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YoY shift: Lean +
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.23pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
+0.25pp
Flat
Net-tone change vs last year's 10-K.
MD&A
+0.21pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
adversely+33
adverse+14
negatively+14
volatile+11
unable+9
Positive rising
able+14
satisfy+7
favorable+6
gain+4
benefit+4
Risk Factors (Item 1A)
19,062 words
Item 1A. Risk Factors .
The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. Please see the “Special Note Regarding Forward-Looking Statements and Industry Data” at the beginning of this Annual Report on Form 10-K for a discussion of some of the forward-looking statements that are qualified by these risk factors. If any of the following risks occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected.
Risk Factors Summary
The following is a summary of the principal factors that make an investment in our securities speculative or risky, all of which are more fully described below. This summary should be read in conjunction with the full description of “Risk Factors” in this section and should not be relied upon as an exhaustive summary of the material risks facing our business. In addition to the following summary and the information in this section, you should consider the other information contained in this Annual Report on Form 10-K before investing in our securities.
Risks Related to the Company’s Strategy and Industry
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
loss+2
force+1
forfeitures+1
restructuring+1
Positive rising
gain+6
greater+1
gains+1
success+1
MD&A (Item 7)
5,394 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10 -K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report, including those set forth under Item 1A. “Risk Factors” and under “Cautionary Note Regarding Forward-Looking Statements” in this Annual Report.
Overview
We are a privacy technology company implementing a digital asset treasury strategy anchored by Zcash and, through our subsidiary Leap, are developing novel therapies for patients with cancer.
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We have historically devoted substantially all of our resources to development efforts relating to our product candidates, including manufacturing and conducting clinical trials of our product candidates, providing general and administrative support for these operations and protecting our intellectual property. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations primarily through proceeds from our sales of common stock and preferred stock and proceeds from the issuance of notes payable.
We have recently shifted a significant portion of our business strategy towards a focus on our digital asset treasury strategy, and we may be unable to successfully execute this new strategy.
ZEC is a highly volatile digital asset, and fluctuations in the price of ZEC may adversely influence our financial results and the market price of our listed securities.
We have limited experience in investing in and managing the ownership of digital assets, and we rely on a third party custodian for the trading execution and custody of our ZEC.
We may inadvertently and without knowledge, directly or indirectly, engage in transactions in violation of U.S. or foreign sanctions laws.
The cryptography used on the Zcash network could fail or could be used to facilitate illicit activities, and businesses that facilitate transactions in ZEC may be at increased risk of criminal or civil lawsuits.
If a security breach or cyberattack gives unauthorized parties access to our ZEC, or if our access to our wallets holding ZEC is lost or destroyed, we may lose some or all of our ZEC.
Disruptions, forks, 51% attacks, hacks, network disruptions, or other adverse events or other compromises to blockchain networks, could materially and adversely impact us.
We face risks relating to the potential compromise of the Zcash network security by emerging technologies, including artificial intelligence and quantum computing.
ZEC is subject to significant legal, commercial, tax, technical and regulatory uncertainty.
Zcash does not pay interest or dividends and our ability to generate a return on investment from our purchases of ZEC is dependent on an appreciation in value of ZEC.
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.
The concentration of our expected digital asset holdings relative to non-digital assets enhances the risks inherent in our digital asset treasury strategy.
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If we are unable to raise additional capital on acceptable terms, our ability to implement and sustain a digital asset treasury strategy may be compromised.
Our ability to time the price of our purchases of ZEC pursuant to our digital asset treasury strategy will be limited.
A significant decrease in the market value of our digital asset holdings could adversely affect our ability to satisfy financial obligations, including any debt financings.
Our common stock may trade at a substantial premium or discount to the value of ZEC we hold, and our stock price may be more volatile than the price of ZEC.
Our Zcash treasury strategy subjects us to enhanced regulatory oversight.
Absent federal regulations, there is a possibility that ZEC may be classified as a “security.” Any classification of ZEC as a “security” could lead to our falling under the definition of “investment company” under the Investment Act of 1940, as amended.
We may be deemed to be a “commodity pool” under CEA and CFTC Rules as a result of our commodity interest trading.
We are not subject to legal and regulatory obligations that apply to investment companies such as mutual funds and ETPs, or to obligations applicable to investment advisers.
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.
The availability of spot ETPs for digital assets may adversely affect the demand for our common stock.
Although we currently are not considered to be a “controlled company” under Nasdaq corporate governance rules, we may in the future become a controlled company due to the concentration of voting power among Winklevoss Capital and their affiliates.
Risks Related to Leap
We have a history of losses, have no source of product revenue, and may never become profitable.
We will require additional capital to fund our operations which may not be available on acceptable terms, or at all.
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our product candidates.
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain.
The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable .
The therapeutic safety and efficacy of sirexatamab is unproven, and we may not be able to successfully develop and commercialize any of our products.
We face substantial competition from much larger competitors.
We may acquire other assets, form collaborations or make investments in other companies or technologies, that could harm our operating results, dilute our stockholders’ ownership, or cause us to incur significant expense.
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We rely on third parties to conduct, supervise, and monitor our preclinical studies and clinical trials.
We may face delays in the development and commercialization of, or be unable to meet demand for, our product candidates and may lose potential revenues.
If we are unable to protect our intellectual property rights or if our intellectual property rights are inadequate to protect our technology and product candidates, our competitive position could be harmed.
Risks Related to our Common Stock
If our share price continues to be low and volatile, we could be subject to securities class action litigation and our stockholders could incur substantial losses.
We are a “smaller reporting company,” and we take advantage of reduced disclosure and governance requirements applicable to smaller reporting companies.
If we fail to maintain an effective system of disclosure controls and internal controls over financial reporting, or if we fail to adequately remediate the material weakness identified in connection with the preparation of our financial statements for the quarter and fiscal year ended December 31, 2025, our ability to produce timely and accurate financial statements or comply with applicable regulations could be adversely affected.
Sales of a substantial number of shares of our common stock in the public market by our stockholders could cause our stock price to fall.
Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.
Our failure to maintain compliance with Nasdaq’s continued listing requirements could result in the delisting of our Common Stock.
Risks Related to the Company’s Strategy and Industry
We have recently shifted a significant portion of our business strategy towards a focus on our digital asset treasury strategy, and we may be unable to successfully execute this new strategy.
In October 2025, we shifted a significant portion of our business strategy towards the implementation of our digital asset treasury strategy, including material investments in ZEC. There is no assurance that we will be able to successfully execute this new strategy or operate ZEC-related activities at the scale or profitability currently anticipated. This strategic shift requires specialized skillsets and operational, technical and compliance infrastructure to support our accumulation of ZEC and related activities. This also requires that we implement different security protocols and treasury management practices. Although we have engaged consultants and added additional board members with experience in these areas, there can be no assurance that we will be able to effectively execute on this strategy within our expected timeframe, or at all. Further, there is ongoing scrutiny and limited formal guidance from regulatory agencies, including Nasdaq and the SEC, with respect to the treatment of public company digital asset treasury strategies. Errors by key management or our third party service providers could result in significant loss of funds and value, which could in turn result in a significant decrease in the value of our common stock. As a result, our shift towards our digital asset treasury strategy could have a material adverse effect on our business and financial condition.
ZEC is a highly volatile digital asset, and fluctuations in the price of ZEC may adversely influence our financial results and the market price of our listed securities.
We have used a significant portion of capital in our treasury to purchase ZEC, a digital asset, and plan to continue to do so in the future. The price of ZEC has been subject to dramatic price fluctuations and is highly volatile. In the twelve months ended December 31, 2025, ZEC has traded between approximately $26.14 and $736.51.
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Any increase or decrease in the fair value of ZEC will require us to recognize unrealized gains or losses, which could be material to our financial results for the applicable reporting period, which may create significant volatility in our reported earnings. Any decrease in reported earnings or increased volatility of such earnings could have a material adverse effect on the market price of our securities. In addition, the application of generally accepted accounting principles in the United States with respect to digital assets remains uncertain in some respects, and any future changes in the manner in which we account for our ZEC holdings could have a material adverse effect on our financial results and the market price of our securities.
In addition, investors may view the value of our securities as dependent upon or linked to the value or change in the value of our ZEC holdings, and accordingly, the price of ZEC may significantly influence the market price of our securities. ZEC is a highly volatile asset. Our financial results and the market price of our listed securities would be adversely affected, and our business and financial condition would be negatively impacted, if the price of ZEC decreased substantially, including as a result of:
decreased user and investor confidence in Zcash, including due to the risk factors described herein
investment and trading activities such as (i) trading activities of highly active retail and institutional users, speculators, miners, and investors, (ii) significant dispositions of ZEC by large holders, or (iii) actual or perceived manipulation of the markets for ZEC;
negative publicity, media or social media coverage, or sentiment due to events in or relating to, or perception of, Zcash, for example: (i) public, legislative, or regulatory perception that ZEC or other digital assets can be used as a vehicle for money laundering or to circumvent government regulations or sanctions; (ii) regulations in the European Union that, beginning on July 1, 2027, will prohibit transactions involving anonymous wallets and privacy-focused digital assets such as ZEC; (iii) filings for bankruptcy protection or bankruptcy proceedings of major digital assets or blockchain industry participants; (iv) public perception regarding technological safeguards with respect to theft or loss of digital assets; and (v) activities relating to other high profile digital assets, including bitcoin or “meme coins”;
changes in consumer preferences and the perceived value or prospects or utility of Zcash;
developments affecting other companies pursuing a digital asset treasury strategy similar to ours, such as the abandonment of the strategy by such other companies, the failure by such other companies to satisfy their debt or other financial obligations, market concerns as to the viability or creditworthiness of such other companies, the loss or disposition of substantial assets by such other companies, regulatory or legal judgments or actions against such other companies due to their adoption of a digital asset treasury strategy, or any other similar actions or negative outcomes impacting such other companies;
competition from other digital assets that exhibit comparable or better privacy, speed, security, scalability or 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;
the introduction of a government-issued digital currency that could eliminate or reduce the need or demand for private-sector issued digital assets such as ZEC, or significantly limit their utility;
a decrease in the price of other digital assets, to the extent the decrease in the price of such other digital assets may cause a decrease in the price of ZEC or adversely affect investor confidence in digital assets generally;
developments relating to the Zcash blockchain and protocol, including (i) changes to the Zcash blockchain and protocol that impact its security, speed, scalability, usability or value, such as changes to the cryptographic security protocol underpinning the blockchain and protocol, changes to the finality of transactions, and similar changes; (ii) failures to make upgrades to the Zcash blockchain and the protocol to adapt to security, technological, legal or other challenges; and (iii) changes to the Zcash blockchain and protocol that introduce software bugs, security risks or other elements that adversely affect Zcash and the privacy functionality;
interruptions, failures, unavailability, or other short or long term disruptions in services of trading venues for ZEC or other digital assets, including but not limited to those arising from hacking, sabotage, or other intentional acts;
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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;
regulatory, legislative, enforcement and judicial actions that adversely affect access to, functionality of, or performance of Zcash, or that adversely affect the operations of or otherwise prevent digital asset custodians, trading venues, lending platforms or other digital assets industry participants from trading in and holding ZEC;
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; and
developments in mathematics or technology, including in digital computing, algebraic geometry and quantum computing, that could result in the cryptography used by the Zcash blockchain becoming insecure or ineffective.
In addition, the U.S. and international stock markets and the markets for both digital asset-influenced and technology companies have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies in those markets. In particular, future trading prices in our securities may reflect market dynamics that are not connected to valuation methods commonly associated with operating companies in similar industries or with companies engaged predominantly in passive investments in digital assets or other commodities, such as exchange-traded products (“ETPs”). Equity market capitalizations of other such companies are often in excess of stockholders’ equity calculated in accordance with U.S. generally accepted accounting principles, and in excess of valuations that might traditionally be expected based on their operating performances, cash flows and net assets. Investors may therefore be unable to assess the value of our common stock or evaluate the risks of an investment in our company using traditional or commonly used enterprise valuation methods. We cannot predict how these dynamics may evolve over time, or whether or how long they may last. These market and industry factors may significantly harm the market price of our listed securities, regardless of our actual operating performance.
The price of our listed securities has been and is likely to continue to be volatile, and with the recent adoption of our new digital asset treasury strategy, we expect to see additional volatility in our stock price. In addition, if investors view the value of our listed securities as dependent upon or linked to the value or change in the value of our ZEC holdings, the price of ZEC may significantly influence the market price of our listed securities. The price of ZEC has historically been, and is likely to continue to be, volatile.
We have limited experience in investing in and managing the ownership of digital assets, and we rely on an affiliate of Winklevoss Capital, Gemini Space Sciences LLC, for the trading execution and custody of our ZEC, and we will not have direct control over our digital assets held through such custodian.
We have limited experience in investing in and managing the ownership of digital assets, such as ZEC. We are reliant on an affiliate of Winklevoss Capital, Gemini Space Sciences LLC (“Gemini”), for the trading execution by which we acquire ZEC and to serve as the custodian for our ZEC on its regulated exchange and wallet storage system. As a result, our ZEC holdings are concentrated with a single custodian, and we rely solely on its proprietary storage system and wallet infrastructure, security infrastructure, financial reporting, and software systems for our ZEC holdings. In Gemini’s structure to support trading, customer digital assets are pooled together, and Gemini relies on an internal customer ledger to maintain the segregated customer digital asset ownership. Gemini’s Omnibus Wallet Structure is made up of a set of online (i.e., “Hot”) and offline (e.g., “Cold”) wallets (or “storage tiers”), with Gemini responsible for managing the movement of digital assets between the online and offline storage tiers. While we have agreements governing Gemini’s activities relating to our account, we have limited influence over its actual performance.
ZEC 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 ZEC is held. While the Zcash 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 ZEC 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 ZEC held in the related digital wallet.
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Furthermore, we cannot provide assurance that the digital wallets at Gemini will not be compromised as a result of a cyberattack. ZEC and the Zcash 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. The failure of Gemini to successfully carry out its contractual duties, trading instructions, safeguard our ZEC, or maintain its internal systems and processes could have a material adverse effect on our ZEC holdings, digital asset treasury strategy, financial condition, and business operations.
Moreover, our agreements with Gemini might terminate for a variety of reasons, and if we need to enter into alternative custody arrangements, we may not be able to enter into arrangements with alternative custodians or to do so on commercially reasonable terms. Switching or adding additional custodians for digital assets involves additional cost, custody risk, and requires management time and focus. While we will conduct due diligence on our custodians and any exchanges or platforms we may use, there can be no assurance that such diligence will uncover all risks, including operational deficiencies, hidden vulnerabilities or legal noncompliance. In addition, there is risk during any transition period when a new custodian would commence services to safeguard our ownership of our digital assets. There can be no assurance that we will not encounter challenges in the custody of our digital assets and that those challenges will not have a material adverse impact on our business, financial condition and prospects, and results of operations.
Additionally, our use of custodians, such as Gemini, exposes us to the risk that the ZEC that the custodian holds on our behalf could be subject to bankruptcy, receivership or similar 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 ZEC. A series of recent high-profile bankruptcies, closures, liquidations, regulatory enforcement actions, criminal charges, 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, and the filing and subsequent settlement of a civil fraud lawsuit have highlighted the counterparty risks applicable to owning and transacting in digital assets. These bankruptcies, closures, liquidations and other events have likely negatively impacted the adoption rate and use of digital assets. Additional bankruptcies, closures, liquidations, regulatory enforcement actions, criminal charges, or other events involving participants in the digital assets industry in the future may further negatively impact the adoption rate, price, and use of digital assets, limit the availability to us of financing collateralized by such assets, or create or expose additional counterparty risks. Any loss associated with such bankruptcy, receivership or similar insolvency proceedings is unlikely to be covered by any insurance coverage we may maintain related to our ZEC. Even if we are able to prevent our digital assets 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 digital assets 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 listed securities. The legal framework governing digital asset ownership and rights in custodial or insolvency contexts remains uncertain and continues to evolve, which could result in unexpectedlosses, protracted recovery processes or adverse treatment in insolvency proceedings.
Any insurance that may cover losses of our ZEC holdings may cover none or only a small fraction of the value of the entirety of our ZEC holdings, and there can be no guarantee that such insurance will be maintained as part of the custodial services we have or that such coverage will cover losses with respect to our ZEC.
In addition, we rely, for financial reporting requirements and our own internal controls, on the controls that are implemented, executed, and reported on by Gemini and other third party service providers. If those controls fail, are modified, or if assurance reports are unavailable or delayed, our ability to maintain effective internal controls over financial reports could be adversely affected. A failure of controls could have a material adverse effect on our digital asset treasury strategy, financial condition, and business operations.
Because of the pseudonymous nature of blockchain transactions, we may inadvertently and without knowledge, directly or indirectly, engage in transactions with or for the benefit of prohibited persons under U.S. or foreign sanctions laws.
We are subject to the rules enforced by the Office of Foreign Asset Control (“OFAC”), including prohibitions on conducting direct or indirect business with persons named on, or owned by persons named on, OFAC’s various sanctions lists, including the Specially Designated Nationals and Blocked Persons list. We are also prohibited from direct or indirect dealings with persons located in, organized in, or nationals of, jurisdictions subject to U.S. embargos, and may be prohibited from dealing with persons in other jurisdictions subject to targeted U.S. sanctions. U.S. sanctions compliance obligations apply to transactions in digital assets and U.S. sanctions authorities have in recent years directed significant attention to sanctions compliance in the digital asset industry. Because of the pseudonymous nature of blockchain transactions and decentralized applications, we may inadvertently and without knowledge, directly or indirectly, engage in transactions with or for the benefit of prohibited persons. Civil liability for OFAC sanctions violations
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is typically regarded as “strict liability” violations, meaning we may be held responsible for transacting with prohibited parties even if we have no knowledge that a particular counterparty is a prohibited person under the OFAC sanctions regulations. In addition, we may be subject to non-U.S. economic sanctions laws and regulations to the extent we conduct activity within the jurisdiction of other sanctions regimes, including those of the European Union and United Kingdom.
OFAC and other governmental authorities have significant discretion in the interpretation and enforcement of sanctions laws and regulations. Moreover, economic sanctions laws and regulations continue to evolve, often with little or no notice, which could raise operational or compliance challenges. If it is determined that we have transacted with prohibited persons, even inadvertently, this could result in substantial reputational harm, fines or penalties, and costs associated with governmental inquiries and investigations. Any or all of the foregoing could have a material adverse effect on our business, prospects, operations or financial condition.
The cryptography used to enhance the privacy of transactions on the Zcash Network could ultimately fail or could be used to facilitate illicit activities, and businesses that facilitate transactions in ZEC may be at increased risk of criminal or civil lawsuits, or of having services cut off, which could negatively affect the price of ZEC and the value of our listed securities.
The Zcash network uses zk-SNARKs, which provide additional layers of confidentiality to transactions on the Zcash Network by protecting the amount and the recipient in ZEC transactions. This cryptography could ultimately fail, resulting in less privacy than believed or no privacy at all, and could adversely affect one’s ability to complete transactions on any such digital asset network or otherwise adverselyinterfere with the integrity of the relevant blockchain. Because ZEC is a privacy-preserving digital asset, it is also subject to certain types of attacks that may go undetected. For example, on February 5, 2019, the team behind ZEC announced that it discovered a vulnerability in its zk-SNARK implementation on March 1, 2018 that was subsequently patched in connection with a network upgrade called “Sapling” in October 2018.
Digital asset networks have in the past been, and may continue to be, used to facilitate illicit activities, including money laundering, human and drug trafficking, arms dealing and other crimes. Moreover, law enforcement agencies and other market participants have often relied on the transparency of blockchains to facilitate investigations and comply with laws, such as anti-money laundering and economic sanctions laws. Because of the privacy-enhancing features of the Zcash Network, law enforcement agencies and other market participants may have less visibility into transaction-level data, which may encourage bad actors to misuse the Zcash Network for such illicit purposes. As a result, businesses that facilitate transactions in ZEC may be at increased risk of potential criminal charges or civil lawsuits, or of having banking or other services cut off if there is a concern that these features interfere with the performance of anti-money laundering duties and economic sanctions checks. Since 2019, ZEC, along with several other privacy tokens including Monero, Dash, and Horizen have been delisted from multiple exchanges. Although these digital asset trading platforms did not disclose the reasons for such delisting, and some digital asset trading platforms subsequently relisted ZEC, it is believed that they were the result of the privacy-enhancing features of the digital assets, and there is a risk that other digital asset trading platforms may remove ZEC from their platforms as a result of these concerns. Other service providers of such businesses may also cut off services if there is a concern that the Zcash Network is being used to facilitate crime. Any of the aforementioned occurrences could increase regulatory scrutiny of the Zcash Network and/or adversely affect the price of ZEC, the attractiveness of the Zcash Network and an investment in our listed securities.
If we, Gemini or our respective third-party service providers experience a security breach or cyberattack and unauthorized parties obtain access to our ZEC, or if our access to our wallets holding ZEC is lost or destroyed, or other similar circumstances or events occur, we may lose some or all of our ZEC and our financial condition and results of operations could be materially adversely affected.
We expect that substantially all of the ZEC we acquire will be held in accounts at Gemini. Security breaches and cyberattacks are of particular concern with respect to digital assets, including ZEC. ZEC and other blockchain-based digital assets and the entities that provide services to participants in the Zcash 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 exploitedweaknesses in the security architecture of the FTX Trading digital asset exchange and reportedly stole over $400 million in digital assets from customers.
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A successful security breach or cyberattack could result in:
a partial or total loss of our ZEC in a manner that may not be covered by insurance or the liability provisions of the custody agreements with the custodians who hold our ZEC;
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, which in turn could adversely affect our stock price.
Further, any actual or perceived data security breach or cybersecurity attack directed at other companies with digital assets or companies that operate in the digital asset ecosystem, regardless of whether we are directly impacted, could lead to a general loss of confidence in the broader Zcash ecosystem or in the use of the Zcash Network to conduct financial transactions, which could negatively impact us.
Attacks upon systems across a variety of industries, including industries related to digital assets such as ZEC, 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, including Gemini. 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 conflict, as well as the conflicts in the Middle East and Latin America, 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 Zcash ecosystem, including third-party services on which we rely, could materially and adversely affect our financial condition and results of operations.
We face significant risks relating to disruptions, forks, 51% attacks, hacks, network disruptions, or other adverse events or other compromises to blockchain networks, which could materially and adversely impact our business, financial condition and results of operations.
Blockchain networks are maintained by decentralized networks of participants, and as such are susceptible and vulnerable to a variety of risks, including disruptions, security breaches, and fundamental technical issues. Blockchain networks are vulnerable to attacks by malicious actors who gain control of a significant portion of the network’s mining hash rate, a scenario commonly referred to as a 51% attack. In such an event, the attacker could double-spend transactions, reverse previously confirmed transactions, or otherwise disrupt the normal operations of the network. Successful 51% attacks have historically undermined trust in affected blockchain networks and could materially decrease the value of digital assets.
Additionally, forks, or splits in the underlying protocol may occur when participants fail to reach consensus on proposed upgrades or changes. Forks can lead to the creation of duplicate networks, confusion among market participants, dilution of the original network’s value and disruption of the network’s operations. Hard forks, in particular, can materially and adversely impact the perceived stability and value of digital assets, leading to reduced demand and price declines.
Further, hacks and other security breaches targeting the core infrastructure of blockchain networks or major participants, such as exchanges and custodians, including Gemini, could severely impact the reputation and market confidence in these networks. Exploits of protocol-level vulnerabilities could also compromise the integrity of blockchain networks, resulting in a substantial loss of value.
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The success and growth of digital assets depend significantly on their continued security, stability and scalability. Any technical failures, consensus breakdowns, governance disputes or regulatory interventions that diminish confidence in the networks or impair their functionality could lead to a material decline in their market price, which could materially and adversely impact our business, financial condition and results of operations. A sustained or significant decrease in the price or liquidity of digital assets, whether due to 51% attacks, forks, hacks, network disruptions or other adverse events, could negatively impact our business, financial condition and results of operations. Furthermore, even the perception that any of these events could occur may lead to significant market volatility and price declines, adversely affecting our business, financial condition and results of operations.
We face risks relating to the potential compromise of the Zcash Network security by emerging technologies, including artificial intelligence and quantum computing, which may materially and adversely impact our operations and financial condition.
The security and integrity of the Zcash Network are fundamentally dependent on the robustness of its cryptographic algorithms. Blockchain protocols rely heavily on public key cryptography and hashing algorithms to secure transactions, safeguard private keys, and prevent double-spending. Advances in emerging technologies, particularly artificial intelligence (“AI”) and quantum computing, may pose significant risks to the network’s security and operational stability.
Quantum computing, in particular, presents a long-term threat to the cryptographic assumptions underpinning the Zcash Network. Should quantum computing achieve sufficient maturity, it could undermine the effectiveness of the cryptographic algorithms used to secure the blockchain. A sufficiently powerful quantum computer could potentially reverse-engineer private keys from public addresses or compromise the blockchain’s consensus mechanism, leading to the theft of digital assets, double-spending, and other forms of fraud. Although current quantum computing capabilities are not yet at this level, advancements in quantum technologies could materialize more rapidly than anticipated, creating significant systemic risks for the Zcash Network.
AI may also pose indirect security risks. AI-driven cyberattacks, including advanced phishing schemes, autonomous malware, and intelligent blockchain analysis tools, could increase the sophistication and success rate of attacks targeting Zcash users, exchanges, custodians, and node operators. The use of AI to exploitvulnerabilities in software, mining hardware, or network protocols could threaten the stability and reliability of the Zcash Network and other digital asset ecosystems.
There can be no assurance that Zcash’s current cryptographic safeguards will be sufficient to protect against future technological advances. While research and development efforts are ongoing to develop quantum-resistant cryptographic protocols, the Zcash network may face challenges in adopting such technologies at scale, particularly given its decentralized governance structure. Any successful attack or perceived vulnerability arising from AI or quantum computing could materially and adversely affect the price, liquidity, and adoption of ZEC and could negatively impact our business, financial condition and results of operations.
ZEC and other digital assets are novel assets and are subject to significant legal, commercial, tax, technical and regulatory uncertainty, which could materially adversely affect our financial position, operations and prospects.
The first digital asset, Bitcoin, was launched in 2009. Zcash was launched in 2016. ZEC 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 ZEC or the ability of individuals or institutions such as us to own or transfer ZEC. For example, beginning on July 1, 2027, regulations in the European Union will prohibit transactions involving anonymous wallets and privacy-focused digital assets such as ZEC.
In addition, our accounting for digital assets relies on complex judgment and emerging interpretations of U.S. GAAP. Digital assets are a relatively new asset class, and accordingly, accounting and tax guidance, regulations, and best practices are evolving and rapidly changing. Future changes in authoritative guidance, SEC views, or industry practice could require us to change our accounting or tax approach, which could materially affect our financial statements, reported earnings, comparability of financial results in future periods with prior periods, or comparability with other companies.
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 ZEC or the ability of individuals or institutions such as us to own or transfer ZEC.
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It is not possible to predict whether or when new laws and regulations will be enacted or adopted that change the legal framework governing digital assets or provide additional authorities to the SEC, the Commodity Futures Trading Commission (the “CFTC”), or other regulators, or whether or when any other federal, state or foreign legislative or regulatory bodies will take any similar actions. For example, legislation such as the Digital Asset Market Clarity Act of 2025 (the “CLARITY Act”), a comprehensive digital asset market structure and regulation bill, as proposed by the U.S. House of Representatives in July 2025 could, if it became law, grant the CFTC additional regulatory and supervisory powers with respect to spot digital assets as “digital commodities” and potentially result in the imposition of additional regulatory obligations and burdens to us, which could potentially include registration, disclosure, reporting, and business conduct requirements.
It is also not possible to predict the nature of any such additional laws or authorities, how additional legislation or regulatory oversight might impact the ability of digital asset markets to function, the willingness of financial and other institutions to continue to provide services to the digital assets industry, or how any new laws or regulations, or changes to existing laws or regulations, might impact the value of digital assets generally and ZEC specifically. The consequences of any new law or regulation relating to digital assets and digital asset activities could adversely affect the market price of ZEC, as well as our ability to hold or transact in ZEC, and in turn adversely affect the market price of our listed securities. Furthermore, other companies have begun to adopt strategies similar to ours with respect to digital assets, and this could result in new laws or regulations, or new interpretations of existing laws or regulations, impacting our digital asset treasury strategy, particularly if the adoption of digital asset strategies by other companies continues or accelerates.
Moreover, the risks of engaging in a digital asset treasury strategy generally, and ZEC as the digital asset specifically, 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.
The growth of the digital assets industry in general, and the use and acceptance of Zcash in particular, may also impact the price of ZEC and is subject to a high degree of uncertainty. The pace of worldwide growth in the adoption and use of ZEC may depend, for instance, on public familiarity with digital assets, ease of buying, accessing or gaining exposure to ZEC, institutional demand for ZEC as an investment asset, the participation of traditional financial institutions in the digital assets industry, consumer demand for ZEC as a store of value or means of payment, and the availability and popularity of alternatives. Even if growth in ZEC adoption occurs in the near or medium term, there is no assurance that ZEC usage will continue to grow over the long term.
A variety of technical factors related to the Zcash blockchain could also impact the price of ZEC. For example, malicious attacks by miners, inadequate mining fees to incentivize validating of Zcash transactions, hard “forks” of the Zcash blockchain into multiple blockchains, and advances in digital computing, algebraic geometry, and quantum computing could undercut the integrity of the Zcash blockchain and protocol, and negatively affect the price of ZEC. The liquidity of ZEC may also be reduced and damage to the public perception of ZEC may occur, if financial institutions were to deny or limit banking services to businesses that hold ZEC, provide Zcash-related services or accept ZEC as payment, which could also decrease the price of ZEC. The liquidity of ZEC may also be impacted to the extent that changes in applicable laws and regulatory requirements, such as those proposed by the European Union, negatively impact the ability of exchanges and trading venues to provide services for ZEC and other privacy-based digital assets.
ZEC does not pay interest or dividends and our ability to generate a return on investment from our purchases of ZEC is dependent on an appreciation in value of ZEC.
ZEC does not pay interest or dividends. The ability to generate a return on investment from the purchase of ZEC will depend on whether there is appreciation in the value of ZEC following our purchases. Future fluctuations in ZEC’s trading prices may result in our converting ZEC into US dollars, Euros, or other assets with a value substantially below the cost of such purchases.
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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.
Our ZEC 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 digital asset market has been characterized by significant volatility in price, limited liquidity and trading volumes compared to sovereign currencies markets, concerns regarding pseudonymity of digital asset addresses, 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 do not enjoy the same protections or insurance 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 ZEC as collateral, or otherwise generate funds using our ZEC 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.
The concentration of our ZEC holdings could enhance the risks inherent in our digital asset treasury strategy.
The concentration of our ZEC holdings limits the risk mitigation that we could achieve if we were to purchase a more diversified portfolio of treasury assets, and the absence of diversification enhances the risks inherent in our ZEC digital asset treasury strategy. Any future significant declines in the price of ZEC would have a more pronounced impact on our financial condition than if we used our cash to purchase a more diverse portfolio of assets.
Historically, the digital asset 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 our ZEC at favorable prices or at all. Further, any ZEC we hold with Gemini or other 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. If we are unable to sell our ZEC, enter into additional capital raising transactions, or otherwise generate funds using our ZEC holdings, or if we are forced to sell our ZEC at a significant loss, in order to meet our working capital requirements, our business and financial condition could be negatively impacted.
The concentration of our expected digital asset holdings relative to non-digital assets enhances the risks inherent in our digital asset treasury strategy.
We expect ZEC to comprise a significant portion of our total assets. The concentration of our digital asset holdings limits 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 digital asset treasury strategy. If there is a significant decrease in the price of ZEC, we will experience a more pronounced impact on our financial condition than if we used our cash to purchase a more diverse portfolio of assets.
If we are unable to raise additional capital on acceptable terms, our ability to implement and sustain a digital asset treasury strategy may be compromised.
Our digital asset treasury strategy contemplates the discretionary purchase of ZEC. The capital required to acquire and actively manage ZEC may exceed our existing cash resources and any cash flows from operations. Market conditions, our share price performance, the volatility of digital assets, and regulatory uncertainties could impair our ability to access debt or equity capital on terms acceptable to us, or at all. Failure to obtain necessary financing could force us to curtail or abandon our digital asset strategy, which could materially harm our growth prospects and the value of our securities.
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Our ability to time the price of our purchases of ZEC pursuant to our digital asset treasury strategy will be limited.
In future periods, we intend to continue to acquire additional ZEC in accordance with our digital asset treasury strategy. ZEC is a highly volatile asset. Volatility may continue in the future and historical trends could reverse dramatically. As a result, there can be no assurance that we will be able to purchase ZEC at favorable prices or avoid losses associated with declines in the value of ZEC. Our ability to time such purchases to coincide with favorable market conditions may be limited.
A significant decrease in the market value of our digital asset holdings could adversely affect our ability to satisfy financial obligations, including any debt financings.
As part of our digital asset treasury strategy, we may incur indebtedness and other fixed charges in the future in order to raise capital for our business strategies. If our businesses do not generate cash flow in future periods sufficient to satisfy our financial obligations, including our debt, if any, we intend to fund our obligations using cash flow generated by equity or debt financing. Our ability to obtain equity or debt financing may in turn depend on, among other factors, the value of our ZEC holdings, investor sentiment and the general public perception of ZEC, as well as our strategy and our value proposition. Accordingly, a significant decline in the market value of our ZEC holdings or a negative shift in these other factors may create liquidity and credit risks, as such a decline or such shifts may adversely impact our ability to secure sufficient equity or debt financing to satisfy our financial obligations. As ZEC will constitute a substantial part of our balance sheet, if we are unable to generate revenue or secure equity or debt financing in a timely manner, on favorable terms, or at all, we may be required to sell ZEC to satisfy these obligations. Any such sale of ZEC may have a material adverse effect on our operating results, financial condition and future prospects, and could impair our ability to secure additional equity or debt financing in the future. Our inability to secure additional equity or debt financing in a timely manner, on favorable terms or at all, or to sell our ZEC in amounts and at prices sufficient to satisfy our financial obligations, including our debt service obligations, could cause us to default under such obligations. Any default on our indebtedness may have a material adverse effect on our operating results, financial condition and future prospects.
Our common stock may trade at a substantial premium or discount to the value of ZEC we hold, and our stock price may be more volatile than the price of ZEC.
The market price of our common stock reflects many factors that do not affect the spot price of ZEC and may therefore diverge materially — positively or negatively — from the per-share value of our ZEC holdings (net of cash, other assets and liabilities). These factors include, among others: our corporate-level expenses; taxes; the timing, size and pricing of equity or debt financings (including at-the-market offerings, equity line financings or convertible securities), equity awards and other sources of dilution; expectations about our future purchases or sales of ZEC; our liquidity and public float; differences in trading hours and market microstructure between our common stock and spot markets for ZEC; changes in index inclusion, analyst coverage or investor sentiment toward us as an operating company; our corporate governance, financial reporting, and any actual or perceived operational, custody, technology or regulatory risks specific to us; and broader equity-market conditions independent of crypto-asset markets. As a result, our common stock may trade at a premium or discount to the value of our ZEC holdings for extended periods, and may be more volatile than the price of ZEC. Accordingly, investors could lose all or a substantial part of their investment even if the market price of ZEC does not decline, and may not benefit commensurately from increases in the market price of ZEC.
Our ZEC treasury strategy subjects us to enhanced regulatory oversight.
Several spot ETPs have received approval from the SEC to list their shares on a U.S. national securities exchange with continuous share creation and redemption at net asset value. Even though we are not, and do not function in the manner of, a spot ETP, it is possible that we nevertheless could face regulatory scrutiny from the SEC or other federal or state agencies due to our ZEC holdings.
In addition, there has been increasing focus on the extent to which digital assets can be used to launder the proceeds of illegal activities, fund criminal or terrorist activities, or circumvent sanctions regimes, including those sanctions imposed in response to the ongoing conflict between Russia and Ukraine. While we have implemented and maintain policies and procedures reasonably designed to promote compliance with applicable anti-money laundering and sanctions laws and regulations and take care to only acquire our ZEC through Gemini, which is subject to anti-money laundering regulation and related compliance rules in the United States, if we are found to have purchased any of our ZEC from bad actors that have used ZEC to launder money or persons subject to sanctions, we may be subject to regulatory proceedings and any further transactions or dealings in ZEC by us may be restricted or prohibited.
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Although our ZEC holdings do not currently serve as collateral securing any of our outstanding indebtedness as of the date hereof, we may incur indebtedness or enter into other financial instruments in the future that may be collateralized by our ZEC holdings. We may also consider pursuing strategies to create income streams or otherwise generate funds using our ZEC holdings. These types of ZEC-related transactions are the subject of enhanced regulatory oversight by international, federal, and state regulatory agencies. These and any other ZEC-related transactions we may enter into, beyond simply acquiring and holding ZEC, may subject us to additional regulatory compliance requirements and scrutiny, including under international, federal, and state money services regulations, money transmitter licensing requirements and various commodity and securities laws and regulations.
In addition, private actors that are wary of ZEC or the regulatory concerns associated with Zcash may in the future take actions that may have an adverse effect on our business or the market price of our listed securities. For example, it is possible that a financial institution could restrict customers from buying our securities if it were to determine that the value of our securities is closely tied to the performance of ZEC, signaling a reluctance to facilitate exposure to virtual currencies.
Absent federal regulations, there is a possibility that ZEC may be classified as a “security.” Any classification of ZEC as a “security” could lead to our falling under the definition of “investment company” under the Investment Act of 1940, as amended, and would subject us to additional regulation and could materially impact the operation of our business.
Neither the SEC nor any other U.S. federal or state regulator has publicly stated whether they believe that ZEC is a “security.” Despite the 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,” ZEC has not yet been classified with respect to U.S. federal securities laws. Because ZEC heavily resembles bitcoin, we believe that the analysis and statements from the SEC and CFTC that have stated that bitcoin is not a security apply to ZEC. Therefore, while we believe that ZEC is 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 “Investment Company Act”), is therefore not required under the applicable securities laws, we acknowledge that a regulatory body or federal court may determine otherwise. Our belief, even if reasonable under the circumstances, would not preclude legal or regulatory action based on such a finding that ZEC is a “security” which would require us to register as an investment company under the Investment Company Act.
ZEC and other digital assets, as well as new business models and transactions enabled by blockchain technologies, present novel interpretive questions under the Investment Company Act. There is a risk that assets or arrangements that we have concluded are not securities could be deemed to be securities by the SEC or another authority for purposes of the Investment Company Act, which would increase the percentage of securities held by us for Investment Company Act purposes.
Regulatory change reclassifying ZEC as a security could lead to our falling within the definition of “investment company” under the Investment Company Act and could adversely affect the market price of ZEC and the market price of our common stock.
Under Sections 3(a)(1)(A) and (C) of the Investment Company Act, a company generally will be deemed to be an “investment company” for purposes of the Investment Company 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 is engaged, 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.
While the SEC has not stated a view as to whether ZEC is or is not a “security” for purposes of the federal securities laws, a determination by the SEC or a court of competent jurisdiction that ZEC is a security could lead to our meeting the definition of “investment company” under the Investment Company Act, if the portion of our assets that consists of investments in ZEC exceeds the 40% limit prescribed in the Investment Company Act, which would subject us to significant additional regulatory requirements 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.
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We intend to monitor our assets and income in order to conduct our business activities in a manner such that we do not fall within the definition of “investment company” under the Investment Company Act or would qualify under one of the exemptions or exclusions provided by the Investment Company Act and corresponding SEC rules. If ZEC is determined to be a security for purposes of the federal securities laws, we would evaluate taking steps to reduce our holdings of ZEC as a percentage of our total assets. These steps may include, among others, selling ZEC that we might otherwise hold for the long term and deploying our cash in assets that are not considered to be investment securities under the Investment Company Act, in which case we may be forced to sell our ZEC at unattractive prices. We may also seek to acquire additional assets that are not considered to be investment securities under the Investment Company 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 meeting the definition of “investment company” under the Investment Company Act and becoming subject to its requirements. If ZEC is determined to constitute a security for purposes of the federal securities laws and if we are not able to come within an available exemption or exclusion under the Investment Company Act, then we would have to register as an investment company and require us to change the manner in which we conduct our business. In addition, such a determination could adversely affect the market price of ZEC and in turn adversely affect the market price of our common stock, or subject us to risk of enforcement proceedings and lawsuits, which could result in potential injunctions, cease-and-desist orders, fines and penalties. Such developments would adversely affect our business, results of operations, financial condition, and prospects.
We may be deemed to be a “commodity pool” under CEA and CFTC Rules as a result of our commodity interest trading, which could have a material adverse effect on our business, financial condition and results of operations.
The CEA and CFTC Rules define a “commodity pool” as any investment trust, syndicate, or similar form of enterprise operated for the purpose of trading in “commodity interests,” such as swaps, futures and options on an underlying commodity (including any digital asset that constitutes a commodity). The CFTC has previously interpreted “for the purpose of trading” as being triggered where only one swap is executed. The legal and regulatory landscape of CFTC commodity pool regulation is currently unclear as applied to digital asset treasury companies. Accordingly, (i) no person is registered with the CFTC as a commodity pool operator (“CPO”) or a commodity trading adviser (“CTA”) with respect to our company and (ii) our stockholders will not have the regulatory protections provided to investors in a commodity pool operated or advised by a registered CPO or CTA, as applicable.
If our company were determined to be a “commodity pool,” including as a result of any future change in legislation, regulation or interpretation, we may be subject to additional regulatory requirements which may be burdensome or costly or that could make it impractical or impossible for us to continue our business as currently contemplated. For example, a commodity pool must generally be operated as a separately cognizable entity from its CPO and any person acting as a CPO or CTA with respect to a commodity pool must be registered with the CFTC and as a member of the National Futures Association (the “NFA”). Absent an applicable exemption, a registered CPO or CTA must generally provide investors with a “disclosure document” in compliance with the CFTC Rules and the requirements of the NFA, and must comply with a range of ongoing reporting and recordkeeping requirements on registered and certain exempt commodity pool operators. Registration can be time-consuming, expensive and restrictive, and 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 or modify certain of our operations, which could negatively impact our investors.
We are not subject to legal and regulatory obligations that apply to investment companies such as mutual funds and ETPs, or to obligations applicable to investment advisers.
Mutual funds, ETPs 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 do not currently comply with and do not intend to voluntarily comply with these laws and regulations. Consequently, our stockholders do not have the regulatory protections provided to stockholders in registered and regulated investment companies, which, for example, require investment companies to have a certain percentage of disinterested directors and regulate the relationship between the investment company and certain of its affiliates.
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This means, among other things, that the execution of or changes to our ZEC treasury strategy, our use of leverage, the manner in which our ZEC is 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 has broad discretion over the investment, leverage and cash management policies it authorizes, whether in respect of our ZEC holdings or other activities we may pursue and has the power to change our current policies, including our strategy of acquiring and holding ZEC.
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.
The regulatory regime for digital assets in the U.S. and elsewhere is uncertain. We may be unable to effectively react to proposed legislation and regulation of digital assets, which could adversely affect our business.
The Financial Crimes Enforcement Network, a division of the U.S. Treasury Department (“FinCEN”), regulates providers of certain services with respect to “convertible virtual currency,” including ZEC. Businesses engaged in the transfer of convertible virtual currencies are subject to registration and licensure requirements at the U.S. federal level and also under U.S. state laws.
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. Further, 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 availability of spot ETPs for digital assets may adversely affect the demand for our common stock, which could result in a decrease in the market price of our listed securities.
Although Bitcoin and other digital assets such as ZEC have experienced a surge of investor attention since Bitcoin was invented in 2008, until recently investors in the United States had limited means to gain direct exposure to digital assets through traditional investment channels, and instead generally were only able to hold digital assets through “hosted” wallets provided by digital asset service providers or through “unhosted” wallets that expose the investor to risks associated with loss or hacking of their private keys. Given the relative novelty of digital assets, general lack of familiarity with the processes needed to hold digital assets directly, as well as the potential reluctance of financial planners and advisers to recommend direct digital asset holdings to their retail customers because of the manner in which such holdings are custodied, some investors have sought exposure to digital assets through investment vehicles that issue shares representing fractional undivided interests in their underlying digital asset holdings.
On January 10, 2024, the SEC approved the listing and trading of spot Bitcoin ETPs, the shares of which can be sold in public offerings and are traded on U.S. national securities exchanges. The SEC has also approved spot ETPs for Ethereum and other digital assets. The listing and trading of spot ETPs for digital assets offers investors another alternative to gain exposure to digital assets, which could result in a decline in the price of our listed securities relative to the value of our digital assets.
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Although we are an operating company, and we believe we offer a different value proposition than an investment vehicle such as a spot digital asset ETP, investors may nevertheless view our securities as an alternative to an investment in an ETP, and choose to purchase shares of an ETP instead of our securities. They may do so for a variety of reasons, including if they believe that ETPs offer a “pure play” exposure to digital assets that is generally not subject to federal income tax at the entity level as we are, or the other risk factors applicable to an operating business, such as ours. Additionally, unlike spot digital asset ETPs, we (i) do not seek for our common stock to track the value of the underlying digital assets we hold before payment of expenses and liabilities, (ii) may not benefit from various exemptions and relief under the Securities Exchange Act of 1934, as amended, including Regulation M, and other securities laws, which enable ETPs to continuously align the value of their shares to the price of the underlying assets they hold through share creation and redemption, (iii) are a Delaware corporation rather than a statutory trust, and do not operate pursuant to a trust agreement that would require us to pursue one or more stated investment objectives, and (iv) are not required to provide daily transparency as to our digital asset holdings or our net asset value. Based on how we are viewed in the market relative to ETPs, and other vehicles which offer economic exposure to digital assets, such as futures ETPs, leveraged futures ETPs and similar vehicles offered on international exchanges, any premium or discount in our common stock relative to the value of our digital asset holdings may increase or decrease in different market conditions.
As a result of the foregoing factors, availability of spot ETPs for ZEC and other digital assets could decrease demand for our common stock, which could have a material adverse effect on the market price of our listed securities.
Although we currently are not considered to be a “controlled company” under Nasdaq corporate governance rules, we may in the future become a controlled company due to the concentration of voting power among Winklevoss Capital and their affiliates.
A “controlled company” pursuant to the Nasdaq corporate governance rules is a company of which more than 50% of the voting power is held by an individual, group, or another company. Winklevoss Capital beneficially owns 19.9% of our outstanding shares of common stock, which excludes an additional 71,647,916 shares of Common Stock issuable upon exercise of Pre-Funded Warrants and 57,182,378 shares of Common Stock issuable upon exercise of the Common Warrants. Although we currently are not considered to be a “controlled company” under the Nasdaq corporate governance rules, we may in the future become a controlled company if such shares are issued. In the event that Winklevoss Capital acquires more than 50% of the voting power of the Company, we may in the future be able to rely on the “controlled company” exemptions under the Nasdaq corporate governance rules due to this concentration of voting power and the ability of Winklevoss Capital and its affiliates to act as a group. If we were a controlled company, we would be eligible, and could elect, not to comply with certain of the Nasdaq corporate governance standards. Such standards include the requirement that a majority of our directors are independent directors, subject to certain phase-in periods, and the requirement that our compensation, nominating and governance committee consist entirely of independent directors. In such a case, if the interests of our stockholders differ from Winklevoss Capital, including as a result of Winklevoss Capital’s affiliation with Gemini, our stockholders would not have the same protection afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance standards, and the ability of our independent directors to influence our business policies and corporate matters may be reduced.
Risks Related to Leap
We have a history of losses, have no source of product revenue, and may never become profitable.
Investment in the biotechnology research and development business conducted by Leap is highly speculative because it entails substantial upfront capital expenditures and significant risk that our lead product candidate, sirexatamab, or any other products will fail to gain regulatory approval or become commercially viable. We do not currently have any products approved by regulatory authorities for marketing and have not generated any revenue from product sales. We have incurred significant research, development and other expenses related to our ongoing operations.
We have not generated any product revenues, and we have no commercial products. Our ability to generate revenue from product sales and achieveprofitability with respect to our biotechnology research and development operations conducted by Leap will depend upon our ability to successfullygain regulatory approval and commercialize sirexatamab, FL-501, or other product candidates that we may in-license or acquire in the future. Even if we are able to successfullyachieve regulatory approval, we do not know when we will generate revenue from product sales, if at all. Our ability to generate revenue from product sales from any product candidates also depends on a number of additional factors, including but not limited to, our ability to:
initiate and successfully complete development activities, including enrollment of study participants and completion of the necessary clinical trials;
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complete and submit new drug applications ( “ NDAs ” ), or biologics license applications ( “ BLAs ” ) to the FDA and obtain regulatory approval for indications for which there is a commercial market;
complete and submit applications to, and obtain regulatory approval from, foreign regulatory authorities;
make or have made commercial quantities of our products at acceptable cost levels;
develop a commercial organization capable of manufacturing, sales, marketing and distribution for any products we intend to sell ourselves in the markets in which we choose to commercialize on our own; and
obtain adequate pricing, coverage and reimbursement from third parties, including government and private payors.
In addition, because of the numerous risks and uncertainties associated with product development, including that our product candidates may not advance through development or achieve the endpoints of applicable clinical trials, we are unable to predict the timing or amount of increased expenses, or when or if we will be able to achieve or maintain profitability. Our failure to become and remain profitable would depress the value of our company and could impair our ability to expand our business, maintain our research and development efforts, diversify our product offerings, or even continue operations.
We will require additional capital to fund our operations which may not be available on acceptable terms, or at all. Failure to obtain financing when needed may force us to delay, limit or terminate our product development efforts or other operations which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our operations have consumed substantial amounts of cash since inception. We will need to spend substantial amounts to advance the development of sirexatamab and FL-501 and launch and commercialize our product candidates, if we receive regulatory approval. We will require additional capital for further development and potential commercialization. If we are unable to raise capital when needed or on attractive terms, we could be forced to reduce or eliminate our research and development programs.
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our product candidates.
Until Leap can generate substantial revenue from product sales, if ever, Leap expects to seek additional capital through a combination of private and public equity offerings, debt financings, strategic collaborations and alliances, licensing arrangements, and mergers with other companies. To the extent that we raise additional capital through the sale or issuance of equity or convertible debt securities, the ownership interests of existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of existing stockholders. If we are unable to raise additional funds through equity or debt financing when needed, we may be required to terminate our product development efforts, or to grant rights to develop and market our product candidates that we would otherwise prefer to develop and market ourselves, or to sell ourselves or engage in some other strategic transaction at an unfavorable price and on other unfavorable terms, or to discontinue our drug development business and operations entirely. If we raise additional funds through strategic collaborations and alliances, licensing arrangements, or mergers with third parties, we may have to relinquishvaluable rights to our product candidates in particular countries, or grant licenses on terms that are not favorable to us.
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process.
The results of preclinical studies, preliminary study results, and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials or the ultimately completed trials. For instance, while we have early clinical trial results for our clinical studies of sirexatamab, additional clinical trials will be needed for the registration of sirexatamab. The ultimate study results of our future trials may be different than the ones we have seen to date.
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Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. Preclinical studies may also reveal unfavorable product candidate characteristics, including safety concerns. In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, the impact of an active comparator arm, differences in the size and type of patient populations, changes in and adherence to clinical trial protocols, changes in medical prescribing practices, and the rate of dropout among clinical trial participants.
Our future clinical trial results may not be successful. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials, notwithstanding promising results in earlier trials. Moreover, should there be a flaw in a clinical trial, it may not become apparent until the clinical trial is well advanced. Further, because we currently plan to develop our product candidates for use in combination with other oncology products, the design, implementation, and interpretation of the clinical trials necessary for marketing approval may be more complex than if we were developing our product candidates alone.
The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable , especially for an early-stage company such as ours. If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we may not be able to commercialize our product candidates as expected, and our ability to generate revenue could be materially impaired.
The time required to obtain approval for a new therapeutic from the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of such regulatory authorities.
In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. Any such change may require us to amend our clinical trial protocols, conduct additional studies that require regulatory or IRB approval, or otherwise cause delays in the approval or rejection of an application. We have not obtained regulatory approval for any product candidate and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval. Both sirexatamab and FL-501 will require additional preclinical and clinical development, as well as additional manufacturing development before we will be able to submit a marketing application to the FDA. Moreover, should the FDA determine that a companion diagnostic device is required for use of our product candidates or should we decide to pursue the development of a companion diagnostic device for the use of our product candidates, further development work would be required for such a device, including, possibly the approval of an Investigational Device Exemption for the study of such a device from the FDA, compliance with the FDA’s device regulations, and either FDA clearance or approval of the device for commercial use. Such development would require additional time and expense and be subject to the risk of FDA non-approval or clearance of the diagnostic. Any delay in obtaining or failure to obtain required approvals could materially adversely affect our ability or the ability of any of our future collaborators to generate revenue from the particular product candidate, which could result in significant harm to our financial position and adversely impact our stock price.
Our product candidates and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, marketing, promotion, sale, and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by the European Medicines Agency (“EMA”), and similar regulatory authorities outside the United States and Europe. Failure to obtain marketing approval for a product candidate will prevent us from commercializing that product candidate. We have no experience in filing and supporting the applications necessary to gain marketing approvals and expect to rely on CROs and consultants to assist us in this process. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety, purity, and potency for that indication. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities and clinical trial sites by, the relevant regulatory authorities.
Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate. The number and types of preclinical studies and clinical trials that will be required for regulatory approval also varies depending on the product candidate, the disease or condition that the product candidate is designed to address, and the regulations applicable to any particular product candidate.
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Approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions, which may cause delays or limitations in the approval of or the decision not to approve an application. It is possible that neither of our product candidates, sirexatamab and FL-501, nor any product candidates we may seek to develop in the future will ever obtain the appropriate regulatory approvals necessary for us or any future collaborators to commence product sales.
Finally, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications or uses than we request, may require significant safety warnings, including black box warnings, contraindications, and precautions, may grant approval contingent on the performance of costly post-marketing clinical trials, surveillance, or other requirements, including risk evaluation and mitigation strategies (“REMS”), to monitor the safety or efficacy of the product, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of these scenarios could compromise the commercial prospects for our product candidates.
If we experience delays in obtaining approval, if we fail to obtain approval of a product candidate or if the label for a product candidate does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate, the commercial prospects for such product candidate may be harmed and our ability to generate revenues from that product candidate could be materially impaired.
The therapeutic safety and efficacy of sirexatamab is unproven, and we may not be able to successfully develop and commercialize any of our products.
Our clinical stage product, sirexatamab is a novel monoclonal antibody and its potential benefit as a therapeutic cancer drug is unproven. Our ability to generate revenues from product sales, which we do not expect will occur in the short term, if ever, will depend on successful development and commercialization after approval, if achieved, which is subject to many potential risks. Sirexatamab may interact with human biological systems in unforeseen, ineffective or harmful ways. If our products are associated with undesirable side effects or have characteristics that are unexpected, we may need to abandon development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in early stage testing for treating cancer have later been found to be ineffective in later stage studies or cause side effects that prevented further development of the compound. As a result of these and other risks described herein that are inherent in the development of novel therapeutic agents, we may never successfully develop, enter into or maintain third party licensing or collaboration transactions with respect to, or successfully commercialize sirexatamab, in which case we will not achieveprofitability and the value of our stock may materially decline.
We face substantial competition from much larger competitors, which may result in others discovering, developing or commercializing products before, or more successfully than, we do.
The development and commercialization of new drug products is highly competitive, especially in the oncology space in which we operate. We face competition with respect to sirexatamab and FL-501 and will likely face competition with respect to any other product candidates that we may seek to develop in the future, from major pharmaceutical companies and biotechnology companies worldwide. There are several companies that are marketing drugs and testing product candidates in the same cancer indications as we are. Some of these competitive products and therapies are based on scientific mechanisms of action that are the same as or similar to our approaches for DKN-01 and FL-501. For example, Novartis, Merck, Pfizer, and Amgen have previously been developing anti-DKK1 monoclonal antibodies. In addition, Pfizer, CatalYm, NGM Biosciences, among other companies, are all currently developing or have developed antibodies targeting GDF-15.
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More established companies may have a competitive advantage over us due to their greater size, cash flows, and institutional experience. Compared to us, many of our competitors may have significantly greater financial, technical, and human resources. Due to the significant resources required for the development of our product candidates, we must decide which product candidates to pursue and advance and the resources to allocate to each. Our decisions concerning the allocation of research, development, collaboration, management, and financial resources toward particular product candidates may not lead to the development of any viable commercial product and may divert resources away from betteropportunities. As a result of these factors, our competitors may obtain regulatory approval of their products before we are able to, which may limit our ability to develop or commercialize sirexatamab and FL-501. Our competitors may also develop drugs that are safer, more effective, more widely used, and/or cheaper than ours, and may also be more successful than us in manufacturing and marketing their products. These advantages could render our product candidates non-competitive before we can recover the expenses of development and commercialization.
We may acquire other assets, form collaborations or make investments in other companies or technologies, that could harm our operating results, dilute our stockholders’ ownership, or cause us to incur significant expense.
As part of our business strategy for Leap, we intend to pursue acquisitions of assets, including preclinical or clinical stage product candidates, or enter into strategic alliances and collaborations to expand our existing programs and operations, such as we did with the merger with Flame Biosciences. We may not realize the anticipated benefits of any such transaction, any of which could have a detrimental effect on our financial condition, results of operations and cash flows. We may not be able to consistently find suitable acquisition candidates, and we may not be able to integrate these acquisitions successfully into our existing business. Any integration of an acquired company or assets may also disrupt our ongoing operations, expose us to additional liabilities, require the hiring of additional personnel and the implementation of additional internal systems and infrastructure, and require intensive management resources.
To finance any acquisitions or collaborations, we may choose to issue shares of our common stock as consideration. Any such issuance of shares would dilute the ownership of our stockholders. If the price of our common stock is low or volatile, we may not be able to acquire other assets or companies or fund a transaction using our stock as consideration. Alternatively, it may be necessary for us to raise additional funds for acquisitions through public or private financings. Additional funds may not be available on terms that are favorable to us, or at all.
We rely, and expect to continue to rely, on third parties to conduct, supervise, and monitor our preclinical studies and clinical trials. If these third parties do not carry out their contractual duties or do not perform satisfactorily, including failing to meet deadlines for the completion of such trials or failing to comply with regulatory requirements, our business could be substantially harmed.
We rely on CROs to conduct, supervise, and monitor our preclinical and clinical trials for our product candidates. We expect to continue to rely on third parties, such as CROs, clinical data management organizations, medical institutions, and clinical investigators, to conduct our preclinical studies and clinical trials. While we have agreements governing their activities, we have limited influence over their actual performance and control only certain aspects of their activities. The failure of these third parties to successfully carry out their contractual duties or meet expected deadlines could substantially harm our business, because we may be delayed in completing or unable to complete the clinical trials required to support future approval of our product candidates, and we may not obtain marketing approval for or commercialize our product candidates in a timely manner or at all. Moreover, these agreements might terminate for a variety of reasons, including a failure to perform by such third parties. If we need to enter into alternative arrangements, our product development activities could be delayed, which could adversely affect our business.
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Our reliance on these third parties for development activities reduces our control over these activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with applicable protocols, legal, regulatory, and scientific standards, and our reliance on CROs does not relieve us of our regulatory responsibilities. For example, we will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and applicable protocols for that trial and for ensuring that our preclinical trials are conducted in accordance with Good Laboratory Practice Standards (“GLPs”), as appropriate. Moreover, the FDA and comparable foreign regulatory authorities require us to comply with Good Clinical Practices, commonly referred to as GCPs, for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity, and confidentiality of trial participants are protected. Regulatory authorities enforce these requirements through periodic inspections of trial sponsors, clinical investigators, and trial sites. If we or any of our CROs fail to comply with applicable GCPs or other regulatory requirements, we or our CROs may be subject to enforcement or other legal actions, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials.
If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays could occur, which could compromise our ability to meet our desired development timelines. Although we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects, and results of operations.
If the contract manufacturers upon whom we rely fail to produce our product candidates or components in the volumes that we require on a timely basis, or to comply with stringent regulations applicable to biopharmaceutical manufacturers, we may face delays in the development and commercialization of, or be unable to meet demand for, our product candidates and may lose potential revenues.
We do not manufacture any of our product candidates, and we do not currently plan to develop any capacity to do so. We utilize third-party contract manufacturing organizations (“CMOs”), to manufacture the clinical trial material of sirexatamab and expect to do so for commercial products, if approved. We do not have any long-term commitments from our CMOs for clinical trial material or guaranteed prices for our product candidates. Any delays in obtaining adequate supplies with respect to our product candidates will delay the development or commercialization of our product candidates.
Our product candidates compete with other products and product candidates for access to contract manufacturing facilities. There are a limited number of CMOs that operate under cGMP regulations and that are both capable of manufacturing for us and willing to do so. If our existing CMOs, or any new third party CMOs that we engage in the future to manufacture our product candidates for our clinical trials, should cease to continue to do so for any reason, we likely would experience delays in obtaining sufficient quantities of our product candidates for us to advance our clinical trials while we identify and qualify replacement suppliers. We may not succeed in our efforts to establish sufficient manufacturing relationships or other alternative arrangements to meet our needs for any of our existing or future product candidates. If for any reason we are unable to obtain adequate supplies of our product candidates, it will be more difficult for us to conduct clinical trials, develop our product candidates and operate our business.
Any problems or delays we experience in preparing for commercial-scale manufacturing of a product candidate or component may result in a delay in FDA approval of the product candidate or may impair our ability to manufacture commercial quantities or such quantities at an acceptable cost, which could result in the delay, prevention, or impairment of clinical development and commercialization of our product candidates and could adversely affect our business.
The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of therapeutics often encounter difficulties in production, particularly in scaling up initial production, including difficulties with production costs and yields, quality control, (including stability of the product candidate and quality assurance testing), shortages of qualified personnel, and compliance with strictly enforced federal, state, and foreign regulations. Our CMOs may not perform as agreed or may have a failure of a manufacturing campaign. Any changes or deviations in a manufacturing process may result in the failure of the product to meet the necessary specifications. If our CMOs were to encounter any of these difficulties, our ability to provide product candidates to patients in our clinical trials and for commercial use, if approved, could be jeopardized. Reliance on third-party CMOs entails exposure to risks to which we would not be subject if we manufactured the product candidate ourselves.
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In addition, all CMOs of our product candidates and therapeutic substances must comply with cGMP requirements enforced by the FDA that are applicable to both finished products and their active components used both for clinical and commercial supply, through its facilities inspection program. Our CMOs must be approved by the FDA pursuant to inspections that will be conducted after we submit our marketing applications to the agency. Our CMOs will also be subject to continuing FDA and other regulatory authority inspections should we receive marketing approval. Further, we, in cooperation with our CMOs, must supply all necessary chemistry, manufacturing, and control documentation in support of a BLA on a timely basis. The cGMP requirements include quality control, quality assurance, and the maintenance of records and documentation. Manufacturers of our product candidates and therapeutic substances may be unable to comply with our specifications, these cGMP requirements and with other FDA, state, and foreign regulatory requirements. Poor control of production processes can lead to the introduction of adventitious agents or other contaminants, or to inadvertent changes in the properties or stability of product candidates that may not be detectable in final product testing. If our CMOs cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or other regulatory authorities, they may not be able to secure or maintain regulatory approval for their manufacturing facilities. Any such deviations may also require remedial measures that may be costly and/or time-consuming for us or a third party to implement and that may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business.
While we are ultimately responsible for the manufacture of our product candidates and therapeutic substances, other than through our contractual arrangements, we have little control over our CMOs’ compliance with these regulations and standards. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which could significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. A failure to comply with these requirements may also result in regulatory enforcement actions against our CMOs or us, including fines and civil and criminalpenalties. If the safety of any quantities supplied is compromised due to our CMOs’ failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our product candidates.
Any failure or refusal to supply sufficient quantities of our product candidates could delay, prevent or impair our clinical development or commercialization efforts. Any change in our CMOs could be costly because the commercial terms of any new arrangements could be less favorable than our existing arrangements and because the expenses relating to the transfer of necessary technology and processes could be significant, as there are significant regulatory requirements which must be met prior to receiving FDA approval for the transfer of a manufacturing process for a therapeutic antibody product to a new manufacturing facility.
We also rely on third parties to store and distribute our product candidates for the clinical trials that we conduct. Any performance failure on the part of our distributors could delay clinical development of our product candidates, which could produce additional losses.
If we are unable to protect our intellectual property rights or if our intellectual property rights are inadequate to protect our technology and product candidates, our competitive position could be harmed.
Our commercial success will depend in large part on our ability to obtain and maintain patent and other intellectual property protection in the U.S. and other countries with respect to our proprietary technology and products. We rely on patent, trade secret, copyright and trademark laws, and confidentiality, licensing and other agreements with employees and third parties, all of which offer only limited protection. We have sought and continue to seek to protect our proprietary position by filing and prosecuting patent applications in the U.S. and abroad related to our novel technologies and products that are important to our business.
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The patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involve complex legal and factual questions and have in recent years been the subject of much litigation. As a result, the scope, validity, enforceability, and commercial value of our patents, including those patent rights licensed to us by third parties, are highly uncertain. The steps we or our licensors have taken to protect our proprietary rights may not be adequate to precludemisappropriation of our proprietary information or infringement of our intellectual property rights, both inside and outside the U.S. Further, the examination process may require us or our licensors to narrow the claims for our pending patent applications and those of our licensors, which may limit the scope of patent protection that may be obtained if these applications issue. The rights already granted under any of our currently issued patents or those licensed to us and those that may be granted under future issued patents may not provide us with the proprietary protection or competitive advantages we are seeking. If we or our licensors are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection obtained is not sufficient, our competitors could develop and commercialize technology and products similar or superior to ours, and our ability to successfully commercialize our technology and products may be adversely affected. It is also possible that we or our licensors will fail to identify patentable aspects of inventions made in the course of our development and commercialization activities before it is too late to obtain patent protection for them.
With respect to patent rights, we do not know whether any of our pending patent applications will result in the issuance of patents that protect our technology or products, or if any of our or our licensors’ issued patents will effectively prevent others from commercializing competitive technologies and products. Patents in the field of therapeutic monoclonal antibodies are frequently limited in scope based on the sequence of amino acids that form particular parts of the antibody. A portion of our intellectual property portfolio is limited by amino acid sequences found in our product candidates. Other competing companies may have therapeutic antibodies to the same target as our product candidates, but have a different amino acid sequence and, as a result, may not be determined to infringe our patents which are limited by amino acid sequence(s). Even for those patents which are defined by the target of a therapeutic antibody and not limited by an amino acid sequence, we cannot be certain that we will be able to successfully enforce those patents against our competitors with antibodies to these targets.
Our pending applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. Because the issuance of a patent is not conclusive as to its inventorship, scope, validity, or enforceability, issued patents that we own or have licensed from third parties may be challenged in the courts, administrative agencies or patent offices in the U.S. and abroad. Such challenges may result in the loss of patent protection, the narrowing of claims in such patents or the invalidity or unenforceability of such patents, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection for our technology and products. Protecting against the unauthorized use of our or our licensors’ patented technology, trademarks and other intellectual property rights is expensive, difficult and may in some cases not be possible. In some cases, it may be difficult or impossible to detect third-party infringement or misappropriation of our intellectual property rights, even in relation to issued patent claims, and proving any such infringement may be even more difficult.
Risks Related to our Common Stock
Our share price has been low and volatile. If our share price continues to be low and volatile, we could be subject to securities class action litigation and our stockholders could incur substantial losses.
The market price of shares of our common stock could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:
public perception and market reaction to companies with a digital asset treasury strategy;
the price of ZEC and issues related to Zcash developers, users, infrastructure, service providers, and ecosystem;
the results of clinical trials or development activities of our programs, or any future programs we may acquire;
actual or anticipated fluctuations in our financial condition and operating results;
failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public;
issuance of new or updated research or reports by securities analysts;
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fluctuations in the valuation of companies perceived by investors to be comparable to us;
additions or departures of key management or other personnel;
disputes or other developments related to proprietary rights, including patents, litigation matters, and our ability to obtain patent protection for our technologies;
announcement or expectation of additional debt or equity financing efforts;
sales of our common stock by us, our insiders or our other stockholders; and
general economic and market conditions.
These and other market and industry factors may cause the market price and demand for our common stock to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, the stock market in general, and Nasdaq in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. In the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigationagainst the company that issued the stock. If in the future any of our stockholders brought a lawsuit against us, we could incur significant legal expenses, settlement costs or damage awards that are not covered by, or exceed the limits of, our available directors’ and officers’ liability insurance, which could adversely impact our financial condition, results of operations or cash flows. Such a lawsuit could also divert the time and attention of our management.
We are a “smaller reporting company,” and we take advantage of reduced disclosure and governance requirements applicable to smaller reporting companies, which could result in our common stock being less attractive to investors.
We qualify as a “smaller reporting company” which will allow us to take advantage of scaled disclosure requirements. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, our stock price may be more volatile and it may be difficult for us to raise additional capital as and when we need it. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected.
If we fail to maintain an effective system of disclosure controls and internal controls over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be adversely affected.
Each year we are required to evaluate our internal controls systems in order to allow management to report on our internal controls as required by Section 404 of the Sarbanes-Oxley Act. As a result, we continue to incur additional expenses and expend our management’s time to comply with these regulations. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. During the preparation of our financial statements for the quarter and fiscal year ended December 31, 2025, we identified a material weakness in internal control over financial reporting in connection with our accounting for certain complex and unusual transactions, as further described under Part II, Item 9A. of this Annual Report. If we are not able to comply with the requirements of Section 404, if we are not able to adequately remediate the previously identified material weakness, or if we or our independent registered public accounting firm identify additional deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our common stock could decline and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities, which would require additional financial and management resources.
Sales of a substantial number of shares of our common stock in the public market by our stockholders could cause our stock price to fall.
In October 2025, we completed the private placement of: (i) 15,212,311 shares of common stock, (ii) pre-funded warrants to purchase up to an aggregate of 80,768,504 shares of common stock and (iii) common warrants to purchase up to an aggregate of 71,985,605 shares of common stock. During the fourth quarter of 2025, we sold an additional 27,151,211 shares of common stock pursuant to our ATM program (as described herein). Future sales of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could depress the market price of our common stock and could impair our
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ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that future sales may have on the prevailing market price of our common stock. Substantial sales of common stock by our stockholders could have a material adverse effect on the trading price of our common stock.
Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which you purchased them.
Our failure to maintain compliance with Nasdaq’s continued listing requirements could result in the delisting of our Common Stock.
Our common stock is listed on The Nasdaq Stock Market. In order to maintain that listing, we must satisfy minimum financial and other requirements including, without limitation, a requirement that our closing bid price be at least $1.00 per share. On March 4, 2026, we received a letter from Nasdaq stating that the we were not in compliance with Nasdaq Listing Rule 5550(a)(2) (the “Closing Bid Price Rule”) because our common stock failed to maintain a minimum closing bid price of $1.00 per share for 30 consecutive business days. This letter provides an initial 180 calendar day period, or until August 31, 2026, in which to regain compliance. If we do not regain compliance by August 31, 2026, we may be eligible for an additional 180-day grace period.
We will continue to monitor the closing bid price of our common stock and intend to continue to take definitive steps in an effort to evidence compliance with the Closing Bid Price Rule, including by implementing a reverse stock split, if necessary. Our stockholders previously adopted a Charter amendment that permits our Board, in its discretion, to effect a reverse stock split of our common stock in a ratio to be determined, within a range of 1 to 5 (1:5) up to 1 to 20 (1:20), in order to regain compliance with Nasdaq’s $1.00 closing bid price requirement. The Board may choose whether or not to effect a reverse stock split at any time prior to December 15, 2026, without further stockholder approval.
If we were to implement a reverse stock split to facilitate compliance with the Closing Bid Price Rule and maintenance of our Nasdaq listing, the announcement and implementation of the reverse stock split could negatively affect the price of our common stock. We cannot assure you that the prices for shares of the common stock after a reverse stock split would increase proportionately to prices for shares of our common stock immediately before a reverse stock split. Furthermore, even if the market price of our common stock did rise following a reverse stock split, we cannot assure you that the market price of our common stock immediately after a reverse stock split would be maintained for any period of time, or that we may not again be subject to delisting for failure to meet the $1.00 closing bid price requirement. There is also the possibility that liquidity may be adversely affected by the reduced number of shares which would be issued and outstanding when a reverse stock split is effected, particularly if the price per share of our common stock were to begin a declining trend after the reverse stock split is effected. Accordingly, our total market capitalization after a reverse stock split may be lower than the market capitalization before such reverse stock split.
If we do not regain compliance with the Closing Bid Price Rule or we fail to continue to meet all other applicable continued listing requirements for The Nasdaq Stock Market, our common stock may be delisted, which would adversely affect the market liquidity of our common stock and our ability to obtain financing to fund our operations.
During the year ended December 31, 2025, we initiated a strategy to deploy a portion of our capital raised that is not required to provide working capital for our ongoing operations to accumulate digital assets. Zcash is a protocol and blockchain network of connected devices all over the world, working together to validate transactions and maintain the Zcash ledger. ZEC is the monetary unit, or coin, of Zcash. Zcash allows for greater privacy, providing users with options for fully shielded transactions in which the sender, recipient, and amount are encrypted.
We renamed our company “Cypherpunk Technologies Inc.” to reflect the strategic focus on acquiring ZEC, participating in the development of Zcash, and the values of privacy and liberty. Our ongoing research and development operations are conducted under a wholly-owned subsidiary named “Leap Therapeutics, Inc.”
We have incurred net operating losses every year since our inception in 2011. During the year ended December 31, 2025, we had a net operating loss of $41.1 million. During the year ended December 31, 2024, our net operating loss was $70.1 million. As of December 31, 2025, we had an accumulated deficit of approximately $462.5 million. Our net losses have resulted primarily from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur significant expenses and have operating losses for at least the next several years as we:
add operational, financial and management information systems and personnel, including personnel to support our digital asset treasury, privacy technology, and product development efforts;
continue the development of our product candidates, sirexatamab and FL-501; and
operate as a public company.
We do not expect to generate revenue from therapeutic drug product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we will need to raise additional capital prior to the commercialization of sirexatamab or any other product candidate. Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our operating activities through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates, and could force us to significantly limit or reduce the scope of our business, operations and activities.
As of December 31, 2025, we had cash and cash equivalents of $14.0 million. We believe that our cash and cash equivalents as of December 31, 2025 will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from the filing of this Annual Report on Form 10-K. See “—Liquidity and Capital Resources.”
Financial Overview
Research and Development Expenses
Our research and development activities have included conducting nonclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for our product candidates, primarily sirexatamab. We recognize research and development expenses as they are incurred. Our research and development expenses consist primarily of:
salaries and related overhead expenses for personnel in research and development functions, including costs related to stock-based compensation;
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fees paid to consultants and CROs for our nonclinical and clinical trials, and other related clinical trial fees, including, but not limited to, laboratory work, clinical trial database management, clinical trial material management and statistical compilation and analysis;
costs related to acquiring and manufacturing clinical trial material; and
costs related to compliance with regulatory requirements.
We plan to increase our research and development expenses for the foreseeable future as we continue the development of sirexatamab and any other product candidates, subject to the availability of additional funding.
Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of internal and external costs, such as employee costs, including salaries and stock-based compensation, other internal costs, fees paid to consultants, central laboratories, contractors and CROs in connection with our clinical and preclinical trial development activities. We use internal resources to manage our clinical and preclinical trial development activities and perform data analysis for such activities.
We participate, through our subsidiary in Australia, in the Australian government’s R&D Incentive program, such that a percentage of our eligible research and development expenses are reimbursed by the Australian government as a refundable tax offset and such incentives are reflected as other income. This percentage was 43.5% for both the years ended December 31, 2025 and 2024.
The table below summarizes our research and development expenses incurred by development program and the R&D incentive income for the years ended December 31, 2025 and 2024:
Year Ended December 31,
(in thousands)
Direct research and development by program:
DKN-01 program
TRX518 program
FL-301 program
FL-302 program
FL-501 program
Total research and development expenses
The successful development of our clinical product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our product candidates or the period, if any, in which material net cash inflows from these product candidates may commence. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:
the scope, rate of progress and expense of our ongoing, as well as any additional, clinical trials and other research and development activities;
future clinical trial results; and
the timing and receipt of any regulatory approvals.
A change in the outcome of any of these variables with respect to the development of a product candidate could result in a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.
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General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, accounting and audit services.
We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well as investor and public relations expenses associated with being a public company.
Interest income
Interest income consists primarily of interest income earned on cash and cash equivalents.
Research and development incentive income
Research and development incentive income includes payments under the R&D Incentive program from the government of Australia. The R&D Incentive is one of the key elements of the Australian government’s support for Australia’s innovation system. It was developed to assist businesses in recovering some of the costs of undertaking research and development. The research and development tax incentive provides a tax offset to eligible companies that engage in research and development activities.
Companies engaged in research and development may be eligible for either:
a refundable tax offset at a rate of 18.5% above the company ’ s tax rate for entities with income of less than A$20 million per annum, or
a non-refundable tax offset for all other entities which is a progressive marginal tiered R&D intensity threshold. Increasing rates of benefit apply for incremental research and development expenditure by intensity:
- 0 to 2% intensity: an 8.5% premium to the company ’ s tax rate
- Greater than 2% intensity: a 16.5% premium to the company ’ s tax rate;
We recognize as other income the amount we expect to be reimbursed for qualified expenses.
Foreign currency translation adjustment
Foreign currency translation adjustment consists of gains (losses) due to the revaluation of foreign currency transactions attributable to changes in foreign currency exchange rates associated with our Australian subsidiary.
Income taxes
Since our inception, we have not recorded any U.S. federal or state income tax benefits for the net losses we have incurred in each year, due to our uncertainty of realizing a benefit from those items. As of December 31, 2025, we had federal and state net operating loss (“NOL”) carryforwards of $85.1 million and $86.9 million, respectively. The federal NOL’s are indefinitely lived and state NOL’s begin to expire in 2032.
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Under Internal Revenue Code Section 382, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We have completed a study to assess whether an ownership change occurred or whether there were multiple ownership changes since we became a “loss corporation” as defined in Section 382. We experienced multiple ownership changes occurring in 2019, 2020, 2023, and 2025. The ownership changes have and will continue to subject our pre-ownership change NOL carryforwards to an annual limitation, which will significantly restrict our ability to use them to offset taxable income in periods following the ownership changes. In general, the annual use limitation equals the aggregate value of our stock at the time of the ownership change multiplied by a specified tax-exempt interest rate. As a result of the latest ownership change, we are limited to an $0.9 million annual limitation on our ability to utilize our NOL’s and R&D credits recognized prior to October 8, 2025. Due to this limitation, approximately $3.5 million of federal R&D tax credits will expire unutilized. As a result, we have reduced our deferred tax assets related to the federal R&D credits which are offset by the corresponding decrease in the valuation allowance.
As of December 31, 2025, we also had federal and state R&D tax credits of $0.1 million and $0.5 million, respectively, which begin to expire in 2043 and 2038, respectively, for federal and state tax purposes.
There is no provision for income taxes in the United States because we have historically incurred operating losses and maintain a full valuation allowance against our deferred tax assets in these jurisdictions. A provision for income taxes was recorded in Australia based on the results of our foreign subsidiary.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which we have prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements appearing elsewhere in this report, we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.
Research and Development Expenses
As part of the process of preparing consolidated financial statements, we are required to account for research and development expenses. This process involves communicating with our applicable personnel and service providers to identify services that have been performed on our behalf and the level of service performed and the associated cost incurred for the service. The majority of our service providers invoice us monthly for services performed. Examples of research and development expenses include:
fees paid to CROs for management of our clinical trial activities;
fees paid to investigative sites in connection with clinical trials;
fees paid to contract manufacturers in connection with the production of clinical trial supplies; and
professional services and fees.
We base our expenses related to clinical trials on the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones.
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Digital Assets
We hold digital assets in the form of Zcash with Gemini, a third-party custodian (“Gemini”). The contractual arrangement represents our enforceable contractual right to receive digital assets from the custodian on demand and is accounted for as a hybrid instrument under ASC 815, Derivatives and Hedging (“ASC 815”). The host contract represents a non-interest bearing receivable collectible on demand and is recorded at the transaction price, representing the fair value of the digital assets at the time of acquisition.
The hybrid instrument contains an embedded derivative that is required to be bifurcated because the embedded exposure to changes in the fair value of the underlying digital assets is not clearly and closely related to the economic characteristics of the host receivable. The embedded derivative is subsequently measured at the fair value each reporting period, with changes in fair value recorded as an unrealized gain (loss) on change in fair value of embedded derivative in the Consolidated Statement of Operations.
The embedded derivative component is measured at fair value at each reporting date, using observable prices in the principal market in accordance with ASC 815-15 and ASC 820, Fair Value Measurement (“ASC 820”). Where quoted prices are directly available in active markets, the embedded derivatives are classified as Level 1 within the fair value hierarchy; if observable market prices are not available, we would utilize other relevant inputs and valuation techniques, which may result in Level 2 or Level 3 classification.
We have exercised judgment in determining the principal market, fair value hierarchy, and bifurcation of embedded derivatives. There is diversity in industry practice regarding the measurement and recognition of digital assets. We continually evaluate the principal market and the reliability of inputs to ensure that fair value measurements reflect current market conditions.
Stock-Based Compensation
We have issued stock options to purchase our common stock and restricted stock units (“RSUs”). We account for stock based compensation in accordance with ASC 718, Compensation—Stock Compensation. ASC 718 establishes accounting for stock-based awards exchanged for employee and non-employee services. Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service or vesting period. Determining the appropriate fair value model and calculating the fair value of stock-based payment awards require the use of highly subjective assumptions, including the expected life of the stock-based payment awards and stock price volatility.
We estimate the grant date fair value of stock options and the related compensation expense, using the Black-Scholes option valuation model. This option valuation model requires the input of subjective assumptions including: (1) expected life (estimated period of time outstanding) of the options granted, (2) volatility, (3) risk-free rate and (4) dividends. In general, the assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates, but the estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.
We expense the fair value of employee RSUs over the associated employee service period on a straight-line basis. Stock-based compensation expense is determined based on the fair value of the award at the grant date and is adjusted each period to reflect actual forfeitures.
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Results of Operations
Comparison of the Years Ended December 31, 2025 and 2024
The following tables summarize our results of operations for the years ended December 31, 2025 and 2024:
Year Ended December 31,
Change
(in thousands)
Operating expenses:
Research and development
General and administrative
Restructuring charges
Total operating expenses
Loss from operations
Interest income
Interest expense
Australian research and development incentives
Change in fair value of embedded derivative
Foreign currency gain (loss)
Income (loss) before income taxes
Provision for income taxes
Net income (loss)
Dividend attributable to down round feature of warrants
Net income (loss) attributable to common stockholders
Research and Development Expenses
Year Ended December 31,
Increase
(Decrease)
(in thousands)
Direct research and development by program:
DKN-01 program
TRX518 program
FL-301 program
FL-302 program
FL-501 program
Total research and development expenses
Research and development expenses were $25.7 million for the year ended December 31, 2025, compared to $57.2 million for the year ended December 31, 2024. The decrease of $31.5 million in research and development expenses during the year ended December 31, 2025 as compared to the same period in 2024, was primarily due to a decrease of $13.8 million in clinical trial costs and a decrease of $6.8 million in manufacturing costs, due to the completion of our clinical trials during the year ended December 31, 2025. There was also a decrease of $8.4 million in payroll and other related expenses due to a decrease in headcount of our R&D full-time employees due to a reduction in force, a decrease of $1.8 million in stock based compensation expense as there were no stock options granted during the year ended December 31, 2025 to R&D employees and a decrease of $0.7 million in consulting fees related to research and development activities.
General and Administrative Expenses
General and administrative expenses were $10.9 million for the year ended December 31, 2025, compared to $12.8 million for the year ended December 31, 2024. The decrease of $1.9 million in general and administrative expenses during the year ended December 31, 2025 as compared to the same period in 2024, was primarily due to a $2.6 million decrease in payroll and other related expenses due to a decrease in incentive based compensation expense for our general and administrative employees and a decrease in headcount of our general and administrative employees due to a reduction in force. This decrease was partially offset by an increase of $0.6
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million in stock based compensation expense due to RSUs granted to general and administrative employees during the year ended December 31, 2025, and an increase of $0.1 million in professional fees.
Interest Income
We recorded interest income of $0.9 million and $3.1 million, respectively, during the years ended December 31, 2025 and 2024. The decrease during the year ended December 31, 2025 as compared to the same period in 2024 was due to a lower average cash and cash equivalents balance.
Australian Research and Development Incentives
During the year ended December 31, 2025, we expensed $0.2 million of previously recognized R&D incentive income related to 2023 eligible R&D expenses, due to a reduction to the amount we expect to be refunded, which we determined in connection with the completion of our Australian tax return for that year. During the year ended December 31, 2024, we did not record any R&D incentive income.
Unrealized Gain on Change in Fair Value of Embedded Derivative
During the year ended December 31, 2025, we recorded a $50.4 million unrealized gain on the change in fair value of embedded derivative.
Foreign Currency Gain (Loss)
We recorded an immaterial amount of foreign currency gains (losses) for the years ended December 31, 2025 and 2024. The change in foreign currency losses is due to the changes in the Australian dollar exchange rate related to activities of the Australian entity.
Liquidity and Capital Resources
Since our inception, we have been engaged in organizational activities, including raising capital, and research and development activities, and in October 2025, we implemented our digital asset treasury strategy. We have not yet achievedprofitable operations or generated positive cash flows from operations, and we do not yet have a product that has been approved by the Food and Drug Administration (the “FDA”). There is no assurance that profitable operations from our privacy technology/digital asset treasury strategy or our biotechnology operations, if achieved, could be sustained on a continuing basis. Further, our future operations are dependent on the success of efforts to raise additional capital, the success of our privacy technology/digital asset treasury strategy, our biotechnology research and commercialization efforts, regulatory approval, and, ultimately, the market acceptance of our products.
In accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern, we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. As of December 31, 2025, we had cash and cash equivalents of $14.0 million and ZEC treasury holdings categorized as a digital asset receivable valued at $147.4 million. Additionally, we had an accumulated deficit of $462.5 million at December 31, 2025, and during the year ended December 31, 2025, we incurred net operating losses of $41.1 million. We expect to continue to generate operating losses in the foreseeable future. We believe that our cash and cash equivalents of $14.0 million as of December 31, 2025, will be sufficient to fund our operating expenses for at least the next 12 months from the issuance of this Annual Report on Form 10-K.
In addition, to support our future operations, we will seek additional funding through public or private, equity or debt financings and, for our biotechnology operations, we will seek funding or development program cost-sharing through collaboration agreements or licenses with larger pharmaceutical or biotechnology companies. If we do not obtain additional funding or development program cost-sharing, we could be forced to eliminate certain programs, reduce or eliminate discretionary operating expenses, and delay company expansion, which could adversely affect our business prospects. The inability to obtain funding, as and when needed, could have a negative impact on our financial condition and our ability to pursue our business strategies.
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Cash Flows
The following table summarizes our sources and uses of cash for each of the periods presented:
Year Ended December 31,
(in thousands)
Cash used in operating activities
Cash used in investing activities
Cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Operating activities.
Net cash used in operating activities for the year ended December 31, 2025 was primarily related to a noncash unrealized gain on the change in fair value of embedded derivative of $50.4 million, and changes in working capital, including a decrease of $10.4 million in accounts payable and accrued expenses and a $0.2 million decrease in lease liabilities. These changes were partially offset by net income of $4.8 million, and changes in working capital, including a decrease in research and development incentive receivable of $0.1 million, a decrease of $0.1 million in other assets and a decrease of $0.1 million in prepaid expense and other assets. There was also noncash stock-based compensation expense of $4.9 million, a change in deferred income taxes of $5.1 million and change in a right-of-use asset of $0.2 million.
Net cash used in operating activities for the year ended December 31, 2024 was primarily related to our net loss of $67.6 million and net changes in working capital, including a decrease in lease liabilities of $0.4 million. These changes were partially offset by an increase in accounts payable and accrued expenses of $0.9 million, an increase in income tax payable of $0.6 million, a decrease of $0.1 million in prepaid expenses and other assets, a decrease of $0.2 million in other assets, noncash stock-based compensation expense of $5.5 million and change in a right-of-use asset of $0.4 million.
Investing Activities.
Net cash used in investing activities for the year ended December 31, 2025 was related to cash used to purchase ZEC. There were no investing activities during the year ended December 31, 2024.
Financing Activities.
Net cash provided by financing activities during the year ended December 31, 2025, consisted of $57.2 million in net proceeds from the October 2025 Private Placement and $51.5 million in net proceeds through issuance of common stock through ATM sales, partially offset by payment of $0.6 million of deferred offering costs and $0.4 million of principal payments of insurance financing.
Net cash used in financing activities for the year ended December 31, 2024 consisted of $40.0 million in gross proceeds from the April 2024 Private Placement and $0.1 million of proceeds upon the exercise of stock options and warrants, partially offset by $2.9 million of offering costs paid.
Capital Requirements
We expect our expenses to increase substantially in connection with our ongoing activities.
Our expenses will also increase as we:
pursue our privacy technology and digital asset treasury strategy;
pursue the development of our most advanced product candidate, sirexatamab, and our preclinical product candidate, FL-501; and
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expand our operational, financial and management systems and increase personnel, including personnel to support our digital asset treasury, privacy technology, and development efforts and our operations as a public company.
Additional funding may not be available at the time needed on commercially reasonable terms, if at all.
Contractual Obligations and Contingent Liabilities
On May 16, 2022, we entered into a third amendment to the 47 Thorndike Street Lease, the (“Third Amendment”). Under the Third Amendment, we extended the term of the 47 Thorndike Street Lease through July 31, 2024. Under the Third Amendment, we paid the monthly base rent amount of $37,000 contemplated by the 47 Thorndike Street Lease through January 31, 2023, with an increase that commenced on February 1, 2023 adjusting the monthly base rent amount to approximately $37,696 through January 31, 2024, and then another increase commencing on February 1, 2024 adjusting the monthly base rent amount to $38,335 for the period of February 2024 through July 31, 2024.
On January 3, 2024, we entered into a fourth amendment to the 47 Thorndike Street Lease, the (“Fourth Amendment”). Under the Fourth Amendment, we extended the term of the 47 Thorndike Street Lease through July 31, 2025. Under the Fourth Amendment, we will continue to pay the current monthly base rent amount of $38,335 contemplated by the 47 Thorndike Street Lease through July 31, 2024, with an increase commencing on August 1, 2024 adjusting the monthly base rent amount to approximately $38,974 through July 31, 2025.
On July 1, 2025 we entered into a Fifth Amendment to Lease (“Fifth Amendment”) with Landlord, extending the 47 Thorndike Street Lease as a tenancy-at will (as amended, the “Lease”). The term of the Lease expires on the last day of any month identified by notice by the Company or Landlord to the other, not less than sixty (60) days in advance. As of December 31, 2025, the monthly base rent is $19,168.
This description of our contractual obligations does not include potential future milestones or royalties that we may be required to make under license and collaboration agreements due to the uncertainty of events requiring payment under these agreements.
We enter into contracts in the normal course of business with clinical research organizations for clinical and preclinical research studies, external manufacturers for product for use in our clinical trials, and other research supplies and other services as part of our operations. These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included as contractual commitments.
Recently Issued Accounting Pronouncements
We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our consolidated financial statements included in this Annual Report on Form 10-K, such standards will not have a material impact on our financial statements or do not otherwise apply to our operations.
