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

Overview

Oblong is building a robust cryptocurrency treasury focused on decentralized artificial intelligence ("AI") and the acquisition of $TAO, the native cryptocurrency of Bittensor, a decentralized blockchain network for machine learning and AI. The Company also provides innovative video collaboration and network solutions, centered around our patented Mezzanine™ product line and managed services.

Mezzanine™ Product Offerings

Our product is called Mezzanine™, a family of turn-key products that enable dynamic and immersive visual collaboration across multi-users, multi-screens, multi-devices, and multi-locations (see further description of Mezzanine™ in Part I, Item 1). Mezzanine™ allows multiple people to share, control, and arrange content simultaneously, from any location, enabling all participants to see the same content in its entirety at the same time in identical formats, resulting in dramatic enhancements to both in-room and virtual videoconference presentations. Applications include video telepresence, laptop and application sharing, whiteboard sharing, and slides. Spatial input allows content to be spread across screens, spanning different walls, scalable to an arbitrary number of displays, and interaction with our proprietary wand device. Mezzanine™ substantially enhances day-to-day virtual meetings with technology that accelerates decision making, improves communication, and increases productivity. Mezzanine™ scales up to support the most immersive and commanding innovation centers; across to link labs, conference spaces, and situation rooms; and down for the smallest work groups. Mezzanine’s digital collaboration platform can be sold as delivered systems in various configurations for small teams to total immersion experiences. The family includes the 200 Series (two display screen), 300 Series (three screen), and 600 Series (six screen). We also sell maintenance and support contracts related to Mezzanine™.

Historically, customers have used Mezzanine™ products in traditional office and operating center environments such as conference rooms or other presentation spaces. Sales of our Mezzanine™ product have been adversely affected during the last several years by the commercial response to the COVID-19 pandemic and its aftermath. Like many technology companies in recent months, we will continue to monitor and manage our costs relative to demand with the goal of growing the Company’s revenue in the future. We are not currently investing in research and development or sales and marketing for our Mezzanine™ product. To the extent we believe new investments in these areas are warranted as a result of changes in market demand, we believe additional capital will be required to fund those efforts and our ongoing operations.

Managed Services for Network

We provide our customers with network solutions that ensure reliable, high-quality, and secure traffic of video, data, and internet. Network services are offered to our customers on a subscription basis. Our network services business carries variable costs associated with purchasing and reselling this connectivity.

Managed Services for Video Collaboration

We provide a range of managed services for video collaboration, from automated to orchestrated, to simplify the user experience in an effort to drive adoption of video collaboration throughout our customers’ enterprises. We deliver our services through a hybrid service platform or as a service layer on top of our customers’ video infrastructure. We provide our customers with i) managed videoconferencing, where we set up and manage customer videoconferences, and ii) remote service management, where we provide 24/7 support and management of customer video environments.

Staking Rewards on Digital Assets

In exchange for staking digital assets on blockchain networks, the Company is entitled to a fractional share of the fixed digital asset award a third-party validator node receives for successfully validating or adding a block to the blockchain. This award is remitted in the native token of the validator node and is referred to as a staking reward. The Company’s staking reward received from delegating to a third-party validator node is proportionate to the digital assets staked by the Company compared to the total digital assets staked by all delegators to that node at that time. Token rewards earned from staking are calculated and distributed directly to Oblong's digital wallets by the blockchain networks as part of their consensus mechanisms.

-24-

Strategy

During the last several years, the Company has faced declining revenues for both our Mezzanine product offering and our Managed Services. These setbacks prompted us to undertake a comprehensive review of our strategic direction with the aim of enhancing shareholder value through various means.

In conjunction with the Company's June 2025 private placement, the Company has started to migrate its product focus from Mezzanine™ and related services to the AI and digital assets market.

Oblong envisions a dynamic integration into the Bittensor ecosystem, embracing its decentralized AI network to build a thriving and sustainable future. By staking $TAO tokens within Bittensor’s framework, the Company seeks to create a robust foundation that could fuel long-term growth and engagement, focusing on internal initiatives and collaborative partnerships to amplify its impact in the decentralized AI landscape. The Company is also exploring partnerships within the Bittensor ecosystem to potentially develop technology offerings, further aligning its operational and treasury strategies.

The Company aims to act as a central catalyst, uniting community engagement, user empowerment, and technical expertise within subnets. It seeks to foster collaboration through vibrant spaces for knowledge-sharing, equip users with intuitive tools to seamlessly explore the ecosystem, and contribute operational insights to enhance decentralized AI. By harmonizing these efforts, Oblong hopes to spark innovation, deepen connections across Bittensor’s network, and become a tangible contributor in shaping the future of decentralized intelligence, creating an inclusive environment where creativity and participation thrive.

Oblong’s Results of Operations

Three Months Ended September 30, 2025 (the “2025 Third Quarter”), compared to the Three Months Ended September 30, 2024 (the “2024 Third Quarter”)

Segment Reporting

The Company currently operates in two segments for purposes of segment reporting: (1) “Collaboration Products,” which represents the Oblong Industries business surrounding our Mezzanine™ product offerings, and (2) “Managed Services,” which represents the Oblong business surrounding managed services for network solutions and video collaboration. The Company has included its digital asset operations in its non-segmented corporate activities.

In 2024, we adopted Accounting Standards Update 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. As part of our adoption of ASU 2023-07 and the Chief Operating Decision Maker’s evaluation of segment performance for the 2025 Third Quarter and the 2024 Third Quarter, we updated certain segment information for 2025 and recast certain prior period segment information from 2024 to conform with our current period segment presentation.

-25-

The following table summarizes the key income statement components that we use to evaluate our financial performance on a consolidated and reportable segment basis for the 2025 Third Quarter and the 2024 Third Quarter (in thousands):

(1) There were no operating expenses related to our Managed Service segment during the 2025 Third Quarter or the 2024 Third Quarter.

(2) Operating expenses related to our Collaboration Products Segment include research and development, sales and marketing, and other miscellaneous expenses.

(3) Corporate operating expenses include costs that are not specific to a particular segment but are general to the group. These include expenses for administrative, information technology, and accounting staff, general liability and other insurance, professional fees, and similar corporate expenses. The 2025 Third Quarter also includes cash and stock-based advisory fees related to digital assets.

(4) Unrealized losses from the fair-value remeasurement of digital assets and interest income on our cash and cash-equivalents are related to Corporate.

-26-

Revenue. Total revenue increased 4% in the 2025 Third Quarter compared to the 2024 Third Quarter. The following table summarizes the changes in components of our revenue (in thousands), and the significant changes in revenue are discussed in more detail below.

Managed Services

• The slight decrease in revenue for network services is mainly attributable to disconnects at certain customer locations.
• For the 2025 Third Quarter, one customer made up 99% of Managed Services revenue. For the 2024 Third Quarter, this customer made up 98% of Managed Services revenue.

Collaboration Products

• The decrease in revenue for Collaboration Products was mainly attributable to a decrease in sales of our Mezzanine™ products due to lower demand.

Digital Assets

• Our digital asset staking rewards are based on the number of digital assets we have staked. For the three months ended September 30, 2025, we had an average staking rate of 99% for our digital asset balance staked.

The following table identifies the digital assets earned from staking activities:

-27-

Cost of Revenue. Cost of revenue includes all internal and external costs related to the delivery of revenue. Cost of revenue also includes taxes, which have been billed to customers. Cost of revenue by segment is presented in the following table (in thousands):

The decrease in our consolidated cost of revenue is mainly attributable to lower costs related to our Collaboration Products segment. Our consolidated gross profit as a percentage of revenue was 26% in the 2025 Third Quarter, compared to a consolidated gross profit as a percentage of revenue of 14% in the 2024 Third Quarter.

Our Managed Services segment recorded a 30% gross profit as a percentage of sales for the 2025 Third Quarter, compared to 42% in the 2024 Third Quarter. This decrease was primarily due to the reallocation of personnel expenses following our reduction in headcount in September 2024.

Our Collaboration Products segment recorded a gross profit as a percentage of sales of 71% for the 2025 Third Quarter, compared to a negative gross profit as a percentage of sales of 200% in the 2024 Third Quarter. This increase was mainly attributable to a decrease in personnel costs in the 2025 Third Quarter related to headcount reductions in September 2024 and a reduction in the expense related to our inventory obsolescence reserve of $29,000 in the 2025 Third Quarter compared to the 2024 Third Quarter.

Our digital assets recorded a gross profit as a percentage of revenue of 92% for the 2025 Third Quarter. Our cost of revenue for digital assets is made up of asset fees charged by the custodian and advisor fees on our staked digital assets.

Operating expenses are presented in the following table (in thousands):

Research and Development. Research and development expenses include internal and external costs related to developing features and enhancements to our existing product offerings. The decrease in research and development expenses for the 2025 Third Quarter compared to the 2024 Third Quarter is primarily attributable to a decrease in consulting and outsourced labor costs between these periods.

Sales and Marketing Expenses. The decrease in sales and marketing expenses for the 2025 Third Quarter compared to the 2024 Third Quarter is primarily attributable to reduced personnel expenses during the 2025 Third Quarter related to headcount reductions in September 2024.

General and Administrative Expenses. General and administrative expenses include direct corporate expenses and personnel costs in the various corporate support categories, including executive, finance and accounting, legal, human resources, and information technology. The decrease in general and administrative expenses for the 2025 Third Quarter compared to the 2024 Third Quarter is primarily attributable to reduced personnel expenses related to headcount reductions in September 2024, slightly offset by increased professional service fees, stock-based expense, and insurance expenses.

Other (Expense) Income, Net. Other (expense), net for the 2025 Third Quarter, is primarily comprised of unrealized losses on our digital assets, slightly offset by our interest income related to our cash accounts. Other income, net for the 2024 Third Quarter, is primarily comprised of interest income related to our cash accounts.

Loss from Operations. The decrease in the Company’s loss from operations for the 2025 Third Quarter compared to the 2024 Third Quarter is mainly attributable to an increase in gross profit and a decrease in operating expenses.

-28-

Oblong’s Results of Operations

Nine Months Ended September 30, 2025, compared to the Nine Months Ended September 30, 2024

Segment Reporting

In 2024, we adopted Accounting Standards Update 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. As part of our adoption of ASU 2023-07 and the Chief Operating Decision Maker’s evaluation of segment performance for the nine months ended September 30, 2025, and 2024, we updated certain segment information for 2025 and recast certain prior period segment information from 2024 to conform with our current period segment presentation.

The following table summarizes the key income statement components that we use to evaluate our financial performance on a consolidated and reportable segment basis for the nine months ended September 30, 2025, and 2024 (in thousands):

(1) There were no operating expenses related to our Managed Service segment during the nine months ended September 30, 2025, or 2024.

(2) Operating expenses related to our Collaboration Products Segment include research and development, sales and marketing, and other miscellaneous expenses. Operating expense for the nine months ended September 30, 2025, also included a bad debt recovery of $18,000.

(3) Corporate operating expenses include costs that are not specific to a particular segment but are general to the group. These include expenses for administrative, information technology, and accounting staff, general liability and other insurance, professional fees, and similar corporate expenses. The nine months ended September 30, 2025, also includes cash and stock-based advisory fees related to digital assets.

(4) Other income (expense) for our segments includes interest expense and non-operating income. Unrealized losses from the fair-value remeasurement of digital assets and interest income on our cash and cash equivalents are related to Corporate.

-29-

Revenue. Total revenue remained steady in the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024. The following table summarizes the changes in components of our revenue (in thousands), and the significant changes in revenue are discussed in more detail below.

Managed Services

• The slight decrease in revenue for network services is mainly attributable to disconnects at certain customer locations.
• The decrease in revenue for video collaboration services is mainly attributable to lower revenue from existing customers (either from reductions in price or level of services) and customer loss to competition.
• For the nine months ended September 30, 2025, one customer made up 99% of Managed Services revenue. For the nine months ended September 30, 2024, this customer made up 98% of Managed Services revenue.

Collaboration Products

• The decrease in revenue for Collaboration Products was mainly attributable to a decrease in sales of our MezzanineTM products due to lower demand.

Digital Assets:

• Our digital asset staking rewards are based on the number of digital assets we have staked. For the nine months ended September 30, 2025, we had an average staking rate of 99% for our digital asset balance.

The following table identifies the digital assets earned from staking activities:

-30-

Cost of Revenue. Cost of revenue includes all internal and external costs related to the delivery of revenue. Cost of revenue also includes taxes, which have been billed to customers. Cost of revenue by segment is presented in the following table (in thousands):

The decrease in our consolidated cost of revenue is mainly attributable to lower costs related to our Collaboration Products segment. Our consolidated gross profit as a percentage of revenue was 40% in the nine months ended September 30, 2025, compared to a consolidated gross profit as a percentage of revenue of 11% in the nine months ended September 30, 2024.

Our Managed Services segment recorded a 28% gross profit as a percentage of sales for the nine months ended September 30, 2025, compared to 35% in the nine months ended September 30, 2024. This decrease was primarily due to the reallocation of personnel expenses following our reduction in headcount in September 2024.

Our Collaboration Products segment recorded a gross profit as a percentage of sales of 95% for the nine months ended September 30, 2025, compared to a negative gross profit as a percentage of sales of 127% in the nine months ended September 30, 2024. This increase was mainly attributable to a decrease in personnel costs in the nine months ended September 30, 2025, related to headcount reductions in September 2024, and a reduction in the expense related to our inventory obsolescence reserve of $146,000 in the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024.

Our digital assets recorded a gross profit as a percentage of revenue of 91% for the nine months ended September 30, 2025. Our cost of revenue for digital assets is made up of asset fees charged by the custodian and advisor fees on our staked digital assets.

Operating expenses are presented in the following table (in thousands):

Research and Development. Research and development expenses include internal and external costs related to developing features and enhancements to our existing product offerings. The decrease in research and development expenses for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, is primarily attributable to a decrease in consulting and outsourced labor costs between these periods.

Sales and Marketing Expenses. The decrease in sales and marketing expenses for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, is primarily attributable to reduced personnel expenses related to headcount reductions in September 2024.

General and Administrative Expenses. General and administrative expenses include direct corporate expenses and personnel costs in the various corporate support categories, including executive, finance and accounting, legal, human resources, and information technology. The decrease in general and administrative expenses for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, is primarily attributable to reduced personnel expenses related to headcount reductions in September 2024, slightly offset by increased stock-based expenses and professional fees.

Other (Expense) Income, Net. Other (expense), net for the nine months ended September 30, 2025, is primarily comprised of unrealized losses on digital assets, slightly offset by interest income on our cash accounts. Other income, net for the nine months ended September 30, 2024, is primarily comprised of interest income related to our cash accounts.

Loss from Operations. The decrease in the Company’s loss from operations for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, is mainly attributable to an increase in gross profit and a decrease in operating expenses.

-31-

Off-Balance Sheet Arrangements

As of September 30, 2025, we had no off-balance sheet arrangements.

Inflation

Management does not believe inflation had a significant effect on the Condensed Consolidated Financial Statements for the periods presented.

Critical Accounting Policies

During the nine months ended September 30, 2025, we adopted critical accounting policies related to our digital assets. Please refer to Note 1 - Business Description and Significant Accounting Policies - Digital Assets for further information. Critical accounting policies and the significant estimates made in accordance with such policies are regularly discussed with our Audit Committee. Those policies are discussed under “Critical Accounting Policies” in “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as in our Condensed Consolidated Financial Statements and the footnotes thereto, each included in our 2024 Annual Report.

Liquidity and Capital Resources

As of September 30, 2025, we had $3,737,000 in cash and cash equivalents and working capital of $9,820,000. For the nine months ended September 30, 2025, we incurred a net loss of $3,567,000, and we used $2,271,000 of net cash in operating activities.

Financing activities provided $9,043,000 of net cash for the nine months ended September 30, 2025, consisting of net proceeds from the 2025 Private Placement and warrant exercises.

We believe our existing cash, cash equivalents, and the fair value of our $TAO tokens (if converted to cash) will be sufficient to fund our operations and meet our working capital requirements for at least the next twelve months from the filing of this Report. This assessment is based on current market conditions, regulatory environment, and the Company's operational plans, all of which are subject to change. In the long term, we believe additional capital will be required to fund operations and provide growth capital, including increasing the size of our cryptocurrency treasury. To access capital to fund operations or provide growth capital, we will need to raise capital from the exercise of outstanding common and/or preferred warrants, and/or in one or more debt and/or equity offerings. There can be no assurance that we will be successful in raising the necessary capital or that any such offering will be on terms acceptable to the Company. If we are unable to raise additional capital that may be needed on terms acceptable to us, it could have a material adverse effect on the Company.

As a “smaller reporting company” as defined by the rules and regulations of the SEC, we are not required to provide this information.

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2025. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2025, the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and are designed to ensure that information required to be disclosed by the Company in the reports we file or submit under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

No change in our internal control over financial reporting occurred during the fiscal quarter ended September 30, 2025, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

-32-

A description of the risks associated with our business, financial conditions, and results of operations is set forth in “Part I. Item 1A. Risk Factors” of our 2024 Annual Report. Except as set forth below, there have been no material changes to these risks during the nine months ended September 30, 2025. The risks described in the 2024 Annual Report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, or future results.

We rely on a limited number of customers for a significant portion of our revenue, and the loss of any one of those customers, or several of our smaller customers, could materially harm our business. A significant portion of our revenue is generated from a limited number of customers. For the three and nine months ended September 30, 2025, one major customer accounted for 80% and 81% of the Company’s total consolidated revenue, respectively. The composition of our significant customers will vary from period to period, and we expect that most of our revenue will continue, for the foreseeable future, to come from a relatively small number of customers. Consequently, our financial results may fluctuate significantly from period to period based on the actions of one or more significant customers. A customer may take actions that affect the Company for reasons that we cannot anticipate or control, such as reasons related to the customer’s financial condition, changes in the customer’s business strategy or operations, changes in technology, and the introduction of alternative competing products, or as the result of the perceived quality or cost-effectiveness of our products. Our agreements with these customers may be canceled if we materially breach the agreement or for other reasons outside our control, such as insolvency or financial hardship that may result in a customer filing for bankruptcy court protection against unsecured creditors. If our customers were to experience losses due to a depository institution’s failure to return their deposits, it could expose us to an increased risk of nonpayment under our contracts with them. In addition, our customers may seek to renegotiate the terms of current agreements or renewals. The loss of or a reduction in sales or anticipated sales to our most significant or several of our smaller customers could have a material adverse effect on our business, liquidity, financial condition, and results of operations.

Future issuances of equity or debt securities by us may adversely affect the market price of our Common Stock. Our authorized share capital consists of 150 million shares of Common Stock. As of the filing of this report, we had an aggregate of approximately 146.8 million shares of Common Stock authorized but unissued, and approximately 19 million shares of Common Stock authorized but unissued after giving effect to the exercise or conversion, as applicable, of the securities issued in the 2023 Private Placement and the 2025 Private Placement and outstanding awards, assuming all of the shares of Series F Preferred Stock are converted into 44,747 shares of Common Stock at the conversion price of $3.77, all of the Preferred Warrants are exercised in full and the underlying shares of Series F Preferred Stock are converted into 8,097,347 shares of Common Stock at the conversion price of $3.77, all of the 8,097,347 Common Warrants issued upon the exercise of the Preferred Warrants are then exercised at an exercise price of $3.77 in exchange for 8,097,347 shares of Common Stock, all of the Common Warrants and Placement Agent Warrants issued in the 2023 Private Placement are exercised at an exercise price of $3.41 for 1,902,997 shares of Common Stock, all the Pre-Funded Warrants issued in 2025 Private Placement are exercised at an exercise price of $3.77 for 706,261 shares of Common Stock, all of the Placement Agent Warrants issued in the 2025 Private Placement are exercised at an exercise price of $4.71 for 99,470 share of Common Stock, and the Advisor Warrants are exercised at an exercise price of $3.77 for 100,000 shares of Common Stock. Additionally, depending on the trading prices of our Common Stock, we may need to issue more or fewer shares of Common Stock in connection with the exercise of the Preferred Warrants. If we do not have the shares of Common Stock available to issue in connection with such exercises, we will be required to provide the exercising holder a buy-in of cash.

In the future, we may attempt to obtain financing or to increase further our capital resources, or refinance existing obligations, by issuing additional shares of our Common Stock or offering debt or other equity securities, including commercial paper, medium-term notes, senior or subordinated notes, debt securities convertible into equity or shares of preferred stock. Future acquisitions could require substantial additional capital in excess of cash from operations. There can be no guarantee that these offers to exchange will be successful. In addition, we also expect to issue additional shares in connection with exercise of our stock options under our incentive plans.

Issuing additional shares of our Common Stock or other equity securities or securities convertible into equity for financing or in connection with our incentive plans, acquisitions or otherwise may dilute the economic and voting rights of our existing shareholders or reduce the market price of our Common Stock or both. Upon liquidation, holders of our debt securities and preferred shares, if issued, and lenders with respect to other borrowings would receive a distribution of our available assets prior to the holders of our Common Stock. Debt securities convertible into equity could be subject to adjustments in the conversion ratio pursuant to which certain events may increase the number of equity securities issuable upon conversion. Preferred shares, if issued, could have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our Common Stock. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, which may adversely affect the amount, timing or nature of our future offerings. Thus, holders of our Common Stock bear the risk that our future offerings may reduce the market price of our Common Stock and dilute their stockholdings in us. Additionally, we may be required to secure stockholder approval to authorize additional shares of Common Stock if we desire to issue additional shares of Common Stock or other equity securities or securities convertible into equity.

-33-

We own and might purchase additional digital assets, the price of which has been, and will likely continue to be, highly volatile. We currently own and expect to purchase digital assets in the future. Digital assets are generally highly volatile assets. In addition, digital assets do not pay interest or other returns and so the ability to generate a return on investment from the net proceeds from this offering will depend on whether there is appreciation in the value of digital assets following our purchases of digital assets with the net proceeds from this offering. Future fluctuations in digital asset trading prices may result in our converting digital assets purchased into cash with a value substantially below the purchase price.

If any of the digital assets that we hold are classified as a security, we may be subject to extensive regulation, which could result in significant costs or force us to cease certain operations. Regulatory changes or interpretations that classify digital assets that we hold as a security under the Securities Act of 1933, as amended (the “Securities Act”) or Investment Company Act of 1940, as amended (the “Investment Company Act”), could require us to register and comply with additional regulations. Compliance with these requirements could impose extraordinary, non-recurring expenses on our business. If the costs and regulatory burdens become too great, we may be forced to modify or cease certain operations, which could be detrimental to our investors.

The SEC has previously indicated that certain digital assets may be considered securities depending on their structure and use. Future developments could change the legal status of digital assets that we may hold, requiring us to comply with securities laws. If we fail to do so, we may be forced to discontinue some or all of our business activities, negatively impacting investments in our securities.

If the SEC or other regulators determine that digital assets that we may hold qualify as securities, we may be required to register as an investment company under the Investment Company Act. This classification would subject us to additional periodic reporting, disclosure requirements, and regulatory compliance obligations, significantly increasing our operational costs.

Although we do not currently engage in investing, reinvesting, or trading securities, and we do not hold ourselves out as an investment company, we could inadvertently be deemed one under the Investment Company Act. If we are unable to rely on an exclusion, we would be required to register with the SEC, which could impose additional financial and regulatory burdens.

Furthermore, state regulators may conclude that the digital assets we hold are securities under state laws, requiring us to comply with state-specific securities regulations. States like California have stricter definitions of “investment contracts” than the SEC, increasing the risk of additional regulatory scrutiny.

Changes in regulatory interpretations could require us to register as a money services business or money transmitter, leading to increased compliance costs or operational shutdowns. If regulatory changes or interpretations require us to register as a money services business with FinCEN under the U.S. Bank Secrecy Act, or as a money transmitter under state laws, we may be subject to extensive regulatory requirements, resulting in significant compliance costs and operational burdens. In such a case, we may incur extraordinary expenses to meet these requirements or, alternatively, may determine that continued operations are not viable. If we decide to cease certain operations in response to new regulatory obligations, such actions could occur at a time that is unfavorable to investors.

Multiple states have implemented or proposed regulatory frameworks for digital asset businesses. Compliance with such state-specific regulations may increase costs or impact our business operations. Furthermore, if we or our service providers are unable to comply with evolving federal or state regulations, we may be forced to dissolve or liquidate certain operations, which could materially impact our investors.

The classification of digital assets that we hold as a commodity could subject us to additional CFTC regulation, resulting in significant compliance costs or the cessation of certain operations. If our activities require CFTC registration, we may be required to comply with extensive regulatory obligations, which could result in significant costs and operational disruptions. Additionally, current and future legislative or regulatory developments, including new CFTC interpretations, could further impact how digital assets are classified and traded.

If digital assets that we may hold are further regulated as a commodity, we may be required to register as a commodity pool operator and register the Company as a commodity pool with the CFTC through the National Futures Association. Compliance with these additional regulatory requirements could result in substantial, non-recurring expenses, adversely affecting an investment in our securities. If we determine not to comply with such regulations, we may be forced to cease certain operations, which could negatively impact our investors.

-34-

We are not subject to legal and regulatory obligations that apply to investment companies such as mutual funds and exchange-traded funds, or to obligations applicable to investment advisers. Mutual funds, ETFs and their directors and management are subject to extensive regulation as “investment companies” and “investment advisers” under U.S. federal and state law; this regulation is intended for the benefit and protection of investors. We are not subject to, and do not otherwise voluntarily comply with, these laws and regulations. This means, among other things, that the execution of our changes to our digital asset strategy, our use of leverage, our ability to engage in transactions with affiliated parties and our operating and investment activities generally are not subject to the extensive legal and regulatory requirements and prohibitions that apply to investment companies and investment advisers.

Due to the unregulated nature and lack of transparency surrounding the operations of many digital asset trading venues, digital asset trading venues may experience greater fraud, security failures or regulatory or operational problems than trading venues for more established asset classes, which may result in a loss of confidence in digital asset trading venues and adversely affect the value of digital assets. Digital asset trading venues are relatively new and, in many cases, unregulated. Furthermore, there are many digital asset trading venues that do not provide the public with significant information regarding their ownership structure, management teams, corporate practices and regulatory compliance. As a result, the marketplace may lose confidence in digital asset trading venues, including prominent exchanges that handle a significant volume of such trading and/or are subject to regulatory oversight, in the event one or more digital asset trading venues cease or pause for a prolonged period the trading of digital assets, or experience fraud, significant volumes of withdrawal, security failures or operational problems.

Negative perception, a lack of stability in the broader digital asset markets and the closure, temporary shutdown or operational disruption of digital asset trading venues, lending institutions, institutional investors, institutional miners, custodians, or other major participants in the digital asset ecosystem, due to fraud, business failure, cybersecurity events, government-mandated regulation, bankruptcy, or for any other reason, may result in a decline in confidence in digital assets and the broader digital asset ecosystem and greater volatility in the price of digital assets. The price of our listed securities may be affected by the value of our future digital asset holdings, and the failure of a major participant in the ecosystem could have a material adverse effect on the market price of our listed securities.

Our historical financial statements do not reflect the potential variability in earnings that we may experience in the future relating to our proposed holdings of digital assets. Our historical financial statements do not fully reflect the potential variability in earnings that we may experience in the future from holding or selling digital assets. The price of digital assets generally has historically been subject to dramatic price fluctuations and is highly volatile. We will need to perform an analysis each quarter to identify whether events or changes in circumstances indicate that our digital assets are impaired. As a result, volatility in our earnings may be significantly more than what we experienced in prior periods.

Digital asset holdings are less liquid than cash and cash equivalents and may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents. Historically, the digital asset market has been characterized by significant volatility in price, limited liquidity and trading volumes compared to sovereign currencies markets, relative anonymity, a developing regulatory landscape, potential susceptibility to market abuse and manipulation, compliance and internal control failures at exchanges, and various other risks inherent in its entirely electronic, virtual form and decentralized network. During times of market instability, we may not be able to sell our digital assets at favorable prices or at all. As a result, digital asset holdings may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents. Further, digital assets we hold with our custodians and transact with our trade execution partners does not enjoy the same protections as are available to cash or securities deposited with or transacted by institutions subject to regulation by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation. Additionally, we may be unable to enter into term loans or other capital raising transactions collateralized by our unencumbered digital assets or otherwise generate funds using our digital asset holdings, including in particular during times of market instability or when the price of digital assets has declined significantly. If we are unable to sell our digital assets, enter into additional capital raising transactions, including capital raising transactions using bitcoin as collateral, or otherwise generate funds using our bitcoin holdings, or if we are forced to sell our digital assets at a significant loss, in order to meet our working capital requirements, our business and financial condition could be negatively impacted.

Digital asset lending arrangements may expose us to risks of borrower default, operational failures and cybersecurity threats. From time to time, we may generate income through lending of digital assets, which carries significant risks. The volatility of such digital assets increases the likelihood that borrowers may default due to market downturns, liquidity crises, fraud or other financial distress. These lending transactions may be unsecured, and so may be subordinated to secured debt of the borrower. If a borrower becomes insolvent, we may be unable to recover the loaned digital asset, leading to substantial financial losses.

Additionally, digital asset lending platforms are vulnerable to operational and cybersecurity risks. Technical failures, software bugs or system outages could disrupt lending activities, delay transactions or result in inaccurate record-keeping. Cybersecurity threats, including hacking, phishing and other malicious attacks, pose further risks, potentially leading to the loss, theft or misappropriation of our loaned bitcoin. A successful cyberattack or security breach could materially and adversely impact our financial position, reputation and ability to conduct future lending activities.

-35-

We may suffer losses due to staking, delegating, and other related services. Crypto assets which utilize PoS consensus mechanisms enable holders to earn rewards by participating in decentralized governance, bookkeeping and transaction confirmation activities on their underlying blockchain networks. We stake certain of our crypto assets on blockchain networks through BitGo. Most PoS networks require crypto assets to be transferred into smart contracts on the underlying blockchain networks not under our or anyone’s control. If any third-party service providers, or smart contracts fail to behave as expected, suffer cybersecurity attacks, experience security issues, or encounter other problems, our crypto assets may be irretrievably lost. In addition, most PoS blockchain networks dictate requirements for participation in the relevant decentralized governance activity, and may impose penalties, or “slashing,” if the relevant activities are not performed correctly, such as if the node operator acts maliciously on the network, “double signs” any transactions, or experiences extended downtimes. Slashing penalties can apply due to prolonged inactivity on a blockchain network and inadvertent errors such as computing or hardware issues, as well as more serious behavior such as intentional malfeasance. If we are slashed by an underlying blockchain network, our crypto assets may be confiscated, withdrawn, or burnt by the network, resulting in permanent and irrecoverable losses that could materially impact our financial position. Any penalties or slashing events could damage our brand and reputation, cause us to suffer financial losses, and adversely impact our business.

Intellectual property disputes related to digital asset technology could threaten our ability to operate. The legal landscape for digital assets remains uncertain, and third parties may assert intellectual property claims related to blockchain technology, digital asset transactions or source code. Any litigation, regardless of its merit, could create uncertainty about the long-term viability of digital asset networks and reduce investor confidence in our business. If a court upholds an intellectual property claim, we and other market participants could be restricted from accessing certain digital asset networks or conducting transactions, which could materially impact our business, results of operations and financial condition.

The open-source structure of digital asset networks exposes us to risks related to software development, security vulnerabilities and potential disruptions. Digital asset networks are open-source projects and, although there may be an influential group of leaders in the network community, generally there is no official developer or group of developers that formally controls the digital asset network. Without guaranteed financial incentives, there may be insufficient resources to address emerging issues, upgrade security or implement necessary improvements to the network in a timely manner. If the digital asset network’s software is not properly maintained or developed, it could become vulnerable to security threats, operational inefficiencies and reduced trust, all of which could negatively impact the digital assets’ long-term viability and our business.

The lack of legal recourse and insurance for digital assets increases the risk of total loss in the event of theft or destruction. Digital assets that we acquire will not be not insured against theft, loss or destruction. If an event occurs where we lose our digital assets, whether due to cyberattacks, fraud or other malicious activities, we may not have any viable legal recourse or ability to recover the lost assets. Unlike funds held in insured banking institutions, our digital assets are not protected by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation. If our digital assets are lost under circumstances that render another party liable, there is no guarantee that the responsible party will have the financial resources to compensate us. As a result, we and our stockholders could face significant financial losses.

If we or our third-party service providers experience 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. The digital assets we may purchase may be held in accounts at institutional-grade digital asset custodians. Blockchain-based cryptocurrencies and the entities that provide services to the participants in the cryptocurrency ecosystem have been, and may in the future be, subject to security breaches, cyberattacks, or other malicious activities. For example, in November 2022, hackers exploited weaknesses in the security architecture of the FTX Trading digital asset exchange and reportedly stole over $400 million in digital assets from customers. A successful security breach or cyberattack could result in:

• a partial or total loss of digital assets that we may purchase in a manner that may not be covered by insurance or the liability provisions of the custody agreements with the custodians who may hold our digital assets;
• harm to our reputation and brand;
• improper disclosure of data and violations of applicable data privacy and other laws; 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 blockchain ecosystem or in the use of digital asset networks to conduct financial transactions, which could negatively impact us.

-36-

The irreversibility of digital asset transactions exposes us to risks of theft, loss and human error, which could negatively impact our business. Digital asset transactions are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the transaction or, in theory, control or consent of a majority of the processing power on that digital asset network. Once a transaction has been verified and recorded in a block that is added to the blockchain, an incorrect transfer of digital assets or a theft of digital assets generally will not be reversible, and we may not be capable of seeking compensation for any such transfer or theft.

It is possible that, through computer or human error, or through theft or criminal action, digital assets could be transferred in incorrect amounts or to unauthorized third parties. To the extent we are unable to seek a corrective transaction to identify the third party which has received our digital assets through error or theft, we will be unable to revert or otherwise recover the impacted digital assets, and any such loss could adversely affect our business, results of operations and financial condition.

If we fail to implement our new digital asset-related strategy, or if our digital asset-related strategy is ineffective, our financial performance could be materially and adversely affected. Our future financial performance and success are dependent in large part upon the effectiveness of our new business strategy related to the Bittensor ecosystem and digital asset holdings, and our ability to implement this strategy successfully. Implementation of our strategy will require effective management of our operational, financial, and human resources and will place significant demands on those resources. There are risks involved in pursuing our strategy. In addition to the risks set forth elsewhere in this Report, the effectiveness of and the successful implementation of our business strategy could also be affected by a number of factors beyond our control, such as legal developments, government regulation, general economic conditions, increased operating costs or expenses, and changes in industry trends. We may decide to alter or discontinue certain aspects of our business strategy at any time. If we are not able to implement our business strategy successfully, our long-term growth and profitability may be adversely affected. Even if we are able to implement some or all of the initiatives of our business strategy successfully, our operating results may not improve and could decline substantially.

We may be unable to attract and retain qualified and skilled employees or consultants. We operate in a relatively new industry that is not widely understood and requires highly skilled and technical personnel. We must be able to attract, develop, motivate, and retain highly qualified and skilled employees or consultants. Due to the nascent nature of the digital assets ecosystem, the pool of qualified talent is extremely limited, particularly with respect to executive talent with engineering, risk management, and financial regulatory expertise. We may face intense competition for qualified individuals from numerous software and other technology companies. To attract and retain key personnel or consultants, we could incur significant costs, including salaries and benefits and equity incentives. Even so, these measures may not be enough to attract and retain the personnel we require to operate our business effectively. A failure to attract, retain, and motivate additional highly skilled employees or consultants required for the planned expansion of our business-could adversely impact our operations and impair our ability to grow.