ITEM 1A RISK FACTORS
You should consider the following risk factors, in addition to the other information presented or incorporated by reference into this Annual Report, in evaluating our business and any investment decision relating to our securities.
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Risks Related to Our SUI Treasury Strategy
Our financial results and the market price of our Common Stock may be affected by the price of SUI.
As part of our capital allocation strategy for assets that are not required to provide working capital for our ongoing operations, we have invested and will continue to invest in SUI. As of February 23, 2026, we held an aggregate of 105,407,044 SUI and loan receivables of 2,961,550 SUI, which we acquired for an aggregate purchase price of approximately $386.5 million, exclusive of fees and expenses, at an average price of $3.56 per SUI. With 80,896,554 million fully adjusted shares issued and outstanding (including unexercised Pre-Funded Warrants) as of February 23, 2026, the Company has grown to approximately 1.34 SUI per share of Common Stock, or $1.17 per share of Common Stock. Our SUI holding (including SUI loan receivables) represents approximately 88.8% of our digital asset holdings, with the remainder being USDC stablecoins at approximately 1.8% and suiUSDe stablecoins approximately 9.4%. The price of SUI has historically been subject to dramatic price fluctuations and is highly volatile. SUI is a highly volatile asset that has traded between $4.33 and $0.85 per SUI on Coinbase in the 12 months preceding February 23, 2026. More recently, during the fourth calendar quarter of 2025, SUI traded between approximately $3.62 and $1.35 per SUI. Moreover, digital assets, such as SUI, are relatively novel. SUI’s initial coin offering took place on April 20, 2023, and Sui’s Mainnet (blockchain protocol) was launched on May 3, 2023. The application of securities laws and other regulations to such assets is unclear in many respects. It is possible that regulators may interpret laws in a manner that adversely affects the liquidity or value of SUI.
Any decrease in the fair value of SUI below our carrying value for such assets could require us to incur a loss due to the decrease in fair market value, and such charge 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 Common Stock. In addition, the application of generally accepted accounting principles in the United States, with respect to SUI, may change in the future and could have a material adverse effect on our financial results and the market price of our Common Stock.
In addition, if investors view the value of our Common Stock as dependent upon or linked to the value or change in the value of our SUI holdings, the price of SUI may significantly influence the market price of our Common Stock.
Our SUI treasury strategy has not been tested over an extended period of time or under different market conditions.
We recently undertook a strategic shift and launched the SUI treasury strategy. We are continually examining the risks and rewards of our strategy to acquire and hold SUI. This strategy has not been tested over an extended period of time or under different market conditions. If SUI prices were to decrease or our SUI treasury strategy otherwise proves unsuccessful, our financial condition, results of operations, and the market price of our Common Stock would be materially adversely impacted. Additionally, given that our SUI treasury business has been developed and pursued only for a few months prior to the Annual Report, investors have a relatively limited means to evaluate our performance, its evolution, and the likelihood of our future success.
The prices of digital currencies, including SUI, are highly volatile and may be influenced by regulatory, commercial, and technical factors that are highly uncertain, and fluctuations in the price of SUI are likely to influence our financial results and the market price of our Common Stock.
Fluctuations in the trading prices of digital assets are likely to impact our financial results and the market price of our Common Stock. Our financial results and the market price of our Common Stock and our business and financial condition could be negatively impacted if the price of SUI decreased substantially, including as a result of:
decreased user and investor confidence in digital assets;
investment and trading activities of highly active retail and institutional users, speculators, miners and investors;
negative publicity or events relating to digital assets;
negative or unpredictable media or social media coverage of digital assets;
public sentiment related to the actual or perceived environmental impact of digital assets, and related activities, including environmental concerns raised by private individuals and governmental actors related to the energy resources consumed in the mining process;
changes in consumer preferences and the perceived value of digital assets;
competition from other cryptocurrency assets that are believed to exhibit better speed, security, scalability, or other characteristics, or that are backed by governments, including the U.S. government;
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correlations between the prices of digital assets, including the potential that a crash in one digital asset or widespread defaults on one digital asset exchange or trading venue may cause a crash in the price of SUI, or a series of defaults by counterparties on SUI asset exchanges or trading venues;
interruptions in service or failures of the principal markets for or market participants active in trading involving digital assets;
reductions in staking rewards validator rewards and other incentives of digital assets;
transaction congestion and fees associated with processing transactions of digital assets;
changes in the level of interest rates and inflation, monetary policies of governments, trade restrictions, and fiat currency devaluations;
developments in mathematics or technology, including in digital computing, algebraic geometry and quantum computing, that could result in the cryptography being used by digital assets becoming insecure or ineffective; and
national and international economic and political conditions.
The growth of the digital assets industry in general, and the use and acceptance of SUI in particular, as well as other digital assets, may also impact the price of our digital asset holdings and is subject to a high degree of uncertainty. The pace of worldwide growth in the adoption and use of digital assets, and SUI in particular, may depend, for instance, on public familiarity with digital assets, ease of buying and accessing the digital assets, institutional and consumer demand for SUI, and the availability and popularity of alternatives to bitcoin. Even if growth in bitcoin adoption occurs in the near or medium-term, there is no assurance that bitcoin usage will continue to grow over the long-term or that such growth will lead to a growth of the adoption of SUI.
Because SUI has no physical existence beyond the record of transactions on their respective blockchains, a variety of technical factors related to the Sui blockchain could also impact the price of SUI. For example, malicious attacks by stakers, inadequate staking fees to incentivize validating of transactions, hard forks of the blockchain into multiple blockchains, and advances in digital computing, algebraic geometry and quantum computing could undercut the integrity of the blockchain and negatively affect the price of our digital asset holdings. The liquidity of SUI may also be reduced and damage to the public perception of SUI may occur, if financial institutions were to deny banking services to businesses that hold digital assets, provide digital asset-related services or accept digital assets as payment, which could also decrease the price of our digital asset holdings.
The trading prices of many digital assets, including SUI, have experienced extreme volatility in recent periods and may continue to do so. Extreme volatility in the future, including further decline in the trading prices of SUI, could have a material adverse effect on the Company.
The trading prices of many digital assets, including SUI, have experienced extreme volatility in recent periods and may continue to do so. For instance, there were steep increases in the value of certain digital assets over the course of 2021, and multiple market observers asserted that digital assets were experiencing a “bubble.” These increases were followed by steep drawdowns throughout 2022 in digital asset trading prices. SUI was launched in May 2023, and over the course of 2023 and 2024, prices of digital assets continued to exhibit extreme volatility. SUI reached a low price of $0.3639 in October 2023 and a high price of $5.34 on January 4, 2025. As of February 23, 2026, the price of SUI was $0.88 Like many digital assets, SUI surged in value in its initial trading period, but shortly thereafter saw a decline in price, including as a result of the broader sell-off in cryptocurrency markets following the events of October 10 (described below); the price continues to fluctuate.
Extreme volatility may persist. The digital asset markets may still be experiencing a bubble or may experience a bubble again in the future. For example, in the first half of 2022, each of Celsius Network, Voyager Digital Ltd., and Three Arrows Capital declared bankruptcy, resulting in a loss of confidence in participants of the digital asset ecosystem and negative publicity surrounding digital assets more broadly. In November 2022, “FTX” one of the largest digital asset exchanges by volume at the time, halted customer withdrawals amid rumors of the company’s liquidity issues and likely insolvency, which were subsequently corroborated by its CEO. Shortly thereafter, FTX’s CEO resigned, and FTX and many of its affiliates filed for bankruptcy in the United States, while other affiliates have entered insolvency, liquidation, or similar proceedings around the globe, following which the U.S. Department of Justice brought criminal fraud and other charges, and the SEC and CFTC brought civil securities and commodities fraud charges, against certain of FTX’s and its affiliates’ senior executives, including its former CEO, who was found guilty of these criminal charges in November 2023. In addition, several other entities in the digital asset industry filed for bankruptcy following FTX’s bankruptcy filing, such as BlockFi Inc. and Genesis Global Capital, LLC (“Genesis”). In response to these events, the digital asset markets have experienced extreme price volatility and other entities in the digital asset industry have been, and may continue to be, negatively affected, further undermining confidence in the digital asset markets. For example, after October 10, 2025, approximately $19 billion of leveraged positions unwound, exceeding even the FTX collapse in 2022. In 2025, within a few weeks, Bitcoin dropped from the low $120,000s into the low $100,000s and continued to drop further in 2026, while Ether and many smaller tokens suffered double‑digit percentage declines, with some altcoins briefly collapsing to near‑zero on thin order books. Data providers such as CoinGlass recorded more than 1.6 million traders liquidated and total futures open interest shrank by tens of billions of dollars in a day, underscoring how concentrated leverage and fragmented liquidity turned a sharp price move into the largest liquidation event in crypto’s history. These events have also negatively impacted the liquidity of the digital asset markets as certain entities affiliated with FTX engaged in significant trading activity. If the liquidity of the digital asset markets continues to be negatively impacted by these events, digital asset prices, including SUI, may continue to experience significant volatility or price declines, and confidence in the digital asset markets may be further undermined. In addition, regulatory and enforcement scrutiny has been significant, including from, among others, the U.S. Department of Justice, the SEC, the CFTC, the White House and Congress, as well as state regulators and authorities. It is not possible to predict all of the risks that regulatory enforcement may pose to the Company, its service providers or to the digital asset industry as a whole.
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The Sui network utilizes the Move programming language. The use of the Move programming language may make SUI more susceptible to volatility because Move is less widely known than more established programming languages, and developers’ lack of experience with Move could deter the adoption and development of SUI, leading to increased price volatility. Extreme volatility in the future, including further declines in the trading prices of SUI, could have a material adverse effect on the Company.
The value of SUI may be highly volatile and subject to fluctuations due to a number of factors.
Fluctuations in the price of SUI could adversely affect the Company. The market price of SUI may be highly volatile, and subject to a number of factors, including:
An increase in the global SUI supply;
Forks in the Sui network;
Investors’ expectations with respect to interest rates, the rates of inflation of fiat currencies or SUI, and Digital Asset Trading Platform rates;
Consumer preferences and perceptions of SUI specifically and digital assets generally;
Fiat currency withdrawal and deposit policies on Digital Asset Trading Platforms;
The liquidity of digital asset markets and any increase or decrease in trading volume on digital asset markets;
Investment and trading activities of large investors that invest directly or indirectly in SUI;
An active derivatives market for SUI or for digital assets generally;
A determination that SUI is a security or a commodity or changes in SUI’s status under the federal securities laws;
Monetary policies of governments, trade restrictions, currency devaluations and revaluations and regulatory measures or enforcement actions, if any, that restrict the use of SUI as a form of payment or the purchase of SUI on the digital asset markets;
Global or regional political, economic or financial conditions, events and situations;
Fees associated with processing a SUI transaction and the speed at which SUI transactions are settled;
Interruptions in service from or closures or failures of major Digital Asset Trading Platforms;
Decreased confidence in Digital Asset Trading Platforms due to the largely unregulated nature and lack of transparency surrounding the operations of Digital Asset Trading Platforms;
Increased competition from other forms of digital assets or payment services; and
The Company’s own acquisitions or dispositions of SUI.
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In addition, there is no assurance that SUI will maintain its value in the intermediate or long term. The value of SUI as represented by the price quoted on sites such as CoinGecko or by the Company’s principal market may also be subject to momentum pricing due to speculation regarding future appreciation in value, leading to greater volatility that could adversely affect the Company. Momentum pricing is typically associated with growth stocks and other assets whose valuation, as determined by the investing public, accounts for future appreciation in value, if any. The Company believes that momentum pricing of SUI has resulted, and may continue to result, in speculation regarding future appreciation in the price of SUI, inflating and making the price of SUI more volatile. As a result, SUI may be more likely to fluctuate in value due to changing investor confidence, which could impact future appreciation or depreciation in the pricing benchmark and could adversely affect the Company.
The concentration of our SUI holdings could enhance the risks inherent in our SUI treasury strategy.
As of February 23, 2026, we held an aggregate 105,407,044 SUI and loan receivable of 2,961,550 SUI, which represents approximately 88.8% of our digital asset holdings including SUI loan receivable, with the remainder being USDC stablecoins at approximately 1.8% and suiUSDe stablecoins at approximately 9.4%. Our significant concentration of SUI ownership creates risk that a large holder or consortium of SUI holders could obtain effective control over network governance and consensus mechanisms. If a single entity accumulates a sufficient percentage of total SUI tokens, it could potentially influence transaction validation, protocol upgrades, or fee structures, which might adversely impact other stakeholders or destabilize the network. Furthermore, concentration increases the risk of contentious hard forks, which have fragmented their communities and impacted asset values. For example, in 2017 a group within the Bitcoin community advocated for increasing the block size limit to allow for more transactions, which ultimately lead to the creation of Bitcoin Cash, which features a larger block size. Hard forks can trigger significant price fluctuations in both the original and new cryptocurrencies, because speculation and uncertainty surrounding the hard fork can lead to increased volatility, making it difficult for investors to predict price movements. Due to our concentration of SUI in our treasury strategy, any such occurrence could lead to volatility or a decrease in the market price of our Common Stock.
If we fail to implement our SUI business strategy or if our SUI treasury strategy is ineffective, our financial performance could be materially adversely affected.
Our future financial performance and success are dependent in large part upon the effectiveness of our new SUI strategy and our ability to implement our SUI treasury strategy successfully. Implementation of our SUI strategy will require effective management of our operational, financial, and human resources and will place significant demands on those resources. There are risks involved in pursuing our strategy, including those under the caption “ Item 1A – Risk Factors - Risks Relating to Our SUI Treasury Strategy ”. In addition to the risks set forth elsewhere in this Form 10-K, effectiveness of and the successful implementation of our SUI treasury strategy could also be affected by a number of factors beyond our control, such as increased competition, legal developments, government regulation, general economic conditions, increased operating costs or expenses, and changes in industry trends. We may decide to alter or discontinue certain aspects of our SUI treasury strategy at any time. If we are not able to implement our SUI treasury strategy successfully, our long-term growth and profitability may be adversely affected. Even if we are able to implement some or all of the initiatives of our SUI treasury strategy successfully, our operating results may not improve and could decline substantially.
Our SUI strategy exposes us to risk of non-performance by counterparties
Our SUI strategy exposes us to the risk of non-performance by counterparties, whether contractual or otherwise. Risk of non-performance includes inability or refusal of a counterparty to perform because of a deterioration in the counterparty’s financial condition and liquidity or for any other reason. For example, our execution partners, custodians, or other counterparties might fail to perform in accordance with the terms of our agreements with them, which could result in a loss of SUI, a loss of the opportunity to generate funds, or other losses.
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Custodial arrangements pose additional risks. Our primary counterparty risk with respect to our SUI is custodian performance obligations under the custody arrangement we have entered into. BitGo is the custodian for all of our SUI and could experience bankruptcy or insolvency. Although BitGo has an insurance policy supporting its cold wallets, the Company has not purchased any additional insurance cover, and BitGo is not FDIC-insured. FTX, a leading cryptocurrency exchange, filed for bankruptcy in November 2022 following an estimated $8 billion liquidity shortfall due to a surge of withdrawals from the exchange, forcing the exchange to halt customer withdrawals. A series of additional recent high-profile bankruptcies, closures, liquidations, regulatory enforcement actions and other events relating to companies operating in the digital asset industry, including the filings for bankruptcy protection by Three Arrows Capital, Celsius Network, Voyager Digital, and Genesis Global Capital, the closure or liquidation of certain financial institutions that provided lending and other services to the digital assets industry, including Signature Bank and Silvergate Bank, SEC enforcement actions against Coinbase, Binance Holdings Ltd. (since withdrawn), and Kraken, the placement of Prime Trust, LLC into receivership following a cease-and-desist order issued by Nevada’s Department of Business and Industry, and the filing and subsequent settlement of a civil fraud lawsuit by the New York Attorney General against Genesis Global Capital, its parent company Digital Currency Group, Inc., and former partner Gemini Trust Company have highlighted the perceived and actual counterparty risk applicable to digital asset ownership and trading. Although these bankruptcies, closures and liquidations have not resulted in any loss or misappropriation of our SUI, nor have such events adversely impacted our access to our SUI, legal precedent created in these bankruptcy and other proceedings may increase the risk of future rulings adverse to our interests in the event one or more of our current and future custodians becomes a debtor in a bankruptcy case or is the subject of other liquidation, insolvency or similar proceedings. If a similar bankruptcy event occurred for BitGo, there is a risk of partial or total loss of our SUI holdings and delays in asset recovery, which could materially impact financial condition and operations.
While our custodian is subject to regulatory regimes intended to protect customers in the event of a custodial bankruptcy, receivership or similar insolvency proceeding, no assurance can be provided that our custodially-held SUI will not become part of the custodian’s insolvency estate if our custodian enters bankruptcy, receivership or similar insolvency proceedings. Additionally, if we pursue any strategies to create income streams or otherwise generate funds using our SUI holdings, we would become subject to additional counterparty risks. Any significant non-performance by counterparties, including in particular the custodian with which we custody substantially all of our SUI, could have a material adverse effect on our business, prospects, financial condition, and operating results.
We intend to mitigate counterparty risks through various measures, including maintaining substantially all of our SUI with BitGo, a well known custodian, and negotiating contractual terms designed to confirm that our custodially‑held SUI remains our property and is not subject to claims of a custodian’s creditors. However, insolvency law related to the custodial holding of digital assets is still developing, and there is no guarantee that these measures would be upheld in an insolvency proceeding. If custodially‑held SUI were nevertheless deemed property of a custodian’s bankruptcy estate, we could be treated as a general unsecured creditor, which could restrict or prevent our ability to exercise ownership rights and could result in a partial or complete loss of the associated value. Even if we ultimately prevailed in asserting our ownership rights, access to our SUI could be delayed or otherwise impaired during the pendency of any insolvency proceeding. Any such outcome could materially adversely affect our financial condition and the market price of our Common Stock.
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Shareholders may not receive the benefits of any forks or airdrops.
In addition to forks, a digital asset may become subject to a similar occurrence known as an “airdrop.” In an airdrop, the promotors of a new digital asset announce to holders of another digital asset that such holders will be entitled to claim a certain amount of the new digital asset for free, based on the fact that they hold such other digital assets. Airdrops may be conducted by sending a token to the holders of set amounts of SUI. Alternatively, airdrops may involve a user being entitled to claim tokens on a decentralized application, second-layer network or entirely separate digital asset network. As such, a user entitled to receive airdrops may be required to take little or significant actions in order to receive such airdropped tokens. Shareholders may not receive the benefits of any forks, the Company may not choose, or be able, to participate in an airdrop, and the timing of receiving any benefits from a fork, airdrop or similar event is uncertain.
A right to receive any such benefit of a hard fork or airdrop is referred to as an “Incidental Right” and any digital asset acquired through an Incidental Right as “IR Assets.” There are likely to be operational, tax, securities law, regulatory, legal and practical issues that significantly limit, or prevent entirely, shareholders’ ability to realize a benefit, through their interests in the Company, from any such Incidental Rights or IR Assets.
The Company may choose to evaluate any such fork, airdrop or similar occurrence on a case-by-case basis in consultation with the Company’s legal advisors, tax consultants and the Asset Manager. In determining whether to attempt to acquire and/or retain any Incidental Right or IR Asset, the Company expects to take into consideration whatever factors it deems relevant in their discretion, including, without limitation:
the Asset Management Agreement, dated July 27, 2025, between Sui Group Holdings Limited (f/k/a Mill City Ventures III, Ltd.) and Galaxy Digital Capital Management LP, (the “Asset Management Agreement”) to provide access to the Incidental Right or IR Asset;
the ability to distribute the Incidental Right or IR Asset in-kind or otherwise assign on the books and records of the Asset Manager, the Incidental Rights to an agent of the shareholders;
the availability of a safe and practical way to custody the Incidental Right or IR Asset;
the costs or operational burden of taking possession and/or maintaining ownership of the Incidental Right or IR Asset and whether such costs or burden exceed the benefits of owning such Incidental Rights or IR Asset or the proceeds that would be realized for the Company or shareholders from a sale thereof;
whether there are any legal or regulatory restrictions on or risks or consequences arising from, or tax implications with respect to, the acceptance, retention, ownership, sale, transfer, abandonment, distribution or disposal or disposition of the Incidental Right or IR Asset, regardless of whether there is a safe and practical way to custody and secure such Incidental Right or IR Asset;
the existence of a suitable market into which the Incidental Right or IR Asset may be sold; and
whether claiming, owning, selling, or otherwise taking any action in respect of Incidental Rights or IR Asset may create legal or regulatory risks, liability, or burdens of any kind for the Company, or shareholders (including, without limitation, if such Incidental Rights or IR Asset is, or may be, a security under federal securities laws or a commodity interest under the Commodity Exchange Act).
In determining whether the Incidental Right or IR Asset is, or may be, a security under federal securities laws, the Company takes into account a number of factors, including the definition of a “security” under Section 2(a)(1) of the Securities Act and Section 3(a)(10) of the Exchange Act, SEC v. W.J. Howey Co., 328 U.S. 293 (1946) and the case law interpreting it, as well as reports, orders, press releases, public statements and speeches by the SEC providing guidance on when a digital asset is a “security” for purposes of the federal securities laws.
The Company intends to evaluate each fork, airdrop or similar occurrence on a case-by-case basis in consultation with the Company’s legal advisors, tax consultants, and may decide to abandon any Incidental Rights or IR Asset resulting from a hard fork, airdrop or similar occurrence should the Board conclude, in its discretion, that such abandonment is in the best interests of the Company.
In the event that any forks or airdrops are in fact considered to be an asset of the Company at any point in time, notwithstanding the discussion above, the assets will be valued in a manner consistent with ASC-820, U.S. “GAAP”, and the identification of a principal market for the asset.
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Our SUI holdings and other digital asset 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 cryptocurrency 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 SUI and other digital assets at favorable prices or at all. Further, SUI and other digital assets we hold with our custodians and transact with our trade execution partners does not enjoy the same protections as those 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, almost all of our digital asset holdings are comprised of SUI and 99% of our SUI is being staked. The staking process is continuously adjusted in scale, in line with network and market conditions, with adjustments aimed to ensure the Company maintains sufficient liquidity for redemptions on any given business day but any such adjustments are subject to a one-day unbonding period. Finally, we may be unable to enter into term loans or other capital raising transactions collateralized by our unencumbered SUI or otherwise generate funds using our SUI holdings, including in particular during times of market instability or when the price of SUI has declined significantly. If we are unable to sell our SUI or other digital assets, enter into additional capital raising transactions using SUI or other digital assets as collateral, or otherwise generate funds using our SUI or other digital assets holdings, or if we are forced to sell our SUI or other digital assets at a significant loss, in order to meet our working capital requirements, our business and financial condition could be materially adversely impacted.
Exposure to market abuse and manipulation may affect the market price of SUI.
We are also exposed to market manipulation risks such as front-running and wash trading, which risk is enhanced due to the concentration of SUI in our treasury strategy. We have made significant investments in SUI, and plan to continue to do so in the future. Cryptocurrency markets, including those for SUI, may be susceptible to market abuse and manipulation, such as wash trading, coordinated pump-and-dump schemes, spoofing, and other forms of manipulative activity. Sophisticated traders or entities with privileged access to order flow may exploit weaknesses in exchange infrastructure to execute trades ahead of pending orders (front-running), artificially inflate trading volumes (wash trading), or otherwise distort the market price of SUI. Such activities can reduce market integrity and liquidity and create material volatility or losses for holders like us, which could create further risks to us as a result of our concentrated holding of SUI in our treasury strategy. If SUI is affected by these activities, we may experience substantial fluctuations in the fair value of its investment, which could negatively affect our financial condition, results of operations, and reputation. Further, regulatory oversight of cryptocurrency markets is evolving, and there is no assurance that existing or future regulations or market mechanisms will effectively deter or mitigate the impact of market manipulation. As a result, we remain exposed to additional risks and uncertainties relating to the price and liquidity of SUI, which may result in financial loss or impairment of value in its investment.
The failure, insolvency, or mismanagement of our custodians and trade execution partners may result in the partial or total loss of our SUI holdings, delays or failures in executing trades, or other disruptions to liquidity and access.
Our significant investment in SUI depends on third‑party custodians and trade execution partners for the safekeeping, transfer, and management of our digital assets. If any of these service providers were to experience financial distress, operational failure, insolvency, security breaches, or other forms of mismanagement, we could suffer partial or total loss of our SUI holdings, delays or failures in executing trades, or broader disruptions to liquidity and access.
The digital asset industry has experienced several high‑profile custodial and exchange failures. For example, in November 2022, FTX—a major global cryptocurrency exchange—filed for bankruptcy following an estimated $8 billion liquidity shortfall after a surge in customer withdrawals, resulting in the suspension of withdrawals. Public reports indicated that this collapse stemmed from operational mismanagement, including misuse of customer funds, inadequate financial controls, and overreliance on its proprietary FTT token. Events such as these highlight the operational, financial, and governance vulnerabilities that can exist within digital asset service providers.
Many custodians and trade execution partners operate in a rapidly evolving regulatory environment and may lack the robust risk management frameworks, compliance programs, and operational controls typically associated with traditional financial institutions. In addition, cyberattacks, fraud, system failures, and other security incidents affecting these providers could lead to loss of assets or prolonged service interruption.
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Although we rely on third‑party custodians—such as BitGo, the custodian of our SUI holdings—who we believe implement security measures aligned with industry best practices, there can be no assurance that these measures will be effective. As the size of our SUI holdings grows, we may become a more attractive target for malicious actors. If we or any of our custodians are unable to identify, mitigate, or prevent new or evolving security threats, our digital assets could be subject to theft, loss, destruction, or other compromise.
Any inability of our custodians or trade execution partners to safeguard our assets, maintain operational continuity, or perform in accordance with their obligations could materially adversely affect our financial condition, operating results, and reputation.
Internal control failures may occur at BitGo, or other cryptocurrency custodians or exchanges we may utilize in the future.
The security and accessibility of our SUI assets are, in part, dependent on the integrity and reliability of the cryptocurrency custodians and exchanges used to hold, trade, or manage SUI. We currently utilize BitGo as custodian to hold all of our SUI assets. BitGo is a digital asset security firm established in 2013. Many cryptocurrency custodians, including BitGo, are relatively new and unregulated, and may be subject to internal control failures, including inadequate cybersecurity measures, poor risk management practices, or operational errors. Such failures can lead to asset loss, theft, suspension or freezing of accounts, delays in executing trades, or compromised private information. If a custodian or exchange we utilize to hold our SUI experiences an internal control failure, we may suffer partial or total loss of our SUI holdings, incur financial losses, experience disruptions in liquidity, or face reputational harm. Further, the regulatory environment relating to internal controls at cryptocurrency custodians and exchanges remains uncertain and fragmented, increasing the risk of internal control failures. There can be no assurance that our SUI assets will not be affected by such incidents, and the occurrence of internal control failures could materially adversely impact our financial condition and results of operations.
If we or our third-party service providers experience a security breach or cyberattack and unauthorized parties obtain access to our SUI, or if our private keys are lost or destroyed, or other similar circumstances or events occur, we may lose some or all of our SUI and our financial condition and results of operations could be materially adversely affected.
Substantially all of the SUI we own is held in custody accounts at BitGo, a well-known custodian. Security breaches and cyberattacks are of particular concern with respect to our SUI. SUI and other blockchain-based cryptocurrencies and the entities that provide services to participants in the SUI ecosystem have been, and may in the future be, subject to security breaches, cyberattacks, or other malicious activities. For example, in October 2021 it was reported that hackers exploited a flaw in the account recovery process and stole from the accounts of at least 6,000 customers of the Coinbase exchange, although the flaw was subsequently fixed and Coinbase reimbursed affected customers. Similarly, in November 2022, hackers exploited weaknesses in the security architecture of the FTX Trading digital asset exchange and reportedly stole over $400 million in digital assets from customers. A successful security breach or cyberattack could result in:
a partial or total loss of our SUI in a manner that may not be covered by insurance or the liability provisions of the custody agreements with the custodians who hold our SUI;
harm to our reputation and brand;
improper disclosure of data and violations of applicable data privacy and other laws; or
significant regulatory scrutiny, investigations, fines, penalties, and other legal, regulatory, contractual and financial exposure.
Further, any actual or perceived data security breach or cybersecurity attack directed at other companies with digital assets or companies that operate digital asset networks, regardless of whether we are directly impacted, could lead to a general loss of confidence in the broader Sui ecosystem or in the use of the Sui network to conduct financial transactions, which could negatively impact us.
Attacks upon systems across a variety of industries, including industries related to SUI, are increasing in frequency, persistence, and sophistication, and, in many cases, are being conducted by sophisticated, well-funded and organized groups and individuals, including state actors. The techniques used to obtain unauthorized, improper or illegal access to systems and information (including personal data and digital assets), disable or degrade services, or sabotage systems are constantly evolving, may be difficult to detect quickly, and often are not recognized or detected until after they have been launched against a target. These attacks may occur on our systems or those of our third-party service providers or partners. We may experience breaches of our security measures due to human error, malfeasance, insider threats, system errors or vulnerabilities or other irregularities. In particular, we expect that unauthorized parties will attempt to gain access to our systems and facilities, as well as those of our partners and third-party service providers, through various means, such as hacking, social engineering, phishing and fraud. Threats can come from a variety of sources, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, and insiders. In addition, certain types of attacks could harm us even if our systems are left undisturbed. For example, certain threats are designed to remain dormant or undetectable, sometimes for extended periods of time, or until launched against a target and we may not be able to implement adequate preventative measures. Further, there has been an increase in such activities due to the increase in work-from-home arrangements. The risk of cyberattacks could also be increased by cyberwarfare in connection with the ongoing Russia-Ukraine and Israel-Hamas conflicts, or other future conflicts, including potential proliferation of malware into systems unrelated to such conflicts. Any future breach of our operations or those of others in the Sui industry, including third-party services on which we rely, could materially adversely affect our financial condition and results of operations.
We may require significant additional capital to expand our SUI treasury strategy; if we cannot raise such capital on acceptable terms, our business and share price may be adversely affected.
We may require or choose to seek additional financing to expand our SUI treasury strategy. We cannot be certain that such financing will be available on favorable or acceptable terms, if at all, and our ability to secure such capital may be significantly impacted by the valuation and inherent volatility of SUI. If we raise additional funds through the issuance of Common Stock, preferred stock, or other equity-linked securities, our existing stockholders will experience immediate and potentially significant dilution of their ownership and voting power. Furthermore, any issuance of debt or senior equity instruments could subject us to restrictive operational covenants and result in the subordination of the rights of our common stockholders to superior liquidation and dividend preferences. Our inability to raise additional capital on acceptable terms in the future may prevent us from executing our SUI treasury strategy or maintaining our competitive position, which could result in a material decrease in our stock price and the loss of all or part of your investment.
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We may be unable to enter into term loans or other capital raising transactions collateralized by our unencumbered SUI or otherwise generate funds using our SUI holdings, including in particular during times of market instability or when the price of SUI has declined significantly.
Although we do not currently intend to do so, the ability to access liquidity or raise additional capital through transactions such as term loans collateralized by our SUI holdings is subject to evolving market practices and regulatory frameworks. The digital asset lending and collateralization markets are relatively new, with limited standardized processes, fluctuating asset valuations, and a small pool of counterparties willing to accept SUI as collateral. There can be no assurance that we will be able to enter into term loans or other capital raising transactions using its SUI holdings on favorable terms, or at all. If we are not able to convert its SUI holdings into liquidity or use them as collateral for borrowing, its financial flexibility and ability to pursue growth opportunities, meet obligations, or respond to changing market conditions could be materially adversely affected.
We may be subject to regulatory developments related to cryptocurrency assets and cryptocurrency asset markets, which could adversely affect our business, financial condition, and results of operations.
As SUI and other digital assets are relatively novel and the application of state and federal securities laws and other laws and regulations to digital assets is unclear in certain respects, it is possible that regulators in the United States or foreign countries may interpret or apply existing laws and regulations in a manner that adversely affects the price of SUI. 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 SUI or the ability of individuals or institutions such as us to own or transfer SUI.
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 SUI or other forms of digital assets or the ability of individuals or institutions such as us to own or transfer SUI. For example, the U.S. executive branch, the SEC, the European Union’s Markets in Crypto Assets Regulation, among others have been active in recent years, and in the U.K., the Financial Services and Markets Act 2023, or FSMA 2023 became law. It is not possible to predict whether, or when, any of these developments will lead to Congress granting additional authorities to the SEC, “CFTC”, or other regulators, or whether, or when, any other federal, state or foreign legislative bodies will take any similar actions. It is also not possible to predict the nature of any such additional authorities, how additional legislation or regulatory oversight might impact the ability of digital asset markets to function or the willingness of financial and other institutions to continue to provide services to the digital assets industry, nor how any new regulations or changes to existing regulations might impact the value of digital assets generally. The consequences of increased regulation of digital assets and digital asset activities could adversely affect the market price of SUI we intend to own, and in turn adversely affect the market price of our Common Stock. See “ Item 1 Business – Regulation of SUI and Government Oversight ” for additional information.
Moreover, the risks of us engaging in a SUI treasury strategy have created and could continue to create complications due to the lack of experience that third parties have with companies engaging in such a strategy, such as increased costs of director and officer liability insurance or the potential inability to obtain such coverage on acceptable terms in the future.
The growth of the digital assets industry in general, and the use and acceptance of SUI in particular, may also impact the price of SUI and is subject to a high degree of uncertainty. The pace of worldwide growth in the adoption and use of SUI may depend on public familiarity with digital assets, ease of buying, accessing or gaining exposure to SUI, institutional demand for SUI as an investment asset, the participation of traditional financial institutions in the digital assets industry, and the availability and popularity of alternatives to SUI. Even if growth in SUI usage occurs in the near or medium-term, there is no assurance that SUI usage will continue to grow over the long-term.
The liquidity of SUI may also be impacted to the extent that changes in applicable laws and regulatory requirements negatively impact the ability of exchanges and trading venues to provide services for SUI and other digital assets.
Changes in the accounting treatment of our SUI holdings could have significant accounting impacts, including increasing the volatility of our results.
We have adopted Accounting Standards Update (“ASU”) 2023-08, which requires in-scope crypto assets to be measured at fair value each reporting period with change recognized in net income, and to be presented separately from other intangible assets. SUI tokens meet the scope criteria of ASU 2023-08; accordingly, our SUI holdings are measured at fair value through net income.
Given the price volatility of SUI, we expect the adoption of ASU 2023-08 to increase the volatility of our financial results and to affect the carrying value of our SUI on our balance sheet in future periods. Recognizing fair value changes in GAAP net income may have adverse tax consequences, depending on applicable tax rules.
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If we violate anti-money laundering or sanctions rules, we could be subject to regulatory enforcement action resulting in significant fines, which could materially adversely affect our financial performance.
While we maintain anti-money laundering (AML), know-your-customer (KYC), and other due diligence procedures to screen counterparties, these processes may not be foolproof. If a sanctioned entity or individual evades detection and we complete a transaction with such a party, we could be subject to regulatory and legal penalties, reputational damage, and the forced unwinding of affected transactions. In 2022, several major cryptocurrency companies faced significant reputational damage and incurred substantial costs for remediation efforts after their transactions were linked to sanctioned addresses by regulators like the Office of Foreign Assets Control (OFAC). On October 11, 2022, OFAC announced a more than $24.28 million settlement with Bittrex Inc., a cryptocurrency exchange. The settlement resolved 116,421 transactions with persons with an internet protocol (IP) address or physical address in the Crimea region of Ukraine, Cuba, Iran, Sudan and Syria that resulted in violations of multiple U.S. sanctions programs. If we enter into transactions involving our SUI holdings, there is risk over similar oversights, which could lead to significant fines from OFAC and impact our financial results.
Absent federal regulations, there is a possibility that SUI may be deemed to be a “security.” Any classification of SUI as a “security” would subject us to additional regulation and could materially impact the operation of our business and financial conditions.
We believe that SUI is not a security, but neither the SEC nor any other U.S. federal or state regulator has publicly stated whether they agree with our assessment. Despite the Trump Administration’s Executive Order titled “Strengthening American Leadership in Digital Financial Technology” which includes as an objective, “protecting and promoting the ability of individual citizens and private sector entities alike to access and … to maintain self-custody of digital assets,” SUI has not yet been classified with respect to U.S. federal securities laws. Therefore, while (for the reasons discussed below) we have concluded that the SEC is not likely to classify SUI as a “security” within the meaning of the U.S. federal securities laws, and so registration of the Company under the 1940 Act is therefore not required under the applicable securities laws, we acknowledge that a regulatory body or federal court may determine otherwise. Our conclusion, even if reasonable under the circumstances, would not preclude legal or regulatory action based on a determination by the SEC that SUI is a “security” requiring us to register as an investment company under the 1940 Act.
We have adapted our process for analyzing the U.S. federal securities law status of SUI and other cryptocurrencies over time, as guidance and case law have evolved. As part of our U.S. federal securities law analysis, we take into account a number of factors, including the various definitions of “security” under U.S. federal securities laws and federal court decisions interpreting the elements of these definitions, such as the U.S. Supreme Court’s decisions in the Howey and Reves cases, as well as court rulings, reports, orders, press releases, public statements, and speeches by the SEC Commissioners and SEC Staff providing guidance on when a digital asset or a transaction to which a digital asset may relate may be deemed a security by the SEC for purposes of U.S. federal securities laws. Our position that we believe the SEC would not view SUI as a “security” is premised, among other reasons, on our conclusion SUI does not meet the elements of the Howey test. Among the reasons for our conclusion that SUI is not a security is that holders of SUI do not have a reasonable expectation of profits from our efforts or the efforts of the Sui Foundation or any other enterprise in respect of their holding of SUI. Also, SUI ownership does not convey the right to receive any interest, rewards, or other returns.
We acknowledge, however, that the SEC, a federal court or another relevant regulatory entity with jurisdiction or other enforceable authority over us could take a different view. Application of securities laws to the specific facts and circumstances of digital assets is complex and subject to change. Our conclusion, even if reasonable under the circumstances, would not preclude legal or regulatory action based on a finding that SUI, or any other digital asset we might hold, is a “security.” As such, we are at risk of enforcement proceedings against us, which could result in potential injunctions, cease-and-desist orders, fines, and penalties if SUI was determined to be a security by a regulatory body or a court. Such developments could subject us to fines, penalties, and other damages, and adversely affect our business, results of operations, financial condition, and prospects.
If we were deemed to be an investment company under the 1940 Act, applicable restrictions likely would make it impractical for us to continue segments of our business as currently contemplated.
Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an “investment company” if (i) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities or (ii) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding, or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities, shares of registered money market funds under Rule 2a-7 under the 1940 Act, and cash items) on an unconsolidated basis. Rule 3a-1 under the 1940 Act generally provides that, notwithstanding the Section 3(a)(1)(C) test described in clause (ii) above, an entity will not be deemed to be an “investment company” for purposes of the 1940 Act if no more than 45% of the value of its assets (exclusive of U.S. government securities, shares of registered money market funds under Rule 2a-7 under the 1940 Act, and cash items) consists of, and no more than 45% of its net income after taxes (for the past four fiscal quarters combined) is derived from, securities other than U.S. government securities, shares of registered money market funds under Rule 2a-7 under the 1940 Act, securities issued by employees’ securities companies, securities issued by qualifying majority owned subsidiaries of such entity, and securities issued by qualifying companies that are controlled primarily by such entity. We do not believe that we are an “investment company” as such term is defined in either Section 3(a)(1)(A) or Section 3(a)(1)(C) of the 1940 Act.
A component of our business—our legacy finance business—focuses on providing short-term specialty finance solutions primarily to private businesses, micro- and small-cap public companies and high-net-worth individuals. To avoid becoming subject to regulation under the 1940 Act, we periodically monitor our investment holdings as a whole with a view towards ensuring that investments and other holdings which may be considered “investment securities” do not comprise more than 40% of our total assets. We undertake this analysis (1) on a quarterly basis and in connection with the review and preparation of our financial statements filed as part of our quarterly and annual reports with the SEC, and (2) at other times when we are considering how to structure a new transaction that is of a significant size — with “significance” largely based on the outcome of our most recent quarterly review. We do not currently believe that our legacy finance business will subject us to the 1940 Act, but this may change. This review is generally undertaken by our Chief Financial Officer and may involve outside legal counsel, in particular in a case where we are considering the structure of a potential new transaction.
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With respect to Section 3(a)(1)(A), following the launch of our SUI treasury strategy, an amount in excess of 40% of our total assets were used to acquire SUI. Since we believe SUI is not an investment security, we do not hold ourselves out as being engaged primarily, nor do we propose to engage primarily, in the business of investing, reinvesting, or trading in securities within the meaning of Section 3(a)(1)(A) of the 1940 Act.
With respect to Section 3(a)(1)(C), we believe we satisfy the elements of Rule 3a-1 and therefore are currently not deemed to be an investment company under, and we intend to conduct our operations such that we will not be deemed an investment company under, Section 3(a)(1)(C). We believe that we are not an investment company pursuant to Rule 3a-1 under the 1940 Act because no more than 45% of the value of the Company’s total assets (exclusive of U.S. government securities, shares of registered money market funds under Rule 2a-7 of the 1940 Act, and cash items) consists of, and no more than 45% of the Company’s net income after taxes (for the last four fiscal quarters combined) is derived from, securities other than U.S. government securities, shares of registered money market funds under Rule 2a-7 of the 1940 Act, securities issued by employees’ securities companies, securities issued by qualifying majority owned subsidiaries of the Company, and securities issued by qualifying companies that are controlled primarily by the Company.
SUI and other digital assets, as well as new business models and transactions enabled by blockchain technologies, present novel interpretive questions under the 1940 Act. There is a risk that assets or arrangements that we have concluded are not securities could be deemed to be securities by the SEC or another authority for purposes of the 1940 Act, which would increase the percentage of securities held by us for 1940 Act purposes.
If we were deemed to be an investment company, Rule 3a-2 under the 1940 Act is a safe harbor that provides a one-year grace period for transient investment companies that have a bona fide intent to be engaged primarily, as soon as is reasonably possible (in any event by the termination of such one-year period), in a business other than that of investing, reinvesting, owning, holding, or trading in securities, with such intent evidenced by the company’s business activities and an appropriate resolution of its board of directors. The grace period is available not more than once every three years and runs from the earlier of (i) the date on which the issuer owns securities and/or cash having a value exceeding 50% of the issuer’s total assets or (ii) the date on which the issuer owns or proposes to acquire investment securities having a value exceeding 40% of the value of such issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Rule 3a-2 is a safe harbor and we may rely on any exemption or exclusion from investment company status available to us under the 1940 Act at any given time. Furthermore, reliance on Rule 3a-2, Section 3(a)(1)(C), or Rule 3a-1 could require us to take actions to dispose of securities, limit our ability to make certain investments or enter into joint ventures, or otherwise limit or change our service offerings and operations.
If we were to be deemed an investment company in the future, restrictions imposed by the 1940 Act — including limitations on our ability to issue different classes of stock and equity compensation to directors, officers, and employees and restrictions on management, operations, and transactions with affiliated persons — likely would make it impractical for us to continue our business as contemplated, and could have a material adverse effect on our business, results of operations, financial condition, and prospects.
The recently enacted GENIUS Act creates a new federal regulatory framework for stablecoins in the United States, and its implementation could materially impact our investment in, issuance of and holding of stablecoins and compliance obligations.
We hold the stablecoin USDC, and on October 1, 2025, we launched a proprietary Sui-native synthetic dollar token, suiUSDe. We plan to make additional investments in stablecoins, including suiUSDe in the future. In July 2025, the United States enacted the GENIUS Act, which provides for the creation of the first comprehensive federal regime for the issuance, custody, and use of payment stablecoins. This law applies to key aspects of stablecoin programs, including state and federal licensing of issuers, reserve composition and management, redemption rights, disclosures, and ongoing regulatory supervision. While the GENIUS Act has been signed into law, it will not become effective until the earlier of January 18, 2027, or 120 days after the primary federal payment stablecoin regulators issue any final regulations implementing the GENIUS Act. The impact of these legal and regulatory changes will depend in part on how the GENIUS Act is implemented through rulemaking by U.S. regulators. Therefore, while a consistent federal framework could increase institutional and consumer confidence in stablecoins over time, the scope, timing, and substance of implementing the associated regulations and supervisory practices remain uncertain. There is no guarantee that USDC or suiUSDe will meet the criteria of the GENIUS Act, and compliance may require us to make changes to our holding of stablecoins or elements of the suiUSDe coin. These changes could increase our legal, compliance, operational, and technology costs or limit the types of stablecoins we may issue, hold or invest in and could have a material adverse effect on our business, results of operations, financial condition, and prospects.
The classification of any of our cryptocurrencies as a commodity could subject us to additional regulation by the CFTC, resulting in significant compliance costs or the cessation of certain activities.
Some digital cryptocurrency assets are classified as commodities under the Commodity Exchange Act and are subject to regulation by the CFTC. If our activities require CFTC registration, we may be required to comply with extensive regulatory obligations, which could result in significant costs and operational disruptions. Additionally, current and future legislative or regulatory developments, including new CFTC interpretations, could further impact how digital cryptocurrency assets and digital cryptocurrency asset derivatives are classified and traded. If SUI is regulated as a commodity, we may be required to register the Company as a commodity pool operator with the CFTC through the National Futures Association. Compliance with these additional regulatory requirements could result in substantial, non-recurring expenses, adversely affecting an investment in our Common Stock. If we choose not to comply with such regulations, we may be forced to cease our SUI treasury operations, or to cease holding USDC or issuing suiUSDe which could materially adversely impact our business, results of operations, financial condition, and shareholders.
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We face other risks related to our SUI treasury business model.
Our SUI treasury business model exposes us to various risks, including the following:
SUI and other digital assets are subject to significant legal, commercial, regulatory, and technical uncertainty, and our SUI strategy subjects us to enhanced regulatory oversight;
regulatory changes could impact our ability to operate validators or receive rewards;
regulatory scrutiny of the Company’s activities may increase, potentially limiting our operations;
potential litigation risks exist related to smart contract vulnerabilities, validator operations, or our business activities;
uncertainty around SUI’s regulatory status may impact our ability to list on certain exchanges;
changes in political administration may not guarantee a favorable regulatory environment for SUI;
future SEC actions or court decisions could retroactively classify SUI as a security, potentially leading to penalties or forced unwinding of transactions;
increased regulatory focus on Layer-1 blockchains beyond Bitcoin and Ethereum could result in new compliance requirements; and
due to unfamiliarity and some negative publicity associated with digital asset platforms, confidence or interest in digital asset platforms, and the digital assets we expect to acquire, may decline.
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Risks Related to Our Portfolio Investment
We may need to raise additional capital to fund our portfolio investment operations, and such capital may not be available to us in sufficient amounts or on acceptable terms.
For the time being, management believes that our current cash is sufficient to continue portfolio investment operations for the foreseeable future. Nevertheless, various future developments may cause us to seek or require additional financing. In addition, we may determine to seek additional financing in order to avail ourselves of additional opportunities to provide specialty finance solutions to borrowers. Alternatively, we may seek additional financing in the event that a material portion of our investments default, leaving us with diminished means to pay for our operations and continue making investments.
In any event, additional financing could be sought from a number of sources, including but not limited to sales of additional equity or debt securities, or loans from financial institutions or our affiliates. We cannot, however, be certain that any such financing will be available on terms favorable or acceptable to us if at all. If additional funds are raised by the issuance of our equity securities, such as through the issuance of stock, convertible securities, or the issuance and exercise of warrants, then the ownership interest of our existing shareholders will be diluted. If additional funds are raised by the issuance of debt or other equity instruments, we may become subject to certain operational limitations, and such securities may have rights senior to the rights of our common shareholders. If adequate funds are not available on acceptable terms, we may be unable to consummate acquisitions or investments desired by our management and Board.
If we are unable to maintain diverse and robust sources of capital, our growth prospects, business, financial condition and results of operations could be adversely affected.
Our business, including our portfolio investment business, depends in part on maintaining diverse and robust sources of capital to originate our short-term loans. If we were to borrow money in the future, events of default or breaches of financial, performance or other covenants, or worse than expected performance of one or more of our short-term loans, could reduce or terminate our future access to funding. The availability and capacity of sources of capital also depends on many factors that are outside of our control, such as credit market volatility and regulatory reforms. In the event that we do not maintain adequate sources of capital for our portfolio investment business, we may not be able to maintain the necessary levels of funding to retain current loan volume, which could adversely affect our business, financial condition and results of operations.
Although we have identified general guidelines that we believe are important in evaluating prospective portfolio investment opportunities, we may enter into transactions with borrowers that do not meet such guidelines, increasing the risk that the price of our Common Stock could be volatile.
Although we have identified general guidelines for evaluating prospective portfolio investment opportunities, it is possible that a borrower with which we enter into a transaction will not have all, or any, of the attributes outlined in those guidelines. If we complete transactions with borrowers that do not meet some or any of these guidelines, it is possible that such an investment may not be as successful as an alternative opportunity that were to satisfy some or all of those guidelines. Portfolio investments that do not perform as well as imagined, or as well as they otherwise might have, in combination with the public knowledge that we may stray, or have strayed, from strict implementation of our investment guidelines, could affect the volatility of the trading price of our Common Stock.
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We may provide specialty finance solutions to early-stage companies, financially unstable businesses, or borrowers lacking an established record of revenue or earnings, which could adversely affect the price of our Common Stock.
While we believe that being entrepreneurial in our approach to specialty finance is a strength, we may complete investments with an early-stage company, a financially unstable business or an entity lacking an established record of revenues, cash flows or earnings. These kinds of transactions present numerous risks associated with investing in a business without a proven business model and with limited historical financial data, volatile revenues, cash flows or earnings and difficulties in obtaining and retaining key personnel. Although our management endeavors to evaluate the risks inherent in each particular investment we consider and make, we may not be able to properly ascertain or assess all of the significant risk factors and we may not have adequate time to complete a full evaluation of those risks. Furthermore, some of these risks may be outside of our control and leave us with no ability to control or reduce the chances that those risks will adversely impact a borrower or our likelihood of repayment. Failure by borrowers to repay the amounts owed to us pursuant to these specialty finance solutions could materially adversely affect our financial conditions and results of operations and ultimately the price of our Common Stock.
Many of our specialty finance investment transactions involve borrowers about which little, if any, information is publicly available, which may impair our ability to identify borrowers able to repay our loans and adversely affect the price of our Common Stock.
In pursuing our short-term specialty finance business, we often interact with privately held companies about which very little public information exists. As a result, we are often required to make our portfolio investment decision on the basis of limited information, nearly all of which is obtained from the business itself, which may result in our consummating an investment with a borrower that is not as solvent or profitable as we suspected, if at all. These risks could affect our results of operations and, ultimately, the trading price of our Common Stock.
If we are deemed to be an investment company under the 1940 Act, we may be required to institute burdensome compliance requirements and our activities may be restricted. In such an event, our business would likely be materially adversely affected.
If we are deemed to be an investment company under the 1940 Act, then our activities may be restricted or complicated, including through:
restrictions on the nature of our investments;
restrictions on our issuance of securities;
a requirement to register as an investment company;
adoption of a specific form of corporate structure and changes in corporate governance;
the hiring of a chief compliance officer, and adoption and implementation of various policies and requirements; and
compliance with additional reporting, record-keeping, voting, proxy and disclosure requirements, together with other rules and regulations.
In order not to be regulated as an investment company under the 1940 Act, unless we can qualify for an exclusion, we must ensure that we are engaged primarily in a business other than investing, reinvesting or trading of “securities” and that our activities do not include investing, reinvesting, owning, holding or trading “investment securities” constituting more than 40% of our assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis.
We do not believe that our portfolio investment activities alone will subject us to the 1940 Act. We periodically monitor our portfolio investment holdings as a whole with a view towards ensuring that investments and other holdings which may be considered “investment securities” do not comprise more than 40% of our total assets. We undertake this analysis (1) on a quarterly basis and in connection with the review and preparation of our financial statements filed as part of our quarterly and annual reports with the SEC, and (2) at other times when we are considering how to structure a new transaction that is of a significant size—with “significance” largely based on the outcome of our most recent quarterly review. This review is generally undertaken by our Chief Financial Officer and may involve outside legal counsel, in particular in a case where we are considering the structure of a potential new transaction.
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If, however, we do not invest as discussed above or are otherwise unsuccessful in ensuring that no more than 40% of our total assets consist of “investment securities,” then we may be deemed to be subject to the 1940 Act. It is also possible that regulatory authorities, such as the SEC, may disagree with our analysis of whether certain investment holdings constitute “investment securities,” under federal securities law and the 1940 Act in particular. If that were to be the case, we would likely incur significant costs and be required to spend significant time restructuring parts of our operations and/or complying with the additional regulatory burdens imposed under the 1940 Act. Any restructuring or additional regulatory requirements would hinder our ability to operate as profitably as we have since the withdrawal of our BDC election and would adversely affect the trading price of our Common Stock.
Our $10 million in principal amount loan to Mustang Funding, LLC is subordinated to Senior Lenders in right of payment, in respect of our exercise of rights and remedies, and in right of collateral, with the result that our investment portfolio will for the foreseeable future be highly concentrated in and dependent upon the operational and financing success of Mustang.
On December 12, 2022, contemporaneously with our entry into a non-binding letter of intent with Mustang Funding, LLC (“Mustang”) contemplating a combination or merger transaction, we entered into a lending agreement with Mustang pursuant to which we loaned Mustang the principal amount of $5 million maturing in September 2023 (as amended, the “Mustang Litigation Funding”). Among other things, our related loan agreement with Mustang requires us to consent to any additional indebtedness Mustang may incur, subject to certain limitations and exceptions.
Although our loan to Mustang was not secured at the time that it was made, we negotiated for and obtained the right in the governing documents to seek and obtain collateral in the event that there were a default by Mustang or our negotiations for a combination transaction were to break down. At that time, we believed it was important to obtain this right because (i) Mustang was contemporaneously seeking a senior secured lending facility with whom we had no previous working experience, and (ii) a breakdown in combination negotiations, combined with our anticipated subordination (discussed below) could mean that we would need to extend the terms of this loan beyond nine months. In sum, as a creditor, we believed that we needed to secure our loan on more traditional commercial lending terms in order to better protect our investment.
On December 28, 2022, we entered into a subordination agreement with Orion Pip LLC, in its capacity as administrative and collateral agent for itself and other Senior Lenders under a senior secured lending agreement with Mustang, pursuant to which we subordinated our right to payment (subject to certain exceptions) and our right to exercise rights and remedies, to Mustang’s prior repayment in full of all amounts owing to the Senior Lenders. The subordination agreement prohibited the Senior Lenders or Mustang from extending the stated maturity of amounts owing under the senior secured lending agreement beyond December 2026. The Senior Lenders are owed $15.675 million in principal amount under the senior secured lending agreement as of December 31, 2025.
In June, August and September 2023, we advanced additional principal to Mustang as we continued working with them on a potential definitive merger agreement and related deliverables. These additional principal advances resulted in the loan principal growing to an aggregate of $10 million. In connection with these advances, the maturity date of our loan was ultimately extended to June 2024. In April 2024, we agreed to a final extension of the maturity date to the earlier of December 31, 2024, or 90 days after the termination of negotiations for our combination transaction with Mustang.
On August 20, 2024, we terminated the non-binding letter of intent with Mustang. As a result, amounts owing under our $10 million loan to Mustang were to mature on November 18, 2024. Nevertheless, the subordination agreement with the Senior Lenders effectively worked to prohibit Mustang’s payment, and our collection, of our loan. Accordingly, at that time we invoked our right to obtain collateral security from Mustang for our loan for the purpose of protecting our investment and essentially converting our loan position from a short-term unsecured loan to a longer-term loan involving standard commercial lending terms, including terms relating to collateral security. Ultimately, in late January 2025 we were able to enter into an amendment to our loan agreement with Mustang that extended the maturity date of our loan to March 2027 and increased the interest rate on our loan principal to 20% per annum (with 15% per annum remaining payable in cash on a monthly basis, and the additional 5% per annum being payable upon maturity), and also enter into an amended and restated subordination agreement with Orion Pip LLC that subordinated our right to collateral on customary and negotiated terms and conditions. Presently and for the foreseeable future, we expect that we will receive interest payments as required by our loan agreement with Mustang.
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Changes in laws or regulations, or a failure to comply with laws and regulations, whether by us or by our borrowers, may adversely affect our portfolio investment business, including our results of operations and ultimately the price of our Common Stock.
Both we and our borrowers are typically subject to various local, state and federal laws and regulations. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and manner of application or enforcement may also change from time to time and those changes could have a material adverse effect on our portfolio investment business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business and results of operations. Any of these outcomes would likely adversely affect the trading price of our Common Stock.
Changes in consumer finance and other applicable laws and regulations, as well as changes in government enforcement policies and priorities, may negatively impact the management of our business, results of operations, ability to offer certain kinds of specialty finance solutions or the terms and conditions upon which they are offered, and our ability to compete.
Consumer finance regulation is constantly changing, and new laws or regulations, or new interpretations of existing laws or regulations, could have a materially adverse impact on our ability to operate as currently intended or as we may intend to expand in the future, and cause us to incur significant expense in order to ensure compliance. These regulatory changes and uncertainties make our business planning more difficult and could result in changes to our business model and potentially adversely impact our results of operations. Because we operate as a non-bank lender, we are sometimes subject to state usury laws and other laws and regulations. Furthermore, to the extent applicable, these laws can impose specific statutory liabilities upon creditors who fail to comply with their provisions and may affect the enforceability of a loan. If the application of consumer protection laws were to cause our loans, or any of the terms of our loans, to be unenforceable against the relevant borrowers, our specialty finance business may be materially adversely affected. Even if we seek to comply with licensing and other requirements that we believe may be applicable to us, if we are found to not have complied with applicable laws, we could lose one or more of our licenses or authorizations or face other sanctions or penalties or be required to obtain a license in one or more such jurisdictions, which may have an adverse effect on our business.
New laws, regulations, policy or changes in enforcement of existing laws or regulations applicable to our business, or reexamination of current practices, could adversely impact our profitability, limit our ability to continue existing or pursue new business activities, require us to change certain of our business practices, affect retention of key personnel, or expose us to additional costs, including compliance costs. These changes also may require us to invest significant resources, and devote significant management attention, to make any necessary changes and could adversely affect our business.
We may engage in transactions with businesses that may be affiliated with our officers, directors or significant shareholders, and which may involve actual or potential conflicts of interest.
We may decide to make investments in one or more businesses affiliated with our officers, directors or significant shareholders. Such investment opportunities may compete with other opportunities for our investment dollars. Although we are not specifically focusing on, or targeting, any particular transaction with any affiliates or affiliated entities, we would pursue such a transaction if we determined that such an affiliated investment were attractive from a risk-adjusted return perspective, and such transaction were approved by a majority of our independent and disinterested directors. Any such activity would involve actual or potential conflicts of interest. Although we are confident that we can navigate these conflicts consistent with best practices and applicable law, the existence or appearance of such conflicts of interest could make our Common Stock less attractive and thereby reduce its trading price.
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Our ability to identify and consummate investment opportunities, and any need we may have for additional capital, will almost certainly be affected by general economic conditions.
General economic conditions will almost certainly impact our ability to (i) identify, pursue and consummate investment opportunities, and (ii) if necessary, seek and obtain additional financing on terms acceptable or favorable to us, if at all. Therefore, a deterioration in general economic conditions may adversely affect our business or slow the growth of our business.
Our reputation and brand are important to our portfolio investment business, and if we are unable to continue developing our reputation and brand, our ability to retain existing capital sources, and to attract borrowers could be adversely affected.
We believe that maintaining a strong brand and trustworthy reputation is critical to our portfolio investment business and our ability to attract borrowers, attract new capital sources and maintain existing capital sources. Factors that we believe affect our brand and reputation include:
the non-bank lending industry generally; and
the Company specifically, including the quality and reliability of our investment process, our ability to effectively manage and resolve issues with our borrowers, our collection practices, our privacy and security practices, any litigation in which we may become involved; any regulatory activity to which we may become involved; and the overall experience of our borrowers.
Negative publicity or negative public perception of these factors, even if inaccurate, could adversely affect our brand and reputation. Any negative publicity or negative public perception of the loans we make, or similar loans made by similar lenders or our competitors, may also result in negative publicity that is adverse to our reputation. If we are unable to protect our reputation, our business, financial condition and results of operations could be adversely affected.
Risks Related to Our Operations and Ownership of Our Common Stock
The price of our Common Stock has been and may continue to be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our Common Stock.
Our stock price has been and is likely to continue to be volatile. The stock market in general has experienced extreme volatility that has often been unrelated to the operating performance of particular companies.
The price of our stock also depends partly on the value of SUI, which has been and continues to be volatile. As a result of this volatility, you may not be able to sell your Common Stock at an advantageous price, or at all.
You should consider an investment in our Common Stock to be risky, and you should invest in our Common Stock only if you can withstand a significant loss and wide fluctuation in the market value of your investment. The market price of our Common Stock could be subject to significant fluctuations in response to the factors described in this section and other factors, many of which are beyond our control. Among the many factors that could affect our stock price are:
our SUI treasury strategy and the price of SUI;
the historically limited trading volume of our Common Stock;
future sale of shares of our Common stock;
actions by our competitors;
regulatory or legal developments in the United States and other countries;
the recruitment or departure of key personnel;
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actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
variations in our financial results or those of companies that are perceived to be similar to us;
the public’s response to our or our competitors’ filings with the SEC or announcements regarding, significant transactions, acquisitions, strategic investments, litigation, or other significant matters;
general economic, industry and market conditions; and
the other factors described in this ‘‘Risk Factors’’ section and in the “Risk Factors” section of our other SEC filings.
We are highly dependent on the services provided by certain executives and key personnel.
Our success depends in significant part upon the continued service of our senior management personnel and directors. In particular, we are materially dependent upon the services of Marius Barnett, our Chairman, Douglas M. Polinsky, our Chief Executive Officer and Joseph A. Geraci, II, our Chief Financial Officer. Practically, we cannot prevent the departure of these directors and executives, whether due to death, disability, retirement or otherwise. Any loss of the services provided by these key personnel would likely have a material and adverse effect on our operations and ability to execute our business plans.
Future sales and issuances of our capital stock or rights to purchase capital stock could result in additional dilution of the percentage ownership of our stockholders and could cause the price of our Common Stock to decline.
We expect to raise capital to fund our business by issuing additional shares of Common Stock and/or other securities. Future sales and issuances of our capital stock or rights to purchase our capital stock could result in substantial dilution to our existing shareholders. We may sell Common Stock, warrants and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such securities in subsequent transactions, investors may be materially diluted. New investors in such subsequent transactions could gain rights, preferences and privileges senior to those of holders of our Common Stock.
Our articles of incorporation grant our Board the power to designate and issue additional shares and classes of common and preferred stock without shareholder approval, which could cause significant dilution and adversely affect the rights of existing stockholders.
Our authorized capital consists of 2,000,000,000 shares of capital stock. As of the date of the Annual Report, we only have 76,802,872 shares of Common Stock issued and outstanding and a further 15,098,076 stock for issuance upon the exercise of various warrants. Pursuant to authority granted by our articles of incorporation, our Board, without any action by our shareholders, may designate and issue shares in such classes or series (including other classes or series of preferred stock) as it deems appropriate, and may establish the rights, preferences and privileges of such shares, including dividends, liquidation and voting rights. The issuance of additional Common Stock or preferred stock:
may significantly dilute the equity interest of our then-current stockholders;
may subordinate the rights of holders of Common Stock if preferred stock is issued with rights senior to those afforded to our Common Stock;
could cause a change in control if a substantial number of Common Stock are issued, which could result in the resignation or removal of our present officers and directors; and
may adversely affect the prevailing market price for our Common Stock.
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Cyber incidents or attacks directed at us could result in information theft, data corruption, operational disruption and/or financial loss.
We depend on digital technologies, including information systems, infrastructure and cloud applications and services, including those belonging to third parties with whom we deal. Sophisticated and deliberate attacks on, or security breaches in, our systems or infrastructure, or the systems or infrastructure of third parties or the cloud, could lead to corruption or misappropriation of our assets, proprietary information and sensitive or confidential data. We have not made a significant investment in data security protection (preferring instead to rely upon the data-security know-how and investments made by the third parties with whom we deal and upon whom we rely), and we may not be sufficiently protected against such occurrences. We may not have sufficient resources to adequately protect against, or to investigate and remediate any vulnerability to, cyber incidents. It is possible that any of these occurrences, or a combination of them, could have adverse consequences on our business and lead to financial loss.
The use of, or inability to use, artificial intelligence by us, our employees, consultants, directors, vendors , investors or contract counterparties presents risks and challenges that may adversely impact our business and operating results or the business and operating results of our vendors, investors or contract counterparties.
We may use generative artificial intelligence and/or machine learning (collectively, “AI”) tools in our operations. If our peers use AI tools to optimize operations and we fail to utilize AI tools in a comparable manner, we may be competitively disadvantaged. However, while AI tools may facilitate optimization and operational efficiencies, they also have the potential for inaccuracy, bias, infringement or misappropriation of intellectual property, and risks related to data privacy and cybersecurity. The use of AI tools may introduce errors or inadequacies that are not easily detectable, including deficiencies, inaccuracies or biases in the data used for AI training, or in the content, analyses or recommendations generated by AI applications. The results of such errors or inadequacies may adversely affect our business, financial condition and results of operations. The legal requirements relating to AI continue to evolve and remain uncertain, including how legal developments could impact our business and ability to enforce our proprietary rights or protect against infringement of those rights. Cybersecurity threat actors may utilize AI tools to automate and enhance cybersecurity attacks against us. The integration of AI tools in the digital asset industry may present significant opportunities and risks for our vendors, investors or contract counterparties, similar to those risks described above.
Business disruptions, including interruptions, delays, or failures of our systems or other third-party services as a result of geopolitical tensions, acts of terrorism, natural disasters, pandemics, and similar events, could materially adversely affect our operating results or result in a material weakness in our internal controls that could adversely affect the market price of our Common Stock.
Any disruptions or failures of our systems or other services that we use, including as a result of a natural disaster, fire, cyberattack (including the potential increase in risk for such attacks due to cyberwarfare in connection with the ongoing Russia-Ukraine and Israel-Hamas conflicts), act of terrorism, geopolitical conflict (including due to the ongoing Russia-Ukraine, Israel-Hamas and U.S.-Venezuela conflicts and any potential conflict involving China and Taiwan), pandemic, the effects of climate change, or other catastrophic event, as well as power outages, telecommunications infrastructure outages, a decision by one of our third-party service providers to materially change the pricing or terms of their services, or other unanticipated problems with our third-party services that we use, such as a failure to meet service standards, could severely impact our ability to conduct our business operations, or result in a material weakness in our internal control over financial reporting, any of which could materially adversely affect our future operating results.
We do not intend to pay dividends on our Common Stock.
We intend to retain all of our earnings, if any, for the foreseeable future to finance the operation and expansion of our business and do not anticipate paying cash dividends. Any future determination to pay dividends will be at the discretion of our Board, subject to compliance with applicable law and any contractual provisions, and will depend on, among other factors, our results of operations, financial condition, capital requirements and other factors that our Board deems relevant. As a result, investors in our Common Shares should expect to receive a return on investment only if the market price of the Common Shares increases, which may never occur.
One of the manners in which we may seek to grow the Company is through acquisition or combination transactions , as well as through the launch of new investment strategies. It is possible that, even after we announce a potential acquisition, combination transaction, or new business initiative, such transactions or initiatives may not ultimately close, materialize, or achieve their intended objectives. Our announcement of these potential transactions or strategies—and the occasional failure of them to proceed as planned—may cause the price of our Common Stock to be volatile.
As disclosed in prior reports, we have stated our intention to grow the Company both organically, including by expanding our specialty finance operations into new markets or niches, and through acquisition or combination transactions such as mergers or similarly structured transactions. More recently, we launched a new SUI treasury strategy, under which the principal holding in our treasury reserve on the balance sheet is allocated to the native cryptocurrency of the Sui blockchain. This new strategy represents a meaningful expansion of the Company’s portfolio investment activities and introduces additional uncertainties, particularly given the emerging nature of digital asset markets. Public announcements regarding the launch, progress, or performance of this strategy may affect the trading volume and price of our Common Stock. Moreover, should this strategy fail to develop as anticipated, fail to scale, or otherwise underperform, such outcomes could similarly contribute to volatility in the trading volume and price of our Common Stock.
In the past, we have also announced our execution of non-binding letters of intent for acquisition or combination transactions. These announcements may create volatility in the trading volume and price of our Common Stock, particularly where there is limited publicly available information about the counterparty to such a transaction or uncertainty regarding our ability to successfully enter into definitive agreements. Moreover, the failure of the transactions contemplated in these announcements to close could similarly create volatility in the trading volume and price of our Common Stock. Such volatility could ultimately reduce market liquidity for our Common Stock, creating a risk that you may not be able to sell your shares at a time or price you consider favorable.
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An historical example of this dynamic is our December 2022 announcement of a non-binding letter of intent with Mustang Funding, LLC, a private litigation‑funding business, contemplating a merger transaction. Although we negotiated a proposed definitive agreement, we were unable to finalize and enter into that agreement, and we ultimately terminated the non-binding letter of intent in August 2024. The volatility in the trading volume and price of our Common Stock contemporaneous with our public announcements regarding the entry into—and subsequent termination of—the non-binding letter of intent, as well as related announcements regarding amendments to our prior loans to Mustang Funding, was not insignificant from a comparative standpoint.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our Common Stock, including the general volume of transactions in our Common Stock, will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on the Company. If no securities or industry analysts commence coverage of the Company, the trading price for our stock may be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price may decline. If one or more of these analysts ceases coverage of the Company or fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.
Requirements associated with being a public company in the United States require significant company resources and management attention.
As a public company, we are subject to certain reporting requirements of the Exchange Act and other rules and regulations of the SEC and Nasdaq (as defined below). We are also subject to various other regulatory requirements, including SOX, and the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The expenses incurred by public companies for reporting and corporate governance compliance have been increasing and can decrease our net income or increase our net loss and may require us to reduce costs in other areas of our business or increase the prices of our products. Additionally, if these requirements divert our management’s attention from other business concerns, they could have a material adverse effect on our business, financial condition and operating results. These requirements increase our legal and financial compliance costs and make some activities more time-consuming and costly. For example, we expect that the rules and regulations applicable to us as a public company may make it increasingly more difficult and more expensive for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage as a private company. These laws and regulations can make it more difficult for us to attract and retain qualified persons to serve on the Board and committees of the Board, or as executive officers.
These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our Common Stock, fines, sanctions and other regulatory action and potentially civil litigation.
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We have identified and may in the future identify additional material weaknesses in internal controls over financial reporting. If we cannot remediate internal controls weaknesses or if we cannot maintain effective internal controls over financial reporting in the future, it could harm us.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Under standards established by the Public Company Accounting Oversight Board (“PCAOB”), a deficiency in internal control over financial reporting exists when the design or operation of a control does not allow management or personnel, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. The PCAOB defines a material weakness as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented, or detected and corrected, on a timely basis.
As more fully disclosed in “ Item 9A — Controls and Procedures ” of this Annual Report, we identified a material weakness related to the proper accounting for transactions in accordance with GAAP. To remediate the material weakness, we engaged outside consultants with expertise in accounting, financial reporting and internal controls to assist management in evaluating and enhancing our accounting processes and controls. We cannot ensure that we have remediated the material weakness or that we will not in the future have additional material weaknesses. Should this material weakness persist, or new material weaknesses arise or be discovered in the future, material misstatements could occur and go undetected in our interim or annual consolidated financial statements. If we fail to remediate any future material weaknesses or maintain proper and effective internal control over financial reporting in the future, we may be required to restate our financial statements, experience delays in satisfying our reporting obligations or fail to comply with SEC rules and regulations, which could result in investigations and sanctions by regulatory authorities. Any of these results could adversely affect our business and the value of our Common Stock.
