Stablecoin Development Corp

Cash flows from discontinued operations

NOTE 14. INCOME TAXES

The Company's provision for income taxes for interim periods is determined using either an estimated annual effective tax rate or, where applicable, the actual effective tax rate for the year-to-date period, in accordance with ASC 740-270. Discrete items are recorded in the period in which they occur. The Company recorded an income tax provision of $3.5 million for the three months ended March 31, 2026, a rate of 0.62%, recognized in continuing operations. The rate differs from the statutory rate due primarily to warrant income that is not recognized for income tax purposes and the reversal of our valuation allowance against the deferred tax assets.

For the three months ended March 31, 2025, the Company's effective income tax rate from continuing operations was 0%, primarily due to a full valuation allowance against deferred tax assets. The $0.3 million income tax provision recognized in the three months ended March 31, 2025 related entirely to discontinued operations and is included in net income from discontinued operations, net of taxes.

In accordance with ASC 740-270-30-18, the Company has determined that it is unable to make a reliable estimate of its annual effective tax rate for the year ending December 31, 2026. Small variations in forecasted pre-tax book income produce significant variability in the estimated annual effective tax rate due to the magnitude of non-cash items, including the remeasurement of liability-classified warrants and the recognition of unrealized gains and losses on digital assets measured at fair value. As a result, the Company has computed its income tax provision for the three months ended March 31, 2026 using the actual effective tax rate for the year-to-date period, which the Company believes represents the best estimate of the annual effective tax rate.

During the three months ended March 31, 2026, the Company released its valuation allowance against its U.S. federal and state deferred tax assets. The Company evaluates the realizability of its deferred tax assets each reporting period based on all available positive and negative evidence, including cumulative results in recent years, and the character and timing of reversals of existing taxable temporary differences. The Company concluded that the existence of taxable temporary differences related to unrealized gains on digital assets, provides sufficient positive evidence to conclude that it is more likely than not that its deferred tax assets will be realized. The Company's assessment of the realizability of its deferred tax assets is subject to change. A sustained decline in the fair value of the Company's digital asset holdings, or a deterioration in the Company's projected operating results, could require the Company to re-establish a valuation allowance against all or a portion of its deferred tax assets in a future period, which could result in a material charge to income tax expense.

NOTE 15. RELATED PARTY TRANSACTIONS

January 2026 Private Placement

In connection with the January 2026 Private Placement, each Purchaser was granted, for a period of 24 months following the closing and for so long as such Purchaser holds at least 50% of the aggregate number of pre-funded warrants and/or shares of common stock originally purchased by it, a consent right over any material amendment, modification, addition or revocation of the Company's digital asset strategy. In addition, pursuant to the Investors’ Rights Agreement accompanying the January 2026 Private Placement, each of R01, Framework and SFF received the right to nominate one individual for election to the Company's Board of Directors. Tether did not receive a board nomination right. See Note 8, "Financing Activities," for additional information.

As a result of the rights granted in connection with the January 2026 Private Placement, the Company has concluded that, in addition to R01 and Framework, SFF and Tether are also related parties of the Company within the meaning of ASC 850.

Consulting agreement

R01 has provided certain consulting services to the Company through one of its employees. During the three months ended March 31, 2026, the Company engaged this individual directly to provide consulting services related to general corporate matters and digital asset treasury operations. The consulting agreement provides for a monthly fee of $25 thousand. The consulting agreement with this individual was terminated as of March 31, 2026. Total fees paid by the Company for these services were approximately $75 thousand for the three months ended March 31, 2026.

NOTE 16. SUBSEQUENT EVENTS

The Company has evaluated all subsequent events through May 15, 2026, the filing date of this Form 10-Q with the SEC, to ensure that this filing includes appropriate disclosure of events both recognized in the Unaudited Condensed Consolidated Financial Statements as of March 31, 2026, and events which occurred subsequently but were not recognized in the Unaudited Condensed Consolidated Financial Statements. Except as described below, there were no subsequent events which required recognition, adjustment to, or disclosure in, the Unaudited Condensed Consolidated Financial Statements.

At-the-Market Offering Program

Subsequent to March 31, 2026 and through May 14, 2026, the Company sold an aggregate of 398,367 shares of common stock under the ATM Program for aggregate gross proceeds of approximately $638 thousand and net proceeds of approximately $628 thousand, after deducting sales agent commissions and other offering costs. As of May 14, 2026, approximately $85.7 million of common stock remained available for issuance under the ATM Program. See Note 8, “Financing Activities,” for additional information regarding the ATM Program.

Digital Asset Purchases

Subsequent to March 31, 2026 and through May 14, 2026, the Company purchased an aggregate of approximately 86.5 million SKY tokens on digital asset exchanges for an aggregate cost of approximately $6.5 million. As of May 14, 2026, the Company held approximately 2.26 billion SKY tokens.