Item 1A. Risk Factors
Item 1A - “Risk Factors” in the 2025 Form 10-K for the fiscal year ended September 30, 2025 and the Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 2026 describes some of the risks and uncertainties associated with our business, which we
strongly encourage you to review. These risks and uncertainties have the potential to materially affect our business, financial condition,
results of operations, cash flows, projected results, and future prospects.
We have entered into, and may in the future
enter into, derivative contracts referencing the price of SOL, and losses on these instruments could be substantial, difficult to predict,
and could adversely affect our results of operations, financial condition, and the trading price of our common stock.
As part of our digital asset treasury strategy,
we have entered into option contracts referencing the price of SOL, including European-style options that obligate us to deliver SOL,
accept delivery of SOL, or make a cash settlement payment upon exercise or expiration. We have entered into these instruments with the
intent of generating premium income on our existing SOL holdings and otherwise managing our treasury position, and we expect to continue
to use SOL-referenced options and may in the future use other SOL-referenced derivatives, including futures, forwards, and swaps, as part
of our overall strategy of buying, holding, staking, trading, and investing in SOL and SOL-related digital assets. We recognized net derivative
losses of $4,561,000 million and $4,292,000 million for the three and nine months ended June 30, 2026, respectively.
As
a party to derivative option contracts, our potential loss is not limited to the premium we pay or receive and, depending on the
structure of the instrument, may be substantial. If the price of SOL moves significantly beyond the applicable strike price prior to
expiration, we may be required to deliver SOL at a price below its then-current market value, purchase or accept delivery of SOL at
a price above its then-current market value, or make a cash settlement payment that materially exceeds the premium we received for
writing the contract. SOL has historically experienced significant price volatility, and this volatility increases both the
likelihood that our option contracts will be exercised against us and the potential magnitude of any resulting loss.
Our SOL-referenced derivatives are transacted
over-the-counter with a limited number of counterparties willing to trade instruments referencing SOL, which exposes us to the risk that
a counterparty fails to perform its obligations to us, particularly during periods of market stress when counterparty credit quality and
our own liquidity may be under the greatest strain. As of June 30, 2026, a significant portion of our open derivative positions were with
Galaxy Trading Mercury LLC, a related party. The market for SOL derivatives may also lack the depth and liquidity of markets for more
established asset classes, which could limit our ability to close out, unwind, or roll existing positions on favorable terms, or at all,
when we determine it is in our interest to do so. Additionally, our derivative contracts require us to post collateral, including pledging
our digital assets, which reduces the liquidity of those assets and could result in margin calls requiring additional collateral during
periods of adverse price movements.
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