Stablecoin Development Corp: Form 10-Q for the period ended Sep 30, 2025

This discussion contains forward-looking statements that involve risks and uncertainties. The following discussion of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this report, and with our consolidated financial statements and related notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our 2024 Annual Report. Words such as “expects,” “anticipated,” “will,” “may,” “goals,” “plans,” “believes,” “estimates,” “concludes,” “determines,” variations of these words, and similar expressions are intended to identify these forward-looking statements. As a result of the significant changes that have occurred to us and our business as a result of completing the Avenova Asset Divestiture and the PhaseOne Divestiture, the 2025 Preferred Stock Issuance and the sale of the October 2025 Pre-Funded Warrants, the expected additional changes that will occur when we determine and proceed with the future strategic direction of our Company, as well as other factors, including those set forth under the section titled “Risk Factors” in Part I, Item 1A. of this Quarterly Report and the section titled “Risk Factors” in Part I, Item 1A. of our 2024 Annual Report, as well as in other sections in our SEC filings, our actual results may differ materially from those anticipated in these forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions based upon assumptions made that we believed to be reasonable at the time and are subject to risks and uncertainties. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements after the date of this report, even if new information becomes available in the future.

Overview

We were previously focused on the development and sale of eyecare, wound care, and skin care products. The Company may continue to manufacture wound care products domestically in the United States and export finished goods to China.

• The Avenova Asset Divestiture closed on January 17, 2025 in which we sold our primary eyecare business (see Note 14, “Avenova Asset Divestiture and Bridge Loan” in the Notes to Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report);
• The PhaseOne Divestiture closed on January 8, 2025 in which we sold our PhaseOne trademark (see Note 15, “PhaseOne Divestiture” in the Notes to Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report); and
• The DERMAdoctor Divestiture closed on March 12, 2024 in which we sold our primary skin care business (see Note 16, “DERMAdoctor Divestiture” in the Notes to Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report).

Discontinued Operations

Historical financial results related to each of the businesses that we divested above in the Avenova Asset Divestiture, the PhaseOne Divestiture and the DERMAdoctor Divestiture are presented as discontinued operations in the unaudited condensed consolidated financial statements included in this report. See Notes 14, “Avenova Asset Divestiture and Bridge Loan,” 15 “PhaseOne Divestiture” and 16, “DERMAdoctor Divestiture” to the Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report for additional details.

Previous Plan of Dissolution and Strategic Direction of the Company

The Company’s Board unanimously approved each of the divestitures above and subsequently evaluated additional strategic options available to the Company. During this time, the Board pursued the Dissolution pursuant to Plan of Dissolution which was approved at the 2025 Special Meeting (see Note 1, “Organization” in the Notes to Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report). Although stockholder approval of the Dissolution was received, the Board was authorized to subsequently determine, in its discretion, whether or not to proceed with the Dissolution. The Board ultimately determined not to pursue the Dissolution and simultaneously entered into the 2025 Preferred Stock Purchase Agreement (see Note 8, “Financing Activities” in the Notes to Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report), Series E Preferred Stock Closing (see Note 19, “Subsequent Events” in the Notes to Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report) and October 2025 Pre-Funded Warrants (see Note 19, “Subsequent Events” in the Notes to Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report). As part of its broader capital allocation review, the Company has begun evaluating opportunities within emerging financial infrastructure and network-based markets. These opportunities may include select blockchain-based assets that the Company believes could enhance capital efficiency and long-term stockholder value.

NYSE American Notices

On April 18, 2024, the Company received a notification from the NYSE American LLC Exchange (“NYSE American”) stating that the Company is not in compliance with Section 1003(a)(i), 1003(a)(ii) and 1003(a)(iii) of the NYSE American Company Guide (requiring stockholders’ equity of (i) $2.0 million or more if the Company has reported losses from continuing operations and/or net losses in two of its three most recent fiscal years; (ii) $4.0 million or more if the Company has reported losses from continuing operations and/or net losses in three of the four most recent fiscal years and (iii) $6.0 million or more if the Company has reported losses from continuing operations and/or net losses in its five most recent fiscal years, respectively.

On October 20, 2025, the Company was notified by NYSE American that the Company had regained compliance with the minimum stockholders’ equity requirements of Sections 1003(a)(i), 1003(a)(ii) and 1003(a)(iii) of the Company Guide.

Financial Overview and Outlook

Based on our funds available on September 30, 2025, together with net proceeds from the issuance of the Series E Preferred Stock and October 2025 Pre-Funded Warrants (see Note 19, “Subsequent Events” in the Notes to Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report), management believes that the Company’s existing cash and cash equivalents will be sufficient to enable the Company to meet its planned operating expenses at least through November 7, 2026; however, as referenced above, the Company is considering adjustments to its strategic direction. As a result of any changes in the Company’s strategic direction, there may be circumstances that cause the Company to adjust its anticipated spending in the near term.

Critical Accounting Estimates

Our unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, as well as the reported revenues and expenses during the reporting periods. In preparing these unaudited condensed consolidated financial statements, management has made its best estimates and judgments of certain amounts, giving due consideration to materiality. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates.

While our significant accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies” in the Notes to Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report, we believe that the following accounting estimates are most critical to fully understanding and evaluating our reported financial results as discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, particularly taking into account the significant changes that occurred to our business as a result of the closing of the Avenova Asset Divestiture and the PhaseOne Divestiture in January 2025.

Impairment of Assets

We review long-lived assets for impairment at least annually or whenever events or changes in business circumstances indicate that any such asset may be impaired, that the carrying amount of any such asset may not be fully recoverable or that the useful life of the asset, if applicable, is no longer appropriate. Management uses judgement in making critical assumptions and estimates in determining when an impairment assessment should be recorded, if more frequent than annually, or in the completion of any such assessment. This includes cash flow projections that look several years into the future and assumptions on variables such as economic conditions, probability of success, and discount rates. Changes in judgments with respect to these assumptions and estimates could impact any such impairments recorded such as those recorded in the first and third quarter of 2025 as further described in Notes 2, “Summary of Significant Accounting Policies;” 5, “Property and Equipment;” and 7, “Commitments and Contingencies” in the Notes to Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report.

Common Stock Warrant Liabilities

For warrants that are classified as liabilities, the Company records the fair value of the warrants upon issuance and at each balance sheet date with changes in the estimated fair value recorded as a non-cash gain or loss in the unaudited condensed consolidated statements of operations. The fair values of these warrants are determined using the Black Scholes option pricing model. These values are subject to a significant degree of management’s judgment.

Results of Operations

Comparison of the Three Months Ended September 30, 2025 and 2024 (dollars in thousands)

Impact of Divestitures

Financial results related to divested assets from the Avenova Asset Divestiture and the PhaseOne Divestiture for the three months ended September 30, 2025 and 2024 have been aggregated and reported for each of these periods in the line item titled “Net income from discontinued operations, net of taxes” in the table above. See additional information in Notes 14, “Avenova Asset Divestiture and Bridge Loan;” and 15, “PhaseOne Divestiture;” in Notes to the Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report for additional details regarding these financial results for the periods presented. The discussions below and throughout this section apply only to results from our continuing operations except as otherwise noted.

Total Net Sales and Cost of Goods Sold

Product revenue, net, increased $0.5 million, or 100%, to $0.5 million for the three months ended September 30, 2025.

Revenue and cost of goods sold recorded during the three months ended September 30, 2025 was from the Company’s wound care business sold to our Chinese distributor with no comparable order in the three months ended September 30, 2024.

General and administrative

General and administrative expenses decreased $0.5 million, or 29%, to $1.2 million for the three months ended September 30, 2025, from $1.7 million for the three months ended September 30, 2024, due primarily to a decrease in outside services costs related to non-recurring strategic initiatives, including the Avenova Asset Divestiture, the PhaseOne Divestiture, and evaluating and pursuing various strategic options for our Company.

Impairment of Long-Lived Assets

During the three months ended September 30, 2025, the Company recorded an impairment for right-of-use assets associated with leases of $84 thousand and $3 thousand for fixed assets including leasehold improvements.

Extinguishment of Secured Convertible Notes

Extinguishment of Secured Convertible Notes was $13 thousand for the three months ended September 30, 2024, with no comparable activity for the three months ended September 30, 2025.

Accretion of interest and amortization of discounts on convertible notes

Accretion of interest and amortization of discounts on convertible notes was $0.1 million for the three months ended September 30,

2024, with no comparable activity for the three months ended September 20, 2025.

Other expense, net

Other expense, net was $77 thousand for the three months ended September 30, 2025, with no comparable activity for the three months ended September 30, 2024.

Comparison of the Nine Months Ended September 30, 2025 and 2024 (dollars in thousands)

Impact of Divestitures

Financial results related to divested assets from the Avenova Asset Divestiture and the PhaseOne Divestiture for the nine months ended September 30, 2025 and from the DERMAdoctor Divestiture for the nine months ended September 30, 2024 have been aggregated and reported for each of these periods in the line item titled “Net income from discontinued operations, net of taxes” in the table above. See additional information in Notes 14, “Avenova Asset Divestiture and Bridge Loan;” 15, “PhaseOne Divestiture;” and 16, “DERMAdoctor Divestiture” in Notes to the Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report for additional details regarding these financial results for the periods presented. The discussions below and throughout this section apply only to results from our continuing operations except as otherwise noted.

Total Net Sales and Cost of Goods Sold

Product revenue, net, increased $0.5 million, or 100%, to $0.5 million for the nine months ended September 30, 2025.

Revenue and cost of goods sold recorded during the nine months ended September 30, 2025 was from the Company’s wound care business sold to our Chinese distributor with no comparable order in the nine months ended September 30, 2024.

General and administrative

General and administrative expenses increased $0.2 million, or 3%, to $5.8 million for the nine months ended September 30, 2025, from $5.6 million for the nine months ended September 30, 2024, due primarily to an increase in outside services costs related to non-recurring strategic initiatives, including evaluating and pursuing various strategic options for our Company.

Impairment of Long-Lived Assets

During the nine months ended September 30, 2025, the Company recorded an impairment for right-of-use assets associated with leases of $643 thousand and $33 thousand for fixed assets including leasehold improvements.

Non-cash gain on changes in fair value of warrant liability

Adjustments to the fair value of warrant liabilities resulted in a gain of $0.1 million for the nine months ended September 30, 2024 with no comparable adjustment for the nine months ended September 30, 2025. For additional information regarding warrant liabilities and their valuation, please see Note 3, “Fair Value Measurements” and Note 10, “Common Stock Warrants” in the Notes to Unaudited Condensed Consolidated Financial Statements, (unaudited) in Part I, Item 1 of this report.

Non-cash loss on changes in fair value of embedded derivative liability

Adjustments to the fair value of embedded derivative liability resulted in a loss of $18 thousand for the nine months ended September 30, 2024 with no comparable adjustment for the nine months ended September 30, 2025. For additional information regarding the embedded derivative liability and its valuation, please see Note 3, “Fair Value Measurements” and Note 9, “Convertible Notes” in the Notes to the Condensed Consolidated Financial Statements (unaudited), in Part I, Item 1 of this report.

Accretion of interest and amortization of discounts on convertible notes

Accretion of interest and amortization of discounts on convertible notes was $0.9 million for the nine months ended September 30, 2024 with no comparable result for the nine months ended September 30, 2025. The 2024 result was primarily from the amortization of discount and issuance cost related to the Secured Convertible Notes issued in May 2023 which were fully repaid in the third quarter of 2024. See Note 3, “Fair Value Measurements” and Note 9, “Convertible Notes” in the Notes to the Condensed Consolidated Financial Statements (unaudited), in Part I, Item 1 of this report.

Other expense, net

Other expense, net was $190 thousand for the nine months ended September 30, 2025 and $0.5 million for the nine months ended September 30, 2024. The higher result in the 2024 period was due to issuance costs incurred for the March 2024 Warrant and the Unsecured Convertible Notes issued in March 2024. See Note 9, “Convertible Notes” and Note 10, “Common Stock Warrants” in the Notes to the Condensed Consolidated Financial Statements (unaudited), in Part I, Item 1 of this report.

Financial Condition, Liquidity and Capital Resources

We have largely incurred net losses and generated negative cash flows from operations since inception and may incur losses as we pursue our new strategic direction. As of September 30, 2025, our cash and cash equivalents were $2.3 million, compared to $430 thousand as of December 31, 2024. Based on our funds available on September 30, 2025, together with net proceeds from the issuance of the Series E Preferred Stock and October 2025 Pre-Funded Warrants (see Note 19, “Subsequent Events” in the Notes to Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report), management believes that the Company’s existing cash and cash equivalents will be sufficient to enable the Company to meet its planned operating expenses at least through November 7, 2026; however, as referenced above, the Company is considering adjustments to its strategic direction. As a result of any changes in the Company’s strategic direction, there may be circumstances that cause the Company to adjust its anticipated spending in the near term.

Net Cash Used in Operating Activities, Continuing Operations

Net cash used in operating activities from continuing operations was $6.2 million for the nine months ended September 30, 2025, which consisted primarily of a net loss from continuing operations of $6.6 million, adjusted by depreciation and amortization expenses of $5 thousand, stock-based compensation expenses related to employee and director stock awards of $6 thousand, non-cash right-of-use asset amortization of $0.1 million, non-cash impairment of long-lived assets of $0.7 million, accretion of interest and amortization of debt discounts on convertibles notes of $84 thousand, and a net increase of $0.4 million in our net operating assets and liabilities of continuing operations.

Net cash used in operating activities from continuing operations was $5.8 million for the nine months ended September 30, 2024, which consisted primarily of a net loss from continuing operations of $6.0 million, adjusted by depreciation and amortization expenses of $24 thousand, stock-based compensation expenses related to employee and director stock awards of $0.1 million, non-cash expense incurred to obtain consent of Secured Convertible Note holders in connection with the DERMAdoctor Divestiture of $0.4 million, non-cash gain on changes in fair value of warrant liability of $0.1 million, non-cash loss on changes in fair value of embedded derivative liability of $18 thousand, non-cash loss on modification of warrants of $69 thousand, non-cash right-of-use asset amortization of $254 thousand, accretion of interest and amortization of debt discounts on convertibles notes of $0.9 million, and a net increase of $0.6 million in our net operating assets and liabilities of continuing operations.

Cash Used in Investing Activities, Continuing Operations

Net cash used in investing activities from continuing operations was $2 thousand for the nine months ended September 30, 2024, which consisted of purchases of property and equipment. There was no cash used in, or provided by, investing activities from continuing operations during the nine months ended September 30, 2025.

Cash Used in Financing Activities, Continuing Operations

Net cash used in financing activities from continuing operations was $3.2 million for the nine months ended September 30, 2025, which consisted primarily of $2.0 million in cash payments to repurchase outstanding warrants, a $0.5 million repayment of the Bridge Note, and dividend paid of $4.8 million. Offsetting these payments were $0.9 million in proceeds from warrant exercises and $3.8 million in proceeds from the Lazar Purchase Agreement.

Net cash provided by financing activities from continuing operations was $1.0 million for the nine months ended September 30, 2024,

which included repayment of $2.0 million for the Secured Convertible Notes through September 30, 2024, net proceeds of $2.9 million from the 2024 Public Offering transaction, and the net proceeds of $0.2 million from the 2024 Warrant Repice transaction.

Net Operating Losses and Tax Credit Carryforwards

As of December 31, 2024, we had net operating loss carryforwards for federal and state income tax purposes of $153.7 million and $128.6 million, respectively. The federal net operating loss carryforwards consist of $94.9 million generated before January 1, 2018, which will begin to expire in 2025 and $59.6 million generated after December 31, 2017, that will carry forward indefinitely but are subject to an 80% limitation for years following December 31, 2021. The state net operating loss carryforwards will begin to expire in 2028. As of December 31, 2024, we also had tax credit carryforwards of $0.5 million for federal income tax purposes and $0.1 million for state tax purposes. If not utilized, the federal tax credits will begin expiring in 2031. The state tax credits have an indefinite carryover period.

Current federal and California tax laws include substantial restrictions on the utilization of net operating loss carryforwards in the event of an ownership change of a corporation. Accordingly, our ability to utilize net operating loss carryforwards may be limited as a result of such ownership changes. Such a limitation could result in the expiration of carryforwards before they are utilized.

Inflation

Our costs and operating expenses are subject to fluctuations, particularly historically due to changes in the cost of labor and service providers. As a result of our recent changes to our business and reduced operations, our future business results will depend, in part, on our continued ability to manage these fluctuations through cost savings projects and sourcing decisions. Failure to manage these fluctuations could adversely impact our results of operations or cash flows.

Off-Balance Sheet Arrangements

We did not have any “off-balance sheet arrangements” as defined in Item 303(b)(1)(ii)(B) of Regulation S-K at September 30, 2025 or December 31, 2024.

Seasonality

Our NeutroPhase branded product is sold through our distribution partner in China; therefore, we receive periodic large orders that result in large chunks of revenue that are received in irregular intervals.

Contractual Obligations

In the normal course of business, we have historically entered into contracts and commitments that obligate us to make payments in the future and we expect to enter into contracts and commitments on behalf of the Company in connection with our evolving strategic direction. Information regarding our obligations under lease and convertible note arrangements are provided in Notes 7 and 9, respectively, in the Notes to the Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report.

Our market risk consists principally of interest rate risk on our cash and cash equivalents. Our exposure to market risk is limited primarily to interest income sensitivity, which is affected by changes in interest rates, particularly because our current liquid assets at September 30, 2025 were held in cash and cash equivalents.

Our investment policy restricts our investments to high-quality investments and limits the amounts invested with any one issuer, industry, or geographic area. The goals of our investment policy are as follows: preservation of capital, assurance of liquidity needs, best available return on invested capital, and minimization of capital taxation. Some of the securities in which we invest may be subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with an interest rate fixed at the then-prevailing rate and the prevailing interest rate later rises, the principal amount of our investment will probably decline. To minimize this risk, in accordance with our investment policy, we maintain our cash and cash equivalents in short-term marketable securities, including money market mutual funds, Treasury bills, Treasury notes, certificates of deposit, commercial paper, and corporate and municipal bonds. The risk associated with fluctuating interest rates is limited to our investment portfolio. Due to the short-term nature of our investment portfolio, we believe we have minimal interest rate risk arising from our investments. As of September 30, 2025 and December 31, 2024, a 10% change in interest rates would have had an immaterial effect on the value of our investment portfolio. We do not use derivative financial instruments in our investment portfolio. We do not hold any instruments for trading purposes.

With most of our focus on the domestic U.S. market, we have not had any material exposure to foreign currency rate fluctuations.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Assessing the costs and benefits of such controls and procedures necessarily involves the exercise of judgment by management. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Based upon that evaluation at September 30, 2025, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure, at the reasonable assurance level, that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the current quarter which has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

For information regarding factors that could affect our business, results of operations, financial condition and liquidity, see the risk factors discussed under Part I, Item 1A included in our 2024 Annual Report.

The Company is supplementing the risk factors previously disclosed in our 2024 Annual Report with the following risk factors.

Risks Related to Our Proposed Strategy Focusing on Assets Within Emerging Decentralized Financial Infrastructure and Network-Based Markets

We are considering shifting a portion of our business strategy by evaluating opportunities within emerging decentralized financial infrastructure and network-based markets, which may include select blockchain based assets and we may be unable to successfully implement this new strategy.

We are considering shifting a portion of our business strategy by evaluating opportunities within emerging decentralized financial infrastructure and network-based markets, which may include select blockchain-based assets, including through staking, restaking, liquid staking and other decentralized finance activities. The Company’s review of such opportunities is preliminary in nature, and there can be no assurance that any particular transaction, investment, or strategic initiative will be pursued or consummated. These evaluations remain subject to ongoing diligence, market conditions, regulatory considerations, and approval by the Board, as appropriate. Any potential activity in this area would be conducted in a manner consistent with the Company’s existing compliance framework and applicable laws and regulations. This strategic shift would require specialized employee skillsets and operational, technical and compliance infrastructure to support stablecoin and related staking activities. This would also require that we implement different security protocols and treasury management practices. Further, there is ongoing scrutiny and limited formal guidance from regulatory agencies, including NYSE and the SEC, with respect to the treatment of similar strategies from other public companies. There is no assurance that we will be able to execute this strategy by building out the needed infrastructure within the timeframe that we currently anticipate. Errors by key management could result in significant loss of funds and reduced rewards. As a result, our shift towards blockchain-based assets could have a material adverse effect on our business and financial condition.

Our potential shift towards a business strategy focused on emerging decentralized financial infrastructure and blockchain-based assets would require substantial changes in our day-to-day operations and exposes us to significant operational risks.

Our potential shift towards a strategy focused on emerging decentralized financial infrastructure and blockchain-based assets, including staking, restaking, liquid staking, and other decentralized finance activities, exposes us to significant operational risks. They may also require that we maintain constant up time to ensure that we are eligible for staking rewards and to avoid penalties. In addition, the decentralized financial infrastructure and network-based markets ecosystem rapidly evolves, with frequent upgrades and protocol changes that may require significant adjustments to our operational setup. The upgrades and protocol changes may require that we incur unanticipated costs. We may also need to employ third-party service providers in our operations, which may introduce risks outside of our control, including significant cybersecurity risks. Any of these operational risks could materially and adversely affect our ability to execute our strategy, prevent us from realizing positive returns and severely hurt our financial condition.

Adverse changes in the regulatory treatment of blockchain-based assets could materially impair the value and liquidity of our future holdings and negatively impact our business, financial condition, and results of operations going forward.

The legal and regulatory framework governing blockchain-based assets in the United States and in foreign jurisdictions is rapidly evolving and remains highly uncertain. Federal, state, and foreign regulators continue to issue new rules and take enforcement actions that directly or indirectly affect the classification, transferability, custody, and tax treatment of blockchain-based assets. Should any such asset we purchase, or the activities of any party critical to the blockchain ecosystem (including exchanges, validators, or custodians), be deemed to violate securities, commodities, anti-money-laundering, sanctions, consumer-protection, or other applicable laws, we could become subject to significant fines, penalties, registration requirements, trading restrictions, or forced divestiture of such blockchain-based assets. Any such development could cause a precipitous decline in the market price of such assets, impair our ability to monetize or otherwise use our blockchain-based asset treasury, and adversely impact the market price of our securities.

Risks Related to Blockchain-Based Assets

The blockchain-based asset trading platforms on which assets within emerging financial infrastructure and network-based markets trade are relatively new and largely unregulated or may not be complying with existing regulations.

The blockchain-based assets that we are evaluating primarily trade on blockchain-based asset trading platforms and decentralized finance protocols which are relatively new and, in many ways, are not subject to, or may not comply with, regulation in relevant jurisdictions in a manner similar to other regulated trading platforms, such as national securities exchanges or designated contract markets. While many of these relatively new trading platforms provide the public with information regarding their ownership structure, management teams, private key management, hot/cold storage policies, on-chain activities, capitalization, corporate practices and regulatory compliance, many other relatively new trading platforms do not. In particular, those located outside the United States may be subject to significantly less stringent regulatory and compliance requirements in their local jurisdictions.

The trading platforms on which the blockchain-based assets that we are evaluating trade may be unpredictable and susceptible to attacks.

Significant trading may occur on systems and platforms with minimum predictability. Spot markets may impose daily, weekly, monthly or customer-specific transaction or withdrawal limits or suspend withdrawals entirely, rendering the exchange of blockchain-based assets for fiat currency difficult or impossible. Further, participation in spot markets requires users to take on credit risk by transferring blockchain-based assets from a personal account to a third-party’s account.

Additionally, tools to detect and deter fraudulent or manipulative trading activities (such as market manipulation, front-running of trades, and wash-trading) may not be available to or employed by such trading platforms or may not exist at all. As a result, the marketplace may lose confidence in, or may experience problems relating to, these venues and the blockchain-based assets that trade on these venues. No trading platform on which blockchain-based assets trade is immune from these risks. The closure or temporary shutdown of such trading platforms due to fraud, business failure, hackers or malware, or government-mandated regulation may reduce confidence in blockchain-based assets and other assets within emerging financial infrastructure and network-based markets and can slow down the mass adoption of it. Further, trading platform failures can have an adverse effect on blockchain-based markets and the price of blockchain-based assets and could therefore have a negative impact on the performance of our Common Stock.

The trading prices of many blockchain-based assets have experienced extreme volatility in recent periods and may continue to do so. Extreme volatility in the future, including further declines in trading prices, could have a material adverse effect on the value of our common stock and the common stock could lose all or substantially all of its value.

The trading prices of many blockchain-based assets have experienced extreme volatility in recent periods and may continue to do so. For instance, there were steep increases in the value of certain blockchain-based assets over the course of 2021, and multiple market observers asserted that blockchain-based assets were experiencing a “bubble.” These increases were followed by steep drawdowns throughout 2022. Prices of such blockchain-based assets continued to fluctuate widely throughout 2023 and through this date.

Extreme volatility in the future could have a material adverse effect on the value of our common stock and our common stock could lose all or substantially all of its value. Furthermore, negative perception and a lack of stability and standardized regulation in the blockchain-based economy may reduce confidence in the blockchain-based economy and may result in greater volatility in the price of blockchain-based assets, including a depreciation in value.