Note 3 - Digital Assets

Our Cryptocurrency Asset Strategy

In connection with the Company’s financing in June 2025, we adopted a differentiated cryptocurrency treasury strategy focused on TAO, the native cryptocurrency of Bittensor. See Note 5 - Capital Stock for further details of the financing. We seek to stake TAO for revenue generation and capital appreciation, a strategy that underscores our mission to create significant value for shareholders. The Company accounts for its digital assets, comprised solely of TAO tokens, as indefinite-lived intangible assets in accordance with ASC 350. The Company’s digital assets are initially recorded at cost and measured at fair value at each reporting period. TAO tokens are available as partial tokens. The Company shows its token holdings rounded to the nearest one-hundredth of a token.

The Company has adopted a long-only TAO accumulation policy under which we allocate substantial portions of our excess cash to purchase TAO to maximize tokens per share. As of December 31, 2025, approximately 70% of our treasury holdings were invested in TAO, and our current plan is to continue allocating substantial portions of our excess cash to TAO without a formal cap on the percentage of our treasury holdings invested in TAO. We do not currently hedge our TAO exposure and have no diversification strategy into other crypto assets; we are a long-only TAO holder. The Company’s TAO tokens are stored with the TAO Custodians. There are significant risks associated with digital asset price volatility.  We have not implemented any hedging strategies to date, and there can be no assurance that any such strategies will be implemented or, if implemented, effective.

Although a liquid market for TAO exists, we have not monetized (i.e., sold) any TAO to date. All TAO is staked as soon as trade settlement permits, and we currently spread staking between the Company’s TAO Custodians.

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

As holders of TAO tokens, we can stake any amount of the liquidity we hold to a validator. 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. After the validator extracts their take, the remaining emissions are credited back to us in proportion to our stake with that validator.

In exchange for staking TAO on the Bittensor blockchain network, the Company is entitled to a fractional share of the fixed digital asset award a third-party validator node receives for successfully validating or adding a block to the blockchain. This award is remitted in the validator node's native token (TAO) and is referred to as a staking reward. The Company’s staking reward received from delegating to a third-party validator node is proportional to the Company's staked digital assets relative to the total staked by all delegators to that node at that time. TAO token rewards earned from staking are calculated and distributed directly to the Company’s digital wallets by the blockchain networks as part of their consensus mechanisms.

As of December 31, 2025, all of our TAO token holdings were staked. All staking services are provided through the Company’s TAO Custodians, enabling yield generation while maintaining the highest standards of security and regulatory compliance.  We rely on these custodians to facilitate our TAO token staking activities. Through their staking services, our TAO Custodians hold and stake our TAO through their selected validators. The Bittensor blockchain does not impose protocol-enforced delays or unbonding periods. As of December 31, 2025, the Company's staked TAO tokens have immediate terms, meaning there is no lock-up period upon the asset being unstaked.

The following table summarizes the Company's Staking Rewards as of  December 31, 2025 (in thousands except for tokens):

Our cost of revenue for digital assets consists of custodian fees and advisor fees on our staked digital assets. For the year ended December 31, 2025, the Company recorded a cost of revenue of $24,000 related to digital asset staking, resulting in a gross profit of $162,000, or 87%.

Digital assets are measured at their fair market values using the last close price of the day in the UTC time zone at each reporting period end. The unrealized gains and losses resulting from remeasurement of digital assets are recorded in other income on the Consolidated Statement of Operations. The following table summarizes the Company's digital asset holdings as of  December 31, 2025 (in thousands except for tokens):

The Company recorded an unrealized loss of $3,519,000 for the year ended December 31, 2025. As of December 31, 2025, the fair value of our digital assets was $5,395,000.