Note 4 — Fair Value Measurements and Other Liabilities

Fair Value Measurements

Fair value is the price that would be received for an asset or the amount paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company classified certain liabilities based on the following fair value hierarchy:

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company has evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. The use of different market assumptions or estimation methodologies could have a significant effect on the estimated fair value amounts.

The carrying amounts of financial instruments, including cash, accounts receivable, accounts payable, and accrued expenses reflected in the condensed consolidated financial statements approximate fair value due to their short-term maturities.

The Company determined that on  June 30, 2026 and  December 31, 2025, certain instruments qualified as derivative liabilities and were recorded at fair value on the date of issuance and re-measured at fair value each reporting period with the change reported in earnings.

Securities Purchase Agreement (“SPA 2”)

On January 8, 2026, the Company consummated the Initial Closing under the SPA 2 dated November 12, 2025, pursuant to which it issued to the Investors a senior secured convertible note in the principal amount of $11,000,000 (the “Convertible Note 2026”), for an aggregate purchase price of $9,900,000. See Note 5 – Borrowings for further discussion.

The Company evaluated the conversion and settlement provisions contained within the Convertible Note 2026 in accordance with ASC 815 and ASC 480, Distinguishing Liabilities from Equity. The Convertible Note 2026 is convertible into shares of the Company's common stock at a conversion price initially established at $0.8347 per share, subject to adjustment provisions and a contractual floor price of $0.778 per share.

Management assessed whether the embedded conversion feature required bifurcation as a derivative liability or qualified for equity classification. To the extent the conversion feature is determined not to be indexed solely to the Company's own stock or otherwise fails the equity-classification conditions, the feature is recorded at fair value and subsequently remeasured each reporting period.

The fair value of any bifurcated conversion feature was determined using a Monte Carlo simulation model and/or lattice model, incorporating assumptions regarding the common stock price; expected stock price volatility; expected term; risk-free interest rates; probability of future drawdowns under the Securities Purchase Agreement; expected conversion behavior; and contractual floor-price provisions.

These measurements utilize significant unobservable inputs and are therefore classified as Level 3 within the fair value hierarchy.

Token Rights Agreement (“Token Rights”)

The Company's TRA liability is measured at fair value on a recurring basis.  The TRA provides the investor with the right to receive specified quantities of digital assets with designated financing proceeds. See Note 5 – Borrowings for further discussion.

The fair value of the TRA liability is determined based on the number of rights to digital asset tokens subject to the investor's rights under the agreement and the observable market value of the underlying stablecoins held by the Company. Because the underlying assets consist primarily of restricted cash, and digital assets, which are designed to maintain a value of approximately $1.00 per token, the fair value of the liability generally approximates the value of the underlying tokens subject to the agreement. Changes in the estimated fair value of the TRA liability are recognized in earnings during the period incurred.

The Company classifies the TRA liability within Level 2 of the fair value hierarchy because the valuation is based principally on observable market pricing information for the underlying stablecoins and does not require significant unobservable inputs.

Securities Purchase Agreement (“SPA 1”)

On February 4, 2025, the Company entered into an purchase agreement with an investor for a Senior Secured Convertible Note (“Convertible Note 2025”) with a face value of $5,500,000 and sixteen Warrants ("Incremental Warrants") exercisable for a face amount of $2,500,000 each. See Note 5 – Borrowings for further discussion.

The purchase price paid by the Investor under the SPA 1 for the Convertible Note 2025 and Incremental Warrants was $4,963,750. It was determined that the note and warrants within this transaction met the requirements for the Fair Value Option under ASC 825. Using the fair value option, the Convertible Note 2025 is required to be recorded at initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the notes are recognized as gain/loss on fair value adjustment within other income (expenses) in the Company’s unaudited condensed consolidated statements of operations.

As a result of applying the fair value option, direct costs and fees related to the Convertible Note 2025 were expensed as incurred and were not deferred.

On June 18, 2025, with the prior approval by the Company’s Board of Directors, the Company and the Investor entered into, and closed the transactions contemplated by, that certain Amendment and Exchange Agreement (the “Exchange Agreement”) pursuant to which (among other things) the Investor surrendered and exchanged all of its Incremental Warrants in exchange for (the “Exchange”) 6,000 shares of the Company’s Series B Convertible Preferred Stock, par value $0.0001 per share (“Series B Preferred Stock”). The Convertible Note remained outstanding post-Exchange.

Pursuant to the terms of the Exchange Agreement, conversion of the Series B Preferred Stock into shares of common stock of the Company, par value $0.0001 per share (the “Common Stock”) in excess of 19.99% of the Company’s outstanding shares of Common Stock is conditional upon obtaining the approval of the Company’s shareholders in accordance with the rules and regulations of the Nasdaq Capital Market (“Shareholder Approval”). The Company agreed to convene a meeting of stockholders to obtain Shareholder Approval within 120 days after the date of the Exchange Agreement. The Company obtained the Shareholder Approval effective as of August 11, 2025.

The Company determined the Exchange met the criteria for liability derecognition of the Incremental Warrants as the Exchange represented settlement of the liability through delivery of other financial assets. As the warrant was an equity contract classified as a liability at issuance, upon settlement, the equity contract was required to be marked to market. The Company recognized a change in fair value of $9,200,000 measured as the difference between the fair value of the Incremental Warrants at March 31, 2025, and their fair value of $90,560,000 immediately prior to the Exchange. The Series B Preferred Stock issued to the Investor in satisfaction of the Incremental Warrants in the Exchange had an issuance date fair value of $8,261,000 based on the following assumptions:

At the closing of the Exchange, the Company recognized a gain on settlement of the Incremental Warrants of $82,299,000, measured as the difference between the adjusted fair value of the Incremental Warrants immediately prior to the Exchange and the fair value of the Series B Preferred Stock at issuance, net of par value. The Company evaluated the classification of its Series B Preferred Stock and concluded that it is more akin to equity than debt and accounted for as permanent equity. Accordingly, the Series B Preferred Stock is presented within permanent equity in the accompanying condensed consolidated financial statements. The shares were issued at their par value (rounded to $1) with the remaining fair value of the Series B Preferred Stock in excess of par value, $8,260,999 being recorded to additional paid-in capital.

The following tables provide the fair value and contractual principal balance outstanding on the Convertible Note 2026 accounted for under the fair value option as of January 8, 2026, March 31, 2026 and June 30, 2026: 

The fair value of the Convertible Note 2026 was calculated using a fair value analysis considering the following factors and assumptions:

The following table provides the fair value and contractual principal balance outstanding on the Convertible Note 2025 accounted for under the fair value option as of February 4, 2025, March 31, 2025, June 26, 2025, June 30, 2025 and December 31,2025:

The following table provides the fair value balance outstanding on the Incremental Warrants accounted for under the fair value option as of February 4, 2025, March 31, 2025, June 18, 2025, June 30, 2025 and December 31,2025:

The fair value of the Convertible Note 2025 was calculated using a fair value analysis considering the following factors and assumptions:

The fair value of the Incremental Warrants was calculated using the Monte Carlo simulation with the following factors, assumptions and methodologies:

At March 31, 2025, warrants held by an institutional investor were eliminated through exercising and a redemption and cancellation agreement for $379,083. The Company recorded a derivative liability related to the Incremental Warrants issued in connection with the SPA 1 dated February 4, 2025. The Incremental Warrants’ fair value at date of issuance was $100,800,000 and were remeasured at March 31, 2025 with a fair value of $81,360,000. The analysis assumes immediate conversion upon issuance and does not incorporate ownership limitations or conversion blockers that could otherwise restrict full exercise or conversion. 

A summary of the Company’s liabilities measured at fair value on a recurring basis is as follows:

The following table provides a summary of changes in fair value associated within the Level 2 and Level 3 for the six-month period ended  June 30, 2026:

The following table provides a summary of changes in fair value associated with the Level 3 liability for the six months ended June 30, 2025: