USBC Inc.

05/13/2026 | Press release | Distributed by Public on 05/13/2026 07:23

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis summarizes the significant factors affecting our operating results, financial condition, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our financial statements and the related notes in Part I, Item1 of this Quarterly Report on Form 10-Q for the three months ended March 31, 2026. Unless otherwise indicated or the context otherwise requires, references to "USBC," "we," "us," "our," and the "Company" refer to USBC, Inc.
The discussion contains forward-looking statements within the meaning of the federal securities laws, which statements are subject to considerable risks and uncertainties and are based on the beliefs of management, as well as assumptions made by, and information currently available to, management. All statements other than statements of historical facts are forward-looking statements. These statements relate to future events or to our future financial performance, tokenized deposit program development, digital asset treasury strategy, anticipated events and trends affecting our business, the broader economy and other future conditions, and our interpretation of applicable state and federal securities laws and other laws and regulations relating to digital assets. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Investors should not consider non-GAAP financial measures referred to in this discussion in isolation or as substitutes for financial information presented in compliance with GAAP. Explanation of non-GAAP financial measures and reconciliation to the most directly comparable GAAP financial measure is included in this Management's Discussion and Analysis of Financial Condition and Results of Operations. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed in this report and as set forth in the section entitled "Risk Factors" in Part I, Item 1A, of our Transition Report on Form-10K for the transition period from October 1, 2025 to December 31, 2025, filed with the SEC on March 25, 2026.
Quarterly Overview
USBC, Inc. ("USBC" or the "Company") is a publicly traded technology company focused on the development of transformative financial services, including digital assets and banking solutions. A key focus of USBC is the further development of the USBC tokenized deposit program offering, a U.S.-dollar denominated tokenized deposit that operates on blockchain technology and is embedded with digital identity. USBC has also implemented a Bitcoin treasury strategy to bolster pre-launch development and research across its various divisions. With a focus on identity, inclusion, innovation, and risk management, USBC is dedicated to creating long-term stockholder value in a rapidly evolving financial landscape.
In August 2025, following the closing of a controlling-interest acquisition by Goldeneye 1995 LLC (an affiliate of our Chairman and Chief Executive Officer, Greg Kidd), the Company changed its corporate name to USBC, Inc. and its ticker symbol to "USBC" on the NYSE American effective August 15, 2025. Until August 2025, the Company operated under the name Know Labs, Inc. and was primarily focused on non-invasive diagnostic and sensor technologies. Our corporate evolution reflects a strategic pivot to a financial-services and digital-assets platform. Under the leadership of Chairman and Chief Executive Officer, Greg Kidd, USBC develops transformative financial services, including digital assets and banking solutions as well as non-invasive health monitoring research.
Our tokenized deposit program offering is being developed as an integrated platform comprising a permissioned blockchain ledger, a digital identity layer, wallet and consumer-facing mobile and web applications, a bank operations console, and developer portal designed to support future third-party developer integrations. Phase 1 testing of the product delivery strategy is progressing and development activity continues to advance across vendor coordination, infrastructure build-out, and platform integration, with the Company engaging specialized partners to support key components of the product offering. Results to date are informing the Company's evaluation of timing for subsequent phases of the product delivery strategy and the ultimate retail product launch.
We continue to execute under the Affiliate Services Agreement with Vast Holdings, Inc. ("Vast"), pursuant to which Vast provides strategic, operational and administrative services that support the further development of the tokenized deposit platform. As of April 30, 2026, we have incurred approximately $3.5 million in reimbursements to Vast for actual development-related costs under the $10.5 million cap contained in the Agreement which expires on December 31, 2026.
This MD&A focuses on the specific factors that affected our financial condition, results of operations, liquidity and capital resources during the three months ended March 31, 2026, including the impact of our digital-asset treasury strategy, tokenized deposit program offering development expenditures, public-company compliance requirements, and the impact of the Goldeneye capital investment. Our operating results for the three months ended March 31, 2026 also reflect our ongoing investment in the tokenized deposit program offering initiative, newly-established banking and technology service provider partnerships, and the divestiture of the legacy sensor technology business.
Recent Developments
On January 20, 2026, we formalized our collaboration with Uphold HQ Inc. ("Uphold") and Vast Bank, N.A. ("Vast Bank"), which will serve as the initial issuing bank for the U.S. Bank Coin ("USBC") tokenized-deposit program offering. Uphold is a financial technology company that provides modern infrastructure for on-chain payments, banking and investment services. Vast Bank is a federally regulated financial institution that will serve as the initial issuing bank for customer deposit accounts underlying the tokenized-deposit program. Under the tri-party agreement with Vast Bank and Uphold, USBC will serve as the network operator, Vast Bank will serve as the issuing bank for customer deposit accounts, and Uphold will provide platform integration and customer access services. We continue to advance technical, operational, and regulatory readiness in connection with subsequent phases of the delivery strategy and any future broader launch of the USBC tokenized-deposit program offering.
The tri-party agreement between Uphold, Vast Bank, and USBC provides that the non-binding memorandum of understanding signed by USBC, Vast Bank, and Uphold in October 2025 was terminated in its entirety as of the effective date of January 20, 2026. Additional information regarding the strategic partnership agreement by and among USBC, Vast Bank and Uphold is incorporated by reference from the Current Report on Form 8-K filed on January 26, 2026.
On March 10, 2026, we initiated Phase 1 of our multi-phase delivery strategy for how we will bring the USBC tokenized deposit program offering to market. Phase 1 is being conducted with a limited group of internal users who have elected to participate in an expanded employee pilot program to perform technical readiness testing of product features, such as onboarding and identity recovery, ACH funding, spending, treasury conversion, messaging, and activity logging in a controlled environment ahead of the public launch of the branded platform. Phase 1 is not a consumer offering and is not available to the public; it is intended solely to begin technical readiness testing. During this phase, testing activities are conducted exclusively with company-provided funds for internal evaluation purposes. Development costs associated with the product offering are accelerating as the program advances and are expected to be significant. The results of Phase 1 will inform our evaluation of the timing and scope of subsequent phases of the delivery strategy and when the tokenized deposit product offering may become available to retail customers of Vast Bank, the initial issuing bank. Any future retail launch will remain subject to the outcome of the pilot program, completion of technical integration and internal readiness milestones, and receipt of any required regulatory, board, and bank partner approvals.
On March 18, 2026, we entered into a Master Loan Agreement (the "MLA") with Payward Interactive, Inc. (the "Lender"), pursuant to which the Company may, from time to time, borrow fiat currency or digital assets on the terms set forth therein in an aggregate principal amount of up to $25.0 million for up to a twelve-month term, subject to execution of one or more individual loan term sheets. The MLA contains customary conditions, initial collateral requirements, collateral maintenance and liquidation mechanics, and early return and recall rights. Borrowings under the MLA are solely secured by Bitcoin collateral held in custody with Payward Financial, Inc. and subject to collateral maintenance requirements based on specified margin ratios. On March 20, 2026, we entered into a term sheet for a fixed-term loan of $5.0 million bearing interest at a rate of 8.5% per annum under the MLA maturing on March 18, 2027. Proceeds from the Facility will be used primarily to fund further development costs of the tokenized deposit program offering, including costs paid to our affiliate, Vast Holdings, Inc. ("Vast") under the terms of the Affiliate Services Agreement (the "Agreement") we simultaneously entered into on March 18, 2026. Pursuant to the terms of the Agreement, we will reimburse Vast for the cost it incurs to perform certain strategic, operational, and administrative services in support of the further development of the tokenized deposit program offering. We believe that it is more economical and efficient for certain services necessary for these operations to be performed by officers, employees or consultants of Vast, recognizing that cost reimbursements to Vast must be at least on or favorable to market terms. Total reimbursements under the Agreement are capped at $10.5 million during the term of the Agreement, unless mutually agreed upon with Vast and are subject to detailed invoicing, documentation, and approval requirements. The Agreement expires on December 31, 2026.
On March 18, 2026, our Board of Directors approved the repricing of all outstanding stock options, including (i) options originally granted in August 2025 and subsequently repriced in October 2025 to $1.10 per share, (ii) options granted in October 2025 with an exercise price of $1.10 per share, and (iii) options granted in October 2025 with an exercise price of $0.87 per share. The repricing reduced the exercise price of all such awards to $0.37 per share. No changes were made to the vesting schedules or contractual terms of these awards.
On March 27, 2026, we completed the divestiture of our legacy non-invasive sensor technology business pursuant to a Stock Purchase Agreement entered into by and among USBC, Inc. its wholly owned subsidiary, Particle, Inc., Particle Acquisition Corporation, an entity controlled by Ronald P. Erickson, former Chairman, President and CEO of Know Labs, Inc. (the "Buyer"). As part of the divestiture transaction, we agreed to provide the Buyer with limited operating capital to fund a portion of its operating expenses until the Buyer secures permanent equity financing. Additional information regarding the Stock Purchase Agreement and our commitment to extend a short-term secured line of credit to the Buyer in connection with the divestiture transaction is incorporated by reference from the Current Report on Form 8-K filed on April 2, 2026.
RESULTS OF OPERATIONS
Results of Operations
The following table sets forth key components of our results of operations for the three months ended March 31, 2026, and 2025.
(in thousands)
Three Months Ended March 31,
2026 2025 $ Variance
Operating expenses-
Research and development expenses $ 218 $ 418 $ (200)
Selling, general and administrative expenses 11,449 1,789 9,660
Total operating expenses 11,667 2,207 9,460
Operating loss (11,667) (2,207) (9,460)
Other Income (Expense), Net:
Interest income 11 3 8
Interest expense (14) (1,374) 1,360
Change in fair value of digital assets (20,004) - (20,004)
Other derivative income, net 1,557 - 1,557
Provision for credit losses (2,177) - (2,177)
Total other income (expense), net (20,627) (1,371) (19,256)
Loss before income taxes (32,294) (3,578) (28,716)
Income tax benefit (6,740) - (6,740)
Net loss $ (25,554) $ (3,578) $ (21,976)
Our operating results for the three months ended March 31, 2026, reflect the Company's strategic transition towards its digital-asset treasury and financial-technology development initiatives following the Goldeneye capital investment completed on August 6, 2025.
Revenues. We did not generate any operating revenue during the three months ended March 31, 2026, and 2025. During the three months ended March 31, 2026, we continued to focus on financial-technology development activities, and we expect future operating revenues to be generated primarily from financial-technology network services, including the planned USBC tokenized deposit program offering.
Research and Development. R&D expenses were $218,000 for the three months ended March 31, 2026, a decrease compared to $418,000 for the comparable prior-year period. In February 2026, we completed our evaluation of the legacy non-invasive sensor technology business and the associated divestiture transaction closed on March 27, 2026.
Selling, General and Administrative. SG&A expense was $11,449,000 for the three months ended March 31, 2026, compared to $1,789,000 for the comparable prior-year period, an increase of $9,660,000. The significant increase in SG&A expense compared to the prior-year period was primarily attributable to increases in non-cash stock-based compensation expense of $3.3 million, operational expenses for tokenized deposit program offering development of $4.7 million (including $3.1 million incurred under agreements with affiliated service providers), and professional fees and other public-company and advisory costs of $1.7 million associated with our strategic transition.
Other Expense, Net. Other expense, net for the three months ended March 31, 2026 was $20,627,000, compared to $1,371,000 for the comparable prior-year period, an increase of $19,256,000. The significant increase in other expense, net compared to the prior-year period was primarily driven by changes in fair value of digital assets of $20.0 million, provision for credit losses of $2.2 million, partially offset by higher derivative income, net of $1.6 million, generated from option premiums collected under our Bitcoin treasury trading strategy, and a $1.4 million reduction in interest cost.
Income tax benefit. Income tax benefit was $6,740,000 for the three months ended March 31, 2026; there was no income tax benefit for the comparable prior-year period, an increase of $6,740,000. The increase in the income tax benefit compared to the prior-year period was primarily related to the tax effect of the change in fair value of digital assets, driven by volatility in digital asset markets, which caused a significant decline in the fair value of Bitcoin, net of the benefit of the deferred tax asset.
Net Loss. We reported a net loss of $25,554,000 for the three months ended March 31, 2026, compared with a net loss of $3,578,000 for the comparable prior-year period, an increase of $21,976,000. The significant increase in the net loss compared to the prior-year period primarily reflects the change in fair value of digital assets of $20.0 million, provision for credit losses of $2.2 million, operational expenses for tokenized deposit program offering development of $4.7 million, non-cash stock-based compensation expense of $3.3 million, professional fees and other public-company and advisory costs of $1.7 million, partially offset by a deferred income tax benefit of $6.7 million.
Although we expect our operating losses to continue in the near term, we believe our potential future revenue opportunities and strong capital structure provide us with flexibility to pursue our digital-asset treasury and financial-technology development initiatives.
Known Trends and Uncertainties
We anticipate that our future operating results will be heavily influenced by the following factors:
•Financing dependence: We expect to require additional liquidity sources in the near term to fund the shortfall in net operating revenue as we continue investing in the further development of the tokenized deposit program offering, which sources may include equity or debt financings, potential sales of Bitcoin, Bitcoin-collateralized financing arrangements, and related-party or other investor financing.
•Digital-asset market volatility: Changes in the market price of Bitcoin could cause material non-cash gains or losses in our operating expenses each period.
•Integration of banking partners: Our future results will depend on successful technical and regulatory integration with partner banks and technology providers supporting our tokenized-deposit platform offering. Delays or changes in bank and developer partner strategy could affect timing of launches and revenue realization.
•Regulatory developments: Evolving federal and state treatment of digital assets, stablecoins, and related financial-technology services could adversely affect our business model and accounting policies.
Liquidity and Capital Resources
As of March 31, 2026, we had cash and cash equivalents of $2.0 million and working capital of $(7.3) million. We have historically incurred recurring losses and had an accumulated deficit of $216.1 million as of March 31, 2026. We recorded a net loss of $25.6 million for the three months ended March 31, 2026, a significant increase compared to a net loss of $3.6 million recorded for the comparable prior-year period. The increase in net loss was primarily attributable to a $20.0 million decline in the fair value of digital assets during the 2026 period. The comparable prior-year period was not impacted by non-cash change in the fair value of digital assets because we did not own any digital assets during that period. We continue to hold the underlying digital assets as of March 31, 2026 and currently intend to continue holding such digital assets for the foreseeable future.
Our liquidity during the three months ended March 31, 2026 primarily reflects the net proceeds of the equity issuance from the private placement completed on August 6, 2025 in which we issued approximately 357.8 million shares of common stock at $0.335 per share, for an aggregate purchase price consisting of 1,000 Bitcoin and $15 million in cash. As such, a substantial portion of our assets consist of Bitcoin. We view our Bitcoin holdings as long-term strategic reserves rather than trading assets although we may convert Bitcoin to cash periodically to fund operations. During the three months ended March 31, 2026, our liquidity was primarily utilized to fund operating expenses and working capital requirements. Management believes that existing liquidity and digital asset holdings are sufficient to fund operations for at least 12 months after issuance of these consolidated financial statements. Management expects that the Company will supplement its cash resources with additional liquidity sources as it executes its business plan. These sources may include sales of Bitcoin, potential Bitcoin-collateralized financing arrangements, related-party or other investor financing, and other debt or equity financings.
On March 18, 2026, we entered into a Master Loan Agreement (the "MLA") with Payward Interactive, Inc. (the "Lender"), pursuant to which we may, from time to time, borrow fiat currency or digital assets on the terms set forth therein in an aggregate principal amount of up to $25 million for up to a twelve-month term, subject to the execution of one or more individual loan term sheets (the "Facility"). The MLA contains customary conditions, initial collateral requirements, collateral maintenance and liquidation mechanics, and early return and recall rights. Borrowings under the MLA are solely secured by Bitcoin collateral held in and subject to collateral maintenance requirements based on specified margin ratios. The Bitcoin collateralizing the Facility is held for the benefit of the Lender by an affiliate of the Lender, Payward Financial, Inc. (the "Custodian") and subject to an account control agreement by and among the Lender, the Company and the Custodian.
On March 20, 2026, we entered into a term sheet for a one year fixed-term loan of $5.0 million bearing interest at a rate of 8.5% per annum under the MLA. The obligations under the MLA are prepayable at our option at any time after three months from the date of the initial loan draw without penalty. The MLA provides us with an additional source of liquidity to fund our operations and strategic initiatives, primarily the further development and future launch of the tokenized deposit program offering. The loan is collateralized by 150 Bitcoin which we pledged to the counterparty in an amount of approximately $10.2 million based on the price of Bitcoin as of March 31, 2026.
Non-GAAP Financial Measure
Adjusted EBITDA is a non-GAAP financial measure used by our management to better help evaluate our financial performance and provide more useful information to investors and others in understanding our operating results. This measure removes the effect of certain non-cash items, non-recurring items, unrealized gains or losses or other similar non-cash items that are included in our net loss that otherwise do not contribute directly to management's evaluation of its operating results.
Adjusted EBITDA is defined as net loss excluding interest expense primarily incurred in connection with the conversion or extinguishment of our convertible debt obligations, stock-based compensation expense, non-cash changes in the fair value of digital assets, income taxes, and any other items that management has determined are not reflective of our operating performance because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. Adjusted EBITDA should be viewed independently of our reported GAAP net loss as this metric is meant to be considered in addition to, not as a substitute for or in isolation from, our net loss prepared in accordance with GAAP.
The following table reconciles Adjusted EBITDA to net loss, the most closely comparable GAAP financial measure, for the three months ended March 31, 2026 and the comparable prior-year period:
Three Months Ended March 31,
2026 2025
Net Loss $ (25,554,769) $ (3,579,036)
Plus: Change in fair value of digital assets 20,004,465 -
Plus: Stock-based compensation 3,925,225 593,681
Subtract: Income tax benefit (6,739,925) -
Plus: Provision for credit losses 2,176,824 -
Plus: Interest expense 14,167 1,374,045
Adjusted EBITDA $ (6,174,013) $ (1,611,310)
Operating Activities
Net cash used in operating activities during the three months ended March 31, 2026 was $7,057,591, which was primarily attributable to the net loss for the three months ended March 31, 2026 of $25,554,769, partially offset by non-cash expenses of $17,870,429. Non-cash expenses during the three months ended March 31, 2026 were primarily comprised of stock-based compensation expense of $3,925,225, unrealized losses related to the change in the fair value of digital assets of $20,004,465, partially offset by net gains on derivatives of $1,556,719, and the deferred income tax benefit of $6,739,925.
The net operating cash outflows primarily reflect operating expenses incurred with the Company's strategic transition to development of the tokenized deposit program offering following the August 2025 Goldeneye capital investment.
Investing Activities
There were no investing transactions completed during the three months ended March 31, 2026.
Financing Activities
Net cash provided by financing activities during the three months ended March 31, 2026 was $5,000,330, which was primarily attributable to proceeds from a loan draw under the MLA. For additional information on the impact of the private placement transaction completed on August 6, 2025 on the Company's liquidity position, see "Liquidity and Capital Resources."
Capital Requirements and Future Liquidity
We expect to continue incurring operating losses as we fund the further development of our tokenized deposit program offering. Our ability to sustain operations and execute our strategy depends on our capacity to raise additional capital through equity or debt financings, monetize Bitcoin holdings, including through potential sales, or obtain other sources of liquidity, including potential Bitcoin-collateralized financing arrangements, or related-party or other investor financing.
Future capital needs will depend on, among other things:
•potential licensing or technology-development expenditures,
•regulatory and compliance costs associated with financial technology activities, and
•any acquisitions or strategic investments.
Based on our current projections, management believes we have adequate resources to meet our obligations for the next twelve months. As we continue to execute our business strategy, management may supplement cash on hand with additional liquidity sources, which could include digital asset sales, financing arrangements, or other debt or equity financings. Continuation of operations beyond that period will depend on market conditions for additional capital and the financial performance of our tokenized deposit program offering.
Contractual Obligations and Commitments
Our contractual cash obligations as of March 31, 2026 are summarized in the table below:
Less Than
Contractual Cash Obligations
Total 1 Year 1-3 Years
Loan payable (1)
$ 5,432,083 $ 5,432,083 $ -
Operating leases 232,794 76,559 156,235
$ 5,664,877 $ 5,508,642 $ 156,235
(1) On March 20, 2026, we entered into a term sheet for a one year fixed-term loan of $5.0 million bearing interest at a rate of 8.5% per annum under the MLA maturing on March 18, 2027. The obligations under the MLA are prepayable at our option at any time after three months from the date of the initial loan draw without penalty.
Divestiture Transaction
On March 27, 2026 (the "Closing Date"), we completed the divestiture of our legacy non-invasive sensor technology business pursuant to a Stock Purchase Agreement entered into by and among the Company, its wholly-owned subsidiary, Particle, Inc., a Nevada corporation ("Particle"), Particle Acquisition Corporation, a Nevada corporation (the "Buyer"), and our former Chairman, President and CEO, Ronald P. Erickson, an individual and principal officer of the Buyer. Effective as of the Closing Date of the divestiture of the legacy sensor business, Mr. Erickson concluded his service as a member of the Board of Directors and as President of the Science Division.
Off-Balance Sheet Arrangements
As of March 31, 2026, the Company had an outstanding commitment to provide secured financing of up to $450,000. The loan to the borrower is not an unconditionally cancelable instrument, and as of March 31, 2026, the Company recorded a liability for expected credit loss of $360,000. The estimate of expected credit losses for off-balance sheet commitments considers the likelihood that funding will occur, expected utilization rates, borrower credit quality, collateral values, and current and forecasted economic conditions.
Critical Accounting Policies Involving Significant Estimates
The following discussion relates to critical accounting policies for our company which involve significant estimates. The preparation of financial statements in conformity with United States generally accepted accounting principles, or GAAP, requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation.
Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management's difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management's current judgments.
We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements:
Valuation of Digital Assets
We hold Bitcoin as the principal component of our Consolidated Balance Sheets. Digital assets such as Bitcoin are initially recorded at cost and subsequently measured at fair value, with changes in fair value recognized in the line item, change in fair value of digital assets.
Because active quoted prices exist only on certain trading platforms, we use observable Level 1 inputs when available and Level 2 inputs (such as composite or volume-weighted prices) when market liquidity or trading restrictions make Level 1 data less representative. The determination of fair value requires judgment, particularly during periods of volatility or when exchanges experience constrained trading volumes.
The large majority of our Bitcoin holdings are custodied by third-party institutional custodians under multi-signature cold-storage arrangements designed to mitigate security risk.
Digital assets - receivable, net
When we pledge collateral to a third-party entity, we first evaluate whether to derecognize such digital assets based on an evaluation of relevant control and asset derecognition considerations. If we conclude derecognition is appropriate, we derecognize the digital asset collateral that we no longer control and recognize a right to receive back in the future such pledged digital assets.
In accordance with ASU 2023-08, digital asset receivable is recorded at the fair value of the underlying digital assets. Throughout the period that the digital asset receivable is outstanding, the receivable will be measured at fair value of the underlying loaned digital asset with changes recorded in changes in fair value of digital assets in current period earnings.
Allowance for Credit Losses
The Company applies the current expected credit loss ("CECL") model under ASC 326, Financial Instruments - Credit Losses, to estimate expected credit losses on financial assets measured at amortized cost and certain off-balance sheet credit exposures. This standard requires the Company to recognize lifetime expected credit losses upon origination of a financial asset or at the time an off-balance sheet commitment is made, rather than when losses are probable, and to incorporate forward-looking information into the estimate. The CECL model represents a critical accounting policy because it is new for the Company this quarter and requires significant management judgment in the selection of inputs, assumptions, and methodologies.
Digital asset receivable . We consider and account for counterparty credit risk using the principles in Topic 326 - Financial Instruments - Credit Losses ("Topic 326") to measure any credit impairment. The digital asset receivable is presented net of any allowance for credit losses if deemed material. We utilize the probability of default ("PD") loss given default ("LGD") approach to estimating the allowance for credit loss ("ACL") at origination and subsequent reporting periods. In order to apply the PD LGD approach, management considers the lifetime of the digital asset receivable, the reasonable and supportable forecast period, and the PD LGD. As of March 31, 2026, we recorded an allowance for credit loss of $1.8 million, based on management's estimate of expected credit losses.
Off-Balance Sheet Commitments. The Company is party to certain off-balance sheet financing commitments that are subject to credit loss estimation under ASC 326. The ACL is estimated using a loss given default / expected exposure methodology that incorporates management's assessment of expected draw timing, obligor credit quality, collateral recovery values, and current and forecasted economic conditions. As of March 31, 2026, we recorded an allowance for expected credit losses of $360,000 on its off-balance sheet commitments, reflected as a non-cash provision for credit losses in the condensed consolidated statements of operations for the three months ended March 31, 2026.
Accounting for Derivatives & Trading Activities
As part of our Bitcoin yield generation strategy trading activities, we enter into option derivative contracts on our Bitcoin holdings. We enter into short-term arrangements that result in obtaining the right to receive or obligation to deliver a fixed amount of Bitcoin crypto assets in the future. Derivatives are instruments that derive their value from changes in an underlying reference outside of our control. Derivatives may be traded on an exchange (exchange-traded) or they may be privately negotiated contracts, which are usually referred to as over the counter ("OTC") derivatives. We account for these derivatives in accordance with ASC 815, Derivatives and Hedging.
Stock-Based Compensation
Estimating the fair value of stock-based awards requires significant judgment, including assumptions regarding expected volatility, risk-free interest rates and expected term. Changes in these inputs may materially affect compensation expense. See Note 10 - Equity Incentive Plans for additional information regarding our stock-based compensation accounting. We account for stock-based awards under ASC 718, Compensation - Stock Compensation. The fair value of stock options and warrants is estimated using the Black-Scholes-Merton option-pricing model, which requires assumptions regarding expected volatility, risk-free interest rates, expected term, and dividend yield. For restricted stock awards, fair value is based on the closing market price of our common stock on the grant date.
Because volatility and expected-term assumptions involve significant judgment, changes in these inputs could materially affect compensation expense recognized under the Amended and Restated 2021 Equity Incentive Plan (see "Executive Compensation" in Part III of our Transition report on Form 10-K for the three months ended December 31, 2025.
Convertible Instruments and Derivatives
Evaluating embedded conversion and redemption features requires judgment, including volatility estimates and discount-rate assumptions that may result in non-cash gains or losses. See Notes 3 and 5 to our financial statements included in Item 1 of this report for additional information on our accounting for convertible instruments and embedded derivatives prior to the Transition Period. When we issued convertible debt or equity instruments that may have contained embedded conversion or redemption features, we evaluated whether those features required bifurcation and separate accounting as derivatives under ASC 815. Determining the fair value of embedded derivatives involves the use of valuation models incorporating market-based assumptions, such as the volatility of our stock price, expected term, and discount rates. Future volatility or interest-rate changes could result in material non-cash gains or losses each period.
Going Concern
In accordance with ASC 205-40, management evaluates our ability to continue as a going concern for a period of one year after the date the financial statements are issued. Our assessment considers current cash on hand, expected cash flows from operations, and our ability to raise additional capital. In May 2026, the Company analyzed its cash requirements and operations at least through May 2027 and determined that, based upon our current available cash, digital asset holdings, and expected operations, the Company has no substantial doubt about its ability to continue as a going concern. While the capital investment significantly improved our liquidity, our business model remains dependent on external financing and the value of digital assets, both of which are subject to market volatility and investor sentiment.
USBC Inc. published this content on May 13, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 13, 2026 at 13:23 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]