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Debt
 6 Months Ended
Jun. 30, 2025
Debt Disclosure [Abstract]  
Debt

Note 7 – Debt

 

Loan Payable – Defi Protocol (Aave)

 

The Company participates in decentralized finance (“DeFi”) borrowing activity through Aave, a smart-contract based protocol that facilitates loans collateralized by crypto assets. During the six months ended June 30, 2025, the Company borrowed an aggregate of $5,447,000 in USDT and repaid $1,447,000 of principal. These borrowings are collateralized by Ethereum (ETH) and remain outstanding until repaid or liquidated in accordance with Aave protocol terms. Borrowings have no fixed maturity date and are subject to partial or full liquidation if the loan’s health factor falls below the protocol-defined minimum threshold. The health factor is calculated based on the value of the collateral relative to the loan balance and Aave’s protocol-specific liquidation threshold (generally 80% for ETH).

 

The following table summarizes the Defi protocol lending activity during the six months ended June 30, 2025:

   

   For the Six Months Ended
June 30, 2025		 
Beginning balance – January 1, 2025  $- 
Proceeds from DeFi borrowings   5,447,000 
Repayments of principal   (1,447,000)
Ending balance – June 30, 2025  $4,000,000 

 

As of June 30, 2025, the Company had approximately 3,903 ETH deposited as collateral with a fair market value of approximately $9,704,000. The collateralized ETH remains in the Company’s wallets but is restricted from transfer while the loan is outstanding. See Note 3 – Summary of Significant Accounting Policies and Note 4 – Crypto Assets for further detail regarding the accounting treatment and classification of these assets.

 

The loan accrues interest at variable rates determined by Aave’s on-chain smart contracts, which adjust dynamically based on market utilization and liquidity conditions. These rates are published and updated in real-time at aave.com, and the net cost of capital may fluctuate based on protocol-level market conditions.

 

For the three and six months ended June 30, 2025, the Company recognized approximately $8,000 in interest expense, of which approximately $7,000 remained unpaid and is included in accrued expenses as of period end. The Company also earned approximately $1,000 of interest income on the ETH collateral during the same period.

 

The Company’s Board of Directors has approved the use of Aave for borrowing activities, subject to a maximum loan-to-value (LTV) ratio and debt-to-asset (DTA) coverage limitation of 40% at the time of borrowing. The Board also approved temporary exceedances of these limitations for operational purposes, provided such exceedances do not exceed two days.

 

Convertible Notes Payable

 

On May 13, 2025, the Company entered into a Securities Purchase Agreement (the “SPA”) with three accredited investors (the “Investors”), pursuant to which it issued 5% Original Issue Discount Senior Secured Convertible Notes (the “Notes”) with an aggregate principal amount of $7,810,526 in exchange for gross cash proceeds of $7,420,000. In connection with the issuance of the Notes, the Company also agreed to issue to the Investors 1,901,916 warrants, each exercisable for one share of the Company’s Common Stock at an exercise price of $2.75 per share. The warrants have a term of five years from the issuance date.

 

The Notes: (i) are convertible into shares of the Company’s Common Stock at a conversion price of $5.85 per share, (ii) mature 24 months from the issuance date, (iii) accrue interest at an annual rate of 6%, payable quarterly in either cash or freely tradable shares at the Company’s discretion, (iv) contain a 4.99% beneficial ownership conversion blocker, and (v) are secured by all of the Company’s assets as collateral, excluding ETH deposited as collateral for USDT borrowings through Aave and certain other customary carve-outs. 

 

H.C. Wainwright & Co., LLC acted as the Company’s exclusive placement agent in connection with the offering. The Company paid legal, placement agent, and administrative issuance costs of approximately $236,000, which were allocated between the debt and warrant components and recorded as a debt discount to be amortized using the effective interest method over the term of the Notes.

 

The fair value of the warrants issued in connection with the offering was estimated using the Black-Scholes option pricing model and allocated as a debt discount in accordance with ASC 470-20, as the warrants were determined to be freestanding equity-classified instruments.

 

The Notes include a debt discount representing the original issue discount, issuance costs, and the allocated fair value of the freestanding warrants, which will be amortized over the term of the Notes using the effective interest method.

 

In connection with the transaction, Mr. Charles Allen, the Company’s Chairman of the Board and Chief Executive Officer, invested $95,000 in the Offering. Additionally, a trust of which Mr. Allen is a beneficiary but is not the settlor or trustee invested $200,000 in the Offering. An independent committee of the Company’s Board of Directors approved Mr. Allen’s investment in the Offering.

 

For the three and six months ended June 30, 2025, the Company recognized total interest expense of approximately $213,000, which includes both contractual interest and the amortization of debt discounts and issuance costs using the effective interest method. The Company paid interest of approximately $62,000 in cash during the period.