Note 6 - Intangible Asset

In connection with the TLDA described in Note 10 - Revenue Recognition - Manako Technology License and Distribution Agreement, on the Commercial Commencement Date, the Company issued Manako a warrant to purchase up to 100,000 shares of the Company’s common stock at an exercise price of $3.41 per share, exercisable at any time through November 29, 2027 (the “Closing Warrant”). The Closing Warrant was issued to Manako, a non-employee business counterparty, in exchange for TaoWeave’s designation as Manako’s preferred commercialization partner in the Territory and the associated distribution and business-referral rights under the TLDA, rather than for cash. The Company evaluated the Closing Warrant under the indexation and equity-classification guidance in ASC 815-40-15 and 815-40-25 and concluded it is equity-classified: it is settleable in a fixed number of shares for a fixed exercise price (subject only to customary anti-dilution adjustments that do not preclude equity classification), is subject to a 9.99% beneficial ownership blocker, and the Company is not required to net-cash-settle the warrant.

Because the award was issued to a non-employee in exchange for rights received rather than for cash, the Company measured the Closing Warrant at its grant-date fair value under ASC 718-10 (as amended by ASU 2018-07), using the Black-Scholes option-pricing model with the following assumptions: TaoWeave’s quoted closing stock price of $1.36 on May 29, 2026; an exercise price of $3.41; a contractual term through November 29, 2027; expected volatility of 142.8%; a risk-free interest rate of 3.89%; and no expected dividends. The resulting grant-date fair value of $60,000 was capitalized as an intangible asset, “Commercialization and Licensing Rights,” because it represents consideration for an identifiable, multi-period contractual right — preferred-partner status, referral and market-development-fee rights, and license rights extending through the Initial Term and any Renewal Terms of the TLDA — rather than for day-one goods or services.

Management's best estimate of the useful life of this intangible asset is three years, and the asset will be amortized on a straight-line basis. Amortization began in June 2026 and is recorded within general and administrative expense on its Condensed Consolidated Statement of Operations.

Amortization expense was $2,000 for the period ended June 30, 2026. Based on the carrying amount as of June 30, 2026, the Company expects to record future amortization expense of approximately $10,000 for the remainder of 2026, $20,000 for each of the years ending December 31, 2027, 2028, and $9,000 for the year ended December 31, 2029, and will reassess the asset for impairment if events or circumstances indicate its carrying amount may not be recoverable, including in the event of a Subnet Disruption Event (as defined and discussed in Note 10 - Revenue Recognition - Manako Technology License and Distribution Agreement) or termination of the TLDA.

Contingent Tranche A and Tranche B warrants. The TLDA also contemplates the issuance of up to 200,000 additional warrants to Manako — 100,000 at a $4.50 exercise price (“Tranche A”) and 100,000 at a $5.50 exercise price (“Tranche B”) — in consideration for Manako’s advisory support of a potential future Company-operated Bittensor subnet. Under ASC 718-10-25-5 through 25-19, a grant date does not occur until there is a mutual understanding of the key terms of an award and the recipient’s compensation begins to be affected by changes in the issuer’s stock price. Because the scope of Manako’s advisory services remains to be defined in a statement of work that has not yet been executed, and because the Company retains sole discretion over whether to pursue the underlying subnet initiative at all, the Company concluded that no grant date had occurred for the Tranche A or Tranche B warrants as of June 30, 2026. Accordingly, no compensation cost or equity has been recognized for these contingent warrants. The Company will reassess this conclusion each reporting period and will recognize the awards at fair value beginning when a statement of work is executed, and the ASC 718 grant-date criteria are satisfied.