Note 10. Convertible notes

2025 Convertible Notes

On May 30, 2025, the Company entered into a Securities Purchase Agreement for up to an aggregate of $500 million in newly issued senior secured convertible notes (the “2025 Convertible Notes”). The Purchase Agreement provides for an initial closing of $11 million of convertible notes, subject to customary closing conditions. The Company has agreed, subject to certain exceptions contained in the Purchase Agreement, to use 80% of the net proceeds from the notes to purchase certain cryptocurrency as set forth in the Purchase Agreement.

The Notes will be convertible into Class B common stock of the Company at the option of the holder at an initial conversion price equal to 200% of the closing price of the Common Stock on the trading day immediately prior to the closing date, subject to adjustment as provided for in the Notes. Interest is payable under the notes at a rate of 7% per annum and is payable, quarterly, at the option of the Company in cash, through the issuance of additional notes or, under certain situations, through the issuance of shares of Common Stock. The Notes will rank senior to all outstanding and future indebtedness of the Company and its subsidiaries (subject to certain exceptions contained in the notes) and will be secured by a first priority perfected security interest in all of the existing and future assets of the Company and its direct and indirect subsidiaries, including all of the capital stock of each of the subsidiaries and the cryptocurrency purchased with the proceeds of the Notes. The Notes are due on the two-year anniversary of the date of issuance unless earlier converted or repaid.

First Convertible Notes Amendment

On May 28, 2026, the Company entered into the First Amendment to the Securities Purchase Agreement, which modified certain provisions of the Purchase Agreement and the form of the senior secured convertible notes. The amendment, among other things: 1) revised the use of proceeds for future Additional Closings to require proceeds to be deposited into the Control Account until the Company satisfies the Available Cash Test, after which remaining proceeds may be used for working capital or capital expenditures related to AI operations; 2) revised the Available Cash Test and certain definitions, including Permitted Indebtedness and Permitted Liens; 3) replaced the form of the Additional Notes with an amended form of Senior Secured Convertible Note; and 4) permitted the Company to continue its at-the-market equity program and ChEF Purchase Agreement subject to specified limitations.

In connection with the amendment, the Company completed an Additional Closing on May 28, 2026 and issued an additional Senior Secured Convertible Note with an aggregate principal amount of $600,000. The additional note bears interest at 7% per annum, matures two years from issuance, and is governed by substantially the same terms as amended under the Purchase Agreement.

Description of 2025 Convertible Note upon issuance:

During the fourth quarter ended December 31, 2025, the Company converted an aggregate principal amount of $3,225,000 of convertible notes into equity securities in accordance with the terms of the note agreements. Upon conversion, $2,000,000 of the notes were converted into 2,000 shares of Series C Preferred Stock, and $1,225,000 of the notes were converted into 5,355 shares of Class B Common Stock (reflecting the March 2026 50-for-1 reverse stock split and the June 2026 10-for-1 reverse stock spilt 2,675,975 shares on a pre-split basis). The Company had elected the fair value option for the convertible notes in accordance with ASC 825-10, Financial Instruments. Accordingly, the convertible notes were measured at fair value at each reporting date, with changes in fair value recognized in earnings. At the conversion date, the equity instruments issued were measured based on the quoted market price of the Company’s common stock on the conversion date. The fair value of the Series C Preferred Stock and Class B Common Stock issued upon conversion was $2,109,774 and $1,496,183, respectively.

During the three months ended March 31, 2026, the Company converted an aggregate principal amount of $2,742,500 of convertible notes into equity securities in accordance with the terms of the note agreements. Upon conversion, $2,742,500 of the notes were converted into 52,995 shares of Class B Common Stock (reflecting the March 2026 50-for-1 reverse stock split and the June 2026 10-for-1 reverse stock spilt; 26,487,424 shares on a pre-split basis). The fair value of the Class B Common Stock issued upon conversion was $3,899,856.

During the three months ended June 30, 2026, the Company converted an aggregate principal amount of $5,032,500 of convertible notes into equity securities in accordance with the terms of the note agreements. Upon conversion, $5,032,500 of the notes were converted into 534,688 shares of Class B Common Stock (reflecting the June 2026 10-for-1 reverse stock split; 5,346,878 shares on a pre-split basis). The fair value of the Class B Common Stock issued upon conversion was $5,559,579.

The Company had elected the fair value option for the convertible notes in accordance with ASC 825-10, Financial Instruments. Accordingly, the convertible notes were measured at fair value at each reporting date, with changes in fair value recognized in earnings. At the conversion date, the equity instruments issued were measured based on the quoted market price of the Company’s common stock on the conversion date.

Immediately prior to conversion, the carrying value of the convertible notes approximated their fair value. As a result, the derecognition of the convertible notes and issuance of equity securities did not result in a material gain or loss upon conversion. The carrying value of the notes was reclassified to equity upon issuance of the shares.

The Company elected the fair value option (“FVO”) under ASC 825 for its senior secured convertible notes. Accordingly, the convertible notes are measured at fair value at each reporting date, with changes in fair value recognized in earnings within other income (expense), net.

The fair value of the convertible notes was estimated using a lattice (binomial tree) model, which captures the hybrid nature of the instrument, including the embedded conversion feature, issuer redemption option, payment-in-kind (“PIK”) interest accretion, floor-price reset provisions, and contractual call premiums. The valuation incorporates market participant assumptions consistent with ASC 820 and is classified within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs. As of June 30, 2026 and December 31, 2025, the aggregate contractual principal amount of the convertible notes was $600,000 and $7,775,000.

Level 3 Quantitative Inputs

The significant inputs used in the valuation as of June 30, 2026 and December 31, 2025 were as follows:

The Company applied a contractual floor conversion price of $0.74 per share, as the market-price reset formula would otherwise have resulted in a lower conversion price based on 95% of the lowest six-day VWAP. The Company did not separately isolate the portion of the fair value change attributable to instrument-specific credit risk. The fair value measurement primarily reflects changes in the Company’s stock price, expected volatility, time to maturity, collateral coverage triggers, conversion reset provisions, and other market-based factors. No separate credit spread or own-credit adjustment was applied in the valuation model. The fair value of the convertible notes is sensitive to changes in expected volatility, which represents a significant unobservable input.

Based on the sensitivity analysis performed as of December 31, 2025, a hypothetical 10% increase in expected volatility would have decreased the fair value by approximately $220,805, while a 10% decrease would have decreased the fair value adjustment to approximately $44,519, with all other assumptions held constant. Based on the sensitivity analysis performed as of June 30, 2026, increasing the expected volatility from the base assumption of 161% to 200% would not have a material impact on the estimated fair value of the convertible note. Decreasing expected volatility to 132% likewise would not materially affect the estimated fair value. A further decrease in expected volatility to 115%, 100%, and 90% would increase the estimated fair value by approximately $197, $6,950, and $7,544, respectively, with all other assumptions held constant.

The following table summarizes the changes in the fair value of the Company’s convertible notes classified within Level 3 of the fair value hierarchy: