Stablecoin Development Corp: Form 10-Q for the period ended Mar 31, 2026

The following discussion of our financial condition and results of operations should be read together with our Unaudited Condensed Consolidated Financial Statements and related notes included in Part I, Item 1 of this report and with our Consolidated Financial Statements and related notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations, included in our 2025 Annual Report on Form 10-K, as amended. This discussion contains forward-looking statements that involve risks and uncertainties. Words such as “expects,” “anticipated,” “will,” “may,” “goals,” “plans,” “believes,” “estimates,” “concludes,” “determines,” variations of these words, and similar expressions are intended to identify these forward-looking statements. As a result of the significant changes that have occurred to us and our business, including the establishment of our digital asset treasury strategy, as well as other factors, including those set forth under the section entitled “Risk Factors” in Part I, Item 1A. of our 2025 Annual Report on Form 10-K, as amended, and elsewhere in our SEC filings, our actual results may differ materially from those anticipated in these forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions based upon assumptions made that we believe to be reasonable at the time and are subject to risks and uncertainties. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Except as required by law, we undertake no obligation to publicly revise or update any forward-looking statements after the date of this report, even if new information becomes available in the future.

Overview

Stablecoin Development Corporation, 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 April 2, 2026, the Company's corporate name change from NovaBay Pharmaceuticals, Inc. to Stablecoin Development Corporation became legally effective, and on April 6, 2026, the Company's common stock commenced trading on the NYSE American under the ticker symbol “SDEV.” See Note 16, “Subsequent Events,” for additional information.

Pursuant to oversight by our Board of Directors and our Digital Asset Strategy Advisory Committee established by our Board of Directors, our core business consists of the accumulation, holding, and deployment of operating digital assets for use within blockchain-based networks to support protocol-level services, including staking, governance participation, validation, and related activities. These activities may generate protocol-defined incentives, rewards, or service-based fees in accordance with network rules and governance-approved parameters. Our initial focus is on SKY, the protocol token of the decentralized Sky Protocol.

Stablecoin adoption has expanded across payments, settlement, and on-chain capital markets in recent years, and stablecoin supply has grown significantly. Regulatory frameworks in the United States and internationally continue to develop, which may provide greater clarity for stablecoin issuers and users. The Sky Protocol, through which the Company’s primary digital asset holdings are deployed, is one of the longest-operating decentralized stablecoin platforms, with USDS and DAI supply exceeding $11 billion as of March 31, 2026. The Sky Protocol generates revenue through borrowing fees, savings yields, and on-chain settlement volume. The Company’s SKY staking rewards are derived from a portion of these protocol-level revenues. The Company may evaluate additional digital asset investments that provide exposure to stablecoin infrastructure and related financial services, subject to approval by the Digital Asset Strategy Advisory Committee and the Board of Directors, and any applicable Purchaser consent rights under the Securities Purchase Agreement. See Note 8, “Financing Activities,” for additional information.

On January 16, 2026, pursuant to the January 2026 Private Placement, 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 provided the initial capital base for the Company's digital asset treasury strategy and resulted in the Company's initial holdings of SKY tokens.

The Company holds digital assets as part of a long-term capital allocation strategy and does not engage in short-term speculative trading, proprietary trading strategies, margin arrangements, or derivatives transactions referencing digital assets unless expressly authorized by the Digital Asset Strategy Advisory Committee and supported by appropriate risk management, compliance, and liquidity controls. Within this framework, our approach anticipates that we may:

• hold digital assets, including SKY, for extended periods as long-term positions intended to participate in protocol-level economics and potential capital appreciation;
• periodically monetize a portion of our holdings for general corporate purposes, including tax planning and liquidity management, in accordance with applicable law;
• evaluate opportunities to generate liquidity or financing that reference, or are collateralized by, digital assets held by the Company, including SKY; and
• continue to invest in internal capabilities and third-party relationships necessary to transact, settle, account for, and safeguard our digital asset holdings.

The execution and scope of this strategy are subject to prevailing market conditions, risk limits established by our Digital Asset Strategy Advisory Committee, the availability of suitable commercial opportunities, and regulatory, legal, and tax considerations.

Separately, we maintain cash, cash equivalents, and short-duration investments outside of our digital asset strategy to meet near-term operating requirements and liquidity needs.

Key Drivers of Results

The Company’s financial results are primarily driven by (i) the market price of SKY, which affects the fair value of the Company’s digital asset holdings and the magnitude of unrealized gains or losses recognized each period; (ii) staking economics, including the level of staking rewards generated by the Sky Protocol and the proportion of the Company’s holdings deployed in staking activities; (iii) the Company’s access to capital, including through its ATM Program, to fund additional SKY acquisitions; and (iv) operating expenditures required to support the Company’s digital asset holdings, including custody, compliance, legal, and accounting costs associated with maintaining public-company discipline around a digital asset-focused business model. Because the Company’s digital asset holdings constitute substantially all of its assets, changes in the market price of SKY are expected to be the most significant driver of the Company’s reported financial results in any given period.

Digital Asset Holdings – SKY

As of March 31, 2026, the Company held 2,153,141,678 SKY tokens, representing approximately 9% of the total supply of SKY. Since the closing of the January 2026 Private Placement, the Company has acquired approximately 1.2 billion additional SKY tokens on the open market at an average purchase price of approximately $0.065 per SKY token. All SKY tokens acquired outside of the January 2026 Private Placement have been purchased through open-market transactions, consistent with the Company's digital asset policies. Since commencing on-chain staking activities, the Company has earned approximately 35.3 million SKY tokens in cumulative staking rewards. The majority of the Company's SKY holdings remain deployed in staking activities within the Sky Protocol ecosystem, through which the Company participates in on-chain governance of the Sky Protocol. Staking rewards are determined by protocol governance parameters, participation levels, and other factors, and are subject to variability over time.

SKY tokens are a network-native digital asset that may be acquired, transferred, and held through digital wallets that rely on public/private key pairs, and may be exchanged on trading venues that support SKY trading pairs against fiat currencies or other digital assets.

The Sky Protocol is a decentralized finance platform that evolved from MakerDAO, one of the earliest projects in the digital asset ecosystem. The protocol is implemented through open-source smart contracts deployed on the Ethereum blockchain and enables the creation and use of USDS, a decentralized stablecoin designed to maintain a soft peg to the U.S. dollar, serving as foundational financial infrastructure for lending, savings, and on-chain capital markets. SKY is the governance token of the Sky Protocol ecosystem; holders participate in protocol governance through an open, transparent on-chain voting process. The protocol generates revenue from borrowing fees and other economic activity, which is used to fund open-market buybacks of SKY tokens that are allocated between distributions to staking participants, including the Company, and a protocol-level surplus buffer. SKY has a fixed total supply of approximately 23.5 billion tokens, based on current protocol parameters. Unlike many digital assets that rely on inflationary issuance to incentivize participation, SKY derives its economic characteristics from protocol-generated revenues associated with stablecoin issuance, collateralized lending, and other on-chain financial services.

The market price of SKY is determined by supply and demand across network-based markets, including individuals, institutions, market makers, and custodial service providers, and may be volatile. Liquidity, spreads, and volumes vary by venue and geography. Prices may fluctuate due to factors including protocol changes, governance decisions, market sentiment, macroeconomic conditions, third-party platform events, and broader digital asset market dynamics.

Industry Participants and Ecosystem

The Sky Protocol ecosystem includes open-source developers, wallet infrastructure providers, custodians, trading venues, market makers, and data and analytics providers. The breadth, maturity, and reliability of these third-party services may affect liquidity, price discovery, and the Company's operational resilience. As adoption of the Sky Protocol and related infrastructure evolves, the Company expects the availability and capabilities of these services to change over time.

Custody and Safeguarding of Digital Assets

The Company holds and safeguards its SKY tokens through a combination of qualified third-party custody and Company-controlled wallets managed through third-party key management infrastructure. Payward Financial, Inc (“Kraken”) serves as the Company’s qualified custodian pursuant to Wyoming law.

Because staking the Company’s SKY tokens requires on-chain deployment that cannot be executed from a custodial account, the substantial majority of the Company’s SKY tokens are held in self-custody using the MPC key management platform provided by Fireblocks. Fireblocks does not hold digital assets, does not act as a custodian, and does not have unilateral control over the Company’s digital assets.

The Company maintains the ability to custody digital assets with Kraken and may reallocate assets among service providers from time to time. None of the Company’s custodial or infrastructure service providers are related parties of the Company.

The principal counterparty risk associated with our SKY holdings relates to these service providers' performance under our custody and platform agreements. We hold our SKY across multiple service providers to diversify our exposure, and we continually evaluate and seek to engage additional digital asset custodians and infrastructure providers to further diversify risk. We may, in the future, discontinue or change the use of one or more third-party service providers or utilize alternative custody arrangements. Under our agreements, each of Kraken and Fireblocks may engage third-party service providers, affiliates, or subcontractors to assist in performing their respective obligations.

Governmental, Regulatory, and Accounting Considerations

The regulatory framework applicable to blockchain-based networks and digital assets continues to evolve in the United States and internationally. Regulatory developments affecting trading venues, custodians, or service providers may impact access, liquidity, or pricing of digital assets held by the Company. We monitor regulatory developments and adjust our policies, counterparties, and controls as appropriate.

Digital assets held by the Company will be subject to evolving accounting standards, and changes in market value and protocol participation may result in volatility in the Company’s financial results.

Discontinued Operations

As part of the comprehensive realignment of the Company's business during 2025, the Company completed the Avenova Asset Divestiture and the PhaseOne Divestiture and decided to exit its involvement in the China NeutroPhase product line. The historical financial results of these businesses are reflected as discontinued operations in the Unaudited Condensed Consolidated Financial Statements included in this report. See Note 13, “DivestituresDivestitures,” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report for additional details.

Financial Overview

Following the establishment of the Company's digital asset treasury strategy in October 2025 and the closing of the January 2026 Private Placement, the Company has transitioned its operations to focus on the accumulation, holding, and deployment of digital assets, with an initial focus on SKY tokens. As of March 31, 2026, the Company held 2,153,141,678 SKY tokens with an aggregate fair value of $160.1 million. See also “Financial Condition, Liquidity and Capital Resources” below.

The Company has access to its ATM Program, under which it may sell shares of common stock from time to time at prevailing market prices. During the three months ended March 31, 2026, the Company used net proceeds from the ATM Program, together with other available capital, to acquire SKY tokens on the open market. The pace and magnitude of any future ATM sales and SKY purchases will depend on a number of factors, including prevailing market conditions, SKY pricing, the Company’s liquidity position, and the availability of shares under the ATM Program. The Company may also pursue additional financing transactions, subject to market conditions and Board approval. There can be no assurance that the Company will be able to sell shares under the ATM Program or that any future financing transactions will be completed on favorable terms, or at all.

Critical Accounting Estimates

The Company's Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. GAAP. The preparation of these Unaudited Condensed Consolidated Financial Statements requires the Company to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Unaudited Condensed Consolidated Financial Statements, as well as the reported revenues and expenses during the reporting periods. In preparing these Unaudited Condensed Consolidated Financial Statements, management has made its best estimates and judgments of certain amounts, giving due consideration to materiality. On an ongoing basis, the Company evaluates its estimates and judgments. The Company bases its estimates on historical experience and on various other factors that the Company believes are reasonable under the circumstances. Actual results may differ from these estimates.

While the Company's significant accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies,” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report, the Company believes that the accounting estimates of the fair value of the January 2026 Pre-Funded Warrants issued in conjunction with the 2026 Private Placement are the most critical to fully understanding and evaluating its reported financial results as discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations.

The January 2026 Pre-Funded Warrants, which have a nominal exercise price, were 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. The Company's determination that intrinsic value approximates fair value for these warrants is based on their nominal exercise price and economic similarity to common stock. Given the substantial number of shares of common stock issuable upon exercise of these warrants, relatively small changes in the Company's common stock price had a significant effect on the measured fair value of the warrant liabilities and on the related non-cash gains and losses recognized in the Unaudited Condensed Consolidated Statements of Operations. The fair value of the January 2026 Pre-Funded Warrants 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), as management concluded that this price was the most appropriate reference price reflecting the market's absorption of the dilutive impact of the announcement.

The intrinsic value of the January 2026 Pre-Funded Warrants at issuance exceeded the cash and other consideration received in the January 2026 Private Placement by approximately $5.3 billion, resulting in the recognition of a non-cash loss on fair value of warrant liabilities in excess of proceeds at issuance. Changes in the Company's common stock price during the three months ended March 31, 2026 resulted in a non-cash gain on changes in fair value of warrant liabilities of approximately $5.8 billion. Following stockholder approval obtained on March 12, 2026, the warrant liability recorded for the January 2026 Pre-Funded Warrants was reclassified to stockholders' equity at fair value on that date, and no further fair value adjustments will be recorded with respect to those warrants in future periods. The October 2025 Pre-Funded Warrants remain classified as a liability as of March 31, 2026 because they are not considered indexed to the Company's own stock under ASC 815, as a result of certain anti-dilution provisions, and will continue to be remeasured at fair value at each reporting date. As of March 31, 2026, the fair value of the October 2025 Pre-Funded Warrants was $33.7 million. See Note 10, “Common Stock Warrants and Warrant Liabilities,” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report.

Results of Operations

Comparison of the Three Months Ended March 31, 2026 and 2025 (dollars in thousands)

26

Impact of Divestitures

Financial results related to divested assets from the Avenova Asset Divestiture and the PhaseOne Divestiture for the three months ended March 31, 2025 have been aggregated and reported for each of these periods in the line item titled “Net income (loss) from discontinued operations, net of taxes” in the table above. See additional information in Note 13, “Divestitures,” in the Notes to the Unaudited Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report for additional details regarding these financial results for the periods presented. The discussions below and throughout this section apply only to results from our continuing operations except as otherwise noted.

Staking Revenue

Staking revenue was $2.5 million for the three months ended March 31, 2026, compared to no staking revenue for the three months ended March 31, 2025. Staking revenue is attributable to staking rewards earned on the Company's SKY token holdings during the period, with no comparable result for the three months ended March 31, 2025, as the Company did not hold digital assets or conduct staking activities during the prior year period. The Company received 35,386,649 SKY tokens for staking rewards during the three months ended March 31, 2026.

Unrealized gain on digital assets

The Company recognized an unrealized gain on digital assets of $22.7 million for the three months ended March 31, 2026, with no comparable result for the three months ended March 31, 2025, as the Company did not hold digital assets during the prior year period. Because the Company held no digital assets at the beginning of the period, the unrealized gain represents the excess of the fair value of the Company's SKY token holdings at March 31, 2026 over the aggregate cost basis at which those holdings were initially recognized during the period. SKY tokens are measured at fair value at each reporting date, with changes in fair value recognized in earnings. The fair value of digital assets may be subject to significant volatility, and the Company expects that changes in the fair value of its SKY token holdings will continue to result in unrealized gains or losses in future periods, which may have a material impact on the Company's results of operations. For additional information, see Note 5, “Digital Assets,” in the Notes to Unaudited Condensed Consolidated Financial Statements (unaudited), in Part I, Item 1 of this report.

General and administrative

General and administrative expenses were $2.8 million for the three months ended March 31, 2026, compared to $2.7 million for the three months ended March 31, 2025, an increase of approximately $0.1 million or 5%. While total expenses were comparable period over period, the underlying composition shifted significantly. Expenses for the three months ended March 31, 2026 consisted primarily of costs incurred in connection with the Company's continued transformation into a digital asset treasury company and the initiation of its digital asset treasury activities, as well as public company costs, including legal and professional services, the March 2026 special meeting of stockholders, and director and officer liability insurance. By comparison, expenses for the three months ended March 31, 2025 consisted primarily of outside services costs related to non-recurring strategic initiatives, including the Avenova Asset Divestiture and the pursuit of a potential dissolution as a strategic option for the Company, as well as one-time severance costs relating to the departure of employees in connection with completing the Avenova Asset Divestiture.

As the Company’s digital asset operations mature, management expects the composition of general and administrative expenses to continue shifting toward costs associated with digital asset custody and infrastructure, cybersecurity, regulatory compliance, and specialized legal and accounting services. The Company expects these categories to represent an increasing proportion of its operating cost base relative to legacy transformation-related expenditures, which are substantially complete.

Impairments of long-lived assets

There were no impairments of long-lived assets recorded during the three months ended March 31, 2026. During the quarter ended March 31, 2025, the Company recorded one-time impairments for right-of-use assets associated with leases of $559 thousand and $30 thousand for fixed assets including leasehold improvements due to the uncertainty at the time associated with our future operations and our strategic direction as we were exploring a dissolution of the Company and other potential strategic alternatives that were available to us.

Non-cash loss on fair value of warrant liabilities in excess of proceeds at issuance

During the three months ended March 31, 2026, the Company recognized a non-cash loss of $5.3 billion with no comparable results for the three months ended March 31, 2025. The issuance-date fair value of the January 2026 Pre-Funded Warrants exceeded the proceeds received, resulting in a non-cash loss on warrant issuance. For additional information, please see Note 10, “Common Stock Warrants and Warrant Liabilities,” in the Notes to Unaudited Condensed Consolidated Financial Statements (unaudited) in Part I, Item 1 of this report.

Non-cash gain on changes in fair value of warrant liabilities

Adjustments to the fair value of warrant liabilities resulted in a gain of $5.8 billion for the three months ended March 31, 2026 with no comparable adjustment for the three months ended March 31, 2025. This gain related to the October 2025 Pre-Funded Warrants and the January 2026 Pre-Funded Warrants, which were initially classified as liabilities and recorded at fair value at each reporting date. Following stockholder approval obtained on March 12, 2026, the warrant liability recorded for the January 2026 Pre-Funded Warrants was reclassified to stockholders' equity at their fair value on that date, and no further fair value adjustments will be recorded with respect to those warrants in future periods. The October 2025 Pre-Funded Warrants remain classified as a liability as of March 31, 2026, with a fair value of $33.7 million, and will continue to be remeasured at fair value at each reporting date with changes in fair value recognized in earnings. For additional information regarding warrant liabilities and their valuation, please see Note 3, “Fair Value Measurements” and Note 10, “Common Stock Warrants and Warrant Liabilities” in the Notes to Unaudited Condensed Consolidated Financial Statements, (unaudited) in Part I, Item 1 of this report.

Other expense, net

Other expense, net was $1.4 million for the three months ended March 31, 2026 and $40 thousand for the three months ended March 31, 2025. The 2026 result was due primarily to costs incurred in connection with the January 2026 Private Placement. There was no comparable expense related to financing activities in the 2025 period. See Note 8, “Financing Activities” in the Notes to the Unaudited Condensed Consolidated Financial Statements (unaudited), in Part I, Item 1 of this report.

Net Income from Continuing Operations

Net income from continuing operations was $552.4 million for the three months ended March 31, 2026, compared to a net loss from continuing operations of $3.3 million for the three months ended March 31, 2025. The change was driven primarily by the non-cash warrant accounting items described above, including the non-cash gain on changes in fair value of warrant liabilities of approximately $5.8 billion and the non-cash loss on fair value of warrant liabilities in excess of proceeds at issuance of approximately $5.3 billion. Following the reclassification of the January 2026 Pre-Funded Warrants liability to stockholders' equity on March 12, 2026, no further fair value adjustments will be recorded with respect to those warrants in future periods. The October 2025 Pre-Funded Warrants remain classified as a liability as of March 31, 2026 and will continue to be remeasured at fair value at each reporting date.

Financial Condition, Liquidity and Capital Resources

Our net income from continuing operations was $552.4 million for the three months ended March 31, 2026, compared to a net loss from continuing operations of $3.3 million for the three months ended March 31, 2025. Net income from continuing operations for the three months ended March 31, 2026 was driven primarily by a non-cash gain on changes in fair value of warrant liabilities of approximately $5.8 billion, partially offset by a non-cash loss on fair value of warrant liabilities in excess of proceeds at issuance of approximately $5.3 billion, both of which related to the Company's October 2025 Pre-Funded Warrants and January 2026 Pre-Funded Warrants. Following stockholder approval obtained on March 12, 2026, the January 2026 Pre-Funded Warrant liability was reclassified to stockholders' equity at fair value on that date. The October 2025 Pre-Funded Warrants remain classified as a liability as of March 31, 2026 and will continue to be remeasured at fair value at each reporting date. See Note 10, “Common Stock Warrants and Warrant Liabilities,” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report.

As of March 31, 2026, our cash and cash equivalents were $18.4 million, compared to $8.0 million as of December 31, 2025. The increase reflects net cash proceeds received during the three months ended March 31, 2026, including (i) approximately $25.0 million in cash received in connection with the January 2026 Private Placement, (ii) approximately $13.4 million in net proceeds from sales under the ATM Program, and (iii) the conversion of approximately $51.0 million of stablecoins received in connection with the January 2026 Private Placement into U.S. dollars, a portion of which was subsequently used to acquire additional SKY tokens. See Note 8, “Financing Activities,” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report.

Following the establishment of the Company's digital asset treasury strategy and the completion of the financing transactions described above, the Company's primary sources of liquidity consist of cash and cash equivalents and access to the capital markets, including through the ATM Program. The Company's SKY token holdings represent a strategic capital allocation and are not considered a primary source of operating liquidity.

Based on our funds available on March 31, 2026, management believes that the Company's existing cash and cash equivalents will be sufficient to enable the Company to meet its planned operating expenses at least through May 15, 2027. 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 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 net proceeds of approximately $0.6 million, and 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, approximately $85.7 million of common stock remained available for issuance under the ATM Program. See Note 16, “Subsequent Events,” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report for additional information.

Net Cash Used in Operating Activities, Continuing Operations

Net cash used in operating activities from continuing operations was $1.8 million for the three months ended March 31, 2026, which included net income of $552.4 million. Net income was adjusted for non-cash items, including a non-cash gain on changes in fair value of warrant liabilities of $5.8 billion, a non-cash loss on fair value of warrant liabilities in excess of proceeds at issuance of $5.3 billion, an unrealized gain on digital assets of $22.7 million, staking rewards earned in SKY tokens of $2.5 million, stock-based compensation expense of $25 thousand, amortization of debt discounts on convertible notes of $3 thousand and deferred income taxes of $3.5 million. Changes in operating assets and liabilities resulted in a net cash inflow of $2.4 million, driven primarily by an increase in accounts payable and accrued liabilities of $2.5 million.

Net cash used in operating activities from continuing operations was $1.3 million for the three months ended March 31, 2025, which consisted primarily of a net loss of $3.3 million, adjusted for non-cash items including stock-based compensation expense of $2 thousand, non-cash right-of-use amortization of $53 thousand, non-cash impairment of long-lived assets of $0.6 million, and amortization of debt discounts on convertible notes of $26 thousand. Changes in operating assets and liabilities resulted in a net cash inflow of $1.3 million.

Cash Used in Investing Activities, Continuing Operations

Net cash used in investing activities from continuing operations was $25.9 million for the three months ended March 31, 2026, consisting of $76.9 million in purchases of SKY tokens, partially offset by $51.0 million in proceeds from the redemption of stablecoins received in connection with the January 2026 Private Placement.

There was no cash used in, or provided by, investing activities from continuing operations during the three months ended March 31, 2025.

Cash Provided by (Used in) Financing Activities, Continuing Operations

Net cash provided by financing activities from continuing operations was $38.3 million for the three months ended March 31, 2026, consisting primarily of $25.0 million in proceeds from the issuance of pre-funded warrants in connection with the January 2026 Private Placement, $13.4 million in net proceeds from sales under the ATM Program, and $0.3 million in proceeds from warrant exercises, partially offset by $0.4 million in payments on redemption of Series F Preferred Stock.

Net cash used in financing activities from continuing operations was $1.7 million for the three months ended March 31, 2025, which consisted primarily of $1.8 million in cash payments to repurchase outstanding warrants and a $0.5 million repayment of a bridge loan, partially offset by $0.6 million in proceeds from warrant exercises.

Net Operating Losses and Tax Credit Carryforwards

The Company believes that it experienced an ownership change during 2025 and, as a result, its pre-change net operating loss (“NOL”) carryforwards became subject to significant limitations under Section 382 of the Internal Revenue Code. As of December 31, 2025, the Company had federal and state NOL carryforwards of approximately $2.9 million and $348 thousand, respectively, primarily generated subsequent to the 2025 ownership change. The Company's federal NOLs may be carried forward indefinitely but are generally limited to offsetting 80% of taxable income in any given year. The state NOL carryforwards begin to expire in 2045. As of December 31, 2025, the Company had no federal or state tax credit carryforwards.

Current federal and California tax laws include substantial restrictions on the utilization of net operating loss carryforwards in the event of an ownership change of a corporation. Accordingly, our ability to utilize net operating loss carryforwards may be limited as a result of such ownership changes. Such a limitation could result in the expiration of carryforwards before they are utilized.

Inflation

The Company's operating expenses primarily consist of legal, accounting, and other professional services. Inflation has not had a material effect on the Company's results of operations during the three months ended March 31, 2026. The value of the Company's digital asset holdings is subject to significant price volatility based on macroeconomic factors, market sentiment, and conditions specific to digital asset markets (which are independent of but may be indirectly influenced by inflationary pressures) and may have a material impact on the Company's results of operations and financial position.

Off-Balance Sheet Arrangements

We did not have any “off-balance sheet arrangements” as defined in Item 303(b)(1)(ii)(B) of Regulation S-K at March 31, 2026 or December 31, 2025.

Seasonality

The Company is not exposed to any significant impact from seasonality.

Contractual Obligations

In the normal course of business, the Company enters into contracts and commitments that obligate it to make payments in the future. As of March 31, 2026, the Company's contractual obligations consisted primarily of obligations under its operating lease for its corporate headquarters. Information regarding the Company's obligations under its operating lease is provided in Note 7, “Commitments and Contingencies,” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report. As of March 31, 2026, the Company had no convertible note obligations outstanding.

Digital Asset Price Risk

Our principal market risk relates to the price volatility of digital assets. As of March 31, 2026, the Company held SKY tokens with an aggregate fair value of $160.1 million, representing the substantial majority of the Company's total assets. The fair value of SKY tokens is subject to significant volatility, which may result in material changes to the carrying value of the Company's digital asset holdings and the Company's results of operations from period to period. Factors affecting the price of SKY tokens include, but are not limited to, supply and demand dynamics in digital asset markets, market sentiment, regulatory developments, technological developments, security incidents, conditions specific to the Sky Protocol, and broader macroeconomic conditions.

The Company's digital asset holdings are concentrated in a single digital asset. As a result, the Company is exposed to the risk that adverse developments specifically affecting SKY or the Sky Protocol could have a material adverse effect on the Company's financial position and results of operations. A hypothetical 10% decrease in the fair value of SKY tokens as of March 31, 2026 would have resulted in a decrease in the carrying value of the Company's digital asset holdings of approximately $16.0 million, with a corresponding non-cash loss recognized in the Unaudited Condensed Consolidated Statements of Operations.

Interest Rate Risk

The Company's exposure to interest rate risk is limited primarily to interest income sensitivity on its cash and cash equivalents. The Company maintains its cash and cash equivalents in short-term, highly liquid investments. As of March 31, 2026, a 10% change in interest rates would have had an immaterial effect on interest income.

Foreign Currency Risk

The Company's operations and digital asset transactions are conducted primarily in U.S. dollars. The Company has not had material exposure to foreign currency rate fluctuations. The Company's transactions in stablecoins are denominated in U.S. dollars (or stablecoins) and the Company's holdings of SKY tokens, which are quoted and traded in U.S. dollars, do not expose the Company to material foreign currency risk.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).Based on that evaluation, and because the previously disclosed material weakness in our internal control over financial reporting described in Part II, Item 9A of our Annual Report on Form 10-K/A for the year ended December 31, 2025, filed with the SEC on April 29, 2026, had not been remediated as of March 31, 2026, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2026.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Assessing the costs and benefits of such controls and procedures necessarily involves the exercise of judgment by management. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Remediation of Material Weakness

As described in our Annual Report on Form 10-K/A for the year ended December 31, 2025, management, with oversight from the Audit Committee of the Board of Directors, has commenced the design and implementation of remediation measures intended to address the material weakness. Subsequent to March 31, 2026, we began to implement these remediation measures. The material weakness will not be considered remediated until the applicable controls are designed, implemented, and operate effectively for a sufficient period of time, and management has concluded, through testing, that the controls are operating effectively.

Changes in Internal Control Over Financial Reporting

Other than noted above, there were no changes in our internal control over financial reporting during the current quarter which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

For information regarding factors that could affect our business, results of operations, financial condition and liquidity, see the risk factors discussed under Part I, Item 1A included in our 2025 Annual Report, as amended by Amendment No. 1 on Form 10-K/A.