Item 1A. Risk Factors
Item
1A. Risk Factors.
Factors
that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in
“Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities
and Exchange Commission on March 21, 2025. Any of these factors could result in a significant or material adverse effect on our
results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial
may also impair our business or results of operations. As of the date of this Quarterly Report, except as set forth below, there are no additional risk
factors added to the risk factors disclosed in our Annual Report on Form 10-K.
Risks
Relating to Investing in Digital Securities
The
launch of central bank digital currencies (“CBDCs”) may adversely impact our business.
The
introduction of a government-issued digital currency could eliminate or reduce the need or demand for private-sector issued crypto currencies,
or significantly limit their utility. National governments around the world could introduce CBDCs, which could in turn limit the size
of the market opportunity for cryptocurrencies, including Solana.
Absent
federal regulations, there is a possibility that any digital asset we acquire may be classified as a “security.” Any classification
of any digital asset we acquire as a “security” would subject us to additional regulation and could materially impact the
operation of our business.
We
intend to only acquire digital assets that we believe would not be considered a “security” by the SEC and other U.S. federal
or state regulator publicly stated may not agree our assessment. Despite the Trump Administration’s Executive Order titled “Strengthening
American Leadership in Digital Financial Technology” which includes as an objective, “protecting and promoting the ability
of individual citizens and private sector entities alike to access and … to maintain self-custody of digital assets,” leading
digital assets that we intend to acquire, such as Solana, have not yet been classified with respect to U.S. federal securities laws.
Therefore, while (for the reasons discussed below) we intend to only invest in leading digital assets, that we conclude are not a “security”
within the meaning of the U.S. federal securities laws, and registration of the Company under The Investment Company Act of 1940, as
amended (the “1940 Act”) is therefore not required under the applicable securities laws, we acknowledge that a regulatory
body or federal court may determine otherwise. Our conclusion, even if reasonable under the circumstances, would not preclude legal or
regulatory action based on such a finding that any leading digital asset we acquire, such as Solana, is a “security” which
would require us to register as an investment company under the 1940 Act.
We
intend to adapt our process for analyzing the U.S. federal securities law status of any cryptocurrencies we acquire over time, as guidance
and case law have evolved. As part of our U.S. federal securities law analytical process, we intend to take into account a number of
factors, including the various definitions of “security” under U.S. federal securities laws and federal court decisions interpreting
the elements of these definitions, such as the U.S. Supreme Court’s decisions in the Howey and Reves cases, as well
as court rulings, reports, orders, press releases, public statements, and speeches by the SEC Commissioners and SEC Staff providing guidance
on when a digital asset or a transaction to which a digital asset may relate may be a security for purposes of U.S. federal securities
laws.
Application
of securities laws to the specific facts and circumstances of digital assets is complex and subject to change. As such, we are at risk
of enforcement proceedings against us, which could result in potential injunctions, cease-and-desist orders, fines, and penalties if
any digital asset we acquires is determined to be a security by a regulatory body or a court. Such developments could subject us to fines,
penalties, and other damages, and adversely affect our business, results of operations, financial condition, and prospects.
If
we were deemed to be an investment company under the 1940 Act, applicable restrictions likely would make it impractical for us to continue
segments of our business as currently contemplated.
Under
Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an “investment company” if (i) it is,
or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading
in securities or (ii) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding, or trading in securities
and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of
U.S. government securities, shares of registered money market funds under Rule 2a-7 of the 1940 Act, and cash items) on an unconsolidated
basis. Rule 3a-1 under the 1940 Act generally provides that notwithstanding the Section 3(a)(1)(C) test described in clause (ii) above,
an entity will not be deemed to be an “investment company” for purposes of the 1940 Act if no more than 45% of the value
of its assets (exclusive of U.S. government securities, shares of registered money market funds under Rule 2a-7 of the 1940 Act, and
cash items) consists of, and no more than 45% of its net income after taxes (for the past four fiscal quarters combined) is derived from,
securities other than U.S. government securities, shares of registered money market funds under Rule 2a-7 of the 1940 Act, securities
issued by employees’ securities companies, securities issued by qualifying majority owned subsidiaries of such entity, and securities
issued by qualifying companies that are controlled primarily by such entity. We do not believe that we are an “investment company”
as such term is defined in either Section 3(a)(1)(A) or Section 3(a)(1)(C) of the 1940 Act.
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Since
our formation, we have been a biopharmaceutical industry with a focus is on developing targeted immunotherapies for cancer.. Recently,
we have begun focusing on pursuing opportunities to expand our portfolio into digital assets. We only intend to acquire digital assets
that we conclude are investment securities, and as such do not intend to hold ourselves out as being engaged primarily, or propose to
engage primarily, in the business of investing, reinvesting, or trading in securities within the meaning of Section 3(a)(1)(A) of the
1940 Act.
With
respect to Section 3(a)(1)(C), we believe we satisfy the elements of Rule 3a-1 and therefore are deemed not to be an investment company
under, and we intend to conduct our operations such that we will not be deemed an investment company under, Section 3(a)(1)(C). We believe
that we are not an investment company pursuant to Rule 3a-1 under the 1940 Act because, on a consolidated basis with respect to wholly-owned
subsidiaries but otherwise on an unconsolidated basis, no more than 45% of the value of the Company’s total assets (exclusive of
U.S. government securities, shares of registered money market funds under Rule 2a-7 of the 1940 Act, and cash items) consists of, and
no more than 45% of the Company’s net income after taxes (for the last four fiscal quarters combined) is derived from, securities
other than U.S. government securities, shares of registered money market funds under Rule 2a-7 of the 1940 Act, securities issued by
employees’ securities companies, securities issued by qualifying majority owned subsidiaries of the Company, and securities issued
by qualifying companies that are controlled primarily by the Company.
Digital
assets, as well as new business models and transactions enabled by blockchain technologies, present novel interpretive questions under
the 1940 Act. There is a risk that assets or arrangements that we conclude are not securities prior to acquisition could be deemed to
be securities by the SEC or another authority for purposes of the 1940 Act, which would increase the percentage of securities held by
us for 1940 Act purposes. The SEC has requested information from a number of participants in the digital assets ecosystem, regarding
the potential application of the 1940 Act to their businesses. For example, in an action unrelated to the Company, in February 2022,
the SEC issued a cease-and-desist order under the 1940 Act to BlockFi Lending LLC, in which the SEC alleged that BlockFi was operating
as an unregistered investment company because it issued securities and also held more than 40% of its total assets, excluding cash, in
investment securities, including the loans of digital assets made by BlockFi to institutional borrowers.
If
we were deemed to be an investment company, Rule 3a-2 under the 1940 Act is a safe harbor that provides a one-year grace period for transient
investment companies that have a bona fide intent to be engaged primarily, as soon as is reasonably possible (in any event by the termination
of such one-year period), in a business other than that of investing, reinvesting, owning, holding, or trading in securities, with such
intent evidenced by the company’s business activities and an appropriate resolution of its board of directors. The grace period
is available not more than once every three years and runs from the earlier of (i) the date on which the issuer owns securities and/or
cash having a value exceeding 50% of the issuer’s total assets on either a consolidated or unconsolidated basis or (ii) the date
on which the issuer owns or proposes to acquire investment securities having a value exceeding 40% of the value of such issuer’s
total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Accordingly, the grace period may not
be available at the time that we seek to rely on Rule 3a-2; however, Rule 3a-2 is a safe harbor and we may rely on any exemption or exclusion
from investment company status available to us under the 1940 Act at any given time. Furthermore, reliance on Rule 3a-2, Section 3(a)(1)(C),
or Rule 3a-1 could require us to take actions to dispose of securities, limit our ability to make certain investments or enter into joint
ventures, or otherwise limit or change our service offerings and operations. If we were to be deemed an investment company in the future,
restrictions imposed by the 1940 Act—including limitations on our ability to issue different classes of stock and equity compensation
to directors, officers, and employees and restrictions on management, operations, and transactions with affiliated persons—likely
would make it impractical for us to continue our business as contemplated, and could have a material adverse effect on our business,
results of operations, financial condition, and prospects.
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We
may be subject to regulatory developments related to crypto assets and crypto asset markets, which could adversely affect our business,
financial condition, and results of operations.
As
digital assets are relatively novel and the application of state and federal securities laws and other laws and regulations to digital
assets is unclear in certain respects, it is possible that regulators in the United States or foreign countries may interpret or apply
existing laws and regulations in a manner that adversely affects the price any digital assets we may hold in the future. The U.S. federal
government, states, regulatory agencies, and foreign countries may also enact new laws and regulations, or pursue regulatory, legislative,
enforcement or judicial actions, that could materially impact the price of any digital assets we acquire in the future or the ability
of individuals or institutions to own or transfer digital assets.
If
any digital asset we acquire is determined to constitute a security for purposes of the federal securities laws, the additional regulatory
restrictions imposed by such a determination could adversely affect the market price of such digital security and in turn adversely affect
the market price of our common stock. Moreover, the risks of us engaging in a cryptocurrency treasury strategy have created, and could
continue to create complications due to the lack of experience that third parties have with companies engaging in such a strategy, such
as increased costs of director and officer liability insurance or the potential inability to obtain such coverage on acceptable terms
in the future.
Cryptocurrency
assets are less liquid than our existing 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 crypto markets have 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 any digital assets we hold at favorable prices
or at all. Further, any digital assets which we hold with our custodians will 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. If we are unable to sell any digital assets we hold, enter into additional capital raising
transactions using any digital assets we hold as collateral, or otherwise generate funds using any digital assets we hold, or if we are
forced to sell any digital assets we hold at a significant loss, in order to meet our working capital requirements, our business and
financial condition could be negatively impacted.
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, exchange-traded funds 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 or changes to our Treasury Reserve Policy or our cryptocurrency strategy, our use of leverage, the manner in which
our cryptocurrency assets are custodied, 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. Consequently, our board of directors has broad discretion over the investment, leverage and cash management
policies it authorizes, in respect of any activities we may pursue, and has the power to change our current policies, including our strategy
of acquiring and holding digital assets.
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If
we or our third-party service providers experience a security breach or cyberattack and unauthorized parties obtain access to any of
our acquired 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.
We
expect that any digital asset we own will be held in custody accounts at U.S.-based institutional-grade digital asset custodians. Security
breaches and cyberattacks are of particular concern with respect to digital assets. Cryptocurrencies and the entities that provide services
to participants in such ecosystem have been, and may in the future be, subject to security breaches, cyberattacks, or other malicious
activities. For example, in October 2021 it was reported that hackers exploited a flaw in the account recovery process and stole from
the accounts of at least 6,000 customers of the Coinbase exchange, although the flaw was subsequently fixed and Coinbase reimbursed affected
customers. Similarly, 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 our digital assets in a manner that may not be covered by insurance or the liability provisions of the custody
agreements with the custodians who hold our Solana;
●
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
cryptocurrency ecosystem, which could negatively impact us.
Attacks
upon systems across a variety of industries, including cryptocurrency industries, are increasing in frequency, persistence, and sophistication,
and, in many cases, are being conducted by sophisticated, well-funded and organized groups and individuals, including state actors. The
techniques used to obtain unauthorized, improper or illegal access to systems and information (including personal data and digital assets),
disable or degrade services, or sabotage systems are constantly evolving, may be difficult to detect quickly, and often are not recognized
or detected until after they have been launched against a target. These attacks may occur on our systems or those of our third-party
service providers or partners. We may experience breaches of our security measures due to human error, malfeasance, insider threats,
system errors or vulnerabilities or other irregularities. In particular, we expect that unauthorized parties will attempt to gain access
to our systems and facilities, as well as those of our partners and third-party service providers, through various means, such as hacking,
social engineering, phishing and fraud. Threats can come from a variety of sources, including criminal hackers, hacktivists, state-sponsored
intrusions, industrial espionage, and insiders. In addition, certain types of attacks could harm us even if our systems are left undisturbed.
For example, certain threats are designed to remain dormant or undetectable, sometimes for extended periods of time, or until launched
against a target and we may not be able to implement adequate preventative measures. Further, there has been an increase in such activities
due to the increase in work-from-home arrangements. The risk of cyberattacks could also be increased by cyberwarfare in connection with
the ongoing Russia-Ukraine and Israel-Hamas conflicts, or other future conflicts, including potential proliferation of malware into systems
unrelated to such conflicts. Any future breach of our operations or those of others in the cryptocurrency industry, including third-party
services on which we rely, could materially and adversely affect our financial condition and results of operations.
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We
have limited history in generating staking revenues from digital assets, which could adversely affect our business, financial condition
and operating results.
Until
recently, our business focus was in the biopharmaceutical industry with a focus is on developing targeted immunotherapies for cancer.
We
have recently shifted the focus of our operations to include a treasury policy under which our resources will be allocated to digital
assets.
We
have a limited operating history with the current scale of our business, which makes it difficult to forecast our prospects and future
results of operations. You should take into account the risks and uncertainties frequently encountered by companies in rapidly evolving
markets. If our assumptions regarding the risks and uncertainties of the cryptocurrency market, which we use to plan our business, are
incorrect or change, or if we do not address these risks successfully, our business would be harmed.
Competition
from other companies staking and utilizing digital assets in their treasury plans.
We
expect to contend with other companies also focused on developing digital asset staking operations. Market participants with sufficient
knowledge and capital has the ability acquire tokens on the open market and start staking, which would increase competition.
We
may fail to develop and execute successful investment or trading strategies.
The
success of our investment and trading activities will depend on the ability of our investment team to identify overvalued and undervalued
investment opportunities and to exploit price discrepancies. This process involves a high degree of uncertainty. No assurance can be
given that we will be able to identify suitable or profitable investment opportunities in which to deploy our capital. The success of
any trading activities will depend on our ability to remain competitive with other over-the-counter traders and liquidity providers.
Competition in trading is based on price, offerings, level of service, technology, relationships and market intelligence. The success
of investment activities depends on our ability to source deals and obtain favorable terms. Competition in investment activities is based
on relationships. The barrier to entry in each of these businesses is very low and competitors can easily and will likely provide similar
services in the near future. The success of our venture investments and trading business could suffer if we are not able to remain competitive.
We
may make, or otherwise be subject to, trade errors.
Errors
may occur with respect to any trades executed on our behalf. Trade errors can result from a variety of situations, including, for example,
when the wrong investment is purchased or sold or when the wrong quantity is purchased or sold. Trade errors frequently result in losses,
which could be material. To the extent that an error is caused by a third party, we may seek to recover any losses associated with the
error, although there may be contractual limitations on any third party’s liability with respect to such error.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.