Stablecoin Development Corp

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

Results of operations

Cash flows from discontinued operations

NOTE 14. INCOME TAXES

The Company recorded income tax expense of $5.6 million and $0 for the three months ended September 30, 2026 and 2025, respectively, and $5.6 million and $0 for the nine months ended September 30, 2026 and 2025, respectively. The expense for the three months ended September 30, 2026 consists substantially of deferred income tax expense arising from the unrealized gain on the Company’s digital assets, which is recognized for financial reporting purposes but not for income tax purposes until realized, and resulted in a net deferred tax liability of $5.6 million as of September 30, 2026. The income tax provision for discontinued operations is presented separately in Note 13, “Divestitures.” The Company’s effective income tax rate was approximately 10.0% and 0% for the three months ended September 30, 2026 and 2025, respectively, and approximately 1.0% and 0% for the nine months ended September 30, 2026 and 2025, respectively. The effective rate for the 2026 periods differs from the U.S. federal statutory rate of 21% primarily because the non-cash loss on fair value of warrant liabilities in excess of proceeds at issuance and the non-cash gain on changes in fair value of warrant liabilities are not recognized for income tax purposes, and because of changes in the valuation allowance against the Company’s deferred tax assets.

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 September 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.

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, taxable temporary differences related to unrealized gains on the Company’s digital assets provided sufficient positive evidence that it was more likely than not that the Company’s deferred tax assets would be realized, and the Company recorded a net deferred tax liability. During the three months ended June 30, 2026, a decline in the value of the Company’s digital assets reversed the unrealized gain to an unrealized loss, resulting in a net deferred tax asset against which the Company recorded a full valuation allowance. During the three months ended September 30, 2026, the increase in the value of the Company’s digital assets reversed the unrealized loss to an unrealized gain, and the resulting taxable temporary difference again represents a source of future taxable income sufficient to support the realization of the Company’s deferred tax assets, which include net operating loss carryforwards remaining after the limitation under Section 382 of the Internal Revenue Code and other deductible temporary differences. Accordingly, as of September 30, 2026, the Company’s deferred tax assets are offset against its deferred tax liabilities and a net deferred tax liability of $5.6 million is reflected in the unaudited condensed balance sheet. The Company’s assessment of the realizability of its deferred tax assets is subject to change, and its net deferred tax position may fluctuate significantly from period to period with changes in the fair value of its digital assets.

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 to 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. SFF’s designee under the Investors’ Rights Agreement, David Garcia Rios, has served as a director since September 2, 2026 and receives ordinary-course director compensation under the Company’s 2026 Non-Employee Director Compensation Program. R01 exercised its nomination right by designating Russell Preston Cann, whose designation was given effect by his nomination for election as a Class I director at the Company’s 2026 Annual Meeting of Stockholders, to be held on November 10, 2026. Tether did not receive a board nomination right. As of September 30, 2026, each of R01 and Framework was a significant stockholder of the Company. R01 Capital LLC is the general partner of R01 Fund LP. R01 Capital Manager LLC is the investment manager for R01 Capital LLC. Michael Kazley, the Company’s Chief Executive Officer and Chairman of the Board, is the Managing Member of R01 Capital Manager LLC. 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. Other than the January 2026 Private Placement and the rights granted in connection therewith as described above, and ordinary-course director compensation paid to Mr. Garcia Rios under the Company’s 2026 Non-Employee Director Compensation Program, no transactions between the Company and SFF have occurred as of September 30, 2026.

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 nine months ended September 30, 2026.

NOTE 16. SUBSEQUENT EVENTS

The Company has evaluated all subsequent events through October 29, 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 financial statements as of September 30, 2026, and events which occurred subsequently but were not recognized in the unaudited condensed financial statements.

At-the-Market Offering Program

Subsequent to September 30, 2026 and through October 26, 2026, the Company sold an aggregate of 15,801,547 shares of Common Stock under the ATM Program for aggregate gross proceeds of approximately $46.8 million and net proceeds of approximately $45.9 million, after deducting sales agent commissions and other offering costs. As of October 26, 2026, approximately $36.4 million of Common Stock remained available for issuance under the ATM Program. See Note 8, “Financing Activities,” for additional information regarding the ATM Program.

Exercise of January 2026 Pre-Funded Warrant

On October 13, 2026, Tether exercised a portion of its January 2026 Pre-Funded Warrant on a cashless basis pursuant to Section 2(c) thereof with respect to 5,743,762 shares of Common Stock. In accordance with the net exercise provisions of the warrant,197,652 shares were withheld in payment of the aggregate exercise price, resulting in a net issuance of 5,546,110 shares of Common Stock to Tether. Following the exercise, Tether’s January 2026 Pre-Funded Warrant remained exercisable for 38,006,238 shares of Common Stock, subject to the beneficial ownership limitation and the exercisability schedule described in Note 8, “Financing Activities.”

CEO Performance-Based Restricted Stock Units

The performance period for the VWAP RSUs described in Note 12, "Stock-Based Compensation," commenced on October 16, 2026. On October 16, 2026, the Common Stock attained a ten-trading-day VWAP (as defined in the award agreement) of at least $2.55 per share and, accordingly, the first two VWAP RSU tranches, representing an aggregate of 5,148,537 RSUs, were earned. The Compensation Committee of the Board certified the attainment on October 22, 2026. Earned RSUs vest in equal quarterly installments over the eight fiscal quarters following attainment, subject to the 13-month cliff measured from the January 16, 2026 vesting start date and to continued service. Accordingly, no earned RSUs will vest or be settled in shares of Common Stock before February 16, 2027. The attainment is a nonrecognized subsequent event and had no effect on the Company's financial position or results of operations as of and for the periods ended September 30, 2026. The attainment did not change the grant-date fair value of the VWAP RSUs. Unrecognized compensation cost related to the earned tranches was approximately $6.2 million as of September 30, 2026, and the attainment shortens the period over which that cost will be recognized.

Decline in Market Price of SKY

Subsequent to September 30, 2026, the market price of SKY declined. The price of SKY in the Company’s principal market, Coinbase Exchange, was $0.06761 per token as of midnight UTC on October 26, 2026, compared to $0.07764 per token as of September 30, 2026, a decrease of approximately 13%.