Note 3 - Digital Assets

The Company's Cryptocurrency Asset Strategy

The Company's current primary activity is accumulating and staking TAO, and the Company allocates substantial portions of its available cash to purchase TAO with the goal of maximizing TAO holdings per outstanding common share. As of June 30, 2026 and December 31, 2025, approximately 69% and 66% of the Company's total assets (including cash) were held in TAO, respectively. The Company intends to continue allocating substantial portions of its excess cash to TAO without a formal cap on the percentage of assets invested in TAO.

The Company does not hedge its TAO exposure and does not hold any other digital assets. All TAO is staked as soon as trade settlement permits, and the Company currently spreads staking across both BitGo Trust Company, Inc. ("BitGo") and the Kraken exchange ("Kraken", and together with BitGo, the "TAO Custodians").

Digital assets are measured at their fair market value using the last close price of the day in the UTC time zone at the end of each reporting period. The unrealized gains and losses resulting from remeasurement of digital assets are recorded in other income on the Condensed Consolidated Statement of Operations.

The Company recorded net unrealized losses of $2,295,000 and $97,000 for the three and six months ended June 30, 2026, respectively. The Company recorded an unrealized net gain of $31,000 for the three and six months ended June 30, 2025. These gains and losses are recorded in other (expense) income on the Condensed Consolidated Statement of Operations.

As of June 30, 2026, the Company held 23,335.18 TAO tokens with an approximate fair value of $4,709,000. 

The Company's Staking Program

As holders of TAO tokens, the Company can stake any amount of the liquidity it holds to a validator. The Company stakes substantially all of its TAO through its TAO Custodians, who delegate the Company's tokens to validators on the Bittensor network. Also known as “delegation”, staking supports validators because their total stake in the subnet, including stake delegated to them by others, determines their consensus power and their share of emissions. In exchange for the Company's staked TAO supporting a validator’s operations, the Company receives a proportional share of the TAO rewards earned by that validator, net of the validator’s commission (commonly referred to as the validator’s “take”). Rewards are calculated in proportion to the Company's staked digital assets relative to the total staked by all delegators to the node at that time, and distributed directly to the Company's digital wallets in the validator node's native token (TAO) by the network as part of its consensus mechanism. The Company records these rewards as revenue in its Condensed Consolidated Statement of Operations.

As of June 30, 2026 and December 31, 2025, all of the Company's TAO token holdings were staked. The Bittensor protocol does not impose lock-up periods or unbonding delays; as of June 30, 2026, all of the Company's staked TAO could be unstaked and transferred without protocol-enforced waiting periods. The Company does not currently engage in direct subnet mining or validation, but may explore such activities in the future.

Staking yields are variable and depend on several factors, including validator performance, total network stake, and the dynamics of the specific subnets to which the Company's TAO is delegated. The following tables summarize the Company's staking rewards for the three and six months ended June 30, 2026, and 2025 (in thousands except for tokens):

The Company's cost of revenue for digital assets consists of custodian fees and advisor fees on its staked digital assets. For the three and six months ended June 30, 2026, the Company recorded cost of revenue of $6,000 and $12,000, related to digital asset staking, respectively, resulting in gross profits of $99,000 and $179,000, respectively, or 94% for both periods. The following table summarizes the Company's cost of revenue for the three and six months ended June 30, 2026, and 2025 (in thousands):

During the three and six months ended June 30, 2026, the Company purchased 1,900.00 TAO tokens for $506,000.

During the three and six months ended June 30, 2026, the Company sold 2,502.23 and 3,959.23 tokens for cash proceeds of $650,000 and $1,172,000, respectively. The Company recognized realized losses on the sale of TAO tokens of $166,000 and $114,000 for the three and six months ended June 30, 2026, respectively. These losses are recorded in other (expense) income on the Condensed Consolidated Statement of Operations.

The following tables summarize disposition activity for the three and six months ended June 30, 2026 (in thousands except for tokens):

The following table summarizes the Company's digital asset activity for the year ended December 31, 2025, and the three and six months ended June 30, 2026. The fair value is presented as of  June 30, 2026 (in thousands except for tokens):