Stablecoin Development Corp

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

Results of operations

Cash flows from discontinued operations

NOTE 14. INCOME TAXES

The provision for income taxes is recorded at the end of each interim period based on the Company's best estimate of its effective income tax rate expected to be applicable for the full fiscal year, adjusted for any discrete items during the quarter. The Company has recorded an income tax (benefit) of $3.5 million and $0 for the three months ended June 30, 2026, and June 30, 2025, respectively. This resulted in a cumulative income tax benefit of $28 thousand for the six months ended June 30, 2026, and $0 for the six months ended June 30, 2025. The income tax provision for discontinued operations is presented separately in Note 13, "Divestitures.” The Company's effective income tax rate was approximately 7.8% for the three months ended June 30, 2026 and 0% for the three months ended June 30, 2025, and was 0% for both the six months ended June 30, 2026 and June 30, 2025. For both the three and six month 2026 periods, the effective rate differs from the statutory rate primarily due to warrant income that is not recognized for income tax purposes and the recording of a valuation allowance against the Company's deferred tax assets. The income tax benefit recognized in the three months ended June 30, 2026 substantially offsets an income tax expense recognized in the three months ended March 31, 2026, resulting in a de minimis net income tax benefit for the six month period.

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 period ended June 30, 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 period ended June 30, 2026, the Company recorded a 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. As of March 31, 2026, the Company concluded that the existence of taxable temporary differences related to unrealized gains on digital assets provided sufficient positive evidence to conclude that it was more likely than not that its deferred tax assets would be realized. However, during the three months ended June 30, 2026, a decline in the value of the digital assets caused the previously recognized unrealized gain to reverse to an unrealized loss, resulting in a deferred tax asset that is fully offset by a valuation allowance. The Company's assessment of the realizability of its deferred tax assets is subject to change. As the valuation allowance fully offsets the Company's net deferred tax assets, no net deferred tax asset or liability is reflected in the Company's Unaudited Condensed Consolidated Balance Sheets as of June 30, 2026.

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. Michael Kazley, the Company's Chief Executive Officer and Chairman of the Board, is the Managing Member of R01 Capital Manager LLC, the investment manager of R01. 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.

Sky Frontier Foundation

SFF is an independent foundation organized to support the development of the Sky Protocol ecosystem. SFF participates in Sky Protocol governance and holds SKY tokens separate from its investment in the Company. Because the Company holds SKY tokens and participates in Sky Protocol governance, transactions and governance decisions affecting the Sky Protocol may involve both the Company and SFF, which could be deemed to create potential conflicts of interest. As of June 30, 2026, no transactions between the Company and SFF have occurred other than the January 2026 Private Placement and the rights granted in connection therewith as described above.

June 2026 Pre-Funded Warrant Amendments

On June 12, 2026, the Company agreed with R01, and on June 15, 2026, the Company agreed with Framework, in each case, to amend such holder's October 2025 Pre-Funded Warrants to remove the beneficial ownership limitation and the delayed initial exercise date provision that had previously restricted the holder's ability to exercise. Following such amendments, on June 15, 2026, each of R01 and Framework fully exercised their respective October 2025 Pre-Funded Warrants on a cashless basis, receiving an aggregate of 22,614,600 shares of Common Stock, representing approximately 45% of the Company's common stock outstanding immediately following such exercises. See Note 10, "Common Stock Warrants and Warrant Liabilities," for additional information regarding the accounting treatment of this transaction.

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 six months ended June 30, 2026.

NOTE 16. SUBSEQUENT EVENTS

The Company has evaluated all subsequent events through July 30, 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 June 30, 2026, and events which occurred subsequently but were not recognized in the Unaudited Condensed Consolidated Financial Statements. There were no subsequent events which required recognition, adjustment to, or disclosure in, the Unaudited Condensed Consolidated Financial Statements.