SDEV 10-K & 10-Q changes, risk factors and insider trading

Risk Factor Summary

The principal risks that could materially and adversely affect us include, among others, the following:

Risks Related to Our Blockchain-Based Strategy:

Risks Relating to Our Business:

Risks Relating to Owning Our Common Stock

The summary above is qualified in its entirety by the more complete risk factors set forth below.

Risks Related to Our Blockchain-Based Strategy

We have adopted a blockchain-based asset strategy with a focus on SKY, and we may be unable to successfully implement this new strategy.

We have adopted a blockchain-based asset acquisition strategy primarily dedicated to SKY, including staking and other decentralized finance activities. There is no assurance that we will be able to successfully implement this new strategy or operate SKY-related activities at the scale or profitability currently anticipated. This also requires that we implement different security protocols. There is no assurance that we will be able to execute this strategy by building out the needed infrastructure within the timeframe that we currently anticipate. Errors by key management could result in significant loss of funds and reduced rewards. As a result, our shift towards SKY could have a material adverse effect on our business and financial condition.

The Sky network (or Sky Protocol) involves significant risks that we are unable to control.

The Sky Protocol (formerly known as MakerDAO) is a decentralized protocol developed around the USDS stablecoin that is managed by Sky ecosystem governance. It is a non-custodial, blockchain-based software protocol consisting of open-source, self-executing, autonomous smart contracts that are currently deployed on the Ethereum blockchain.

USDS is the native stablecoin of the Sky Protocol. USDS was introduced in late 2024 as an upgraded version of the DAI stablecoin. USDS is intended to maintain a soft 1:1 reference value relative to the U.S. dollar by maintaining collateral within the ecosystem through protocol-defined economic mechanisms and market-based incentives. In particular, users generate USDS by depositing approved collateral (e.g., ETH) into Sky Protocol “vaults” and borrowing USDS against it. Each vault has a minimum collateralization ratio to help ensure the borrowed USDS is excessively backed by the collateral’s USD value. If the collateral value falls below the threshold, an automatic liquidation is triggered: the collateral is sold to repay USDS, aiming to prevent under-collateralization. This mechanism is intended to keep USDS properly backed at all times and helps maintain the peg.

The value and utility of SKY and USDS are highly dependent on the performance, stability and continued adoption of the Sky Protocol, which is subject to significant technical, market, governance, regulatory and operational risks. The Sky Protocol is a complex, evolving digital asset protocol involving smart contracts, on-chain governance, algorithmic and market-based mechanisms, third-party integrations and decentralized infrastructure. Any failure, disruption or degradation of this ecosystem could materially and adversely affect the value, liquidity and functionality of SKY, USDS and any products or services built on the protocol. Exploitation of such weaknesses could result in the loss of user funds, disruption of protocol operations, unintended issuance or destruction of USDS, incorrect liquidations, or other outcomes that could materially impair the ecosystem and reduce confidence in SKY and USDS.

USDS is designed to maintain a stable value relative to the U.S. dollar through collateralization, protocol incentives, liquidation mechanisms and market participation. These mechanisms may fail to operate as intended during periods of extreme market volatility, rapid changes in collateral valuations, liquidity shortages, system congestion, governance delays, or sustained market stress. If confidence in USDS declines or redemptions exceed available liquidity, USDS may trade at a significant discount to its intended peg. Any prolonged or material de-pegging event could trigger a loss of confidence in the Sky ecosystem and materially impair the value and adoption of both USDS and SKY, which would have a material adverse effect on the value of the Company’s holdings.

USDS is backed by digital asset collateral whose market values may decline rapidly and unpredictably. Sharp declines in collateral prices may cause collateralization ratios to fall below required thresholds, triggering large-scale liquidations. Liquidations executed during periods of illiquidity or market stress may fail to recover sufficient value to support the outstanding USDS supply, potentially resulting in losses to the protocol and contributing to a de-pegging of USDS. The protocol’s ability to maintain the stability of USDS and support market activity depends on the availability of sufficient on-chain and off-chain liquidity. During periods of heightened volatility or market disruption, liquidity may evaporate, impairing redemptions, liquidations, collateral conversions and price discovery. Insufficient liquidity could exacerbate losses, contribute to prolonged de-pegging of USDS and undermine confidence in the ecosystem.

Governance of the Sky Protocol is conducted through ownership and voting of SKY. A small number of holders may control a substantial portion of the voting power, allowing them to exert significant influence over protocol parameters, economic incentives, risk management policies, collateral types, interest rates and other core functions. Governance outcomes may be unpredictable, may not align with the interests of all participants, and may materially alter the risk profile, economics or functionality of the ecosystem.

Sky Star Agents, informally called Stars, are decentralized projects within Sky Ecosystem, designed to enable focused, fast-moving innovation and development within the Sky Protocol. They are created by their founders or joint partners, who define the strategy and operating processes of the Star while also specifying the business logic and innovation goals. Stars may pursue initiatives, implement software, or engage in activities that are experimental, untested, or otherwise subject to significant technological, legal, regulatory, and operational uncertainties. Failures, vulnerabilities, malfunctions, exploits, governance disputes, misaligned incentives, fraud, misconduct, regulatory violations, or financial losses at the Star level could impair the functionality, reputation, adoption, and perceived integrity of the Sky ecosystem as a whole. Any material adverse developments involving one or more Stars may undermine confidence in the Sky Protocol, reduce demand for SKY, disrupt ecosystem growth, and result in losses for the Company.

Our historical financial statements do not reflect the potential variability in earnings that we may experience in the future relating to our SKY holdings and activities. Accordingly, it may be difficult to evaluate the Company’s business and future prospects, and the Company may not be able to achieve or maintain profitability in any given period.

We purchase blockchain-based assets, including SKY, the price of which has been, and will likely continue to be, highly volatile. Our financial results and the market price of our common stock could be materially adversely affected if the price of SKY decreased substantially, as it has in the past, including as a result of shifts in market sentiment, speculative trading, macroeconomic trends, technology-related disruptions and regulatory announcements.

Our historical financial statements do not fully reflect the potential variability in earnings that we may experience in the future from holding or selling significant amounts of SKY.

The price of SKY has historically been subject to significant price fluctuations and is highly volatile.

Because we intend to purchase additional SKY in future periods and increase our overall holdings of SKY, we expect that the proportion of our total assets represented by SKY holdings will increase in the future. We may also in the future purchase other blockchain-based assets with similar exposure to volatility. As a result, volatility in our earnings in future periods may be significantly more than what we experienced in prior periods, and it may be difficult to evaluate the Company’s business and future prospects. We may also need to perform an analysis each quarter to identify whether events or changes in circumstances indicate that our blockchain-based assets are impaired.

SKY’s status as an asset that may potentially be deemed to be offered and sold as a “security” in any relevant jurisdiction, as well as the status of SKY-related products and services that we may engage in, including staking and other protocol participation activities, is subject to regulatory uncertainty, and if the Company is unable to properly characterize such products or services, the Company may be subject to regulatory scrutiny, inquiries, investigations, fines and other penalties, which may adversely affect our business, operating results and financial condition.

The SEC and its staff in the past have taken the position that a range of digital assets, as well as products and services related to digital assets, may fall within the definition of an investment contract that is offered or sold as a “security” under the U.S. federal securities laws. In connection with our business strategy, we expect to hold SKY and may engage in Sky-related activities, including participating in staking or delegation arrangements and receiving staking or protocol rewards. Each of these activities involves the use of SKY in ways that have not been the subject of definitive regulatory guidance.

The legal test for determining whether any given digital asset, product or service that is offered and sold is an investment contract was set forth in the 1946 U.S. Supreme Court case SEC v. W.J. Howey Co. and requires a highly complex, fact-driven analysis. Accordingly, whether SKY, or any SKY-related product or service that we may engage in, would ultimately be deemed to be offered or sold as a security is uncertain and difficult to predict, notwithstanding any conclusions we may draw based on our internal, risk-based assessments. Further, even if SKY is not determined to be a security, certain SKY-related activities, such as staking, delegation, lending, reward or yield-generating programs, or the provision of services that facilitate such activities, could be deemed to constitute securities offerings or derivatives or to involve regulated intermediaries under applicable securities laws.

Regulatory uncertainty surrounding blockchain-based assets within emerging financial infrastructure and network-based markets, including potential classification as securities and the risk of investment company status, could adversely affect our business, financial condition, and results of operations.

Blockchain-based assets, such as SKY and other tokens and protocols, are relatively novel, and the application of U.S. federal and state securities laws, the Investment Company Act of 1940, as amended (the “1940 Act”), and other legal and regulatory frameworks to such assets remains unsettled. While proposed legislation-such as the Digital Asset Market Clarity Act of 2025-seeks to establish a more definitive framework for distinguishing between digital commodities and digital securities and to clarify the jurisdictional boundaries between the Securities and Exchange Commission (the “SEC”) and the Commodity Futures Trading Commission (the “CFTC”), such legislation has not yet been enacted and remains subject to change. As a result, the regulatory treatment of blockchain-based assets continues to be uncertain.

Regulators in the United States or in foreign jurisdictions may interpret or enforce existing laws and regulations in ways that adversely affect the classification, transferability, or value of blockchain-based assets, or may adopt new laws or pursue enforcement or judicial actions that materially impact network-based markets. While it is our intention to acquire and deploy blockchain-based assets that are not securities and that would not expose us to regulatory scrutiny, the legal uncertainty in this area may cause us to miscalculate. If any blockchain-based assets we hold or acquire are later determined to constitute “securities” under applicable law, we could become subject to additional regulatory obligations or restrictions, including under the federal securities laws and the 1940 Act.

Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an “investment company” for purposes of the 1940 Act if (1) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (2) it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We do not believe that the Company will be an “investment company,” as such term is defined in the 1940 Act, and it does not intend to register as an “investment company” under the 1940 Act.

While the SEC has not stated a view as to whether SKY is or is not a “security” for purposes of the federal securities laws, a determination by the SEC or a court of competent jurisdiction that SKY or any other digital assets we may hold or interact with is a security, either retroactively or prospectively, could lead to our meeting the definition of “investment company” under the 1940 Act, if the portion of our assets that consists of investments in such digital assets exceeds the 40% limit prescribed in the 1940 Act, which would subject us to significant additional regulatory requirements that could have a material adverse effect on our business and operations and may also require us to change the manner in which we conduct our business. In addition, such a determination could adversely affect the market price of SKY and in turn adversely affect the market price of the Company’s common stock.

To avoid classification as an investment company, as such term is defined in the 1940 Act, we monitor our asset composition and income and may be required to take responsive actions, including disposing of blockchain-based assets that we might otherwise hold for the long term, deploying capital into non-investment assets, incurring debt, issuing equity, or entering into other financing arrangements that may not be favorable to our business. These measures could be costly, disruptive, or executed under unfavorable market conditions, and there is no assurance that they would be successful in enabling us to remain outside the scope of the 1940 Act.

Further, state regulators may conclude that the blockchain-based assets we hold are securities under state laws, requiring us to comply with state-specific securities regulations. States like California have stricter definitions of “investment contracts” than the SEC, increasing the risk of additional regulatory scrutiny.

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 SKY or the ability of individuals or institutions such as us to own or transfer SKY and utilize blockchain-based applications on networks such as SKY. 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 United Kingdom, the Financial Services and Markets Act 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 blockchain-based asset markets to function or the willingness of financial and other institutions to continue to provide services to the blockchain-based assets industry, nor how any new regulations or changes to existing regulations might impact the value of blockchain-based assets generally and SKY specifically. The consequences of increased regulation of blockchain-based assets and blockchain-based asset activities could adversely affect the market price of SKY and in turn adversely affect the market price of our common stock.

In addition, the evolving regulatory environment surrounding blockchain-based assets has introduced complications related to insurance coverage and market perception. For example, our engagement in blockchain-based asset activities may result in increased costs for director and officer liability insurance or limit our ability to obtain such coverage on acceptable terms. Further regulatory developments-whether through legislation, rulemaking, enforcement, or judicial decisions-could continue to impose operational, legal, and financial risks that adversely impact our blockchain-based asset strategy and broader business performance.

We face risks relating to the use of third-party trading platforms in connection with our SKY-focused strategy.

We use third-party trading platforms, which we believe are reputable, as well as reputable over-the-counter brokers to purchase SKY and other tokens that we may use in the future. As part of our process in determining transactions with third-party exchanges, we search for reputable exchanges that have industry standard policies and procedures in place regarding data security and customer diligence related to anti-money laundering, Office of Foreign Assets Control sanctions compliance, and know-your-customer rules and regulations. If any of these third-party exchanges no longer meet our standards or if there is a decrease in reputable third-party exchanges, we may need to find additional counterparties and enter into additional agreements that could be on less favorable terms, which could have a material adverse effect on our business, financial condition or the results of our operations.

In addition, there has been increasing focus on the extent to which blockchain-based assets can be used to launder the proceeds of illegal activities, fund criminal or terrorist activities, or circumvent sanctions regimes, including those sanctions imposed in response to the ongoing conflict between Russia and Ukraine and sanctions programs administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), including those relating to countries such as Iran, North Korea and Syria. If we are found to have purchased any of our SKY from bad actors that have used SKY to launder money or persons subject to sanctions, we may be subject to regulatory proceedings and any further transactions or dealings in SKY by us may be restricted or prohibited.

Our financial results and the market price of our common stock may be affected by the prices of the assets held by us, and evolving accounting standards may increase earnings volatility and reporting complexity.

As part of our capital allocation strategy for assets not required for working capital, we intend to acquire SKY and may acquire other blockchain-based assets. The price of blockchain-based assets has historically experienced significant volatility and fluctuations, which could materially impact the fair value of our portfolio and cause substantial variability and volatility in our reported earnings. The application of GAAP to crypto assets is evolving and remains subject to interpretation and possible changes, which could require retrospective adjustments or impact our financial statements in the future.

If investors view the value of our common stock as linked to our blockchain-based asset holdings, fluctuations in the value of these assets may significantly influence the market price of our common stock. A decline in our blockchain-based asset portfolio value could adversely affect the market price of our common stock and our financial results.

There can be no assurance that our blockchain-based asset acquisition strategy will achieve its intended financial or risk management objectives. We may incur unexpected losses, increased volatility in reported earnings, or adverse regulatory or accounting consequences as a result of this strategy.

A cyberattack or other malicious attack on the SKY Protocol could have a material impact on the value of SKY held by the Company.

SKY and other blockchain-based assets and the entities that provide services to participants in blockchain ecosystems 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 blockchain-based asset exchange and reportedly stole over $400.0 million in blockchain-based assets from customers. A successful security breach or cyberattack could result in:

Further, any actual or perceived data security breach or cybersecurity attack directed at other companies with blockchain-based assets or companies that operate blockchain-based asset networks, regardless of whether we are directly impacted, could lead to a general loss of confidence in the broader SKY ecosystem or in the use of the SKY network to conduct financial transactions, which could negatively impact us.

Attacks upon systems across a variety of industries, including industries related to SKY, are increasing in frequency, persistence, and sophistication, and, in many cases, are being conducted by sophisticated, well-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 blockchain-based 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, unauthorized parties could 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 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. The risk of cyberattacks could also be increased by cyberwarfare in connection with the ongoing Russia-Ukraine conflict and conflicts in the Middle East, including the Israel-Hamas conflict, or other future geopolitical conflicts, including potential proliferation of malware into systems unrelated to such conflicts. Any future breach of our operations or those of others in the SKY ecosystem, including third-party services on which we rely, could materially and adversely affect our financial condition and results of operations.

We face risks relating to the custody of our SKY tokens, including the loss or destruction of private keys required to access our SKY tokens and cyberattacks or other data loss relating thereto.

Certain blockchain-based digital assets, including SKY, rely on cryptographic private keys to control access and transferability. Although the Company utilizes institutional-grade custody solutions and security infrastructure, the loss, destruction, or compromise of private keys or related credentials could result in the permanent loss of access to digital assets, and such losses may not be recoverable through the underlying network or any third party. Similarly, if a holder’s private key is compromised, a cyber-attacker could potentially drain their assets, and there would be no recourse available through the SKY network.

We custody our digital tokens with qualified custodians to the extent possible and may also utilize institutional-grade wallet and security infrastructure that is not itself a qualified custodian from time to time to facilitate protocol participation, staking, governance, or other operational activities. In particular, certain protocol-level activities, including staking, are expected to require use of non-qualified custodial or non-custodial wallet infrastructure, which may expose the Company to additional operational and security risks. There can be no assurance that any custodian or cybersecurity tools that we may utilize in the future will not experience a cyberattack, operational failure, or other compromise of its systems.

Although certain custodians or service providers we engage generally maintain insurance coverage for certain types of losses and blockchain-based assets, there can be no assurance that such coverage will be sufficient to fully cover potential losses, that such coverage will be maintained in the future, or that such coverage will respond to all forms of loss or compromise. To the extent the private keys for the custodial wallet holding our blockchain-based assets are lost, destroyed, or otherwise compromised and no backup of the private key(s) is accessible, neither we nor our custodians will be able to access the assets held in the related digital wallet. Furthermore, digital wallets held on our behalf could be compromised as a result of a cyberattack, and blockchain-based assets and blockchain technologies have been, and may in the future continue to be, subject to security breaches, cyberattacks, or other malicious activities.

As of December 31, 2025, our agreements with our service providers, Kraken and Fireblocks, do not provide for insurance protections for our SKY holdings under their control. Additionally, we do not maintain separate insurance to cover our potential SKY losses. Therefore, our SKY holdings are subject to a particularly high risk of loss.

If the SKY network is disrupted or encounters any unanticipated difficulties, then the processing of transactions on the SKY network may be disrupted, which in turn may prevent us from depositing or withdrawing SKY from our accounts or otherwise effecting transactions of SKY. Such disruptions could include, for example: the price volatility of SKY; the insolvency, business failure, interruption, default, failure to perform, security breach or other problems of participants, custodians or others; the closing of trading platforms of SKY due to fraud, failures, security breaches or otherwise; or network outages or congestion, power outages or other problems or disruptions affecting the SKY network. Any disruption of the SKY network could materially impact the operation of decentralized finance on the network, resulting in the inability of the Company to transfer or sell SKY, and the price of SKY.

Decentralized finance arrangements may expose us to risks of smart contract risk, operational failures and cybersecurity threats.

From time to time, we may generate income through the use of blockchain-based assets including SKY or stablecoins in decentralized protocols including decentralized finance (“DeFi”) applications. DeFi applications include over-collateralized borrow-lend vaults, token-exchange pools, and other financial or commercial arrangements. Although these protocols are largely designed to limit counterparty risk in transactions, they introduce novel risks relating to software code bugs, liquidation risks, and governance risks. These protocols are designed to operate in decentralized environments but can be subject to failures or exploits. In addition: (a) network congestion or downtime can increase the likelihood of asset loss or liquidation; (b) the volatility of blockchain-based assets deployed into DeFi applications may increase the likelihood of liquidation due to market downturns, liquidity crises, governance attacks or other exploits, leading to substantial financial losses; (c) the uncertainty in the accounting treatment of certain DeFi applications; (d) DeFi applications generally operate on a user-to-protocol basis where a user of a DeFi application does not know the identity of other parties utilizing the DeFi application; and (e) the use of monitoring and forensics software to mitigate risks of engaging in DeFi applications may not prevent the Company from engaging in DeFi pools that are also used by bad actors or sanctioned persons.

As part of our token management strategy, we may engage in staking, re-staking, or other activities that may involve the use of “smart contracts” or decentralized applications. The use of smart contracts or decentralized applications entails certain risks including risks stemming from the existence of an “admin key” or coding flaws that could be exploited, potentially allowing a bad actor to issue or otherwise compromise the smart contract or decentralized application, potentially leading to a loss of our tokens. Like all software code, smart contracts are exposed to the risk that the code contains a bug or other security vulnerability, which can lead to loss of assets that are held on or transacted through the contract or decentralized application. Smart contracts and decentralized applications may contain bugs, security vulnerabilities, technical vulnerabilities, exploits, liquidation risks, governance risks, or poorly designed permission structures that could result in the irreversible loss of our blockchain-based assets. In addition, certain smart contracts are upgradable or subject to certain governance controls which could result in unforeseen code errors, asset or account freezing, or the loss of blockchain-based assets. A vulnerability in a smart contract could create an unintended and unforeseeable consequence that has adverse financial consequences, such as the loss of or inability to access funds. There is no assurance that the smart contracts we integrate with or rely upon will function as intended or remain secure. Exploitation of such vulnerabilities could have a material adverse effect on our business and financial condition.

Our SKY strategy exposes us to risk of non-performance by counterparties.

Our SKY 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 SKY, a loss of the opportunity to generate funds, or other losses.

Our primary counterparty risk with respect to our SKY is custodian performance obligations under the custody arrangements we have entered into. A series of relatively recent high-profile bankruptcies, closures, liquidations, regulatory enforcement actions and other events relating to companies operating in the blockchain-based asset industry, including the filings for bankruptcy protection by Three Arrows Capital, Celsius Network, Voyager Digital, FTX Trading and Genesis Global Capital, among others, 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 blockchain-based asset ownership and trading. Although these bankruptcies, closures and liquidations have not resulted in any loss or misappropriation of our SKY, nor have such events adversely impacted our access to our SKY, legal precedent created in these bankruptcy and other proceedings may increase the risk of future rulings adverse to our interests in the event one or more of our custodians becomes a debtor in a bankruptcy case or is the subject of other liquidation, insolvency or similar proceedings. Additional bankruptcies, closures, liquidations, regulatory enforcement actions or other events involving participants in the blockchain-based assets industry in the future may further negatively impact the adoption rate, price, and use of SKY, limit the availability to us of financing collateralized by SKY, or create or expose additional counterparty risks.

While our custodians are 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 SKY will not become part of the custodian’s insolvency estate if one or more of our custodians enters bankruptcy, receivership or similar insolvency proceedings. Additionally, if we pursue any strategies to create income streams or otherwise generate funds using our SKY holdings, we would become subject to additional counterparty risks. Any significant non-performance by counterparties, including in particular the custodians with which we custody substantially all of our SKY, could have a material adverse effect on our business, prospects, financial condition, and operating results.

Our ability to generate income from our blockchain-based asset holdings is subject to significant uncertainty, and revenue opportunities may not develop or may fail to perform as expected.

Overview

During 2025, we completed a comprehensive realignment of our business. As part of this realignment, we adopted a capital allocation approach focused on acquiring and holding economically productive digital assets that enable participation in open, decentralized financial networks, subject to applicable risk, liquidity, governance, and regulatory considerations. Our primary objective is to preserve stockholder value and, over time, seek opportunities to enhance value through disciplined participation in such networks. We also continue to maintain a limited legacy wound care business.

Pursuant to oversight by our Board of Directors and our Digital Asset Strategy Advisory Committee established by our Board of Directors, our core business consists of the accumulation, holding, and deployment of operating digital assets for use within blockchain-based networks to support protocol-level services, including staking, governance participation, validation, and related activities. These activities may generate protocol-defined incentives, rewards, or service-based fees in accordance with network rules and governance-approved parameters. Our initial focus is on SKY, the protocol token of the decentralized Sky Protocol.

The Company holds digital assets as part of a long-term capital allocation strategy and does not engage in short-term speculative trading, proprietary trading strategies, margin arrangements, or derivatives transactions referencing digital assets unless expressly authorized by the Digital Asset Strategy Advisory Committee and supported by appropriate risk management, compliance, and liquidity controls.

Separately, we maintain cash, cash equivalents, and short-duration investments outside of our digital asset strategy to meet near-term operating requirements and liquidity needs.

January 2026 Private Placement

Subsequent to December 31, 2025, we completed the January 2026 Placement, consisting of the issuance of pre-funded warrants to purchase an aggregate of 167,539,227 shares of common stock in exchange for approximately $25.0 million in cash, 35,000,000 USDT and 16,000,000 USDS stablecoins (with an aggregate value of approximately $51.0 million at the time of the placement), and 943,599,690 SKY tokens (with an aggregate value of approximately $61.4 million at the time of the placement). The value of the stablecoins and SKY tokens was determined based on their respective fair values as of the closing date of the private placement. The proceeds of the private placement were received to further support the Company’s capital allocation strategy.

The Company has not established a specific target allocation for SKY or other digital assets. Decisions regarding the pace, size, and timing of any acquisitions or dispositions are driven by prevailing market conditions, liquidity considerations, risk controls established by management, and oversight by the Digital Asset Strategy Advisory Committee and the Board of Directors.

Digital Asset Holdings – SKY

As of March 16, 2026, the Company held approximately 2.1 billion SKY tokens. SKY tokens are a network-native digital asset that may be held and transferred through blockchain-based wallets and may be exchanged on trading venues that support SKY trading pairs.

The Sky Protocol is a decentralized, non-custodial software protocol built around the USDS stablecoin and governed by Sky ecosystem participants through on-chain governance processes. The protocol is implemented through open-source smart contracts deployed on the Ethereum blockchain. The Sky Protocol includes two primary native tokens: USDS, a collateral-backed stablecoin designed to maintain a soft peg to the U.S. dollar, and SKY, the protocol token used in governance and certain protocol-level economic mechanisms.

The market price of SKY is determined by supply and demand across network-based markets and may be volatile. Prices may fluctuate due to factors including protocol changes, governance decisions, market sentiment, macroeconomic conditions, and broader digital asset market dynamics.

Custody and Safeguarding of Digital Assets

We safeguard our digital assets through a combination of third-party custodial services and internally controlled wallet infrastructure. A portion of our SKY is held in custody accounts with a regulated digital asset custodian that serves as custodian of record under applicable law.

We also utilize internally controlled wallet infrastructure to manage private keys and execute on-chain transactions, including staking and other protocol interactions. Digital assets held through this infrastructure are controlled by the Company rather than held in trust by a third-party custodian.

Digital assets maintained outside of custodial accounts are generally limited to amounts necessary to facilitate protocol participation and transactional activity and are subject to internal controls designed to mitigate loss.

Governmental, Regulatory, and Accounting Considerations

The regulatory framework applicable to blockchain-based networks and digital assets continues to evolve in the United States and internationally. Regulatory developments affecting trading venues, custodians, or service providers may impact access, liquidity, or pricing of digital assets held by the Company. We monitor regulatory developments and adjust our policies, counterparties, and controls as appropriate.

Digital assets held by the Company will be subject to evolving accounting standards, and changes in market value and protocol participation may result in volatility in the Company’s financial results.

As part of the comprehensive realignment of our business during 2024 and 2025, we completed the Avenova Asset Divestiture, the PhaseOne Divestiture, and the DERMAdoctor Divestiture, and decided to exit our involvement in the China NeutroPhase product line. The historical financial results of these businesses are reflected as discontinued operations in the Consolidated Financial Statements included in this annual report. See Notes 13, “Avenova Asset Divestiture and Bridge Loan,” 14 “PhaseOne Divestiture”, 15, “DERMAdoctor Divestiture” and 16, “Summary of Discontinued Operations” to the Consolidated Financial Statements in Part II, Item 8 of this annual report for additional details.

Based on funds available as of December 31, 2025, aggregate gross cash proceeds of approximately $25.0 million from the January 2026 Private Placement, net cash generated from the conversion of the stablecoins received in the January 2026 Private Placement into U.S. dollars, and $13.5 million in gross cash proceeds from issuances under the 2026 ATM Program between January 20, 2026 and March 16, 2026, management believes that the Company’s existing cash and cash equivalents will be sufficient to fund its planned operating expenses at least through March 19, 2027.

All of the stablecoins received in the January 2026 Private Placement were converted into U.S. dollars to support operating liquidity, and a significant portion was deployed to acquire additional SKY tokens. Subsequent to the January 2026 Private Placement and through March 16, 2026, the Company deployed approximately $70.7 million in cash to acquire approximately 1.1 billion SKY tokens.

The fair value of warrant liabilities is determined in accordance with ASC 820 using valuation techniques that are appropriate based on the specific terms and economic characteristics of each warrant instrument. Depending on the nature of the warrants, valuation techniques may include option pricing models, such as the Black-Scholes option pricing model, or intrinsic value calculations.

Warrants that contain nominal exercise prices are economically similar to common stock, and do not require assumptions related to volatility, expected term, or other option-pricing inputs are generally measured based on intrinsic value, calculated as the excess of the Company’s common stock price over the exercise price, multiplied by the number of warrant shares outstanding. Other warrant instruments may require the use of option pricing models that incorporate assumptions such as expected volatility, risk-free interest rates, expected term, and dividend yield.

The determination of the appropriate valuation technique and the related assumptions requires significant judgment. Changes in the Company’s stock price, volatility, or other valuation inputs could materially affect the recorded fair value of warrant liabilities and the related non-cash gains or losses recognized in the Consolidated Statements of Operations. See additional information in Note 9, “Common Stock Warrants and Warrant Liabilities” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this annual report.

Impairment of Assets

We review long-lived assets for impairment at least annually or whenever events or changes in business circumstances indicate that any such asset may be impaired, that the carrying amount of any such asset may not be fully recoverable or that the useful life of the asset, if applicable, is no longer appropriate. Management uses judgment in making critical assumptions and estimates in determining when an impairment assessment should be recorded, if more frequent than annually, or in the completion of any such assessment. This includes cash flow projections that look several years into the future and assumptions on variables such as economic conditions, probability of success, and discount rates. Changes in judgments with respect to these assumptions and estimates could impact any such impairments recorded during 2025 as further described in Notes 2, “Summary of Significant Accounting Policies;” and 6, “Commitments and Contingencies” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this annual report.

Digital Assets

The Company did not hold any digital assets as of and during the years ended December 31, 2025 and 2024. Subsequent to December 31, 2025, in January 2026, the Company entered into the January 2026 Private Placement pursuant to which it received digital assets, including stablecoins and SKY tokens, and subsequently engaged in purchases and sales of such digital assets.

Digital assets acquired in connection with the January 2026 Private Placement and subsequent transactions will be accounted for in accordance with applicable U.S. GAAP and other authoritative accounting guidance in effect at the time, including Accounting Standards Update No. 2023-08, Accounting for and Disclosure of Crypto Assets, which established Subtopic 350-60 within ASC 350, Intangibles—Goodwill and Other, where applicable. Depending on the nature of the digital assets held and the Company’s specific facts and circumstances—including the Company’s activities (such as staking or other yield-generating activities), the contractual terms of related arrangements, and the Company’s relationships with counterparties—the Company may apply different accounting models. Such models could include digital assets held at fair value with changes in fair value recognized in earnings under applicable crypto-asset guidance or, if such guidance is not applicable, accounting under other relevant U.S. GAAP models, including accounting for certain digital assets as indefinite-lived intangible assets measured at historical cost and evaluated for impairment. The applicable accounting framework may differ depending on the specific facts and circumstances, and the resulting classification, measurement, and presentation could materially affect the Company’s financial position and results of operations, including potential variability in reported results.

Financial results related to divested assets from the Avenova Asset Divestiture and the PhaseOne Divestiture and the China NeutroPhase product line for the years ended December 31, 2025 and 2024 and from the DERMAdoctor Divestiture for the year ended December 31, 2024 have been aggregated and reported for each of these periods in the line item titled “Net income from discontinued operations, net of taxes” in the table above. Prior-period amounts have been revised to correct the presentation of the loss on the DERMAdoctor Divestiture and related divestiture proceeds, which were previously presented within continuing operations and are now reflected within discontinued operations. This revision did not affect total net loss, total net loss per share, total cash flows, or the Company’s financial position. See additional information in Notes 13, “Avenova Asset Divestiture and Bridge Loan;” 14, “PhaseOne Divestiture”, 15, “DERMAdoctor Divestiture” and 16, “Summary of Discontinued Operations” in Notes to the Consolidated Financial Statements in Part II, Item 8 of this annual report for additional details regarding these financial results for the periods presented. The discussions below and throughout this section apply only to results from our continuing operations except as otherwise noted.

General and administrative expenses increased $0.2 million, or 3%, to $7.6 million for the year ended December 31, 2025, from $7.4 million for the year ended December 31, 2024. The increase was due primarily to higher legal costs associated with non-recurring strategic initiatives during the year ended December 31, 2025.

Impairment of Long-Lived Assets

Potential conflicts of interest

A substantial portion of the Chief Executive Officer's potential compensation under the CEO PSU awards is tied to the growth of the Company's Digital Asset NAV, which is affected by the Company's decisions to acquire, hold, stake, or dispose of digital assets. The CEO PSU awards were designed and approved by the Compensation Committee of the Board of Directors, which is composed entirely of independent directors. In addition, the Purchasers in the January 2026 Private Placement hold consent rights over any material amendment, modification, addition, or revocation of the Company's digital asset strategy. As a result, that strategy cannot be changed without the consent of such Purchasers and cannot be directed unilaterally by the Chief Executive Officer; within that Board- and Committee-approved strategy, the Company retains discretion over individual acquisitions, dispositions, and staking of digital assets. The VWAP RSU tranche vests only upon the Company's stock price increasing from approximately $1.05 (the closing price on June 30, 2026) to at least $1.70 per share, an increase of approximately 62%, and the NAV RSU tranche vests only upon Digital Asset NAV increasing from $119.2 million to at least $250.0 million, an increase of approximately 110%. See Note 12 and Note 15 to the unaudited condensed consolidated financial statements for additional information.

Second Quarter 2026 Highlights

During the three months ended June 30, 2026, the Company completed several significant corporate actions that advanced its digital asset treasury strategy and simplified its capital structure. On June 12, 2026, the Company agreed with R01, and on June 15, 2026, the Company agreed with Framework, to amend their respective October 2025 Pre-Funded Warrants to remove certain restrictions on exercisability. Following such amendments, on June 15, 2026, each of R01 and Framework exercised on a cashless basis all outstanding October 2025 Pre-Funded Warrants, with each receiving 11,307,300 net shares of common stock (22,614,600 shares in the aggregate). This exercise eliminated the Company’s remaining warrant liability, completing a capital structure simplification process that began with the reclassification of the January 2026 Pre-Funded Warrants to stockholders’ equity upon stockholder approval on March 12, 2026. The October 2025 Pre-Funded Warrants had been classified as a liability under ASC 815 since their issuance in October 2025 due to certain anti-dilution provisions. While the October 2025 Pre-Funded Warrants were outstanding, they generated significant non-cash gains and losses from fair value remeasurement, which materially affected reported net income but did not impact the Company’s cash flows or operations. With the exercise of the October 2025 Pre-Funded Warrants, the Company’s future reported results will no longer include non-cash warrant fair value adjustments, which should improve the comparability of results across periods and better reflects the Company’s underlying operating performance.

The Company continued its acquisition of SKY tokens on the open market during the three months ended June 30, 2026, using proceeds from the ATM Program and available cash. The Company continued to stake substantially all of its SKY holdings within the Sky Protocol during the quarter, earning staking revenue of $2.2 million from protocol rewards. Staking rewards are determined by Sky Protocol governance parameters and represent a share of protocol-level revenues generated from USDS stablecoin issuance, collateralized lending, and other on-chain financial services.

Effective June 30, 2026, the Company terminated its office lease in Emeryville, California, and effective July 1, 2026, relocated its principal executive offices to 222 Lakeview Ave, Suite 800, West Palm Beach, Florida 33401. The relocation eliminates the Company’s legacy operating lease obligation and reduces its fixed cost base, aligning the Company’s physical presence with its digital asset-focused operations. A loss on lease termination of approximately $47 thousand was recorded during the three months ended June 30, 2026. As of June 30, 2026, the Company had no remaining lease obligations.

The Company continued to access its ATM Program during the three months ended June 30, 2026 to fund SKY token acquisitions. The ATM Program provides the Company with flexible, low-cost access to equity capital at prevailing market prices and remains the Company’s primary tool for funding digital asset purchases. During the six months ended June 30, 2026, the Company sold 2,693,853 shares of common stock under the ATM Program for aggregate net proceeds of approximately $15.2 million. As of June 30, 2026, approximately $84.5 million of common stock remained available for issuance under the ATM Program.

As of July 27, 2026, the Company's non-affiliate public float was below the $75 million threshold under General Instruction I.B.1 to Form S-3, although the Company believes it remains eligible to register offerings on Form S-3 in reliance on General Instruction I.B.6. The Company's Sales Agreement and related prospectus supplement for the ATM Program were filed on January 20, 2026, at which time the Company met the General Instruction I.B.1 public float requirement. On March 19, 2026, the staff of the SEC's Division of Corporation Finance issued Corporation Finance Interpretation Question 116.26, under which the Staff stated it would not object to an issuer continuing to offer and sell the full amount of securities covered by a prospectus supplement filed while I.B.1-eligible, notwithstanding a subsequent decline in public float below $75 million. In reliance on this interpretation, the Company believes it may continue to sell the remaining amount registered under the ATM Program.

The Company’s digital assets are measured at fair value on a recurring basis using the quoted price in the Company’s principal market (Coinbase Exchange, for SKY tokens) as of the measurement date. The determination of the principal market requires judgment and considers factors including the Company’s ability to transact in the market, observed trading volume and liquidity, pricing transparency and operational constraints. Changes in market conditions or the Company’s assessment of its principal market could affect the fair value measurements. The fair value of the Company’s SKY token holdings is subject to significant volatility due to the nature of digital asset markets. As of June 30, 2026, the Company held SKY tokens with a fair value of $119.2 million, representing approximately 94% of total assets. See Note 5, “Digital Assets,” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report for additional information.

As the Company’s digital asset operations mature, management expects the composition of general and administrative expenses to continue shifting toward costs associated with digital asset custody and infrastructure, cybersecurity, regulatory compliance, and specialized legal and accounting services required for digital asset operations. The Company expects these operational cost categories to represent an increasing proportion of its operating cost base relative to legacy transformation-related expenditures, which are substantially complete.

Adjustments to the fair value of warrant liabilities resulted in a gain of $9.3 million for the three months ended June 30, 2026 with no comparable adjustment for the three months ended June 30, 2025. This gain related to the October 2025 Pre-Funded Warrants, which were initially classified as liabilities and recorded at fair value at each reporting date. The October 2025 Pre-Funded Warrants remained classified as a liability because they were not considered indexed to the Company's own stock under ASC 815, as a result of certain anti-dilution provisions. On June 12, 2026 and June 15, 2026, the October 2025 Pre-Funded Warrants were modified, and all outstanding October 2025 Pre-Funded Warrants were exercised in full on a cashless basis on June 15, 2026. In connection with the amendments, the October 2025 Pre-Funded Warrants were remeasured at intrinsic value immediately prior to exercise, consistent with the Company's existing quarterly measurement policy for these warrants; the resulting change in fair value was not attributable to the terms of the amendments themselves. Accordingly, there were no warrant liabilities outstanding as of June 30, 2026. For additional information regarding warrant liabilities and their valuation, please see Note 3, “Fair Value Measurements” and Note 10, “Common Stock Warrants and Warrant Liabilities” in the Notes to Unaudited Condensed Consolidated Financial Statements, (unaudited) in Part I, Item 1 of this report.

There was no other expense, net for the three months ended June 30, 2026, compared to $73 thousand for the three months ended June 30, 2025. The 2025 amount consisted of interest expenses related to the unsecured convertible notes, for which there was no comparable expense in the 2026 period.

Comparison of the Six Months Ended June 30, 2026 and 2025 (dollars in thousands)

Impact of Divestitures

Financial results related to divested assets from the Avenova Asset Divestiture and the PhaseOne Divestiture for the six months ended June 30, 2025 have been aggregated and reported for each of these periods in the line item titled “Net income (loss) from discontinued operations, net of taxes” in the table above. See additional information in Note 13, “Divestitures,” in the Notes to the Unaudited Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report for additional details regarding these financial results for the periods presented. The discussions below and throughout this section apply only to results from our continuing operations except as otherwise noted.

Staking Revenue

Staking revenue was $4.7 million for the six months ended June 30, 2026, compared to no staking revenue for the six months ended June 30, 2025. Staking revenue is attributable to staking rewards earned on the Company's SKY token holdings during the period, with no comparable result for the six months ended June 30, 2025, as the Company did not hold digital assets or conduct staking activities during the prior year period. The Company received 67,132,900 SKY tokens for staking rewards during the six months ended June 30, 2026.

The Company recognized an unrealized loss on digital assets of $28.0 million for the six months ended June 30, 2026, with no comparable result for the six months ended June 30, 2025, as the Company did not hold digital assets during the prior year period. The unrealized loss represents the excess of the aggregate cost basis at which the Company's SKY token holdings were initially recognized during the period over the fair value of those holdings at June 30, 2026. SKY tokens are measured at fair value at each reporting date, with changes in fair value recognized in earnings. The fair value of digital assets may be subject to significant volatility, and the Company expects that changes in the fair value of its SKY token holdings will continue to result in unrealized gains or losses in future periods, which may have a material impact on the Company's results of operations. For additional information, see Note 5, “Digital Assets,” in the Notes to Unaudited Condensed Consolidated Financial Statements (unaudited), in Part I, Item 1 of this report.

General and administrative expenses were $8.3 million for the six months ended June 30, 2026, compared to $4.6 million for the six months ended June 30, 2025, an increase of approximately $3.7 million or 80%. The increase was primarily attributable to an increase in compensation expense and director and officer liability insurance costs, both associated with the Company's continued transformation into a digital asset treasury company. Expenses for the six months ended June 30, 2026 also included public company costs such as legal and professional services. By comparison, expenses for the six months ended June 30, 2025 consisted primarily of outside services costs related to non-recurring strategic initiatives, including the Avenova Asset Divestiture and the pursuit of a potential dissolution as a strategic option for the Company, as well as one-time severance costs relating to the departure of employees in connection with completing the Avenova Asset Divestiture.