Stablecoin Development Corp

NOTE 1.** ORGANIZATION

Stablecoin Development Corporation (“Stablecoin Development” or the “Company” or “our,” “we,” or “us”), formerly known as NovaBay Pharmaceuticals, Inc., is an on-chain holding company focused on long-duration participation in protocol-aligned digital asset ecosystems and providing public market access to the stablecoin economy. The Company’s initial digital asset focus is the Sky Protocol ecosystem, with SKY as its core holding. Through staking and other on-chain activities, the Company seeks to generate protocol-level economic exposure while maintaining governance, risk management, and public-company discipline.

On January 16, 2026, the Company completed a private placement of pre-funded warrants to purchase an aggregate of 167,539,227 shares of common stock for aggregate gross proceeds of approximately $134.0 million, consisting of approximately $25.0 million in cash and approximately $109.0 million in SKY tokens and stablecoins (the “January 2026 Private Placement”). The proceeds from the January 2026 Private Placement, together with proceeds from any future capital raises, are intended to support a multi-year capital allocation strategy focused on acquiring and holding a portfolio of select digital assets that exhibit revenue-generating characteristics, consistent with the Company's operating and risk framework. SKY, the governance token of the Sky Protocol, is currently the only digital asset approved under such framework. See Note 8, “Financing Activities,” and Note 10, “Common Stock Warrants and Warrant Liabilities,” for additional information regarding the January 2026 Private Placement.

SKY, the governance token of the Sky Protocol, is currently the only digital asset deployed under the Company’s current strategy and represents the Company's primary digital asset holding. As of June 30, 2026, the Company held 2,286,511,374 SKY tokens, representing approximately 10% of the total supply of SKY at such date. The Company's SKY holdings are deployed in staking activities within the Sky Protocol ecosystem, through which the Company participates in on-chain governance of the Sky Protocol.

The Company intends to hold digital assets as part of a long-duration strategic position. The Company retains discretion to monetize a portion of its digital asset holdings if and when management determines it appropriate to do so.

On April 2, 2026, the Company’s corporate name change from NovaBay Pharmaceuticals, Inc. to Stablecoin Development Corporation became legally effective. On April 6, 2026, the Company’s common stock commenced trading on the NYSE American under the new ticker symbol “SDEV”. The name change and new ticker symbol reflect the Company’s strategic repositioning as an on-chain holding company focused on protocol-aligned digital asset ecosystems and is reflected throughout this report.

The Company is incorporated under the laws of the State of Delaware. The Company hasone operating and reportable segment encompassing its consolidated operations as of June 30, 2026.

On February 20, 2026, we effected a 1-for-5 reverse stock split (the “Reverse Stock Split”). Except as otherwise specifically noted, all share numbers, share prices, exercise/conversion prices and per share amounts in this quarterly report have been adjusted, on a retroactive basis, to reflect the Reverse Stock Split.

Discontinued Operations

Historical financial results related to each of the businesses and assets divested above are now presented as discontinued operations in the Company’s Unaudited Condensed Consolidated Financial Statements (see Note 13, “Divestitures”).

Liquidity

Based on funds available as of June 30, 2026, management believes that the Company's existing cash and cash equivalents, together with its ability, if needed, to monetize a portion of its unencumbered, exchange-traded SKY token holdings are expected to be sufficient to fund its planned operating expenses for at least twelve months from the issuance of these financial statements. The Company also has access to its ATM Program, under which approximately $84.5 million of common stock remained available for issuance as of July 27, 2026. However, there may be unknown or potential future claims and liabilities that may arise or changing circumstances that may cause the Company to expend cash significantly faster than currently anticipated because of factors beyond its control. Beyond twelve months, our ability to fund growth and meet obligations will depend on market conditions and access to capital on acceptable terms.

Subsequent to June 30, 2026 and through July 27, 2026, the Company sold an aggregate of 24,714 shares of common stock under the ATM Program (as defined in Note 8, “Financing Activities”) for aggregate net proceeds of approximately $26 thousand. As of July 27, 2026, approximately $84.5 million of common stock remained available for issuance under the ATM Program.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting and are expressed in U.S. dollars. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes as of and for the year ended December 31, 2025, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025 (the “Form 10-K”).

The unaudited condensed consolidated balance sheet as of December 31, 2025 was derived from the audited consolidated financial statements as of that date, but does not include all disclosures required by GAAP. In management’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary for their fair presentation. There have been no changes to the Company’s significant accounting policies described in the Form 10-K that have had a material impact on the unaudited condensed consolidated financial statements. The results of operations for the interim periods presented are not necessarily indicative of results to be expected for any other interim period or for the year as a whole.

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to, the fair value measurement of digital assets, warrant liabilities (including the determination of the principal market for digital assets and the reference price used to measure warrant liabilities), stock-based compensation, income taxes and other contingencies.

These estimates are based on management’s best estimates and judgment. Actual results may differ from these estimates. Estimates, judgments, and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Uncertainty about these assumptions, judgments and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

Cash, Cash Equivalents, and Restricted Cash

The Company considers all highly-liquid instruments with a stated maturity of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are stated at cost, which approximates fair value. As of June 30, 2026 and December 31, 2025, the Company’s cash and cash equivalents were held at financial institutions in the United States.

The following table provides a reconciliation of the cash, cash equivalents, and restricted cash reported in the unaudited condensed consolidated balance sheets (in thousands):

The restricted cash amounts included in other current assets on the unaudited condensed consolidated balance sheets represent a certificate of deposit held as collateral for the Company's credit card account.

Concentrations of Credit Risk and Major Partners

Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. The Company maintains deposits of cash, cash equivalents and restricted cash with financial institutions in the United States.

The Company maintains cash balances at multiple financial institutions. Certain of these accounts utilize deposit sweep programs designed to allocate funds across a network of participating banks in amounts intended to maximize FDIC insurance coverage. However, the Company also maintains significant cash balances at other financial institutions that do not utilize such programs, and, as a result, a portion of the Company’s cash balances exceeds the federally insured limit of $250,000. Any loss incurred or lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations, and cash flows.

The Company's SKY tokens are held through a combination of qualified third-party custody and self-custody using a third-party key management platform. As of June 30, 2026, substantially all of the Company's SKY tokens were staked and, because staking requires on chain deployment that cannot be executed from a custodial account, were held in self-custody with a single key management infrastructure provider, representing approximately 94% of the Company's total assets. A failure, security breach, or operational disruption affecting this provider could impair the Company's ability to access or safeguard a substantial majority of its digital assets. See Note 5, 'Digital Assets,' for additional information.

The Company holds a significant position in SKY tokens, which represented approximately 94% of total assets and approximately 10% of the total supply of SKY available in the market as of June 30, 2026. This concentration exposes the Company to SKY token price volatility and to other risks associated with SKY tokens, including risks relating to liquidity, custody, and regulation. The size of the Company's position relative to total market supply may also limit its ability to dispose of SKY tokens without affecting the market price. Because SKY is issued and governed within a single blockchain ecosystem, the Company is also exposed to risks affecting the Sky Protocol ecosystem as a whole. These include reductions in protocol-generated revenue that funds staking rewards, adverse governance outcomes, competition from other stablecoin or decentralized finance platforms, operational or security incidents affecting the Ethereum blockchain or the Sky Protocol smart contracts, and concentration of SKY ownership among Sky Protocol core contributors and other ecosystem participants. See Note 5, "Digital Assets."

Fair Value of Financial Assets and Liabilities

The Company’s financial instruments include cash and cash equivalents, restricted cash, accounts payable, accrued liabilities and warrant liabilities. The Company’s cash and cash equivalents, restricted cash, accounts payable, and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments.

The Company follows Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, with respect to assets and liabilities that are measured at fair value on a recurring basis and nonrecurring basis. Under this standard, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The standard also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. There are three levels of inputs that may be used to measure fair value:

Level 1 – quoted prices in active markets for identical assets or liabilities;

Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable; and

Level 3 – inputs that are unobservable (for example, cash flow modeling inputs based on assumptions).

Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

See additional information in Note 3, “Fair Value Measurements.”

Digital Assets

The Company's digital assets currently consist only of SKY tokens. The Company accounts for its digital assets in accordance with ASC 350-60, Intangibles—Goodwill and Other-Crypto Assets. Digital assets purchased are initially recorded at cost, including capitalized exchange trading fees. Digital assets received as staking rewards are initially recorded at the fair value of the tokens when earned. Digital assets are subsequently measured at fair value at each reporting date, with changes in fair value recognized in earnings. Fair value is determined using the quoted price of the digital asset in its principal market (Coinbase Exchange for SKY tokens) as of midnight UTC on the reporting date. The Company uses the specific identification method to determine the cost basis of digital assets for purposes of calculating gains and losses upon disposition.

Digital assets are classified as non-current assets on the Company's Unaudited Condensed Consolidated Balance Sheets, reflecting the Company's intent and ability to hold and stake SKY tokens on a long-term basis as part of its ongoing participation in the Sky Protocol.

Impairment of Long-Lived Assets

The Company recordedno long-lived asset impairment losses during the three months ended June 30, 2025 and 2026.

The Company recorded $589 thousand in long-lived assets impairment losses during the six months ended June 30, 2025, consisting of $30 thousand for fixed assets including leasehold improvements and $559 thousand for operating lease right-of-use assets and no comparable impairment for the six months ended June 30, 2026.

Common Stock Warrants

The Company accounts for common stock purchase warrants issued in connection with its equity offerings in accordance with the provisions of ASC 480,Distinguishing Liabilities from Equity, and ASC 815,Derivatives and Hedging (“ASC 815”).

The Company classifies as equity any warrants that (i) require physical share settlement or net-share settlement or (ii) give the Company a choice of net-cash settlement (physical share settlement or net-share settlement). The Company classifies as liabilities any warrants that (i) require net-cash settlement, (ii) give the counterparty a choice of net-cash settlement, physical settlement, or net-share settlement. In accordance with ASC 815, the Company also classifies as liabilities any warrants for which the shares underlying the contract are subject to stockholder approval before the warrant can be exercised. The Company also classifies as liabilities any warrants that are not considered indexed to the Company's own stock, including warrants containing anti-dilution or similar adjustment provisions that do not qualify for the scope exception for standard down-round features.

For warrants that are classified as liabilities, the Company records the fair value of the warrants upon issuance and at each balance sheet date with changes in the estimated fair value recorded as a non-cash gain or loss in the Unaudited Condensed Consolidated Statements of Operations. Warrants that contain nominal exercise prices are economically similar to common stock and do not require assumptions related to volatility, expected term, or other option-pricing inputs. Such warrants are measured based on intrinsic value, calculated as the excess of the Company's common stock price over the exercise price, multiplied by the number of warrant shares outstanding. The fair values of other liability-classified warrants, if any, are determined using appropriate valuation techniques such as the Black-Scholes option pricing model. These values are subject to a significant degree of management's judgment. See Note 10, “Common Stock Warrants and Warrant Liabilities.”

Income Taxes

The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion or the entire deferred tax asset will not be recognized.

The U.S. federal income tax treatment of rewards from staking digital assets such as SKY remains uncertain and is currently the subject of debate and regulatory attention. Under current guidance by the Internal Revenue Service (“IRS”), staking rewards are generally treated as ordinary income upon receipt. If regulation or policy changes, or the interpretation or enforcement thereof, results in adverse tax treatment of rewards from staking SKY, we could be subject to increased audits by the IRS and additional tax liabilities.

Uncertain Tax Positions

The Company accounts for uncertainty in income taxes in accordance with ASC 740-10. The Company recognizes the financial statement effects of a tax position only when it is more likely than not, based on the technical merits of the position, that the position will be sustained upon examination by the relevant taxing authority. For tax positions meeting the more-likely-than-not threshold, the amount recognized is measured as the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement. The Company recognizes any interest and penalties related to uncertain tax positions as a component of income tax expense. Accrued interest and penalties are included in the related tax liability line in the unaudited condensed consolidated balance sheets.

Net Income (Loss) per Share

The Company computes net income or loss per share by presenting both basic and diluted loss per share (“EPS”) as shown in the Unaudited Condensed Consolidated Statements of Operations.

Basic EPS is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period, including stock options and warrants, using the treasury stock method. In computing diluted EPS, the average stock price for the period is used to determine the number of shares assumed to be purchased from the exercise of stock options or warrants. Potentially dilutive common share equivalents are excluded from the diluted EPS computation in net loss periods if their effect would be anti-dilutive.

The following table provides a reconciliation of the numerator and denominator used for basic and diluted earnings (loss) per share (in thousands):

The following outstanding preferred stock, stock options and stock warrants were excluded from the diluted EPS computation as their effect would have been anti-dilutive (in thousands):

Revenue Recognition

The Company's revenue consists of rewards earned through participation in the Sky Protocol's staking program. The Company has applied the principles underlying ASC 606,Revenue from Contracts with Customers (“ASC 606”) by analogy in determining the presentation, timing, and measurement of staking revenue by following the five steps: (i) identify the contract, (ii) identify the performance obligation, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligation and (v) determine when to recognize revenue. Revenue is recognized upon transfer of control of promised products or services (i.e., performance obligations) to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for promised goods or services.

Staking rewards are earned and recognized as revenue at the time the Sky Protocol's staking smart contract allocates rewards to the Company's staking position, and are measured at the fair value of the SKY tokens when earned. Rewards accrue and are allocated to the Company's staking position by the protocol's smart contract on a per-Ethereum-block basis (approximately every 12 seconds), based on the quantity of SKY tokens staked and the reward rate established through Sky Protocol governance. Fair value is determined using the quoted spot price on Coinbase Exchange, which the Company has determined to be the principal market for SKY tokens.

Recent Accounting Pronouncements

In December 2025, the FASB issued Accounting Standards Update (“ASU”) No. 2025-12, Codification Improvements (“ASU 2025-12”). ASU 2025-12 addresses 33 issues across a range of topics intended to clarify, correct, or improve U.S. GAAP. The amendments are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim periods within those annual reporting periods, with early adoption permitted on an issue-by-issue basis. Aside from Issue 4 (which requires retrospective application), entities may elect to apply the amendments either prospectively or retrospectively to the beginning of the earliest period presented, on an issue-by-issue basis. The amendments to Topic 260, Earnings Per Share, regarding the calculation of diluted earnings per share when a loss from continuing operations exists are required to be applied retrospectively. The Company is currently evaluating the effect that the adoption of ASU 2025-12 will have on its Unaudited Condensed Consolidated Financial Statements and related disclosures, including the potential effect on diluted earnings per share for prior periods presented.

In December 2025, the FASB issued ASU No. 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements (“ASU 2025-11”). ASU 2025-11 clarifies the scope, form and content, and disclosure requirements applicable to interim financial statements prepared in accordance with U.S. GAAP, including by codifying the interim disclosures required across the Codification and adding a principle requiring disclosure of events and changes since the last annual reporting period that have a material effect on the entity. ASU 2025-11 is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027 for public business entities. Early adoption is permitted. The Company is currently evaluating the effect that the adoption of ASU 2025-11 will have on its Unaudited Condensed Consolidated Financial Statements and related disclosures.

In November 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses (“ASU 2024-03”). ASU 2024-03 is intended to increase transparency and provide investors with more detailed information about the nature of expenses reported on the face of the statements of operations. ASU 2024-03 does not change the requirements for the presentation of expenses on the face of the statements of operations. Under ASU 2024-03, entities are required to disaggregate, in tabular format, expenses presented on the face of the statements of operations if they include any of the following expense categories: purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depreciation, depletion, and amortization recognized as part of oil- and gas-producing activities. For any remaining items within each relevant expense caption, entities must provide a qualitative description of the nature of those expenses. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the effect that the adoption of ASU 2024-03 will have on its Unaudited Condensed Consolidated Financial Statements and related disclosures.

NOTE 3. FAIR VALUE MEASUREMENTS

The following tables present the Company’s financial instruments measured at fair value on a recurring basis as of June 30, 2026 and December 31, 2025 (in thousands):

The Company's restricted cash held as a deposit is classified within Level 1 of the fair value hierarchy because it is valued using quoted market prices in active markets, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

SKY digital assets are measured at fair value on a recurring basis using quoted prices in the Company's principal market (Level 1 inputs) in accordance with ASC 820. The Company didnot hold any digital assets as of December 31, 2025.

The Company determines its principal market as the market with the greatest volume and level of activity for SKY that is accessible to the Company. In making this determination, the Company considers factors including (i) its ability to legally and operationally transact in the market, (ii) observed trading volume and liquidity, (iii) pricing transparency and reliability, and (iv) the market in which the Company primarily executes its transactions.

Although certain global exchanges may report higher aggregate trading volumes, those markets are not considered accessible to the Company due to regulatory and operational constraints. Accordingly, the Company has concluded that Coinbase Exchange represents its principal market, as it exhibits the greatest volume and level of activity for SKY among markets accessible to the Company and provides observable, orderly pricing in USD-denominated markets.

The warrant liabilities as of December 31, 2025 were measured at fair value based on the intrinsic value of the warrants, determined using the quoted market price of the Company's common stock at the measurement date. Because the warrants themselves were not actively traded and the valuation relied on observable market inputs other than quoted prices for identical instruments, the liabilities were classified within Level 2 of the fair value hierarchy.

Warrant Liabilities

Pre-funded warrants with a nominal exercise price are economically similar to common stock and are measured based on intrinsic value, calculated as the market price of the Company's common stock less the nominal exercise price, multiplied by the number of warrant shares outstanding. On June 12, 2026 and June 15, 2026, the October 2025 Pre-Funded Warrants were modified, and all outstanding October 2025 Pre-Funded Warrants were exercised in full on a cashless basis on June 15, 2026. Accordingly, there wereno warrant liabilities outstanding as of June 30, 2026 or June 30, 2025.

The fair value of the January 2026 Pre-Funded Warrants (as defined in Note 8, “Financing Activities”) at issuance was determined using the closing price of the Company's common stock on January 20, 2026 (the first trading day following the announcement of the January 2026 Private Placement, which was made after market close on January 16, 2026).

See Note 10, “Common Stock Warrants and Warrant Liabilities” for additional information and the definitions related to the Company's warrants.

NOTE 4. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following (in thousands):

NOTE 5. DIGITAL ASSETS

The Company holds SKY tokens, which it acquired in connection with the January 2026 Private Placement and through subsequent purchases on digital asset exchanges. The Company also receives additional SKY tokens through participation in the Sky Protocol's staking program, as described below.

The following table summarizes the Company's digital asset holdings as of June 30, 2026 (in thousands, except number of tokens):

The Company didnot hold any digital assets as of December 31, 2025.

As of June 30, 2026, the Company's digital assets were not subject to any contractual sale restrictions.

The following table presents a roll forward of the Company's digital asset holdings for the period ended June 30, 2026 (in thousands, except number of tokens):

The Company recognized unrealized losses of $50.6 million and $28.0 million on its digital assets during the three and six months ended June 30, 2026, respectively, representing the change in fair value of SKY tokens held during the period. The Company did not dispose of any SKY tokens during the three and six months ended June 30, 2026, and accordingly, no realized gains or losses were recognized on SKY tokens.

The 943,599,689 SKY tokens received in connection with the January 2026 Private Placement were initially recorded at a value of approximately $58.0 million, based on a per-token price of $0.0615.

In connection with the January 2026 Private Placement, the Company also received stablecoins (USDT and USDS) with an aggregate fair value of approximately $51.0 million as of the closing date. The Company redeemed all of the stablecoins received for U.S. dollars during the three months ended March 31, 2026, and used a portion of the proceeds to acquire additional SKY tokens. The Company recognized no material gain or loss in connection with the redemption of the stablecoins, which were held for a brief period prior to redemption.

Native Staking

The Company participates in the Sky Protocol's staking program by locking SKY tokens directly into the protocol's staking smart contract through wallets controlled by the Company.

As of June 30, 2026, the Company had staked 2,286,023,773 SKY tokens. During the three and six months ended June 30, 2026, the Company received 31,746,251 SKY tokens and 67,132,900 SKY tokens, respectively, with a fair value of $2.2 million and $4.7 million, respectively, from staking rewards, which was recognized as revenue. See Note 2, “Summary of Significant Accounting Policies,” for the Company's revenue recognition policy related to staking rewards.

NOTE 6. ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):

NOTE 7. COMMITMENTS AND CONTINGENCIES

Indemnification Agreements

In the normal course of business, the Company provides indemnification of varying scope under its agreements with other entities, including its service providers, vendors, and counterparties. Additionally, the Company provided for certain indemnification obligations in connection with the Avenova Asset Divestiture and PhaseOne Divestiture (see Note 13, “Divestitures”). The potential future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company maintains liability insurance policies that limit its exposure. As a result, the Company believes the fair value of these indemnification agreements is minimal. Accordingly, the Company hasnot recorded any liabilities for these agreements as of June 30, 2026 or December 31, 2025.

Legal Matters

From time to time, the Company is subject to various legal proceedings, as well as demands, claims and threatened litigation, which arise in the normal course of our business. The ultimate outcome of any litigation or other legal dispute is uncertain. When a loss related to a legal proceeding or claim is probable and reasonably estimable, the Company accrues its best estimate for the ultimate resolution of the matter. If one or more legal matters are resolved against the Company in a reporting period for an amount above expectations, the Company’s financial condition and operating results for that period may be adversely affected.

During the three months ended March 31, 2026, the Company became aware of a claim for a mootness fee in connection with previously disclosed litigation in Delaware. The Company recorded a $225 thousand accrual related to this matter as of March 31, 2026. During the three months ended June 30, 2026, the Company paid and fully settled this matter.

The Company cannot provide assurance that additional contingencies of a legal nature or contingencies having legal aspects will not be asserted against it in the future, and these matters could relate to prior, current, or future transactions or events.

Leases

The Company leased office space for its corporate headquarters located in Emeryville, California. On June 30, 2026, the Company terminated the lease early, pursuant to a lease termination agreement, prior to the original lease expiration date. In connection with the early termination, the Company made a lease termination fee payment of approximately $569 thousand pursuant to the lease termination agreement and derecognized the remaining lease liability of approximately $522 thousand, resulting in the recording of a net loss on lease termination of approximately $47 thousand, included in general and administrative expenses in the Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2026. No impairment of right-of-use assets was recorded during the three or six months ended June 30, 2026, as the Company's right-of-use assets were fully impaired during 2025. During the six months ended June 30, 2025, the Company recorded an impairment of right-of-use assets of $559 thousand associated with the lease.

Lease costs for the three and six months ended June 30, 2026 and 2025 were as follows (in thousands):

The Company has measured its operating lease liabilities as the present value of minimum lease payments using its incremental borrowing rate over the remaining term for each operating lease. The weighted average remaining lease term and the weighted average discount rate for operating leases from continuing operations are summarized as follows:

The Company had no future minimum lease payments under non-cancelable leases as of June 30, 2026, as its lease agreement was terminated effective that date.

NOTE 8. FINANCING ACTIVITIES

2026 ATM

On January 20, 2026, the Company entered into an ATM Sales Agreement (the “Sales Agreement”) with Virtu Americas LLC (“Virtu”), pursuant to which the Company may offer and sell shares of its common stock, having an aggregate offering price of up to $100.0 million from time to time through or to Virtu as its sales agent or principal (the “ATM Program”). Under the Sales Agreement, the Company has agreed to pay Virtu a commission of up to 2% of the gross proceeds of any shares sold through the ATM Program.

During the three months ended June 30, 2026, the Company sold 1,258,934 shares of common stock under the ATM Program for aggregate gross proceeds of $1.9 million and net proceeds of approximately $1.8 million, after deducting a nominal amount of sales agent commissions and other offering costs. During the six months ended June 30, 2026, the Company sold 2,693,853 shares of common stock under the ATM Program for aggregate gross proceeds of $15.5 million and net proceeds of approximately $15.2 million, after deducting sales agent commissions and other offering costs of approximately $0.3 million. As of June 30, 2026, approximately $84.5 million of common stock remained available for issuance under the ATM Program.

January 2026 Private Placement

On January 16, 2026, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) underlying the January 2026 Private Placement with each of R01 Fund LP (“R01”), Framework Ventures IV L.P., (“Framework”) Tether Investments, S.A. de C.V. (“Tether”) and Sky Frontier Foundation (“SFF” and, together with R01, Framework and Tether, the “Purchasers”). Pursuant to the January 2026 Private Placement, the Company issued and sold pre-funded warrants (the “January 2026 Pre-Funded Warrants”) to purchase an aggregate of 167,539,227 shares of common stock for aggregate gross proceeds of approximately $134.0 million, consisting of approximately $25.0 million in cash,35.0 million USDT and 16.0 million USDS stablecoins (with an aggregate value of approximately $51.0 million at the time of the placement), and 943,599,689 SKY tokens (with an aggregate value of approximately $58.0 million at the time of the placement). The value of the stablecoins and SKY tokens was determined based on their respective fair values as of the closing date of the placement.

The purchase price of each January 2026 Pre-Funded Warrant was $0.80, and the January 2026 Pre-Funded Warrants are exercisable at an exercise price of $0.05 per underlying share of common stock. The January 2026 Pre-Funded Warrants become exercisable on a tiered basis, with 20% becoming exercisable six months after execution of the January 2026 Private Placement,30% becoming exercisable nine months after execution, and the remaining 50% becoming exercisable twelve months after execution. The January 2026 Pre-Funded Warrants are also subject to a beneficial ownership limitation that restricts a holder from exercising the warrants to the extent such exercise would result in the holder, together with its affiliates and certain attribution parties, beneficially owning in excess of 4.99% (or, at the election of the holder prior to issuance,9.99%) of the Company's outstanding common stock. The January 2026 Pre-Funded Warrants contain anti-dilution adjustment provisions that adjust the number of shares issuable upon exercise of the warrants upon the occurrence of specified dilutive issuances of securities by the Company at a price per share less than the purchase price of the January 2026 Pre-Funded Warrants.

October 2025 Pre-Funded Warrants

On October 16, 2025, the Company issued and sold pre-funded warrants (the “October 2025 Pre-Funded Warrants”) to R01 and Framework in two transactions for aggregate net proceeds of approximately $5.9 million. The purchase price was $5.50 per October 2025 Pre-Funded Warrant, representing 110% of the closing price of the common stock on the day before the issuance, less the $0.05 exercise price for each such October 2025 Pre-Funded Warrant. At the time of issuance, the October 2025 Pre-Funded Warrants represented the right to purchase an aggregate of 1,081,082 shares of common stock at an exercise price of $0.05 per share. The October 2025 Pre-Funded Warrants are subject to a beneficial ownership limitation that restricts a holder from exercising the warrants to the extent such exercise would result in the holder, together with its affiliates and certain attribution parties, beneficially owning in excess of 9.9% of the Company's outstanding common stock.

The October 2025 Pre-Funded Warrants contain anti-dilution adjustment provisions that adjust the exercise price and the number of shares issuable upon exercise of the warrants upon the occurrence of specified dilutive issuances of securities by the Company. In October 2025, the conversion of the Company's outstanding Series D Preferred Stock and Series E Preferred Stock into common stock triggered the anti-dilution adjustment provisions. As a result, (i) the exercise price of the October 2025 Pre-Funded Warrants was reduced to $0.002385 per share, and (ii) the number of shares issuable upon exercise of the October 2025 Pre-Funded Warrants increased to 22,664,040 shares.

NOTE 9. CONVERTIBLE NOTES

In March 2024, the Company issued $525 thousand aggregate principal amount of unsecured convertible notes (the “Unsecured Convertible Notes”) in connection with the closing of the DERMAdoctor divestiture in March 2024. The Unsecured Convertible Notes were due March 25, 2026, boreno stated interest, and were convertible at a conversion price of $24.50 per share, subject to certain limitations including beneficial ownership limitations.

In December 2025, holders converted $350 thousand aggregate principal amount of Unsecured Convertible Notes into 14,286 shares of common stock. In January 2026, the remaining $175 thousand aggregate principal amount of Unsecured Convertible Notes was converted into 7,144 shares of common stock. The conversions were accounted for as partial extinguishments of debt at carrying value in accordance with ASC 470. As of June 30, 2026, no Unsecured Convertible Notes remained outstanding.

Interest expense recognized in connection with the Unsecured Convertible Notes, including amortization of issuance costs and debt discount, was $0 and $55 thousand for the three months ended June 30, 2026 and 2025, respectively, and was included in other expense, net in the Unaudited Condensed Consolidated Statements of Operations. During the six months ended June 30, 2026 and 2025, interest expense recognized, including amortization of the issuance costs and debt discount, was $3 thousand and $93 thousand, respectively, which was included in other expense, net in the Unaudited Condensed Consolidated Statements of Operations.

NOTE 10. COMMON STOCK WARRANTS AND WARRANT LIABILITIES

The following table summarizes common stock warrant activity for the period ended June 30, 2026 and the number of warrants outstanding as of June 30, 2026. Weighted average exercise prices are presented per issuable share.

Total net proceeds from warrant exercises during the three months ended June 30, 2026 and 2025 were $0 for both periods, as all warrant exercises during the three months ended June 30, 2026 were effected on a cashless basis (see below).

Total net proceeds from warrant exercises during the six months ended June 30, 2026 and 2025 was $292 thousand and $614 thousand, respectively.

January 2026 Pre-Funded Warrants

See Note 8, “Financing Activities,” for the issuance terms of the January 2026 Pre-Funded Warrants.

The January 2026 Pre-Funded Warrants were classified as a liability from the date of issuance because stockholder approval was required before they could be exercised, and were measured at intrinsic value at each reporting date based on the quoted market price of the Company's common stock less the per-share exercise price, multiplied by the number of shares of common stock issuable upon exercise. The January 2026 Pre-Funded Warrants contain anti-dilution provisions that adjust the number of shares issuable upon exercise upon specified dilutive issuances at a price per share less than the purchase price of the warrants. The issuance-date fair value of the January 2026 Pre-Funded Warrants exceeded the cash and other consideration received, resulting in the recognition of a non-cash loss on fair value of warrant liabilities in excess of proceeds at issuance of $5.3 billion during the three months ended March 31, 2026. On March 12, 2026, the Company obtained the requisite stockholder approval, at which time the January 2026 Pre-Funded Warrants were reclassified to stockholders' equity at their fair value on the date of approval.

October 2025 Pre-Funded Warrants

See Note 8, “Financing Activities,” for the issuance terms of the October 2025 Pre-Funded Warrants.

The October 2025 Pre-Funded Warrants were classified as a liability from the date of issuance because stockholder approval was required before they could be exercised, and were measured at intrinsic value at each reporting date based on the quoted market price of the Company's common stock less the per-share exercise price, multiplied by the number of shares of common stock issuable upon exercise. The October 2025 Pre-Funded Warrants contained anti-dilution provisions that, upon specified events including dilutive issuances and conversions of convertible securities, adjusted the exercise price and the number of shares issuable upon exercise.

On March 12, 2026, the Company obtained the requisite stockholder approval for the issuance of shares underlying the October 2025 Pre-Funded Warrants. Notwithstanding receipt of such approval, the October 2025 Pre-Funded Warrants remained classified as a liability because they were not considered indexed to the Company's own stock under ASC 815, as a result of the anti-dilution provisions described above.

On June 12, 2026, the Company agreed with R01, and on June 15, 2026, the Company agreed with Framework, in each case, to amend the October 2025 Pre-Funded Warrants to remove certain restrictions on exercisability. On June 15, 2026, following such amendments, each of R01 and Framework fully exercised their respective October 2025 Pre-Funded Warrants on a cashless basis, with each receiving 11,307,300 shares of Common Stock after the withholding of 24,720 shares representing the cashless exercise price, resulting in the issuance of an aggregate of 22,614,600 shares of Common Stock. The 1,081,082 October 2025 Pre-Funded Warrants were exercisable for an aggregate of 22,664,040 shares of common stock as a result of the anti-dilution adjustments described above; upon cashless exercise,49,440 shares were withheld for the exercise price and 22,614,600 net shares of common stock were issued. As a result, there were no warrant liabilities outstanding as of June 30, 2026. In connection with the amendments, the October 2025 Pre-Funded Warrants were remeasured at intrinsic value immediately prior to exercise, consistent with the Company's existing quarterly measurement policy for these warrants; the resulting change in fair value was not attributable to the terms of the amendments themselves. Changes in fair value through the respective dates of exercise were recorded as non-cash gain or loss in the Unaudited Condensed Consolidated Statements of Operations.

July 2024 Series F-1 Warrants and Series F-3 Warrants

In July 2024, in connection with the Company's underwritten public offering completed on July 29, 2024, the Company issued Series F-1 Warrants and Series F-3 Warrants at an initial exercise price of $5.50 per share, exercisable immediately upon issuance and expiring on July 30, 2029. The Series F-1 Warrants and Series F-3 Warrants were classified as a component of permanent equity. On September 27, 2024, a one-time down round feature adjustment was triggered, reducing the exercise prices to $3.30 per share. The Series F-1 Warrants are subject to a 4.99% beneficial ownership limitation (or, at the election of the holder prior to issuance,9.99%) that restricts a holder from exercising the warrants to the extent such exercise would result in the holder beneficially owning in excess of the applicable percentage of the Company's outstanding common stock.

In March 2025, the Company entered into three separate confidential settlement and release agreements (collectively, the “Settlement Agreements”) with each of Sabby Volatility Warrant Master Fund, Ltd. (“Sabby”), Bigger Capital Fund, LP (“Bigger”) and District 2 Capital Fund LP (“District 2,” and together with Sabby and Bigger, the “Warrant Holders”) to settle certain disputed matters relating to warrants held by the Warrant Holders, including the Series F-1 Warrants and the Series F-3 Warrants. In connection with the Settlement Agreements, Series F-1 Warrants exercisable for 254,545 shares of common stock and Series F-3 Warrants exercisable for 148,988 shares of common stock were repurchased by the Company. The repurchase was recorded as a $2.0 million reduction of additional paid-in capital in the Unaudited Condensed Consolidated Balance Sheets.

All remaining unexercised Series F-3 Warrants expired on July 29, 2025.

November 2022 A-1 Warrants

In November 2022, the Company issued common stock purchase warrants exercisable for shares of common stock at an initial exercise price of $1,102.50 per share, expiring November 20, 2028 (the “November 2022 A-1 Warrants”). The November 2022 A-1 Warrants were classified as a component of permanent equity. Certain of the November 2022 A-1 Warrants were subsequently amended to reduce their exercise prices in connection with subsequent financing transactions in May 2023 and June 2024.

Other Outstanding Warrants

As of June 30, 2026, the Company had outstanding common stock purchase warrants issued in prior periods that are classified as a component of permanent equity, including the November 2021 Warrants, the September 2022 Warrants, and the November 2022 A-1 Warrants, as outlined in the table above. There was no exercise, repurchase, or other activity related to these warrants during the period ended June 30, 2026. The July 2020 Warrants and the TLF Warrants, which had been outstanding at December 31, 2025, expired in accordance with their terms during the period ended June 30, 2026.

Summary of Common Stock Warrant Liabilities

The following roll forward presents the Company's warrant liabilities measured at fair value during the period ended June 30, 2026 (in thousands)

The October 2025 Pre-Funded Warrants and January 2026 Pre-Funded Warrants, which have a nominal exercise price, are measured at intrinsic value, calculated as the quoted market price of the Company's common stock less the per-share exercise price, multiplied by the number of shares of common stock issuable upon exercise. On March 12, 2026, the Company obtained stockholder approval for the issuance of shares underlying the October 2025 and January 2026 Pre-Funded Warrants. Upon receipt of such approval, the January 2026 Pre-Funded Warrants were reclassified to stockholders' equity at fair value on that date. The October 2025 Pre-Funded Warrants remained classified as a liability because they were not considered indexed to the Company's own stock under ASC 815, as a result of certain anti-dilution provisions. On June 12, 2026 and June 15, 2026, the October 2025 Pre-Funded Warrants were modified, and all outstanding October 2025 Pre-Funded Warrants were exercised in full on a cashless basis on June 15, 2026. Accordingly, there were no warrant liabilities outstanding as of June 30, 2026. See the discussions of the individual warrant series above.

NOTE 11. STOCKHOLDERS’** EQUITY (DEFICIT)**

Authorized Share Capital

Under the Company's Amended and Restated Certificate of Incorporation, as amended, the Company is authorized to issue up to 5,000,000,000 shares of common stock and up to 5,000,000 shares of preferred stock with rights and preferences as may be approved by the Company's Board. On March 12, 2026, in connection with the Company's special meeting of stockholders, the Company's stockholders approved an increase in the authorized number of shares of common stock from 1,500,000,000 to 5,000,000,000.

Reverse Stock Split

On February 20, 2026, the Company effected a 1-for-5 reverse stock split of its common stock. In connection with the reverse stock split, an aggregate of 45,912 shares of common stock were issued as a result of the rounding feature applicable to the reverse stock split. Except as otherwise specifically noted, all share numbers, share prices, exercise/conversion prices and per share amounts in this report have been adjusted, on a retroactive basis, to reflect the reverse stock split.

Series B Preferred Stock

As of December 31, 2025,131 shares of Series B Non-Voting Convertible Preferred Stock (“Series B Preferred Stock”) were outstanding. During the three months ended March 31, 2026, all 131 outstanding shares of Series B Preferred Stock were converted into 3,013 shares of common stock. As of June 30, 2026, no shares of Series B Preferred Stock remained outstanding.

Series F Preferred Stock

The Series F Voting Retractable Preferred Stock (“Series F Preferred Stock”) was redeemable in cash at the option of the holder following shareholder approval in October 2025 and was classified as mezzanine equity on the Company's Unaudited Condensed Consolidated Balance Sheet at its redemption value. After December 31, 2025, the Company had the ability to call the shares for redemption. During the three months ended March 31, 2026, the remaining 1,346,633 shares of Series F Preferred Stock were redeemed for an aggregate cash payment of $350 thousand. As of June 30, 2026, no shares of Series F Preferred Stock remained outstanding. See Note 8, “Financing Activities,” for additional information regarding the Series F Preferred Stock.

NOTE 12. STOCK-BASED COMPENSATION

Equity Compensation Plans

In January 2026, the Company adopted the 2026 Equity Incentive Plan (the “2026 Plan”), which was approved by stockholders on March 12, 2026. The 2026 Plan provides for the grant of equity awards, including stock options, restricted stock, performance awards, stock appreciation rights (“SARs”), restricted stock units (“RSUs”) and other share-based awards to employees, directors, consultants and advisors, as determined by the Compensation Committee of the Board (the “Committee”). Upon stockholder approval of the 2026 Plan, no further awards may be granted under the Company's 2017 Omnibus Incentive Plan (the “2017 Plan”) or its 2007 Omnibus Incentive Plan (the “2007 Plan”); however, awards previously granted under the 2017 Plan and 2007 Plan remain outstanding and continue to be governed by the terms of those plans until exercised, settled, forfeited or otherwise canceled in accordance with their terms.

Upon adoption, the 2026 Plan allowed for awards of up to 22,223,927 shares of the Company's common stock, plus an automatic annual increase in the number of shares authorized for awards on the first day of each of the Company's fiscal years beginning January 1, 2027 through January 1, 2036, equal to the lesser of (i)4% of the number of shares of common stock outstanding on the last day of the immediately preceding fiscal year or (ii) such lesser number of shares of common stock as determined by the Board. Under the terms of the 2026 Plan, the exercise price of stock options and SARs may not be less than 100% of the fair market value of the Company's common stock on the date of grant (or 110% in the case of incentive stock options (“ISOs”) granted to a holder of more than 10% of the Company's common stock) or such higher amount as the Committee may determine. The term of stock option awards and SARs may not exceedten years from the date of grant (orfive years from the date of grant in the case of ISOs granted to a holder of more than 10% of the Company's common stock). As of June 30, 2026, there were 539,491 shares available for future awards under the 2026 Plan.

The 2007 Plan expired on March 15, 2017. Outstanding stock options granted under the 2007 Plan continue to be governed by its terms, expire no later thanten years from the date of grant, and were fully vested as of June 30, 2026.

The 2017 Plan was adopted in March 2017 and approved by stockholders on June 2, 2017. Following stockholder approval of the 2026 Plan on March 12, 2026, no new awards may be granted under the 2017 Plan. Outstanding awards under the 2017 Plan remain subject to its terms, including that the exercise price of non-qualified stock options, ISOs and SARs may not be less than 100% of the fair market value of the Company's common stock on the date of grant (or 110% for ISOs granted to a holder of more than 10% of the Company's common stock), and that option terms may not exceedten years (orfive years for such ISOs). Stock options granted to employees under the 2017 Plan generally vest over four years; options granted to directors and consultants typically vest over a shorter period; and RSUs granted to directors typically vest overone year, in each case subject to continued service.

The Company issues new shares of common stock to satisfy exercises of options and settlement of RSUs under the 2007 Plan, the 2017 Plan and the 2026 Plan.

Restricted Stock Units

The following table summarizes information about the Company’s RSUs outstanding at December 31, 2025, and activity during the six months ended June 30, 2026:

Forfeitures are estimated at the time of grant and reduce compensation expense ratably over the vesting period. This estimate is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate.

For the three months ended June 30, 2026 and 2025, the Company recognized stock-based compensation expense of $3.2 million and $4 thousand, respectively, for RSUs awards to employees and directors. For the six months ended June 30, 2026 and 2025, the Company recognized stock-based compensation expense of $3.3 million and $6 thousand, respectively, for RSUs to employees and directors.

Equity Awards Granted Under the 2026 Equity Incentive Plan

On March 31, 2026, the Company granted an aggregate of 21,684,436 RSUs under the 2026 Plan, representing substantially all of the shares available for issuance under the plan as of that date. The grants included 6,238,828 time-based RSUs subject to vesting over one to three years and 15,445,608 performance-based RSUs to the Company's Chief Executive Officer (the "CEO PSUs"). The weighted-average grant-date fair value was $1.43 per share for the market-condition tranche of the CEO PSUs (the VWAP RSUs), and $1.49 per share for the performance-condition tranche of the CEO PSUs (the “NAV RSUs”), with the latter based on the closing stock price on the grant date.

The CEO PSUs are divided equally between two components. Fifty percent are eligible to vest based on the Company's common stock achieving specified 10-trading-day volume-weighted average price ("VWAP") thresholds of $1.70, $2.55, and $5.10 per share during the five-year performance period beginning October 16, 2026 (the "VWAP RSUs"). The remaining fifty percent are eligible to vest based on the Company achieving specified Digital Asset NAV thresholds of $250 million, $400 million, and $800 million, in each case sustained for two consecutive quarterly reporting periods during the same performance period (the "NAV RSUs"). Digital Asset NAV is defined in the award agreement as the fair market value of the Company's digital assets and related investments within its approved strategy, excluding cash, cash equivalents, and stablecoin holdings. Any earned tranche vests in equal quarterly installments over the eight fiscal quarters following achievement, subject to a 13-month cliff measured from the January 16, 2026 vesting start date.

The grant-date fair value of the VWAP RSUs was determined using a Monte Carlo simulation. Significant assumptions, which represent Level 3 inputs within the fair value hierarchy, were as follows: expected volatility of 157%, risk-free interest rate of 3.92%, expected dividend yield of 0%, derived service period of 3 years, and grant-date stock price of $1.49. Compensation expense for the VWAP RSUs is recognized on a graded-vesting basis over the requisite service period and will not be reversed if the market conditions are not ultimately achieved.

The NAV RSUs contain performance conditions. As of June 30, 2026, the Company concluded that achievement of the Digital Asset NAV thresholds was not probable and accordingly no compensation expense has been recognized in respect of the NAV RSUs. The Company will reassess probability at each reporting date, and if achievement becomes probable, will recognize a cumulative catch-up of compensation expense equal to the portion of the requisite service period elapsed.

Total unrecognized compensation cost related to unvested RSUs, excluding the NAV RSUs for which achievement of the performance conditions was not probable, was $17.2 million as of June 30, 2026, which is expected to be recognized over a weighted-average period of 2.06 years.

Stock-Based Awards to Non-Employees

The Company did not grant options or restricted stock to non-director non-employees during the three and six months ended June 30, 2026 and 2025. The Company didnot recognize stock-based compensation expense as it relates to non-employees for the three and six months ended June 30, 2026 and 2025.

NOTE 13. DIVESTITURES

On January 17, 2025, the Company completed the sale of its eyecare products sold under the Avenova brand and related assets (the “Avenova Asset Divestiture”) to PRN Physician Recommended Nutriceuticals, LLC for a base purchase price of $11.5 million, subject to customary post-closing adjustments. The Company recorded a gain of $10.7 million on the Avenova Asset Divestiture during the six months ended June 30, 2025. Separately, on January 8, 2025, the Company completed the sale of two of its wound care trademarks to PhaseOne Health LLC (the “PhaseOne Divestiture”) for a purchase price of $500,000 and recorded a net gain of $0.5 million during the six months ended June 30, 2025. The China NeutroPhase product line was discontinued during the year ended December 31, 2025 and is presented as a component of discontinued operations for all periods presented. Additional information regarding the terms of these transactions is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 and 2024.

In accordance with ASC 205-20, the results of operations and cash flows of the Avenova Asset Divestiture and the PhaseOne Divestiture have been excluded from continuing operations and presented as discontinued operations for all periods presented.

The components of discontinued operations for the three months ended June 30, 2025 are summarized below (in thousands):