, but at least annually.

Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item can be measured reliably. The carrying amount of any replaced parts is derecognized. All other repairs and maintenance are charged to profit or loss during the fiscal year in which they are incurred. Gains and losses on disposal are determined by comparing the proceeds with the carrying amount and are recognized in profit or loss.

Intangible assets

Details as to the Group's policies for intangible assets are as follows:

Asset	Amortization method	Amortization % or period
Applications and Software	Straight-line	2 years

Costs that are directly attributable to a project's development phase are recognized as intangible assets, provided they meet all of the recognition requirements.

Development costs not meeting the criteria for capitalisation are expensed as incurred.

All finite-lived intangible assets are accounted for using the cost model whereby capitalized costs are amortized on a straight-line basis over their useful lives. Residual values and useful lives are reviewed at each reporting date.

When an intangible asset is disposed of, the gain or loss on disposal is determined as the difference between the proceeds and the carrying amount of the asset and is recognized in profit or loss.

Impairment of non-financial assets

The Group evaluates the need to record an impairment of non-financial assets whenever events or changes in circumstances indicate that the carrying amount is not recoverable. If the carrying amount of non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount. The recoverable amount is the higher of fair value less costs of sale and value in use. In measuring value in use, the expected future cash flows are discounted using a pre-tax discount rate that reflects the risks specific to the asset. The recoverable amount of an asset that does not generate independent cash flows is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognized in profit or loss.

SATO Technologies Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

3. MATERIAL ACCOUNTING POLICIES (continued)

An impairment loss of an asset is reversed only if there have been changes in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized. Reversal of an impairment loss, as above, shall not be increased above the lower of the carrying amount that would have been determined (net of depreciation or amortization) had no impairment loss been recognized for the asset in prior years and its recoverable amount. The reversal of impairment loss of an asset presented at cost is recognized in profit or loss.

Leases and right-of-use assets

All leases are accounted for by recognizing a right-of-use asset and a lease liability.

Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the use of the discount rate determined by the incremental borrowing rate on commencement of the lease. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate.

On initial recognition, the carrying value of the lease liability also includes:

Amounts expected to be payable under any residual value guarantee;
The exercise price of any purchase option granted if it is reasonably certain to assess that option; and
Any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised.

Right-of-use assets are initially measured at cost, which includes the initial amount of the lease liability, reduced for any lease incentives received, and increased for:

Lease payments made at or before commencement of the lease;
Initial direct costs incurred; and
The amount of any provision recognized where the Group is contractually required to dismantle, remove or restore the leased asset.

Lease liabilities, on initial measurement, increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made.

Right-of-use assets are amortized on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if this is judged to be shorter than the lease term.

When the Group revises its estimate of the term of any lease, it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted at the same discount rate that applied on lease commencement. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortized over the remaining (revised) lease term or recorded in profit or loss if the right-of-use asset is reduced to zero.

Share-based compensation payments

Share-based compensation to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date.

SATO Technologies Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

3. MATERIAL ACCOUNTING POLICIES (continued)

The Group has granted share-based compensation awards which vest in installments. Such arrangements are accounted for separately. The fair value of the options granted is measured using the Black-Scholes option-pricing model, taking into account the terms and conditions upon which the options were granted. At each reporting date, the amount recognized as an expense is adjusted to reflect the actual number of share options that are expected to vest. Compensation expense is recognized over the vesting period, with a corresponding increase in contributed surplus. If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognized in the current year. No adjustment is made to any expense recognized in previous years if share options ultimately exercised are different to that estimated on vesting. Any consideration paid by plan participants on the exercise of share options is credited to share capital and the corresponding share-based compensation that was previously included in contributed surplus.

Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.

Financial instruments

Financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. The primary measurement categories for financial assets are measured at amortized cost, fair value through other comprehensive income ("FVTOCI") and fair value through profit and loss ("FVTPL").

Financial assets

Financial assets are classified as either financial assets at FVTPL, amortized cost, or FVTOCI. The Group determines the classification of its financial assets at initial recognition. The Group does not have any financial assets categorized as FVTOCI or FVTPL. Financial assets are classified as measured at amortized cost if both of the following criteria are met:

the object of the Group's business model for these financial assets is to collect their contractual cash flows; and
the asset's contractual cash flows represent "solely payments of principal and interest".

After initial recognition, these are measured at amortized cost using the effective interest rate method. Discounting is omitted where the effect of discounting is immaterial. The Group's cash, restricted cash and amount receivable are classified as financial assets and measured at amortized cost.

Revenues from these financial assets are recognized in financial revenues, if any.

Financial liabilities

Financial liabilities are initially and subsequently measured at amortized cost using the effective interest rate method.

The Group's accounts payable and accrued liabilities (excluding salaries and vacation payable), customer deposits, borrowings and line of credit are classified as measured at amortized cost.

SATO Technologies Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

3. MATERIAL ACCOUNTING POLICIES (continued)

Derecognition

The Group derecognizes financial liabilities only when its obligations under the financial liabilities are discharged, canceled, or expired. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss. Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred.

Expected Credit Loss Impairment Model

The Group uses the single expected credit loss impairment model, which is based on changes in credit quality since initial application.

The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due. The Group considers a financial asset to be in default when the borrower is unlikely to pay its credit obligations to the Group in full or when the financial asset is more than 90 days past due.

The carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off.

Fair Value

Financial instruments and non-financial assets recorded at fair value on the statements of financial position are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.

The fair value hierarchy has the following levels:

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. prices) or indirectly (i.e. derived from prices); and
Level 3 – inputs for the assets or liability that are not based on observable market data (unobservable inputs).

Provisions

Provisions are recognized when the Group has a legal or constructive obligation, as a result of past events, for which it is possible that an outflow of economic benefits will result, and that outflow can be reliably measured. The amount recognized as a provision is the best estimate of the expenditure required to settle the present obligation at the end of the reporting year. As at December 31, 2024 and 2023, there are no provisions recorded.

Share capital and equity

Share capital represents the amount received on the issue of shares, less issuance costs, net of any underlying income tax benefit from these issuance costs. When warrants are issued in connection with shares, the Group uses the residual method for allocating fair value to the shares and then to warrants.

Contributed surplus includes the value of warrants and stock options. When warrants and stock options are exercised, the related compensation cost and value are transferred to share capital.

Deficit includes all current and prior year losses.

Basic and Diluted Income per Share

Basic income per share is calculated by dividing net income for the year attributable to equity owners of the Group by the weighted average number of common shares outstanding during the year (Note 16).

Diluted income per share is calculated by adjusting the weighted average number of common shares outstanding for dilutive instruments. The number of shares included for options and similar instruments is computed assuming that if all dilutive securities had been exercised at the later of the beginning of the year and the date of issuance, the proceeds would be used to purchase common shares at the average market value during the year.

SATO Technologies Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

3. MATERIAL ACCOUNTING POLICIES (continued)

Income taxes

The Group applies the liability method of accounting for income taxes. Current tax expense is recognized based on the expected tax payable on the taxable income for the year, using the enacted tax rate at period end, adjusted for any amendments with regards to previous years.

Deferred income tax assets and liabilities are recognized for the future income tax consequences of temporary differences between the carrying amounts of assets and liabilities and their respective tax bases, and for tax losses carried forward. Deferred income tax assets and liabilities are measured using the substantively enacted tax rates that will be in effect for the year in which the differences are expected to reverse.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profits will be available against which the underlying tax loss or deductible temporary differences can be utilized. Deferred tax liabilities are always recognized in full. Deferred tax assets and liabilities are offset only when the Group has a right and intention to set off current tax assets and liabilities from the same taxation authority.

Changes in deferred tax assets and liabilities are recognized as a component of tax income or expense in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case the related deferred tax is also recognized in other comprehensive income or equity, respectively.

The Group has earned bitcoin from the commercial activity of digital assets mining by using pools. The Group has followed the published Canada Revenue Agency ("CRA") view that Bitcoin is a commodity and inventory of the business, the value of which is included in the calculation of taxable income from the business. Digital assets are valued in accordance with Section 10 of the Income Tax Act. Revenue from bitcoin mining is included in taxable income when the bitcoin is earned from the pools. There is uncertainty regarding the taxation of cryptocurrency and the CRA may assess the Group differently from the position adopted. This could result in additional current taxes payable with equal offset to deferred tax expense.

Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Group

At the date of authorization of these consolidated financial statements, several new, but not yet effective, standards and amendments to existing standards, and interpretations have been published by the International Accounting Standards Board ("IASB"). None of these standards or amendments to existing standards have been adopted early by the Group. Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the pronouncement. New standards, amendments and interpretations not adopted in the current year have not been disclosed as they are not expected to have a material impact on the Group's consolidated financial statements except for the following:

IFRS 18 Presentation and Disclosure in the Financial Statements

In April 2024, the IASB issued IFRS 18, which replaced IAS 1 Presentation of Financial Statements. Although IFRS 18 includes many of the requirements of IAS 1, it introduces new requirements to better structure financial statements and provides more detailed and useful information to investors, including:

two new subtotals defined in the statement of profit or loss, namely (1) operating profit and (2) profit or loss before financing and income taxes;
the classification of all income and expenses within the statement of profit or loss in one of five categories;
a new requirement to disclose performance measures defined by management;
an improvement in the principles related to the aggregation and disaggregation of information in the financial statements and accompanying notes.

SATO Technologies Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

3. MATERIAL ACCOUNTING POLICIES (continued)

The publication of IFRS 18 results also in consequential amendments to other IFRS standards, including IAS 7 Statement of Cash Flows.

IFRS 18 is effective for annual periods beginning on or after 1 January 2027, with earlier application permitted. IFRS 18 will apply retrospectively with specific transitional provisions.

The Group is currently working to identify all impacts that the amendments will have on the primary financial statements and notes to the financial statements.

Critical accounting judgements, estimates and assumptions

The preparation of these consolidated financial statements in conformity with IFRS Accounting standards requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of expenses during the reporting year. Actual outcomes could differ from these estimates. These consolidated financial statements include estimates that, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the consolidated financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the year in which the estimate is revised and future years if the revision affects both current and future years. These estimates are based on historical experience, current and future economic conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Critical accounting judgements

The following are the judgments made by management in applying the accounting policies of the Group that have the most significant effect on these consolidated financial statements.

Income from digital assets earned

The Group recognizes income from the sale of compute power produced to provide transaction verification services within digital asset networks, commonly termed cryptocurrency mining. As consideration for these services, the Group earns digital assets from each specific network in which it participates. Income from the sale of compute power is measured based on the fair value of the digital assets received. The fair value is determined using the closing price of the digital assets on the date of receipt. The digital assets are recorded on the statement of financial position, as digital assets, at their fair value less costs to sell and re-measured at each reporting date. Revaluation gains or losses, as well as gains or losses on the sale of digital assets for traditional (flat) currencies are included in profit or loss.

There is currently no specific definitive guidance in IFRS or alternative accounting frameworks for the accounting for the mining and strategic selling of digital assets and management has exercised significant judgement in determining appropriate accounting treatment for the recognition of income from digital assets mining for mining of digital assets. Management has examined various factors surrounding the substance of the Group's operations, including the stage of completion being the completion and addition of a block to a blockchain and the reliability of the measurement of the digital assets received.

Going concern

The assessment of the Group's ability to continue as a going concern involves judgment regarding future funding available for its operations and working capital requirements as discussed in Note 1.

Leases - Incremental borrowing rate

Judgment is applied when determining the incremental borrowing rate used to measure the lease liability of each lease contract, including an estimate of the asset-specific security impact. The incremental borrowing rate should reflect the interest rate the Group would pay to borrow at a similar term and with similar security.

SATO Technologies Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

3. MATERIAL ACCOUNTING POLICIES (continued)

Income, valued added, withholding and other taxes

The Group is subject to income, value added, withholding and other taxes. Significant judgment is required in determining the Group's provisions for taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. The determination of the Group's income, value added, withholding and other tax liabilities requires interpretation of complex laws and regulations. The Group's interpretation of taxation law as applied to transactions and activities may not coincide with the interpretation of the tax authorities. All tax related filings are subject to government audit and potential reassessment subsequent to the consolidated financial statement reporting period. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the tax related accruals and deferred income tax provisions in the year in which such determination is made.

Critical accounting estimates and assumptions

Information about estimates and assumptions that may have the most significant effect on recognition and measurement of assets, liabilities, income, and expenses is provided below. Actual results may be substantially different.

Useful lives of property and equipment

Depreciation of data miners and equipment are an estimate of its expected life. In order to determine the useful life of computing equipment, assumptions are required about a range of computing industry market and economic factors, including required hashrates, technological changes, availability of hardware and other inputs, and production costs.

Useful lives of intangible assets

Amortization of applications and software are an estimate of its expected life. In order to determine the useful life, assumptions are required about a range of industry market and economic factors, including technological changes and other inputs.

Digital asset valuation

Digital assets consist of cryptocurrency denominated assets (Note 7) and are included in current assets. Digital assets are carried at their fair value determined by the spot rate less costs to sell. The digital asset market is still a new market and is highly volatile; historical prices are not necessarily indicative of future value; a significant change in the market prices for digital assets would have a significant impact on the Group's earnings and financial position.

Stock compensation and warrant valuation

The Group uses the Black-Scholes method to determine the fair value of the stock compensation and warrants that are not publicly traded. The Black-Scholes method requires significant assumptions in determining the fair value such as volatility and a risk-free rate of return. A change in these inputs could lead to significant change in the fair value. The Group uses the publicly listed prices to determine the fair value of the stock compensation and warrants.

Impairment of non-financial assets

Impairment of miners was estimated based on the recoverable amount of mining equipment based on current market prices and hash rate power per miner type. Hash rate power refers to the computational power of the mining equipment, which directly affects the mining efficiency and potential revenue generation. As the market prices for mining equipment and hash rate power can vary significantly over time, these factors are considered in estimating the recoverable amount of the assets. The current market prices for mining equipment are obtained from various sources, including manufacturers, distributors, and marketplaces for used equipment. Management reviews and compares these prices regularly to ensure the accuracy and relevance of the data.

SATO Technologies Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

4. RESTATEMENT OF STATEMENT OF CASH FLOWS

The consolidated statement of cash flows have been restated to reclassify the cash proceeds from the sale of digital assets and the cash disbursements related to their acquisition, which are accounted for as intangible assets under IAS 38, from cash flows from operations to cash flows from investing activities.

Originally, the Company classified the proceeds from sale and purchase of digital assets in the consolidated statements of cash flows as operating activities on the basis that its core business and main activities are related to digital assets.

The effects of the restatement on the affected financial statement line items are as follows:

Adjustments to consolidated statements of cash flows for the year ended December 31, 2023 - Restatement

	Year ended December 31
	2023 (as reported)	Adjustments	2023 (as restated)
Operating activities
Net income	776,496	-	776,496
Change in non-cash operating items:
Digital assets purchase	(1,440)	1,440	-
Net cash used in operating activities	(6,807,505)	1,440	(6,806,065)
Change in working capital
Digital assets	10,494,027	(10,494,027)	-
Total change in operating working capital	8,616,949	(10,494,027)	(1,877,078)
Net cash provided by (used in) operating activities	1,809,444	(10,492,587)	(8,683,143)
Investing activities
Disposal of digital assets	-	10,494,027	10,494,027
Purchase of digital assets	-	(1,440)	(1,440)
Net cash provided by (used in) investing activities	(6,258,893)	10,492,587	4,233,694

5. CHANGES IN ESTIMATE

During the year ended December 31, 2023, the management has reviewed its fair value estimate of non-cash consideration received used in revenue recognition for revenues from the sale of compute power, and its fair value estimate of digital assets used in the revaluation method of digital assets; specifically, the management has adopted the use of Level 1 Fair value (IFRS 13) estimates sourced from Coinbase Prime. Previously, the management used Level 2 Fair value (IFRS 13) estimates sourced from Google Finance. The result is a change in estimate and applied prospectively.

6. TRADES AND RECEIVABLES

	December 31, 2024	December 31, 2023
	$	$
Sales taxes receivable (i)	218,951	2,539,461
Import taxes receivable (Note 13) (ii)	-	1,171,519
Amount receivable (ii)	507,932	-
Provision for taxes receivables (i)	-	(834,649)
Total trades and other receivable	726,883	2,876,331

SATO Technologies Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

6. TRADES AND RECEIVABLES (continued)

(i) During the year ended December 31, 2023, the Group assessed that certain sales tax receivables related to Goods and Services Tax (GST) and Québec Sales Tax (QST) may not be recoverable. As a result, a provision of $834,649 was recorded as at December 31, 2023.

This assessment followed a Confirmation of Audit received on December 14, 2022, from Revenu Québec, requesting documentation regarding the Group's treatment of commodity taxes. On October 18, 2023, the Group received a draft notice of assessment, which was based on Revenu Québec's interpretation of Article 188(2), introduced through Canada Revenue Agency's Notice 324 concerning numerical services. According to this guidance, crypto mining entities operating in Canada were not correctly claiming input tax credits (ITCs) and input tax refunds (ITRs).

The Company received the final determination from Revenu Québec in 2024. As at December 31, 2024, the Company has adjusted the carrying amount of the sales tax receivables and removed any balances determined to be uncollectible, along with the reversal of the provision previously recorded.

(ii) During the year ended December 31, 2022, the Group imported mining equipment on behalf of a non-resident client for use in commercial operations in Canada. As at December 31, 2023, the Group had recognized a receivable of $1,171,519 for the import taxes paid, as well as a corresponding customer deposit of $1,171,519 (refer to Note 13), reflecting the obligation to refund the client if the import taxes were recovered from the Canadian tax authorities.

In 2024, Revenu Québec denied the refund claim, and as a result, the Group derecognized both the receivable and the related customer deposit as at December 31, 2024.

In addition, the Group's client continues to owe the Group uncollected GST and QST related to services provided between December 1, 2019 and July 31, 2023. These amounts represent an excess over the customer deposit initially received, and remain outstanding as at December 31, 2024.

7. DIGITAL ASSETS

The Group's holdings of digital assets consist of the following:

	For the year ended December 31, 2024
	$	Number of Bitcoin	$	Number of Other Digital assets	Total $
Balance, beginning of year	2,241,280	40	3,450	1	2,244,730
Digital assets earned	16,053,612	190	-	-	16,053,612
Digital assets purchased	-	-	2,356	0.50	2,356
Digital assets traded for cash	(16,481,220)	(194)	-	-	(16,481,220)
Digital assets used to pay for services	(170,348)	(2)	(124)	(0.03)	(170,472)
Digital assets given as a donation	(10,000)	(0.12)	-	-	(10,000)
Gain on use of digital assets	918,356	-	-	-	918,356
Unrealized gain on revaluation of digital assets	1,999,815	-	(313)	-	1,999,502
Balance, end of period	4,551,495	34	5,369	1	4,556,864

SATO Technologies Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

7. DIGITAL ASSETS (continued)

For the year ended December 31, 2023

	$	Number of Bitcoin	$	Number of Other Digital assets	Total $
Balance, beginning of year	986,876	44	3,726	2	990,602
Digital assets earned	10,843,066	260	-	-	10,843,066
Digital assets purchased	-	-	1,440	-	1,440
Digital assets traded for cash	(10,493,236)	(257)	(791)	(1)	(10,494,027)
Digital assets used to pay for services	(373,543)	(7)	(253)	-	(373,796)
Digital assets given as a donation	(20,000)	-	-	-	(20,000)
Gain on use of digital assets	778,903	-	(466)	-	778,437
Unrealized gain on revaluation of digital assets	519,214	-	(206)	-	519,008
Balance, end of year	2,241,280	40	3,450	1	2,244,730

Digital assets held are reevaluated each reporting period based on the fair market value for the price of Bitcoin and Ethereum on the reporting period date. As of December 31, 2024, the price of Bitcoin was $132,968 ($US 92,383) (December 31, 2023 - $56,741 ($US 42,771)) and the price of Ethereum was $4,791 ($US 3,330) (December 31, 2023 - $3,450 ($US 2,300)).

For the year ended December 31, 2024, the Company recognized an unrealized revaluation gain of $1,999,502 on digital assets measured under the revaluation model. Of this amount, $1,613,542 was recognized in net income, to the extent that it reverses revaluation losses previously recognized in profit or loss. The remaining $385,960 was recognized in other comprehensive income, net of income taxes of $102,279, resulting in a net OCI gain of $283,681.

For the year ended December 31, 2023, the Company recognized an unrealized revaluation gain of $519,008, which was entirely recognized in net income, as it related to the reversal of revaluation losses previously recognized in profit or loss.

As at December 31, 2024, the Group had pledged 8 BTC (fair value: $1,063,744) as collateral for a long-term loan, compared to 5 BTC (fair value: $280,160) as at December 31, 2023. These digital assets are subject to contractual restrictions and cannot be transferred, sold, or otherwise used by the Group while the loan remains outstanding. Further details are provided in Note 14.

As at December 31, 2024, the Group had pledged 3 BTC (fair value: $398,904) as collateral for a revolving line of credit agreement, compared to 0 BTC (fair value: $Nil) as at December 31, 2023. These digital assets are subject to contractual restrictions and cannot be transferred, sold, or otherwise used by the Group while the loan remains outstanding. Further details are provided in Note 14.

The Bitcoin Halving took place on April 19, 2024. Following each Halving, the block reward for miners was reduced from 6.25 BTC to 3.125 BTC.

8. DEPOSITS

	December 31, 2024	December 31, 2023
	$	$
Deposits related to electricity supply under Electricity Supply Agreement (i)	417,486	417,486
Other deposits	15,000	15,000
Total non-current deposits	432,486	432,486

(i) Security deposit for current electricity usage.

SATO Technologies Corp.

Notes to Consolidated Financial Statements (Restated)

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

PROPERTY AND EQUIPMENT

	Miners	Computer Equipment	Industrial Equipment	Leasehold Improvement	Small Equipment	In Construction - Industrial Equipment	Total
Cost	$	$	$	$	$	$	$
Balance - December 31, 2022	4,916,103	252,109	6,328,413	715,014	43,694	483,530	12,738,863
Additions	4,499,410	-	22,810	-	-	-	4,522,220
Disposal	-	-	-	-	-	(50,060)	(50,060)
Write-off	(666,502)	-	-	-	-	-	(666,502)
Balance - December 31, 2023	8,749,011	252,109	6,351,223	715,014	43,694	433,470	16,544,521
Additions	641,751	8,975	154,391	-	-	-	805,117
Write-off (i)	(1,509,015)	-	(378,455)	-	-	-	(1,887,470)
Balance - December 31, 2024	7,881,747	261,084	6,127,159	715,014	43,694	433,470	15,462,168
Accumulated depreciation
Balance - December 31, 2022	2,695,949	232,760	570,501	99,097	20,182	-	3,618,489
Depreciation	1,504,031	10,642	633,982	71,501	4,702	-	2,224,858
Write-off	(666,502)	-	-	-	-	-	(666,502)
Balance - December 31, 2023	3,533,478	243,402	1,204,483	170,598	24,884	-	5,176,845
Depreciation	1,874,185	4,789	638,929	71,501	3,762	-	2,593,166
Write-off (i)	(1,238,150)	-	(298,483)	-	-	-	(1,536,633)
Balance - December 31, 2024	4,169,513	248,191	1,544,929	242,099	28,646	-	6,233,378
Net carrying value	$	$	$	$	$	$	$
As at December 31, 2023	5,215,533	8,707	5,146,740	544,416	18,810	433,470	11,367,676
As at December 31, 2024	3,712,234	12,893	4,582,230	472,915	15,048	433,470	9,228,790

(i) During the reporting period, various equipment was damaged by a fire in the Company's Centre One facility. The Company, in conjunction with its insurance provider, assessed the extent of the cost and the potential for recovery, and determined that equipment with a net book value of $350,836 was impaired. During the year ended December 31, 2024, the Company received insurance proceeds for the damaged equipment of $334,735. As at December 31, 2024, the Company had recorded a write-off of $16,102 for the damaged equipment.

SATO Technologies Corp.

Notes to Consolidated Financial Statements (Restated)

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

10. INTANGIBLE ASSETS

	Total
	$
Cost
Balance - December 31, 2022	319,115
Additions - internally developed	46,863
Balance - December 31, 2023	365,978
Impairment	(365,978)
Balance - December 31, 2024	-
Accumulated depreciation
Balance - December 31, 2022	55,097
Amortization	91,555
Balance - December 31, 2023	146,652
Amortization	136,182
Impairment	(282,834)
Balance - December 31, 2024	-
Net carrying value	$
As at December 31, 2023	219,326
As at December 31, 2024	-

During the year ended December 31, 2024, the Company recorded an impairment of intangible assets in the amount of $83,144. The events and circumstances that led to the recognition of the impairment loss included a decrease in forecasted revenues from the assets, and material uncertainties regarding the utilization of the assets. The recoverable amount of the assets were determined to be $0.

11. LEASES

The Group leases facilities. The lease has an initial term of 5 years and a renewal option after that date. The lease does not specify any restrictions and the leased property cannot be used to secure loans. The right-of-use assets and lease liabilities recognized by the Group relates to facilities.

Right-of-use assets	December 31, 2024	December 31, 2023
	$	$
Balance as at January 1st	2,237,069	2,460,777
Depreciation	(223,708)	(223,708)
Balance	2,013,361	2,237,069
	December 31, 2024	December 31, 2023
Lease liability	$	$
Balance as at January 1st	2,511,781	2,591,435
Lease payments	(102,599)	(79,654)
Balance	2,409,182	2,511,781
Current portion of lease liability	283,874	307,711
Non-current portion of lease liability	2,125,308	2,204,070
	December 31,	December 31,
Contractual undiscounted payments under lease liabilities are as follows:	2024	2023
	$	$
Within one year	399,566	385,905
1 to 2 years	413,710	399,566
2 to 5 years	1,331,095	1,285,585
After 5 years	1,698,129	2,157,349
Total	3,842,500	4,228,405

SATO Technologies Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

11. LEASES (continued)

Other amounts recognized in profit or loss	December 31, 2024	December 31, 2023
	$	$
Interest expense on lease liabilities	283,306	293,057
	December 31,	December 31,
Cash flow amounts	2024	2023
	$	$
Total cash outflow for lease	385,905	372,711

12. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

	December 31, 2024	December 31, 2023
	$	$
Accounts payable	132,148	106,963
Accrued liabilities	747,120	944,814
Salaries and vacation payable	36,804	58,398
Total	916,072	1,110,175

13. CUSTOMER DEPOSITS

	December 31, 2024	December 31, 2023
	$	$
Customer deposits	-	1,145,158
Customer advance - import taxes (Note 6 (ii))	-	1,171,519
Total	-	2,316,677

During the year ended December 31, 2022, the Group imported mining equipment on behalf of a non-resident client for use in commercial operations in Canada. As at December 31, 2023, the Group had recognized a receivable of $1,171,519 for the import taxes paid, as well as a corresponding customer deposit of $1,171,519 (refer to Note 6), reflecting the obligation to refund the client if the import taxes were recovered from the Canadian tax authorities. In 2024, Revenu Québec denied the refund claim, and as a result, the Group derecognized both the receivable and the related customer deposit as at December 31, 2024.

14. BORROWINGS

	December 31, 2024	December 31, 2023
	$	$
Long term loan, 9.5% payable in monthly instalments of CHF$217,504 ($342,743) maturing in July 2026 (i)	5,770,276	9,094,713
Emergency Loan for Canadian Businesses	-	30,000
Credit line (ii)	573,609	-
Total debt	6,343,885	9,124,713
Current portion of long term debt	3,748,785	3,402,730
Long term portion of long term debt	2,595,100	5,721,983

SATO Technologies Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

14. BORROWINGS (continued)

(i) On July 18, 2022, the Group signed a loan agreement to finance the purchase of mining equipment. An initial tranche of CHF$3,000,000 (CAD$3,873,610) net of financing costs of $98,600 was allocated. The capital is repayable over a 3-year term and bears interest at 8%.

On July 21, 2023, the Group refinanced the loan, stated above, to finance the purchase of additional mining equipment. From the initial tranche of CHF$3,000,000, an additional increment of CHF$3,790,000 was added for a total principal of CHF$6,639,781 (CAD$10,103,755) net of financing costs of $195,449. The capital is repayable over a 3-year term and bears interest at 9.5%. As of December 31, 2024, the net book value of miners collateralized under the loan is $3,712,234.

The long-term loan is secured by a collateral representing 20% of the outstanding principal, $1,154,056 ($1,824,943 in 2023). The collateral is composed of 8 BTC at a fair value of $1,063,744 ($280,160 in 2023) and the remaining $90,312 ($1,613,750 in 2023) in restricted cash. Changes in the loan are as follows:

	2024	2023
	$	$
Balance at January 1st	9,124,713	3,778,257
Cash-flows:
Proceeds	-	7,032,672
Repayment	(3,322,471)	(2,085,688)
Non-cash
Unrealized foreign exchange loss	(31,966)	399,472
Balance December 31st	5,770,276	9,124,713

(ii) The Group has a new $1,558,250 (US$1,150,000) revolving line of credit agreement, to support its continuing working capital needs. At December 31, 2024, the Group had pledged 3 BTC (fair value: $398,904) as collateral for the revolving line of credit agreement, compared to 0 BTC (fair value: $Nil) as at December 31, 2023. These digital assets are subject to contractual restrictions and cannot be transferred, sold, or otherwise used by the Group while the loan remains outstanding. Borrowings under the credit agreement bear interest at a fixed rate of 4.5%. As at December 31, 2024, the Company has an outstanding balance of $573,609. Changes in the credit line are as follows:

	2024	2023
	$	$
Balance at January 1st	-	-
Cash-flows:
Proceeds	831,843	-
Repayment	(316,359)	-
Interest and bank fees	28,573	-
Non-cash
Unrealized foreign exchange loss	29,552	-
Balance December 31st	573,609	-

(iii) A summary of finance expense is as follows:

	December 31, 2024	December 31, 2023
Finance expense	$	$
Interest expense on long term loan	729,436	608,244
Interest on line of credit	20,744	-
Interest on lease liability	283,306	293,057
	1,033,486	901,301

SATO Technologies Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

15. EQUITY

Share Capital

Authorized

An unlimited number of common shares, voting, participating and without par value.

Issued

	Number of common shares	Amount $
Balance, December 31, 2022	72,585,465	14,429,238
Common shares issued following the exercise of stock options	4,000	1,082
Balance, December 31, 2023	72,589,465	14,430,320
Common shares issued following the exercise of compensation warrants (i)	318,218	61,351
Common shares issued upon the exercise of stock options (ii)	370,000	151,988
Balance, December 31, 2024	73,277,683	14,643,659

(i) 318,218 common shares were issued on the exercise of 318,218 warrants for cash proceeds of $3,182. The warrants had a recorded value of $58,169, which was re-allocated to share capital on the exercise.

(ii) 370,000 common shares were issued on the exercise of 370,000 stock options for cash proceeds of $80,950. The options had a recorded value of $71,038, which was re-allocated to share capital on the exercise.

Compensation Warrants

The warrant activity is as follows:

	Number of compensation warrants	Weighted average exercise price $
Balance, December 31, 2022 and 2023	942,170	0.29
Exercised	(318,218)	(0.01)
Balance, December 31, 2024	623,952	0.38

Warrants

The warrant activity is as follows:

	Number of warrants	Weighted average exercise price $
Balance, December 31, 2022	1,234,901	0.75
Issued (i)	520,000	0.25
Balance, December 31, 2023 and 2024	1,754,901	0.60

(i) On May 31, 2023, the Group issued warrant certificates to a business venture, to purchase at any time until May 31, 2028, 520,000 common shares at a unit price of $0.25. The fair value of the certificate compensation warrant was $170,804. The fair value was calculated using Black & Scholes option pricing model and the following weighted average assumptions:

Share price at the date of the grant: $0.37

Expected life: 5 years

Risk-free interest rate: 4.23%

Expected volatility(1): 159.96%

Dividend: Nil

Exercise price at the date of grant: $0.25

(1) The volatility was determined by using public comparable companies over a period corresponding to expected life of the share compensation warrants, warrants and stock options.

SATO Technologies Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

15. EQUITY (continued)

Stock Options

On June 28, 2019, the Group adopted an incentive stock option plan which provides that the Board of Directors of the Group may grant to certain employees. The option price shall be determined by the Board of Directors and shall not be less than the fair market value of the share.

The Group maintains a stock option plan (the "Plan") whereby certain officers, directors and consultants may be granted stock options for common shares of the Group. Options are granted at the fair market value of the shares on the day granted, and vest over various terms. Stock-based compensation is recognized over the vesting period. The Board may from time to time, in its discretion, grant to officers, directors and consultants of the Group, non transferable options to purchase common shares, provided that the number of common shares reserved for issuance will not exceed ten percent (10%) of the issued and outstanding common shares exercisable for a period of up to five years from the date of grant. The plan also contains certain specifications when a trigger event occurs that would accelerate vesting.

	Number of stock options	Weighted average exercise price $
Balance, December 31, 2022	5,815,851	0.61
Granted(ii)	710,000	0.25
Granted (iii)	60,000	0.38
Canceled	(147,727)	(0.64)
Exercised*	(4,000)	(0.14)
Balance, December 31, 2023	6,434,124	0.56
Granted(i)	30,000	0.46
Canceled	(1,532,428)	(0.63)
Exercised*	(370,000)	(0.22)
Balance, December 31, 2024	4,561,696	0.57

*During the year ended December 31, 2024, the average share price at the time the options were exercised was $0.32 (December 31, 2023 - $0.39).

As at December 31, 2024, stocks options are as follows:

	Expiry date	Exercise Price	Balance outstanding at December 31, 2024	Balance exercisable at December 31, 2024
Compensation Options	8/27/2029	0.19	424,290	424,290
Compensation Options	5/20/2031	0.38	106,073	88,394
Compensation Options	12/23/2026	0.85	282,354	282,354
Compensation Options	3/18/2027	0.64	3,333,979	3,326,403
Compensation Options	3/6/2028	0.25	385,000	385,000
Compensation Options	9/27/2028	0.38	30,000	30,000
		0.61	4,561,696	4,536,441

SATO Technologies Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

15. EQUITY (continued)

(i) On April 25, 2024, the Group granted options to acquire 30,000 common shares until March 31, 2029, at a price of $0.46 to a director. As at December 31, 2024, each option is vested and exercisable.

The fair value of the option was $11,000 (the fair value per option $0.37). The fair value was calculated using Black & Scholes option pricing model and the following weighted average assumptions:

Share price at the date of the grant	$0.385
Expected life	4.93 years
Risk-free interest rate	3.89%
Expected volatility(1)	178.37%
Dividend	-
Exercise price at the date of grant	$0.46

As at December 31, 2023, stocks options are as follows:

	Expiry date	Exercise Price	Balance outstanding at December 31, 2023	Balance exercisable at December 31, 2023
Compensation Options	8/27/2029	0.19	424,291	396,272
Compensation Options	5/20/2031	0.38	106,073	86,693
Compensation Options	12/23/2026	0.85	372,941	372,941
Compensation Options	3/18/2027	0.64	4,655,819	4,330,086
Compensation Options	12/22/2027	0.14	105,000	105,000
Compensation Options	3/6/2028	0.25	710,000	710,000
Compensation Options	9/27/2028	0.38	60,000	60,000
		0.61	6,434,124	6,060,992

(ii) On March 6, 2023, the Group granted options to acquire 710,000 common shares at a price of $0.25 to employees. As at December 31, 2023, each option is vested and exercisable.

The fair value of the option was $153,616 (the fair value per option $0.22). The fair value was calculated using Black & Scholes option pricing model and the following weighted average assumptions:

Share price at the date of the grant	$0.25
Expected life	5 years
Risk-free interest rate	2.87%
Expected volatility (1)	159.96%
Dividend	-
Exercise price at the date of grant	$0.25

SATO Technologies Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

15. EQUITY (continued)

(iii) On April 25, 2023 the Group granted options to acquire 60,000 common shares at a price of $0.38 to employees. As at December 31, 2023, each option is vested and exercisable.

The fair value of the option was $19,543 (the fair value per option $0.33). The fair value was calculated using Black & Scholes option pricing model and the following weighted average assumptions:

Share price at the date of the grant	$0.38
Expected life	5 years
Risk-free interest rate	4.23%
Expected volatility (1)	159.96%
Dividend	-
Exercise price at the date of grant	$0.38

(1) The volatility was determined by using public comparable companies over a period corresponding to expected life of the share warrants and options.

During the years ended December 31, 2024 and 2023, the Group recorded a share based compensation expense of respectively $176,997 and $899,020.

16. INCOME PER SHARE

	December 31, 2024	December 31, 2023
Net income for the period	1,174,647	776,496
Net income per share - basic	0.02	0.01
Net income per share - diluted	0.02	0.01
Weighted average number of shares outstanding - basic	73,054,339	72,587,299
Weighted average number of shares outstanding - diluted	73,491,426	81,423,047

As at December 31, 2024 and 2023, in calculating the diluted income per share, dilutive potential ordinary shares such as stock options and warrants have been included. Details of stock options and warrants issued that could potentially dilute earnings per share in the future are given in Note 15.

17. GENERAL AND ADMINISTRATION

	December 31, 2024	December 31, 2023
		$
Salaries, benefits and remuneration	1,262,213	1,738,326
Advertising, promotion, and investor relations	377,277	124,991
Directors' and officers' insurance	128,962	228,658
Professional fees	787,813	640,188
Legal fees	187,662	118,734
Software subscriptions	57,584	49,106
Regulatory cost	129,326	136,707
Softwares	91,906	125,759
Custodian fees	39,052	-
Provision for sales taxes receivable	-	224,003
Other	94,371	30,755
	3,156,166	3,417,227

SATO Technologies Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

18. RELATED PARTY TRANSACTIONS

The Group entered into consulting agreements with certain non-independent directors and officers. The total compensation that was given to the directors and officers is detailed as follows:

	December 31, 2024	December 31, 2023
	$	$
Salaries, benefits and remuneration (Note 17)	908,466	971,655
Stock based compensation (Note 15)	111,612	618,439
Total	1,020,078	1,590,094

As at December 31, 2024, a balance of $292,477 of accounts payable and accrued liabilities ($456,545 as at December 31, 2023) remains to be paid.

19. INCOME TAXES

The income tax expense attributable to earnings differs from the amounts computed by applying the combined federal and provincial income tax rate of 26.5% (26.5% as at December 31, 2023) to loss before income taxes as a result of the follows:

	December 31, 2024	December 31, 2023
	$	$
Income before income taxes	1,072,368	776,496
Expected income tax (recovery)	284,178	429,239
Increase (decrease) in income taxes resulting from:
Temporary difference unrecognized (recognized)
Non-deductible expenses	(7,105)	23,089
Stock based compensation	46,904	283,503
Non-taxable portion of capital gain for tax purpose 50%	-	(5,292)
Change in unrecognized deferred tax asset	(376,921)	(725,574)
True up and Other	(49,335)	(4,965)
	(102,279)	-

Movement of deferred income tax in 2024

	January 1, 2024	Profit and loss	Other comprehensive income	December 31, 2024
	$	$	$	$
Property and equipment and intangibles	(1,532,817)	244,587	-	(1,288,230)
Right-of-use assets	(592,823)	59,282	-	(533,541)
Digital currencies	(37,367)	(130,820)	(102,279)	(270,466)
Lease liability	592,823	45,610	-	638,433
Non capital losses	1,570,184	(116,380)	-	1,453,804
Total	-	102,279	(102,279)	-

SATO Technologies Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

19. INCOME TAXES (continued)

Movement of deferred income tax in 2023

	January 1, 2023	Profit and loss	December 31, 2023
	$	$	$
Property and equipment and intangibles	(827,867)	(704,950)	(1,532,817)
Right-of-use assets	(652,106)	59,283	(592,823)
Digital currencies	151,227	(188,594)	(37,367)
Lease liability	686,730	(93,907)	592,823
Non capital losses	642,016	928,168	1,570,184
Total	-	-	-

As at December 31, 2024, non-capital losses for which the Group has not recognized deferred tax asset are as follows:

	Federal	Quebec
2044	1,402,357	1,402,357
2043	943,445	1,792,272
2042	709,474	801,329
2041	208,219	208,219
	3,263,495	4,204,177

20. CAPITAL MANAGEMENT

The Group manages its capital to maintain its ability to continue as a going concern and to provide returns to shareholders and benefits to other stakeholders. The capital structure of the Group consists of equity comprised of issued share capital, reserves and borrowings of $6,343,885. The Group manages its capital structure and makes adjustments to it in light of economic conditions. The Group, upon approval from its Board of directors, will balance its overall capital structure through new share issuances or by undertaking other activities as deemed appropriate under the specific circumstances. The Group is not subject to externally imposed capital requirements and the Group's overall strategy with respect to capital risk management remains unchanged from the year ended December 31, 2024 and 2023.

21. FINANCIAL INSTRUMENTS

The Group's risk exposures and the impact on the Group's financial instruments are summarized below.

Fair value

The fair value of the Group's financial instruments, including cash, restricted cash, amount receivable, accounts payable and accrued liabilities, approximates their carrying value due to their short-term nature. The fair value of borrowings approximates their carrying amounts based on actualized cash flows (Level 2).

Digital assets are measured at fair value using the quoted price on Coinbase Prime (Level 1).

Credit Risk

Financial instruments that potentially subject the Group to a concentration of credit risk consist primarily of cash, restricted cash and amounts receivable. The Group limits its exposure to credit loss by placing its cash with high credit quality financial institutions. The Company believes the concentration of credit risk in its amounts receivables is substantially mitigated by its ongoing credit evaluation process. The Company does not generally require collateral from customers. The Company evaluates the need for an allowance for doubtful accounts based upon factors affecting the credit risk of specific customers, historical trends and other information.

SATO Technologies Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

21. FINANCIAL INSTRUMENTS (continued)

Interest Rate Risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Group's exposure to interest rate risk is limited and relates to its ability to earn interest income on cash balances. Changes in short term interest rates will not have a significant effect on the fair value of the Group's cash account.

Liquidity Risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group currently settles its financial obligations out of cash and digital assets.

The Group has a planning and budgeting process to help determine the funds required to support the Group's normal spending requirements on an ongoing basis and its expansionary plans.

As at December 31, 2024, the contractual maturities of financial liabilities, and other amounts payable including estimated interest payments are as follows:

	Carrying amount	Contractual cash flows	Within 1 year	1 to 2 years	2 to 5 years	5+ years
	$	$	$	$	$	$
Accounts payable and accrued liabilities	879,268	879,268	879,268	-	-	-
Line of credit	573,609	573,609	-	573,609	-	-
Line of credit - interest	-	5,799	5,799	-	-	-
Long term loan	5,770,276	5,770,276	3,748,785	2,021,491	-	-
Long term loan - interest	-	453,169	395,499	57,670	-	-
	7,223,153	7,682,121	5,029,351	2,652,770	-	-

As at December 31, 2023, the contractual maturities of financial liabilities, and other amounts payable including estimated interest payments are as follows:

	Carrying amount	Contractual cash flows	Within 1 year	1 to 2 years	2 to 5 years	5+ years
	$	$	$	$	$	$
Accounts payable and accrued liabilities	1,051,777	1,051,777	1,051,777	-	-	-
Customer deposits	1,145,158	1,145,158	1,145,158	-	-	-
Long term loan	9,094,713	9,094,713	3,372,730	3,717,409	2,004,574	-
Long term loan - interest	-	1,193,347	740,178	395,499	57,670	-
Emergency Loan for Canadian Businesses	30,000	30,000	30,000	-	-	-
	11,321,648	12,514,995	6,339,843	4,112,908	2,062,244	-

Currency Risk

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Currency risk arises from financial instruments (including cash) that are denominated in a currency other than Canadian dollars, which represents the functional currency of the Group. The Group's functional currency is the Canadian dollar and most purchases are transacted in Canadian dollars. Management currently does not hedge its foreign exchange risk.

SATO Technologies Corp.

Notes to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

(In Canadian dollars)

21. FINANCIAL INSTRUMENTS (continued)

The table below indicates the foreign currencies to which the Group has significant exposure in Canadian dollar terms:

	December 31, 2024	December 31, 2023
	$	$
Cash - $US	33	234,748
Cash - $CHF	(5,331)	-
Restricted cash - $CHF	56,832	1,613,750
Digital assets - $US	4,556,864	2,244,730
Accounts payable and accrued liabilities - $US	28,616	361
Long term loan - $CHF	5,770,276	9,094,713
Line of credit - $US	573,609	-

Based on the net U.S. dollar exposure as at December 31, 2024, a 10% increase in the Canadian/U.S. dollar exchange rate would have had an unfavorable impact of $395,467 on net income ($247,984 for the year ended December 31, 2023). A 10% decrease in the Canadian/U.S. dollar exchange rate would have had an impact of a similar magnitude but in opposite directions on net income.

Based on the net CHF exposure as at December 31, 2024, a 10% increase in the Canadian/CHF exchange rate would have had a favorable impact of $571,878 on net income ($748,906 for the year ended December 31, 2023). A 10% decrease in the Canadian/U.S. dollar exchange rate would have had an impact of a similar magnitude but in opposite directions on net income.

Digital assets and risk management

Digital assets are measured using Level 1 Fair values, determined by taking the rate from Coinbase Prime.

Digital asset prices are affected by various forces including global supply and demand, interest rates, exchange rates, inflation or deflation and the global political and economic conditions. The profitability of the Group is directly related to the current and future market price of digital assets; in addition, the Group may not be able liquidate its inventory of digital assets at its desired price if required. A decline in the market prices for digital assets could negatively impact the Group's future operations. The Group has not hedged the conversion of any of its sales of digital assets.

Digital assets have a limited history and the fair value historically has been very volatile. Historical performance of digital assets is not indicative of their future price performance. The Group's digital assets currently solely consist of Bitcoin and Ether.

At December 31, 2024, if the market price of the Group's holdings of digital assets increased or decreased by 10% with all other variables held constant, the corresponding asset value increase or decrease respectively would amount to $455,602 ($224,473 at December 31, 2023).

22. SUBSEQUENT EVENT

On March 3, 2025, the Company granted stock options to purchase an aggregate of 1,991,424 common shares to directors, officers, consultants and employees. The Options are exercisable into common shares of the Company at a price of $0.185 per share for a period of 5 years from date of grant. A total of 1,085,000 options will vest on April 21, 2025, and 906,424 options will vest on March 3, 2026. Of the total grant, 1,071,424 options have been awarded to directors and officers and are subject to a four month hold period in accordance with TSXV policies.

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SATO Technologies Corp. — Audit Report / Information 2024

46366_rns_2025-04-29_0866c584-f199-465a-af15-1a6689113da3.pdf

SATO

Independent Auditor’s Report

Opinion

Basis for opinion

Material uncertainty related to going concern

Key audit matters

Revenue from digital assets earned

Why the matter was determined to be a key audit matter

How the matter was addressed in the audit

Existence and rights and obligations of digital assets

Information other than the consolidated financial statements and the auditor's report thereon

Responsibilities of management and those charged with governance for the consolidated financial statements

Auditor's responsibilities for the audit of the consolidated financial statements

SATO Technologies Corp.

Consolidated Statements of Income and Comprehensive Income

SATO Technologies Corp.

Consolidated Statements of Cash Flows

SATO Technologies Corp.

Consolidated Statements of Changes in Shareholders' Equity

1. INCORPORATION, BUSINESS ACTIVITIES AND GOING CONCERN

Going Concern

3. MATERIAL ACCOUNTING POLICIES (continued)

Digital assets earned

3. MATERIAL ACCOUNTING POLICIES (continued)

Hosting

Digital assets

3. MATERIAL ACCOUNTING POLICIES (continued)

Non-monetary transactions

Restricted cash

Property and equipment

Intangible assets

Impairment of non-financial assets

3. MATERIAL ACCOUNTING POLICIES (continued)

Leases and right-of-use assets

Share-based compensation payments

3. MATERIAL ACCOUNTING POLICIES (continued)

Financial instruments

Financial assets

Financial liabilities

3. MATERIAL ACCOUNTING POLICIES (continued)

Derecognition

Expected Credit Loss Impairment Model

Fair Value

Provisions

Share capital and equity

Basic and Diluted Income per Share

3. MATERIAL ACCOUNTING POLICIES (continued)

Income taxes

Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Group

IFRS 18 Presentation and Disclosure in the Financial Statements

3. MATERIAL ACCOUNTING POLICIES (continued)

Critical accounting judgements, estimates and assumptions

Critical accounting judgements

Income from digital assets earned

Going concern

Leases - Incremental borrowing rate

3. MATERIAL ACCOUNTING POLICIES (continued)

Income, valued added, withholding and other taxes

Critical accounting estimates and assumptions

Useful lives of property and equipment

Useful lives of intangible assets

Digital asset valuation

Stock compensation and warrant valuation

Impairment of non-financial assets

4. RESTATEMENT OF STATEMENT OF CASH FLOWS

5. CHANGES IN ESTIMATE

6. TRADES AND RECEIVABLES

6. TRADES AND RECEIVABLES (continued)

7. DIGITAL ASSETS

7. DIGITAL ASSETS (continued)

8. DEPOSITS

10. INTANGIBLE ASSETS

11. LEASES

11. LEASES (continued)

12. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

13. CUSTOMER DEPOSITS

14. BORROWINGS

SATO Technologies Corp. Audit Report / Information 2024