NOTE 12 – FAIR VALUE MEASUREMENTS

The Company measures certain financial instruments at fair value on a recurring basis in accordance with ASC 820, Fair Value Measurement. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to tangible property and equipment, goodwill and other intangible assets, which are remeasured when the derived fair value is below carrying value in the Consolidated Balance Sheets. For these assets, the Company does not periodically adjust carrying value to fair value except in the event of impairment. If it is determined that impairment has occurred, the carrying value of the asset is reduced to fair value and the difference is included in impairments and other charges, net in the Consolidated Statements of Operations.

Nonrecurring Level 3 Fair Value Measurements

Assets that are measured at fair value and classified as level 3 on a nonrecurring basis are as follows (in thousands):

 SUMMARY OF ASSETS MEASURED AT FAIR VALUE ON NONRECURRING BASIS

All such assets were measured at fair value at the acquisition date in connection with the acquisition of Streamex Exchange.

The significant unobservable inputs used in our level 3 fair value measurements during the year ended December 31, 2025 are as follows:

 SUMMARY OF UNOBSERVABLE INPUTS

Exchangeable Shares – Derivative Liability (Level 3) and Reclassification to Equity

In connection with the acquisition of Streamex Exchange on May 28, 2025, Streamex Corp. issued 109,070,039 Exchangeable Shares through its wholly-owned subsidiary, ExchangeCo, as purchase consideration. The Exchangeable Shares are convertible into the Company’s common stock on a 1:1 basis, subject to a 1.25:1 adjustment if shareholder approval was not obtained within six months. As of the acquisition date, the Exchangeable Shares were not exchangeable into more than 19.9% of the Company’s outstanding common stock, pending shareholder approval, and therefore were classified as a derivative liability and measured at fair value.

At initial recognition, the Company estimated the fair value of the Exchangeable Shares derivative liability using a discounted cash flow method and a market capitalization reconciliation, which incorporated significant unobservable inputs including: a discount rate of 40.0%, terminal growth rate of 3.0%, capitalization rate of 37.0%, revenue growth rate of 53% average annual growth through FY2030 (3% thereafter), expense rate of approximately 16% to 26% of tokenization revenue, capital expenditure rate of 1% of revenue, and income tax rate of 26%. The resulting fair value conclusion was $105.5 million.

On November 4, 2025, the Company obtained shareholder approval, which removed the conversion cap and allowed holders to exchange the Exchangeable Shares into the Company’s common stock in accordance with the exchange rights. Upon satisfaction of the shareholder approval condition and removal of the NASDAQ 19.99% limitation, the Exchangeable Shares no longer contained an exercise contingency that precluded equity classification. Accordingly, on November 4, 2025, the Company reclassified the derivative liability associated with the Exchangeable Shares to permanent equity. After reclassification, the Exchangeable Shares are no longer remeasured at fair value through earnings. Upon shareholder approval on November 4, 2025, observable market information became available, and the Company’s valuation approach incorporated Level 1 inputs based on the Company’s publicly traded share price as of that date. Refer to Note 7, Stockholder Equity, Note 11, Business Acquisition, and Note 12, Fair Value Measurements for more information. For an overview of the Company’s derivative financial instruments and related disclosures required by ASC 815, see Note 17, Derivative Financial Instruments and Hedging Activities.

The Company recognized a non-cash loss of approximately $389.7 million during the year ended December 31, 2025 related to changes in the fair value of warrant derivative liabilities prior to their reclassification to equity on November 4, 2025.

Rollforward of Exchangeable Shares Derivative Liability (Level 3) (in thousands):

 SUMMARY OF FAIR VALUE MEASUREMENTS DERIVATIVE LIABILITY

Derivative Liabilities – Recurring Fair Value Measurements (Embedded Conversion Options)

The embedded conversion options associated with the Company’s secured convertible debentures were bifurcated and accounted for as derivative liabilities under ASC 815. The derivative liabilities were measured at fair value upon issuance of each debenture tranche (November 4, 2025 and December 17, 2025) and subsequently remeasured at fair value on a recurring basis. See Note 15.

The Company estimated the fair value of the embedded conversion options using a Monte Carlo simulation model within a “with-and-without” framework, which isolates the value of the holder’s conversion option by comparing the fair value of the debentures with and without the embedded conversion feature. The Monte Carlo model was designed to capture the path-dependent and non-linear features of the conversion option, including variable conversion pricing, contractual floor prices, amortization mechanics, optional prepayment features, and management’s expectations regarding conversion and repayment behavior. Because the valuation utilized significant unobservable inputs, the derivative liabilities were classified as Level 3 within the fair value hierarchy.

Significant unobservable inputs used in the Level 3 valuations were as follows:

 SCHEDULE OF UNOBSERVABLE INPUT

The December 31, 2025 valuation incorporated management’s assessment that optional prepayment was the most likely outcome and weighted prepayment and non-prepayment scenarios accordingly. Registration-dependent conversion scenarios were assigned a zero probability, as registration effectiveness was not expected.

The fair value of the derivative liabilities is most sensitive to changes in the Company’s stock price, expected volatility, and assumptions regarding the timing and likelihood of prepayment. An increase in expected volatility or stock price would generally increase the fair value of the derivative liability, while an increase in the probability of early prepayment would generally decrease the fair value. Due to the path-dependent nature of the valuation, quantitative sensitivity analyses are not presented.

Changes in the fair value of the derivative liabilities were recognized in earnings and included in “Other (income) expense” in the Consolidated Statements of Operations.

Rollforward of Level 3 Recurring Fair Value Measurements – Embedded Derivative Liabilities (in thousands):

 SUMMARY OF FAIR VALUE MEASUREMENTS EMBEDDED DERIVATIVE LIABILITY

Investment in Empress Royalty Corp.

The Company’s investment in Empress Royalty Corp. is measured at fair value each reporting period based on quoted market prices in active markets. This represents a Level 1 measurement within the fair value hierarchy. The fair value is based on quoted prices on the TSX Venture Exchange (principal market), translated into U.S. dollars using the spot exchange rate at the measurement date.

For the period ended December 31, 2025, the Company recognized a loss of $0.7 million resulting from changes in the fair value of the Empress investment, which is included in “Other (income) expense” in the Consolidated Statements of Operations.

Recurring Fair Value Measurements

The following table presents information about the Company’s financial instruments measured at fair value on a recurring basis as of December 31, 2025 (in thousands):

 SUMMARY OF RECURRING FAIR VALUE MEASUREMENTS