Item 1A. Risk Factors
Item 1A. Risk Factors.
Except as set forth below, there have been no material changes from
the risk factors previously disclosed under the heading “Risk Factors” in the section “Risk Factors” in the Company’s
Registration Statement on Form S-4 (File No. 333-269417) initially filed with the SEC on January 1, 2023, as amended.
Risks Related to our Bitcoin Treasury Strategy and Holdings
Our bitcoin treasury strategy exposes us to various risks associated
with Bitcoin.
Our bitcoin treasury strategy exposes us to various risks associated
with bitcoin, including the following:
Bitcoin is a highly volatile asset. Bitcoin is a highly
volatile asset that has traded below $53,000 per Bitcoin and above $123,000 per bitcoin on the Coinbase exchange in the 12 months
preceding the date of this Report. The trading price of bitcoin significantly decreased during prior periods, and such declines may occur
again in the future. We intend to engage in hedging strategies from time to time as part of our treasury management operations if deemed
appropriate. As of September 30, 2025, the Company had purchased $1.0 million of Bitcoin as part of the Company’s ongoing treasury
strategy, representing 8.53 Bitcoins. The Company purchased another 7.98 Bitcoins for $1.0 million in October 2025.
Bitcoin does not pay interest or dividends. Bitcoin does
not pay interest or other returns and we can only generate cash from our bitcoin holdings if we sell our bitcoin or implement strategies
to create income streams or otherwise generate cash by using our bitcoin holdings. Even if we pursue any such strategies, we may be unable
to create income streams or otherwise generate cash from our bitcoin holdings, and any such strategies may subject us to additional risks.
Our bitcoin holdings may significantly impact our financial results
and the market price of our common stock. Our bitcoin holdings may significantly affect our financial results and if we continue
to increase our overall holdings of bitcoin in the future, they will have an even greater impact on our financial results and the market
price of our common stock. See “— Our historical financial statements do not reflect our acquisition of bitcoin, the
fact that our bitcoin holdings will be the substantial majority of our assets, or the potential variability in earnings that we may experience
in the future relating to our bitcoin holdings ” below.
Our bitcoin treasury strategy has not been tested over an extended
period of time or under different market conditions. We will be using the proceeds from the ELOC to facilitate the recent adoption
our bitcoin treasury strategy and we will need to continually examine the risks and rewards of this new strategy. This new strategy has
not been tested over an extended period of time or under different market conditions. For example, although we believe bitcoin, due to
its limited supply, has the potential to serve as a hedge against inflation in the long term, the short-term price of bitcoin declined
in recent periods during which the inflation rate increased. Some investors and other market participants may disagree with our bitcoin
treasury strategy or actions we undertake to implement it. If bitcoin prices were to decrease or our bitcoin treasury strategy otherwise
proves unsuccessful, our financial condition, results of operations, and the market price of our common stock could be materially adversely
affected.
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We are subject to counterparty risks, including in particular risks
relating to our custodians. Although we intend to implement various measures that are designed to mitigate our counterparty risks,
including by storing substantially all of the bitcoin we own in custody accounts at U.S.-based, institutional-grade custodians and negotiating
contractual arrangements intended to establish that our property interest in custodially-held bitcoin is not subject to claims of our
custodians’ creditors, applicable insolvency law is not fully developed with respect to the holding of digital assets in custodial
accounts. If our custodially-held bitcoin were nevertheless considered to be the property of our custodians’ estates in the event
that any such custodians were to enter bankruptcy, receivership or similar insolvency proceedings, we could be treated as a general unsecured
creditor of such custodians, inhibiting our ability to exercise ownership rights with respect to such bitcoin and this may ultimately
result in the loss of the value related to some or all of such bitcoin. Even if we are able to prevent our bitcoin from being considered
the property of a custodian’s bankruptcy estate as part of an insolvency proceeding, it is possible that we would still be delayed
or may otherwise experience difficulty in accessing our bitcoin held by the affected custodian during the pendency of the insolvency proceedings.
Any such outcome could have a material adverse effect on our financial condition and the market price of our common stock.
The broader digital assets industry is subject to counterparty risks,
which could adversely impact the adoption rate, price, and use of bitcoin. A series of recent high-profile bankruptcies, closures,
liquidations, regulatory enforcement actions and other events relating to companies operating in the digital asset industry, including
the filings for bankruptcy protection by Three Arrows Capital, Celsius Network, Voyager Digital, FTX Trading and Genesis Global Capital,
the closure or liquidation of certain financial institutions that provided lending and other services to the digital assets industry,
including Signature Bank and Silvergate Bank, SEC enforcement actions against Coinbase, Inc. and Binance Holdings Ltd., the placement
of Prime Trust, LLC into receivership following a cease-and-desist order issued by Nevada’s Department of Business and Industry,
and the filing and subsequent settlement of a civil fraud lawsuit by the New York Attorney General against Genesis Global Capital,
its parent company Digital Currency Group, Inc., and former partner Gemini Trust Company, have highlighted the counterparty risks applicable
to owning and transacting in digital assets. Although these bankruptcies, closures, liquidations and other events have not resulted in
any loss or misappropriation of our bitcoin, nor have such events adversely impacted our access to our bitcoin, they have, in the short-term,
likely negatively impacted the adoption rate and use of bitcoin. Additional bankruptcies, closures, liquidations, regulatory enforcement
actions or other events involving participants in the digital assets industry in the future may further negatively impact the adoption
rate, price, and use of bitcoin, limit the availability to us of financing collateralized by bitcoin, or create or expose additional counterparty
risks.
Changes in our ownership of bitcoin could have accounting, regulatory
and other impacts. While we currently plan to own bitcoin directly, we may investigate other potential approaches to owning bitcoin,
including indirect ownership (for example, through ownership interests in a fund that owns bitcoin). If we were to own all or a portion
of our bitcoin in a different manner, the accounting treatment for our bitcoin, our ability to use our bitcoin as collateral for additional
borrowings, and the regulatory requirements to which we are subject, may correspondingly change. For example, the volatile nature of bitcoin
may force us to liquidate our holdings to use it as collateral, which could be negatively affected by any disruptions in the crypto market
and, if liquidated, the value of the collateral would not reflect potential gains in the market value of bitcoin, all of which could negatively
affect our business and implementation of our bitcoin strategy.
Changes in the accounting treatment of our bitcoin holdings could have
significant accounting impacts, including increasing the volatility of our results. In December 2023, the FASB issued ASU 2023-08, which
upon our adoption will require us to measure in-scope crypto assets (including our bitcoin holdings) at fair value in our statement of
financial position, and to recognize gains and losses from changes in the fair value of our bitcoin in net income each reporting period.
ASU 2023-08 will also require us to provide certain interim and annual disclosures with respect to our bitcoin holdings. Due to the volatility
in the price of bitcoin, the adoption of ASU 2023-08 could have a material impact on our financial results in future periods, increase
the volatility of our financial results, affect the carrying value of our bitcoin on our balance sheet, and could result in tax-related
adjustments, which in turn could have a material adverse effect on our financial results and the market price of our common stock.
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The broader digital assets industry, including the technology associated
with digital assets, the rate of adoption and development of, and use cases for, digital assets, market perception of digital assets,
and the legal, regulatory, and accounting treatment of digital assets are constantly developing and changing, and there may be additional
risks in the future that are not possible to predict.
Bitcoin is a highly volatile asset, and fluctuations in the price
of bitcoin are likely to influence our financial results and the market price of our common stock.
Bitcoin is a highly volatile asset, and fluctuations in the price of
bitcoin are likely to influence our financial results and the market price of our common stock. Our financial results and the market price
of our common stock would be adversely affected, and our business and financial condition would be negatively impacted, if the price of
bitcoin decreased substantially (as it has in the past, such as during 2022), including as a result of:
● decreased user and investor confidence in bitcoin, including
due to the various factors described herein;
● investment and trading activities, such as (i) trading activities
of highly active retail and institutional users, speculators, miners and investors, (ii) actual or expected significant dispositions
of bitcoin by large holders, and (iii) actual or perceived manipulation of the spot or derivative markets for bitcoin or spot bitcoin
exchange-traded products;
● negative publicity, media or social media coverage, or sentiment
due to events in or relating to, or perception of, bitcoin or the broader digital assets industry, for example, (i) public perception
that bitcoin can be used as a vehicle to circumvent sanctions, including sanctions imposed on Russia or certain regions related to the
ongoing conflict between Russia and Ukraine, or to fund criminal or terrorist activities, such as the purported use of digital assets
by Hamas to fund its terrorist attack against Israel in October 2023; (ii) expected or pending civil, criminal, regulatory enforcement
or other high profile actions against major participants in the bitcoin ecosystem, including the SEC’s enforcement actions against
Coinbase, Inc. and Binance Holdings Ltd.; (iii) additional filings for bankruptcy protection or bankruptcy proceedings of major digital
asset industry participants, such as the bankruptcy proceeding of FTX Trading and its affiliates; and (iv) the actual or perceived environmental
impact of bitcoin and related activities, including environmental concerns raised by private individuals, governmental and non-governmental
organizations, and other actors related to the energy resources consumed in the bitcoin mining process;
● changes in consumer preferences and the perceived value or prospects
of bitcoin;
● competition from other digital assets that exhibit better speed,
security, scalability, or energy efficiency, that feature other more favored characteristics, that are backed by governments, including
the U.S. government, or reserves of fiat currencies, or that represent ownership or security interests in physical assets;
● a decrease in the price of other digital assets, including stablecoins,
or the crash or unavailability of stablecoins that are used as a medium of exchange for bitcoin purchase and sale transactions, such
as the crash of the stablecoin Terra USD in 2022, to the extent the decrease in the price of such other digital assets or the unavailability
of such stablecoins may cause a decrease in the price of bitcoin or adversely affect investor confidence in digital assets generally;
● the identification of Satoshi Nakamoto, the pseudonymous person
or persons who developed bitcoin, or the transfer of substantial amounts of bitcoin from bitcoin wallets attributed to Mr. Nakamoto or
other “whales” that hold significant amounts of bitcoin;
● disruptions, failures, unavailability, or interruptions in service
of trading venues for bitcoin, such as, for example, digital asset exchange FTX Trading’s freezing of withdrawals and transfers
from its accounts in 2022;
● the filing for bankruptcy protection by, liquidation of, or
market concerns about the financial viability of digital asset custodians, trading venues, lending platforms, investment funds, or other
digital asset industry participants, such as the filing for bankruptcy protection by digital asset trading venues FTX Trading and BlockFi
and digital asset lending platforms Celsius Network and Voyager Digital Holdings in 2022, the ordered liquidation of the digital asset
investment fund Three Arrows Capital in 2022, the announced liquidation of Silvergate Bank in 2023, the government-mandated closure and
sale of Signature Bank in 2023, the placement of Prime Trust, LLC into receivership following a cease-and-desist order issued by the
Nevada Department of Business and Industry in 2023, and the exit of Binance Holdings Ltd. from the U.S. market in 2023 as part of its
settlement with the Department of Justice and other federal regulatory agencies;
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● regulatory, legislative, enforcement and judicial actions that
adversely affect the price, ownership, transferability, trading volumes, legality or public perception of bitcoin, or that adversely
affect the operations of or otherwise prevent digital asset custodians, trading venues, lending platforms or other digital assets industry
participants from operating in a manner that allows them to continue to deliver services to the digital assets industry;
● further reductions in mining rewards of bitcoin, including block
reward halving events, which are events that occur after a specific period of time that reduce the block reward earned by “miners”
who validate bitcoin transactions, or increases in the costs associated with bitcoin mining, including increases in electricity costs
and hardware and software used in mining, that may cause a decline in support for the Bitcoin network;
● transaction congestion and fees associated with processing transactions
on the bitcoin network;
● macroeconomic changes, such as changes in the level of interest
rates and inflation, fiscal and monetary policies of governments, trade restrictions, and fiat currency devaluations;
● developments in mathematics or technology, including in digital
computing, algebraic geometry and quantum computing, that could result in the cryptography used by the bitcoin blockchain becoming insecure
or ineffective; and
● changes in national and international economic and political
conditions, including, without limitation, the adverse impact attributable to the economic and political instability caused by the current
conflict between Russia and Ukraine and the economic sanctions adopted in response to the conflict, and the potential broadening of the
Israel-Hamas conflict to other countries in the Middle East.
Bitcoin and other digital assets are novel assets, and are subject
to significant legal, commercial, regulatory and technical uncertainty.
Bitcoin and other digital assets are relatively novel and are subject
to significant uncertainty, which could adversely impact their price. The application of state and federal securities laws and other laws
and regulations to digital assets is unclear in certain respects, and it is possible that regulators in the United States or foreign countries
may interpret or apply existing laws and regulations in a manner that adversely affects the price of bitcoin.
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 bitcoin or the ability of individuals or institutions such as us to own or transfer bitcoin. For example, the U.S.
executive branch, SEC, the European Union’s Markets in Crypto Assets Regulation, among others have been active in recent years,
and in the U.K., the Financial Services and Markets Act 2023, or FSMA 2023 became law. It is not possible to predict whether, or when,
any of these developments will lead to Congress granting additional authorities to the SEC, Commodity Futures Trading Commission (“CFTC”),
or other regulators, or whether, or when, any other federal, state or foreign legislative bodies will take any similar actions. It is
also not possible to predict the nature of any such additional authorities, how additional legislation or regulatory oversight might impact
the ability of digital asset markets to function or the willingness of financial and other institutions to continue to provide services
to the digital assets industry, nor how any new regulations or changes to existing regulations might impact the value of digital assets
generally and bitcoin specifically. The consequences of increased regulation of digital assets and digital asset activities could adversely
affect the market price of bitcoin and in turn adversely affect the market price of our common stock.
Moreover, the risks of engaging in a bitcoin treasury strategy are
relatively novel and 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.
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The growth of the digital assets industry in general, and the use and
acceptance of bitcoin in particular, may also impact the price of bitcoin and is subject to a high degree of uncertainty. The pace of
worldwide growth in the adoption and use of bitcoin may depend, for instance, on public familiarity with digital assets, ease of buying,
accessing or gaining exposure to bitcoin, institutional demand for bitcoin as an investment asset, the participation of traditional financial
institutions in the digital assets industry, consumer demand for bitcoin as a means of payment, and the availability and popularity of
alternatives to bitcoin. Even if growth in bitcoin adoption occurs in the near or medium-term, there is no assurance that bitcoin usage
will continue to grow over the long-term.
Because bitcoin has no physical existence beyond the record of transactions
on the bitcoin blockchain, a variety of technical factors related to the bitcoin blockchain could also impact the price of bitcoin. For
example, malicious attacks by miners, inadequate mining fees to incentivize validating of bitcoin transactions, hard “forks”
of the bitcoin blockchain into multiple blockchains, and advances in digital computing, algebraic geometry, and quantum computing could
undercut the integrity of the bitcoin blockchain and negatively affect the price of bitcoin. The liquidity of bitcoin may also be reduced
and damage to the public perception of bitcoin may occur, if financial institutions were to deny or limit banking services to businesses
that hold bitcoin, provide bitcoin-related services or accept bitcoin as payment, which could also decrease the price of bitcoin. Similarly,
the open-source nature of the bitcoin blockchain means the contributors and developers of the bitcoin blockchain are generally not directly
compensated for their contributions in maintaining and developing the blockchain, and any failure to properly monitor and upgrade the
bitcoin blockchain could adversely affect the bitcoin blockchain and negatively affect the price of bitcoin.
The liquidity of bitcoin may also be impacted to the extent that changes
in applicable laws and regulatory requirements negatively impact the ability of exchanges and trading venues to provide services for bitcoin
and other digital assets.
Our historical financial statements do not reflect our acquisition
of bitcoin, the fact that our bitcoin holdings could be a substantial part of our assets, or the potential variability in earnings that
we may experience in the future relating to our bitcoin holdings.
Our historical financial statements do not reflect our intended acquisition
of bitcoin, that we intend for our bitcoin holdings to comprise most of our total assets, or the potential variability in earnings that
we may experience in the future from holding or selling significant amounts of bitcoin, given our expected asset concentration. The price
of bitcoin has historically been subject to dramatic price fluctuations and is highly volatile. We expect to determine the fair value
of our bitcoin based on quoted (unadjusted) prices on the Coinbase exchange, and following early adoption of ASU 2023-08, will be
required to measure our bitcoin holdings at fair value in our statement of financial position, and to recognize gains and losses from
changes in the fair value of our bitcoin in net income each reporting period, which may create significant volatility in our reported
earnings, amplified by our asset concentration in bitcoin, and decrease the carrying value of our digital assets, which in turn could
have a material adverse effect on the market price of our common stock. Conversely, any sale of bitcoins at prices above our carrying
value for such assets creates a gain for financial reporting purposes even if we would otherwise incur an economic or tax loss with respect
to such transaction, which also may result in significant volatility in our reported earnings.
Because we intend to purchase additional bitcoin in future periods
and increase our overall holdings of bitcoin, we expect that the proportion of our total assets that will be represented by our bitcoin
holdings will increase in the future. As a result, and in particular with respect to the quarterly periods and full fiscal year with respect
to which ASU 2023-08 will apply, and for all future periods, volatility in our earnings may be significantly more than what we experienced
in prior periods. As of the date of this filing, the Company has purchased $2.0 million of Bitcoin as part of the Company’s ongoing
treasury strategy, representing 16.51 Bitcoins.
Due to the currently unregulated nature and lack of transparency
surrounding the operations of many bitcoin trading venues, bitcoin 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 bitcoin trading
venues and adversely affect the value of our bitcoin.
Bitcoin trading venues are relatively new and, in many cases, currently
unregulated. Even if regulated, such venues may not be complying with such regulations. Furthermore, there are many bitcoin 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 bitcoin trading venues, including prominent exchanges that
handle a significant volume of bitcoin trading and/or are subject to regulatory oversight, in the event one or more bitcoin trading venues
cease or pause for a prolonged period the trading of bitcoin or other digital assets, or experience fraud, significant volumes of withdrawal,
security failures or operational problems.
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In 2019 there were reports claiming that 80-95% of bitcoin trading
volume on trading venues was false or non-economic in nature, with specific focus on currently unregulated exchanges located outside of
the United States. The SEC also alleged as part of its June 2023 complaint that Binance Holdings Ltd. committed strategic and
targeted “wash trading” through its affiliates to artificially inflate the volume of certain digital assets traded on its
exchange. Such reports and allegations may indicate that the bitcoin market is significantly smaller than expected and that the United States
makes up a significantly larger percentage of the bitcoin market than is commonly understood. Any actual or perceived false trading in
the bitcoin market, and any other fraudulent or manipulative acts and practices, could adversely affect the value of our bitcoin. Negative
perception, a lack of stability in the broader bitcoin markets and the closure, temporary shutdown or operational disruption of bitcoin
trading venues, lending institutions, institutional investors, institutional miners, custodians, or other major participants in the bitcoin
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 bitcoin and the broader bitcoin ecosystem and greater volatility in the price of bitcoin. For
example, in 2022, each of Celsius Network, Voyager Digital, Three Arrows Capital, FTX Trading, and BlockFi filed for bankruptcy, following
which the market prices of bitcoin and other digital assets significantly declined. In addition, in June 2023, the SEC announced
enforcement actions against Coinbase, Inc., and Binance Holdings Ltd., two providers of large trading venues for digital assets, which
similarly was followed by a decrease in the market price of bitcoin and other digital assets. These were followed in November 2023,
by an SEC enforcement action against Kraken, another large trading venue for digital assets. As the price of our common stock is affected
by the value of our bitcoin holdings, the failure of a major participant in the bitcoin ecosystem could have a material adverse effect
on the market price of our common stock.
The concentration of our bitcoin holdings will enhance the risks
inherent in our bitcoin treasury strategy.
We intend to use the net proceeds from the Committed Equity Facility
to purchase bitcoin and we may increase our overall holdings of bitcoin in the future. Once we complete the planned acquisition of bitcoin,
a substantial majority of our treasury holdings could be bitcoin. The concentration of our bitcoin holdings may limit the risk mitigation
that we could take advantage of by purchasing a more diversified portfolio of treasury assets, and the absence of diversification enhances
the risks inherent in our bitcoin treasury strategy. Any future significant declines in the price of bitcoin would have a more pronounced
impact on our financial condition than if we used our cash to purchase a more diverse portfolio of assets.
The emergence or growth of other digital assets, including those
with significant private or public sector backing, could have a negative impact on the price of bitcoin and adversely affect our financial
condition and results of operations.
As a result of our bitcoin treasury strategy, a substantial amount
of our cash could be concentrated in our bitcoin holdings. Accordingly, the emergence or growth of digital assets other than bitcoin may
have a material adverse effect on our financial condition. While bitcoin is the largest digital asset by market capitalization as of the
date of this Report, there are numerous alternative digital assets and many entities, including consortiums and financial institutions,
are researching and investing resources into private or permissioned blockchain platforms or digital assets that do not use proof-of-work
mining like the bitcoin network. For example, in late 2022, the ethereum network transitioned to a “proof-of-stake” mechanism
for validating transactions that requires significantly less computing power than proof-of-work mining. The ethereum network has completed
another major upgrade since then and may undertake additional upgrades in the future. If the mechanisms for validating transactions in
ethereum and other alternative digital assets are perceived as superior to proof-of-work mining, those digital assets could gain market
share relative to bitcoin.
Other alternative digital assets that compete with bitcoin in certain
ways include “stablecoins,” which are designed to maintain a constant price because of, for instance, their issuers’
promise to hold high-quality liquid assets (such as U.S. dollar deposits and short-term U.S. treasury securities) equal to the
total value of stablecoins in circulation. Stablecoins have grown rapidly as an alternative to bitcoin and other digital assets as a medium
of exchange and store of value, particularly on digital asset trading platforms. As of the date of this Report, two of the seven largest
digital assets by market capitalization are U.S. dollar-backed stablecoins.
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Additionally, central banks in some countries have started to introduce
digital forms of legal tender. For example, China’s CBDC project was made available to consumers in January 2022, and governments
including the United States, the European Union, and Israel have been discussing the potential creation of new CBDCs. Whether or
not they incorporate blockchain or similar technology, CBDCs, as legal tender in the issuing jurisdiction, could also compete with, or
replace, bitcoin and other digital assets as a medium of exchange or store of value. As a result, the emergence or growth of these or
other digital assets could cause the market price of bitcoin to decrease, which could have a material adverse effect on our financial
condition, and operating results.
Our bitcoin holdings 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 bitcoin markets have been characterized by significant
volatility in price, limited liquidity and trading volumes compared to sovereign currency 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 bitcoin at favorable prices or at all. For example, a number of bitcoin trading venues temporarily halted deposits
and withdrawals in 2022. As a result, our bitcoin holdings may not be able to serve as a source of liquidity for us to the same extent
as cash and cash equivalents. Further, bitcoin 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 bitcoin or otherwise generate funds using our bitcoin
holdings, including in particular during times of market instability or when the price of bitcoin has declined significantly. If we are
unable to sell our bitcoin, enter into additional capital raising transactions using bitcoin as collateral, or otherwise generate funds
using our bitcoin holdings, or if we are forced to sell our bitcoin at a significant loss, in order to meet our working capital requirements,
our business and financial condition could be negatively impacted.
If we or our third-party service providers experience a security
breach or cyberattack and unauthorized parties obtain access to our bitcoin, or if our private keys are lost or destroyed, or other similar
circumstances or events occur, we may lose some or all of our bitcoin and our financial condition and results of operations could be materially
adversely affected.
Substantially all of the bitcoin we will 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 our bitcoin. Bitcoin and other blockchain-based cryptocurrencies and the entities that provide services to participants in
the bitcoin 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 bitcoin in a manner that may
not be covered by insurance or the liability provisions of the custody agreements with the custodians who hold our bitcoin;
● 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.
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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 bitcoin blockchain ecosystem or in the use of the bitcoin
network to conduct financial transactions, which could negatively impact us.
Attacks upon systems across a variety of industries, including industries
related to bitcoin, 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 bitcoin industry, including third-party services on which we rely, could materially and adversely
affect our financial condition and results of operations.
We face risks relating to the custody of our bitcoin, including
the loss or destruction of private keys required to access our bitcoin and cyberattacks or other data loss relating to our bitcoin.
We will hold our bitcoin with regulated custodians that have duties
to safeguard our private keys. Our custodial services contracts will not restrict our ability to reallocate our bitcoin among our custodians,
and our bitcoin holdings may be concentrated with a single custodian from time to time. In
light of the significant amount of bitcoin we hold, we continually evaluate the need to engage additional custodians. Additional custodians
could achieve a greater degree of diversification in the custody of our bitcoin as the extent of potential risk of loss is dependent,
in part, on the degree of diversification. If there is a decrease in the availability of digital asset custodians that we believe can
safely custody our bitcoin, for example, custodians discontinue or limit their services in the United States, we may need to enter
into agreements that are less favorable than our currently anticipated agreements or take other measures to custody our bitcoin, and our
ability to seek a greater degree of diversification in the use of custodial services would be materially adversely affected. In addition,
holding our bitcoin with regulated custodians could affect the availability of receiving digital assets that may result from “forks”
of the bitcoin blockchain if our custodians are unable to support or otherwise provide us with such digital assets, thereby reducing the
amount of digital assets we may hold as a result. While our custodians will carry insurance policies to cover losses for commercial crimes
and cyber and tech errors or omissions, the policy limits vary per provider and would be shared among all of their customers, and subject
to various limitations and exclusions (such as if a loss arises due to our failure to protect our login credentials and devices). The
insurance that covers losses of our bitcoin holdings may cover only a small fraction of the value of the entirety of our bitcoin holdings,
and there can be no guarantee that such insurance will be maintained as part of the custodial services we will have or that such coverage
will cover losses with respect to our bitcoin. Moreover, our use of custodians exposes us to the risk that the bitcoin our custodians
hold on our behalf could be subject to insolvency proceedings and we could be treated as a general unsecured creditor of the custodian,
inhibiting our ability to exercise ownership rights with respect to such bitcoin. Any loss associated with such insolvency proceedings
is unlikely to be covered by any insurance coverage we maintain related to our bitcoin.
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Bitcoin is controllable only by the possessor of both the unique public
key and private key(s) relating to the local or online digital wallet in which the bitcoin is held. While the bitcoin blockchain
ledger requires a public key relating to a digital wallet to be published when used in a transaction, private keys must be safeguarded
and kept private in order to prevent a third party from accessing the bitcoin held in such wallet. To the extent the private key(s) for
a digital wallet are lost, destroyed, or otherwise compromised and no backup of the private key(s) is accessible, neither we nor
our custodians will be able to access the bitcoin held in the related digital wallet. Furthermore, we cannot provide assurance that our
digital wallets, nor the digital wallets of our custodians held on our behalf, will not be compromised as a result of a cyberattack. The
bitcoin and blockchain ledger, as well as other digital assets and blockchain technologies, have been, and may in the future be, subject
to security breaches, cyberattacks, or other malicious activities.
Regulatory change reclassifying bitcoin as a security could lead
to our classification as an “investment company” under the Investment Company Act of 1940, as amended, or the 1940
Act, and could adversely affect the market price of bitcoin and the market price of our common stock.
Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company
generally will be deemed to be an “investment company” for purposes of the 1940 Act if (1) 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 (2) 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
and cash items) on an unconsolidated basis. We do not believe that we are an “investment company,” as such term is defined
in the 1940 Act, and are not registered as an “investment company” under the 1940 Act as of the date of this Report.
While senior SEC officials have stated their view that bitcoin is not
a “security” for purposes of the federal securities laws, a contrary determination by the SEC could lead to our classification
as an “investment company” under the 1940 Act, if the portion of our assets consists of investments in bitcoins exceeds 40%
safe harbor limits prescribed in the 1940 Act, which would subject us to significant additional regulatory controls that could have a
material adverse effect on our business and operations and may also require us to change the manner in which we conduct our business.
We monitor our assets and income for compliance under the 1940 Act
and seek to conduct our business activities in a manner such that we do not fall within its definitions of “investment company”
or that we qualify under one of the exemptions or exclusions provided by the 1940 Act and corresponding SEC regulations. If bitcoin is
determined to constitute a security for purposes of the federal securities laws, we would take steps to reduce the percentage of bitcoins
that constitute investment assets under the 1940 Act. These steps may include, among others, selling bitcoins that we might otherwise
hold for the long term and deploying our cash in non-investment assets, and we may be forced to sell our bitcoins at unattractive prices.
We may also seek to acquire additional non-investment assets to maintain compliance with the 1940 Act, and we may need to incur debt,
issue additional equity or enter into other financing arrangements that are not otherwise attractive to our business. Any of these actions
could have a material adverse effect on our results of operations and financial condition. Moreover, we can make no assurance that we
would successfully be able to take the necessary steps to avoid being deemed to be an investment company in accordance with the safe harbor.
If we were unsuccessful, and if bitcoin is determined to constitute a security for purposes of the federal securities laws, then we would
have to register as an investment company, and the additional regulatory restrictions imposed by 1940 Act could adversely affect the market
price of bitcoin and in turn adversely affect the market price of our common stock.
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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 bitcoin and other 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 of bitcoin. 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 bitcoin
or the ability of individuals or institutions such as us to own or transfer bitcoin. For examples, see “ Risk Factors-Risks Related
to Our Bitcoin Treasury Strategy and Holdings-Bitcoin and other digital assets are novel assets, and are subject to significant legal,
commercial, regulatory and technical uncertainty ” elsewhere in this Report.
Our bitcoin treasury strategy exposes us to risk of non-performance
by counterparties.
Our bitcoin treasury strategy exposes us to the risk of non-performance
by counterparties, whether contractual or otherwise. Risk of non-performance includes inability or refusal of a counterparty to perform
because of a deterioration in the counterparty’s financial condition and liquidity or for any other reason. For example, our execution
partners, custodians, or other counterparties might fail to perform in accordance with the terms of our agreements with them, which could
result in a loss of bitcoin, a loss of the opportunity to generate funds, or other losses.
We expect our primary counterparty risk with respect to our bitcoin
will be custodian performance obligations under the various custody arrangements we enter into. A series of recent high-profile bankruptcies,
closures, liquidations, regulatory enforcement actions and other events relating to companies operating in the digital asset industry,
the closure or liquidation of certain financial institutions that provided lending and other services to the digital assets industry,
SEC enforcement actions against other providers, or placement into receivership or civil fraud lawsuit against digital asset industry
participants have highlighted the perceived and actual counterparty risk applicable to digital asset ownership and trading. Legal precedent
created in these bankruptcy and other proceedings may increase the risk of future rulings adverse to our interests in the event one or
more of our custodians becomes a debtor in a bankruptcy case or is the subject of other liquidation, insolvency or similar proceedings.
While our custodians will be subject to regulatory regimes intended
to protect customers in the event of a custodial bankruptcy, receivership or similar insolvency proceeding, no assurance can be provided
that our custodially-held bitcoin will not become part of the custodian’s insolvency estate if one or more of our custodians enters
bankruptcy, receivership or similar insolvency proceedings. Additionally, if we pursue any strategies to create income streams or otherwise
generate funds using our bitcoin holdings, we would become subject to additional counterparty risks. We will need to carefully evaluate
market conditions, including price volatility as well as service provider terms and market reputations and performance, among others,
prior to implementing any such strategy, all of which could effect our ability to successfully implement and execute on any such future
strategy. These risks, along with any significant non-performance by counterparties, including in particular the custodian or custodians
with which we will custody substantially all of our bitcoin, could have a material adverse effect on our business, prospects, financial
condition, and operating results.
If bitcoin 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 bitcoin and in turn adversely affect the market price of our common stock. See “ Risk Factors — Regulatory
change reclassifying bitcoin as a security could lead to our classification as an “investment company” under the Investment
Company Act of 1940, as amended, or the 1940 Act, and could adversely affect the market price of bitcoin and the market price
of our common stock ” above. Moreover, the risks of us engaging in a bitcoin treasury strategy could 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.
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A temporary or permanent blockchain “fork” to bitcoin
or other crypto assets could adversely affect our business.
Blockchain protocols, including bitcoin, are open source. Any user
can download the software, modify it, and then propose that bitcoin or other blockchain protocols users and miners adopt the modification.
When a modification is introduced and a substantial majority of users and miners consent to the modification, the change is implemented
and the bitcoin or other blockchain protocol networks, as applicable, remain uninterrupted. However, if less than a substantial majority
of users and miners consent to the proposed modification, and the modification is not compatible with the software prior to its modification,
the consequence would be what is known as a “fork”, i.e ., “split” of the impacted blockchain protocol
network and respective blockchain, with one prong running the pre-modified software and the other running the modified software. The effect
of such a fork would be the existence of two parallel versions of the bitcoin or other blockchain protocol network, as applicable, running
simultaneously, but with each split network’s crypto asset lacking interchangeability. A “hard fork” — where
there is disagreement among the users about the rules of the network — can have a significant negative impact on value
of the crypto asset.
The bitcoin has been subject to “forks” that resulted in
the creation of new networks, including bitcoin cash ABC, bitcoin cash SV, bitcoin diamond, bitcoin gold and others. Some of these forks
have caused fragmentation among platforms as to the correct naming convention for forked crypto assets. Due to the lack of a central registry
or rulemaking body, no single entity has the ability to dictate the nomenclature of forked crypto assets, causing
disagreements and a lack of uniformity among platforms on the nomenclature
of forked crypto assets, and which results in further confusion to customers as to the nature of assets they hold on platforms, and which
can negatively impact the value of the crypto assets. In addition, several of these forks were contentious and as a result, participants
in certain communities may harbor ill will towards other communities. As a result, certain community members may take actions that adversely
impact the use, adoption, and price of bitcoin, or any of their forked alternatives.
Furthermore, hard forks can lead to new security concerns. For instance,
when the Ethereum and Ethereum Classic networks split in July 2016, replay attacks, in which transactions from one network were rebroadcast
on the other network to achieve “double-spending,” plagued platforms that traded Ethereum through at least October 2016,
resulting in significant losses to some crypto asset platforms. Similar replay attacks occurred in connection with the bitcoin cash and
bitcoin cash SV network split in November 2018. Another possible result of a hard fork is an inherent decrease in the level of security
due to the splitting of some mining power across networks, making it easier for a malicious actor to exceed 50% of the mining power of
that network, thereby making crypto assets that rely on proof-of-work more susceptible to attack, as has occurred with Ethereum Classic.
We intend to recognize forked and airdropped assets consistent with
our custodians. We may not immediately or ever have the ability to withdraw a forked or airdropped bitcoin by virtue of bitcoins that
we hold with our custodians. Future forks may occur at any time. A fork can lead to a disruption of networks and our information technology
systems, cybersecurity attacks, replay attacks, or security weaknesses, any of which can further lead to temporary or even permanent loss
of our and our assets.
The due diligence procedures conducted by us and our liquidity
providers to mitigate transaction risk may fail to prevent transactions with a sanctioned entity.
We will execute trades through U.S.-based liquidity providers, and
rely on these third parties to implement controls and procedures to mitigate the risk of transacting with sanctioned entities. While we
expect our third party service providers to conduct their business in compliance with applicable laws and regulations and in accordance
with our contractual arrangements, there is no guarantee that they will do so. Accordingly, we are exposed to risk that our due diligence
procedures may fail. If we are found to have transacted in bitcoin with bad actors that have used bitcoin to launder money or with persons
subject to sanctions, we may be subject to regulatory proceedings and any further transactions or dealings in bitcoin by us may be restricted
or prohibited.
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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.