Rocket One Inc.: Form 10-Q for the period ended Sep 30, 2025

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 as may be amended, supplemented or superseded from time to time by other reports we file with the SEC. All amounts in this report are in U.S. dollars, unless otherwise noted.

Overview

We are a clinical-stage biopharmaceutical company focused on developing new generation therapies for unmet medical needs. We are focused on developing (i) a topical formulation for treating side effects from drugs used for the treatment of cancer (HT-001); (ii) a treatment for mast-cell derived cancers and anaphylaxis (HT-KIT); and (iii) a treatment and/or prevention for Alzheimer’s or other neuroinflammatory diseases (HT-ALZ). We also have assets being developed for (i) atopic dermatitis (also known as eczema) (BioLexa); (ii) a treatment for asthma and allergies using inhalational administration (HT-004); and (iii) a treatment for obesity, and obesity-related diseases and conditions (HT-VA).

Recent Developments

In June 2025, we entered into a non-binding letter of intent with Silo Pharma, Inc. to pursue a strategic joint venture focused on developing and commercializing a treatment for obesity and metabolic disease utilizing technology licensed to us from the U.S. Department of Veterans Affairs (“VA”). Both parties have mutually agreed to not proceed with the joint venture. In July 2025, we entered into a Cooperative Research and Development Agreement with the VA and recently initiated a VA-backed study aimed at assessing the technology underlying this license, glial cell line–derived neurotrophic factor (“GDNF”), as a potential new therapy for obesity and fatty liver disease (hepatic steatosis). The studies are underway and we expect results in early 2026.

Results of Operations

Comparison of Our Results of Operations for the Three Months Ended September 30, 2025 and 2024

Operating Costs and Expenses

Research and Development Expenses

For the three months ended September 30, 2025, research and development expenses were approximately $1.6 million. Specifically, during the three months ended September 30, 2025, our research and development costs consisted primarily of the following costs for each of our key research and development projects: (i) HT-001, approximately $1.48 million related to manufacturing and clinical activities; and (ii) HT-KIT, approximately $125,000 related to manufacturing and preclinical activities. In addition to the foregoing, we also incurred fees of approximately $31,200 payable to members of our scientific advisory board for services.

For the three months ended September 30, 2024, research and development expenses were approximately $0.9 million related to ongoing research and development projects. Specifically, during the quarter ended September 30, 2024, our research and development costs consisted primarily of the following costs for each of our key research and development projects: (i) HT-001, approximately $0.7 million related to manufacturing, preclinical and clinical activities; (ii) HT-KIT, approximately $154,300 related to manufacturing and preclinical activities; (iii) HT-004, approximately $18,700 in sponsored research activities; and (iv) HT-ALZ, approximately $96,500 related to manufacturing and preclinical activities. In addition to the foregoing, we also incurred fees of approximately $37,200 payable to members of our scientific advisory board for services.

We expect our research and development activities to increase as we develop our existing product candidates and potentially acquire new product candidates, reflecting increasing costs associated with the following:

• employee-related expenses, which include salaries and benefits, and rent expenses;
• fees related to in-licensed products and technology;
• expenses incurred under agreements with clinical research organizations, investigative sites and consultants that conduct our clinical trials and a substantial portion of our pre-clinical activities;
• the cost of acquiring and manufacturing clinical trial materials; and
• costs associated with non-clinical activities and regulatory approvals.

General and Administrative Expenses

For the three months ended September 30, 2025, general and administrative expenses amounted to approximately $2.5 million as compared to approximately $1.2 million for the three months ended September 30, 2024, an increase of approximately $1.2 million, or 98.2%. For the three months ended September 30, 2025 and 2024, general and administrative expenses consisted of the following (rounded to the nearest $1,000):

23

During the three months ended September 30, 2025, the increase in general and administrative expenses of approximately $1.2 million was primarily attributed to an increase in compensation and related expenses of $755,000, primarily attributable to the issuance of 800,000 shares of common stock to our Chief Executive Officer valued at $968,000, which was offset by a decrease in stock-based compensation of approximately $281,000 in connection with the issuance of stock options during the three months ended September 30, 2024 as compared to $0 for the three months ended September 30, 2025. Additionally, during the three months ended September 30, 2025, professional and consulting expenses increased by approximately $442,000 which was primarily attributable to an increase in legal and consulting fees of approximately $208,000, an increase in accounting fees of approximately $61,000, an increase in stock-based professional fees of $167,000 and an increase in directors fees of $6,000.

We anticipate that our general and administrative expenses will increase in future periods, reflecting continued and increasing costs associated with:

• support of our research and development activities;
• stock compensation granted to key employees and non-employees;
• support of business development activities; and
• increased professional fees and other costs associated with regulatory requirements that we are subject to.

Other Income (Expense), net

For the three months ended September 30, 2025, other expense, net was approximately $25,000, which resulted from the recording of an unrealized loss of crypto assets of $25,000.

For the three months ended September 30, 2024, other income, net was approximately, which $200 resulted from $200 of interest income.

Net Loss

For the three months ended September 30, 2025 and 2024, we incurred a net loss of approximately $4.11 million, or $0.30 per common share (basic and diluted), and $2.2 million, or $0.32 per common share (basic and diluted), respectively.

Comparison of Our Results of Operations for the Nine Months Ended September 30, 2025 and 2024

Operating Costs and Expenses

Research and Development Expenses

For the nine months ended September 30, 2025, research and development expenses were approximately $4.6 million. Specifically, during the nine months ended September 30, 2025, our research and development costs consisted primarily of the following costs for each of our key research and development projects: (i) HT-001, approximately $2,585,000 related to manufacturing and clinical activities; (ii) HT-KIT, approximately $674,000 related to manufacturing and preclinical activities; and (iii) HT-ALZ, approximately $12,000 related to preclinical studies. In addition to the foregoing, we also incurred fees of approximately $100,000 payable to members of our scientific advisory board for services and recorded approximately $1,260,000 of in-process research and development expenses in connection with the acquisition of patent applications.

For the nine months ended September 30, 2024, research and development expenses were approximately $2.21 million, of which approximately $18,100 was related to licenses acquired and approximately $2.2 million was related to other research and development expenses. Specifically, during the nine months ended September 30, 2024, our research and development costs consisted primarily of the following costs for each of our key research and development projects: (i) HT-001, approximately $1,508,000 related to manufacturing, preclinical and clinical activities; (ii) HT-ALZ, approximately $112,800 related to preclinical studies; (iii) HT-KIT, approximately $363,300 related to manufacturing and preclinical activities; and (iv) HT-004, approximately $96,100 in sponsored research activities. In addition to the foregoing, we also incurred fees of approximately $111,800 payable to members of our scientific advisory board for services.

We expect our research and development activities to increase as we develop our existing product candidates and potentially acquire new product candidates, reflecting increasing costs associated with the following:

• employee-related expenses, which include salaries and benefits, and rent expenses;
• fees related to in-licensed products and technology;
• expenses incurred under agreements with clinical research organizations, investigative sites and consultants that conduct our clinical trials and a substantial portion of our pre-clinical activities;
• the cost of acquiring and manufacturing clinical trial materials; and
• costs associated with non-clinical activities and regulatory approvals.

General and Administrative Expenses

For the nine months ended September 30, 2025 and 2024, general and administrative expenses amounted to approximately $5.1 million and $3.9 million, respectively. For the nine months ended September 30, 2025 and 2024, general and administrative expenses consisted of the following (rounded to the nearest $1,000):

During the nine months ended September 30, 2025, the increase in general and administrative expenses of approximately $1,222,000 was primarily attributed to an increase in compensation and related expenses of $546,000, primarily attributable to the issuance of 800,000 shares of common stock to our chief executive officer valued at $968,000 and an increase in other compensation and related expenses of $152,000, which were offset by a decrease in stock-based compensation of approximately $574,000 in connection with the issuance of stock options during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024. Additionally, during the nine months ended September 30, 2025, professional and consulting expenses increased by approximately $735,000 which was primarily attributable to an increase in legal and consulting fees of approximately $498,000, an increase in stock-based professional fees of $222,000 and an increase in directors’ fees of approximately $15,000. These increases were offset by a decrease in other general and administrative expenses of approximately $61,000.

We anticipate that our general and administrative expenses will increase in future periods, reflecting continued and increasing costs associated with:

• support of our research and development activities;
• stock compensation granted to key employees and non-employees;
• support of business development activities; and
• increased professional fees and other costs associated with regulatory requirements that we are subject to.

Other Income (Expense), net

For the nine months ended September 30, 2025, other expense, net was approximately $25,000, which resulted from the recording of an unrealized loss of crypto assets of $25,000.

For the nine months ended September 30, 2024, other income, net was approximately $27,000, which primarily resulted from approximately $27,300 of interest income, offset by a change in fair value of investment in joint venture of approximately $581.

Net Loss

For the nine months ended September 30, 2025 and 2024, we incurred a net loss of approximately $9.8 million, or $0.74 per common share (basic and diluted), and $6.1 million, or $1.00 per common share (basic and diluted), respectively.

Liquidity and Capital Resources

To date we have funded our operations primarily through the sale of equity and debt securities. As of September 30, 2025, we had approximately $7.8 million in cash and cash equivalents, working capital of approximately $7.9 million and an accumulated deficit of approximately $70.2 million. Net cash used in operating activities was approximately $7.65 million and $4.95 million for the nine months ended September 30, 2025 and 2024, respectively. We incurred net losses of approximately $9.8 million and $6.1 million for the nine months ended September 30, 2025 and 2024, respectively. We have incurred substantial operating losses since inception and expect to continue to incur significant operating losses for the foreseeable future as we continue our pre-clinical and clinical development of our product candidates. We have not yet commercialized any products and have never generated any revenue from product sales. We believe that our existing cash as of September 30, 2025 will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from the date that our unaudited condensed consolidated financial statements are available to be issued.

During the nine months ended September 30, 2025, we issued 3,750,000 shares of our common stock upon the exercise of the 3,750,000 warrants issued in April 2024 for gross proceeds of approximately $5.6 million.

On November 8, 2024, we entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright”) under which we could offer and sell shares of our common stock having an aggregate sales price of up to $2,700,000 through Wainwright as the sales manager pursuant to our effective shelf registration statement on Form S-3 (File No. 333-272620), including an accompanying base prospectus and a prospectus supplement dated November 8, 2024. Sales of shares of the Company’s common stock through Wainwright, if any, will be made by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. Wainwright will use commercially reasonable efforts to sell shares of the Company’s common stock from time to time, based on instructions from us (including any price, time or size limits or other parameters or conditions we may impose). We will pay Wainwright a commission equal to 3.0% of the aggregate gross proceeds from the sales of shares of the Company’s common stock sold through Wainwright under the ATM Agreement and will also reimburse Wainwright for certain specified expenses in connection with the ATM Agreement. On February 7, 2025, the amount that the Company could offer and sell pursuant to the ATM Agreement was increased by $5,000,000 pursuant to a prospectus supplement dated February 7, 2025. The offering of shares pursuant to the ATM Agreement will terminate on the earlier of (1) the sale, pursuant to the ATM Agreement, of shares having an aggregate offering price of $7,700,000 and (2) the termination of the ATM Agreement by either us or Wainwright, as set forth therein. During the nine months ended September 30, 2025 we issued an aggregate of 2,395,619 shares of our common stock for net proceeds of approximately $3.5 million pursuant to the ATM Agreement. From October 1, 2025 to November 11, 2025, the Company issued an aggregate of 386,690 shares of its common stock for net proceeds of $607,309 pursuant to the ATM Agreement.

We have entered into certain license, sublicense, sponsored research and option agreements with third parties. Pursuant to such agreements, we may be required to make certain: (i) license maintenance fee payments; (ii) out-of-pocket expense payments, including, but not limited to, payments related to intellectual property and research related expenses; (iii) development and commercialization expense payments; (iv) annual and quarterly minimum payments; (v) diligence expense payments; and (vi) revenue interest payments. In addition, subject to the achievement of certain development and/or commercialization events, we may also be required to make certain: (i) minimum royalty payments, ranging from middle to high five figures, (ii) sales-based royalties and running royalties, ranging from low single digits to low double digits; and (iii) milestone payments, of up to approximately $35 million (if all milestones in all of our current agreements are achieved).

Additional funding will be necessary to fund our future clinical and pre-clinical activities. We may obtain additional financing through sales of our equity and debt securities or entering into strategic partnership arrangements, or a combination of the foregoing. There are no assurances that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on terms acceptable to us or at all, particularly in light of the economic downturn. If we are unable to secure adequate additional funding as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates.

Cash Flows from Operating Activities

For the nine months ended September 30, 2025, net cash used in operating activities was approximately $7.65 million, which primarily resulted from a net loss of approximately $9.78 million, an increase in prepaid expenses and other current assets of approximately $357,000 and an increase in accounts payable and accrued expenses of approximately $196,000, offset by approximately $850,000 of non-cash research and development-acquired patent, $1.4 million in stock-based compensation and professional fees, and unrealized loss on crypto assets of $25,000.

For the nine months ended September 30, 2024, net cash used in operations was approximately $5.0 million, which primarily resulted from a net loss of approximately $6.1 million, adjusted for the add back of stock-based compensation of approximately $804,000, a decrease in prepaid expenses and other current assets of approximately $200,000, and an increase in accounts payable and accrued expenses of $100,000.

Cash Flows from Investing Activities

During the nine months ended September 30, 2025, the Company purchased $300,000 in crypto assets. The Company did not have any cash flows from investing activities for the nine months ended September 30, 2024.

Cash Flows from Financing Activities

For the nine months ended September 30, 2025, net cash provided by financing activities was approximately $8.76 million, which primarily resulted from net proceeds from the issuance of common stock of approximately $3.5 million and proceeds from the exercise of warrants of approximately $5.6 million, offset by the payment of taxes related to the net share settlement of an equity award of $376,000.

For the nine months ended September 30, 2024, net cash provided by financing activities was approximately $3.7 million, which resulted from net proceeds from the exercise of warrants.

Critical Accounting Estimates

The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and related disclosures in the financial statements. Management considers an accounting estimate to be critical if:

• it requires assumptions to be made that were uncertain at the time the estimate was made; and
• changes in the estimate or different estimates that could have been selected could have a material impact in our results of operations or financial condition.

While we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances, actual results could differ from those estimates and the differences could be material.

See Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for an additional discussion of our significant accounting policies.

Stock-based compensation

The Company accounts for stock-based payment awards exchanged for services at the estimated grant date fair value of the award. Stock options issued under the Company’s long-term incentive plans are granted with an exercise price equal to no less than the market price of the Company’s stock at the date of grant and expire up to ten years from the date of grant. Options are generally issued fully vested. The Company accounts for forfeited awards as they occur.

The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.

Expected Term - The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method, which is the half-life from vesting to the end of its contractual term.

Expected Volatility - The Company computes stock price volatility over expected terms based on its historical common stock trading prices.

Risk-Free Interest Rate - The Company bases the risk-free interest rate on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term.

Expected Dividend - The Company has never declared or paid any cash dividends on its common shares and does not plan to pay cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models.

The Company grants restricted stock awards under its equity incentive plan. Restricted stock awards are granted to employees and non-employees. The restricted stock awards are measured based on the grant-date fair value. In general, the restricted stock awards vest over a service period of zero to three years. Stock-based compensation expense is generally recognized based on the straight-line basis over the requisite service period and forfeitures are accounted for as they occur.

The Company has issued warrants to non-employees. The warrants are measured based on the grant-date fair value. In general, the warrants vest over a term of zero to ten years. Stock-based compensation expense is generally recognized based on the straight-line basis over the vesting term.

Income taxes

Income taxes are recorded in accordance with Accounting Standards Codification (“ASC”) 740, Income Taxes (“ASC 740”) which provides for deferred taxes using an asset and liability approach. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our unaudited condensed consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between our financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

We account for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, we recognize the tax benefit of tax positions to the extent that the benefit would more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances.

Recently Adopted Accounting Standards

In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires entities to provide more detailed disaggregation of expenses in the income statement, focusing on the nature of the expenses rather than their function. The new disclosures will require entities to separately present expenses for significant line items, including but not limited to, depreciation, amortization, and employee compensation. Entities will also be required to provide a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, disclose the total amount of selling expenses and, in annual reporting periods, provide a definition of what constitutes selling expenses. This pronouncement is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company does not expect the adoption of this new guidance to have a material impact on its consolidated financial statements.

The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2025, the end of the period covered by this Quarterly Report on Form 10-Q. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, as a result of the material weaknesses in our internal control identified below, our disclosure controls and procedures were not effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

Identified Material Weakness

In connection with the audit of our financial statements as of December 31, 2024, for the years ended December 31, 2024 and 2023, we identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness that we have identified related to the proper classification of prepaid expenses and other current assets and research and development expenses, which impacted our previously issued consolidated financial statements as of and for the year ended December 31, 2023, and our previously issued unaudited condensed consolidated financial statements as of March 31, 2024 and 2023, June 30, 2024 and 2023 and September 30, 2024 and 2023, and for the three months ended March 31, 2024 and 2023, three and nine months ended June 30, 2024 and 2023, and three and nine months ended September 30, 2024 and 2023.

Remediation Plan

Our management, with the oversight of the Audit Committee of the board of directors, has updated our internal processes and controls to strengthen their effectiveness and developed a remediation plan which includes the following actions:

• Enhance our review procedures over significant contracts with contract research and clinical studies organizations; and
• Strengthen our review process.

We will not be able to conclude whether the actions we are taking will fully remediate the material weakness in our internal control over financial reporting until the updated controls have operated for a sufficient period of time and management has concluded, through testing, that such controls are operating effectively. We may also conclude that additional measures may be required to remediate the material weakness in our internal control over financial reporting, which may necessitate further action.

Changes in Internal Control Over Financial Reporting

Other than as described above, there have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter ended September 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We are taking actions to remediate the material weakness described above, which may result in changes in our internal control over financial reporting in periods subsequent to September 30, 2025.

Risk factors that affect our business and financial results are discussed in Part I, Item 1A “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2024 as filed with the SEC on March 28, 2025 (“Annual Report”), as subsequently updated, amended or superseded by our other filings made with the SEC. Except as set forth herein, there have been no material changes in our risk factors from those previously disclosed in our Annual Report and other filings made with the SEC. You should carefully consider the risks in our filings with the SEC as supplemented by the risk factors set forth herein which could materially affect our business, financial condition or future results. The risks in our SEC filings are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.

Risks Related to Our Digital Assets Strategy

The availability of spot ETPs for digital assets may adversely affect the market price of our common stock.

Until recently investors in the United States had limited means to gain direct exposure to digital assets through traditional investment channels, and instead generally were only able to hold digital assets through “hosted” wallets provided by digital asset service providers or through “unhosted” wallets that expose the investor to risks associated with loss or hacking of their private keys. Given the relative novelty of digital assets, general lack of familiarity with the processes needed to hold digital assets directly, as well as the potential reluctance of financial planners and advisers to recommend direct digital assets holdings to their retail customers because of the manner in which such holdings are custodied, some investors have sought exposure to digital assets through investment vehicles that hold digital assets and issue shares representing fractional undivided interests in their underlying digital assets holdings. These vehicles, which were previously offered only to “accredited investors” on a private placement basis, have in the past traded at substantial premiums to net asset value, possibly due to the relative scarcity of traditional investment vehicles providing investment exposure to digital assets.

On January 10, 2024, the SEC approved the listing and trading of spot Bitcoin ETPs, the shares of which can be sold in public offerings and are traded on U.S. national securities exchanges. The approved ETPs commenced trading directly to the public on January 11, 2024, with a trading volume of $4.6 billion on the first trading day. Additionally, on May 23, 2024, the SEC approved rule changes permitting the listing and trading of spot ETPs that invest in ether, the main crypto asset supporting the Ethereum blockchain. The approved spot ETPs commenced trading directly to the public on July 23, 2024. The listing and trading of spot ETPs for ether offers investors another alternative to gain exposure to digital assets, which could result in a decline in the trading price of Bitcoin as well as a decline in the value of our common stock relative to the value of our Bitcoin.

Although we are an operating company, and we believe we offer a different value proposition than a Bitcoin investment vehicle such as a spot Bitcoin ETP, investors may nevertheless view our commons as an alternative to an investment in an ETP, and choose to purchase shares of a spot Bitcoin ETP instead of our common stock. They may do so for a variety of reasons, including if they believe that ETPs offer a “pure play” exposure to Bitcoin that is generally not subject to federal income tax at the entity level as we are, or the other risk factors applicable to an operating business, such as ours. Additionally, unlike spot Bitcoin ETPs, we (i) do not seek for our shares of common stock to track the value of the underlying Bitcoin we hold before payment of expenses and liabilities, (ii) do not benefit from various exemptions and relief under the Exchange Act, including Regulation M, and other securities laws, which enable ETPs to continuously align the value of their shares to the price of the underlying assets they hold through share creation and redemption, (iii) are a corporation rather than a statutory trust, and do not operate pursuant to a trust agreement that would require us to pursue one or more stated investment objectives, and (iv) are not required to provide daily transparency as to our Bitcoin holdings or our daily net asset value. Furthermore, recommendations by broker-dealers to buy, hold, or sell complex products and non-traditional ETPs, or an investment strategy involving such products, may be subject to additional or heightened scrutiny that would not be applicable to broker-dealers making recommendations with respect to our common stock. Based on how we are viewed in the market relative to ETPs, and other vehicles which offer economic exposure to Bitcoin, such as Bitcoin futures ETFs, leveraged Bitcoin futures ETFs, and similar vehicles offered on international exchanges, any premium or discount in our common stock relative to the value of our Bitcoin holdings may increase or decrease in different market conditions.

As a result of the foregoing factors, availability of spot ETPs for Bitcoin and other digital assets could have a material adverse effect on the market price of our common stock.

The emergence or growth of other digital assets, including those with significant private or public sector backing, could have a negative impact on the price of Bitcoin, Ethereum and Solana and adversely affect our future results of operations.

The emergence or growth of digital assets such as Dogecoin may have a material adverse effect on our future results of operations. As of December 31, 2024, Bitcoin was the largest digital asset by market capitalization. However, there are numerous alternative digital assets and many entities, including consortiums and financial institutions, are researching and investing resources into private or permissioned blockchain platforms or digital assets that do not use proof-of-work mining like the Bitcoin network. Since January 2025, the new U.S. Presidential Administration has signaled that it is receptive to cryptocurrency as a medium of exchange. This change has fueled the growth of other cryptocurrencies. As money is directed to these alternative cryptocurrencies, it may lessen demand for certain digital assets such as Bitcoin, Ethereum and Solana which may reduce their respective trading price. In turn, this may adversely affect our future results of operations.

If Coinbase experiences a security breach or cyberattack and unauthorized parties obtain access to our digital assets, or if our private keys are lost or destroyed, or other similar circumstances or events occur, we may lose some or all of our digital assets and our financial condition and results of operations could be materially adversely affected.

All of the digital assets we own are held at Coinbase. Security breaches and cyberattacks are of particular concern with respect to our digital assets. Digital assets and the entities that provide services to participants in the digital assets ecosystem have been, and may in the future be, subject to security breaches, cyberattacks, or other malicious activities. A successful security breach or cyberattack could result in:

• a partial or total loss of our digital assets in a manner that may not be covered by insurance or the liability provisions of the custody agreements with Coinbase;
• improper disclosure of data and violations of applicable data privacy and other laws;
• harm to our reputation and brand; and/or
• significant regulatory scrutiny, investigations, fines, penalties, and other legal, regulatory, contractual and financial exposure.

Further, any actual or perceived data security breach or cybersecurity attack directed at other companies with digital assets or companies that operate digital asset networks, regardless of whether we are directly impacted, could lead to a general loss of confidence in the broader digital assets blockchain ecosystem or in the use of the digital assets network to conduct financial transactions, which could negatively impact us.

Attacks upon systems across a variety of industries, including industries related to digital assets, are increasing in frequency, persistence, and sophistication, and, in many cases, are being conducted by sophisticated, well-funded and organized groups and individuals, including state actors. The techniques used to obtain unauthorized, improper or illegal access to systems and information (including personal data and digital assets), disable or degrade services, or sabotage systems are constantly evolving, may be difficult to detect quickly, and often are not recognized or detected until after they have been launched against a target. These attacks may occur on our systems or those of our third-party service providers or partners. We may experience breaches of our security measures due to human error, malfeasance, insider threats, system errors or vulnerabilities or other irregularities. Threats can come from a variety of sources, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, and insiders. The risk of cyberattacks could also be increased by cyberwarfare in connection with the ongoing Russia-Ukraine and Israel-Hamas conflicts, or other future conflicts, including potential proliferation of malware into systems unrelated to such conflicts. Any future hacking of third-party like Coinbase, could materially and adversely affect our business.

Digital assets are novel assets, and are subject to significant legal, commercial, regulatory and technical uncertainty.

Digital assets are relatively novel and are subject to significant uncertainty, which could adversely impact their price. The application of state and federal securities laws and other laws and regulations to digital assets is unclear in certain respects, and it is possible that regulators in the United States or foreign countries may interpret or apply existing laws and regulations in a manner that adversely affects the price of digital assets or the ability of individuals or institutions such as us to own or transfer digital assets.

It is not possible to predict whether, or when, new laws will be enacted that change the legal framework governing digital assets or provide additional authorities to the SEC or other regulators, or whether, or when, any other federal, state or foreign legislative bodies will take any similar actions. It is also not possible to predict the nature of any such additional laws or authorities, how additional legislation or regulatory oversight might impact the ability of digital asset markets to function, the willingness of financial and other institutions to continue to provide services to the digital assets industry, or how any new laws or regulations, or changes to existing laws or regulations, might impact the value of digital assets generally and bitcoin specifically. The consequences of any new law or regulation relating to digital assets and digital asset activities could adversely affect the market price of our digital assets, as well as our ability to hold or transact in digital assets, and in turn adversely affect the market price of our common stock.

The growth, use and acceptance of digital assets may also impact the price of digital assets and is subject to a high degree of uncertainty. The pace of worldwide growth in the adoption and use of digital assets may depend, for instance, on public familiarity with digital assets, ease of buying, accessing or gaining exposure to digital assets, institutional demand for digital assets as an investment asset, the participation of traditional financial institutions in the digital assets industry, consumer demand for digital assets as a store of value or means of payment, and the availability and popularity of alternatives to Bitcoin, Ethereum and Solana. Even if growth in digital assets adoption occurs in the near or medium-term, there is no assurance that digital asset usage will continue to grow over the long-term.