Stablecoin Development Corp Fair Value Disclosure

NOTE 3. FAIR VALUE MEASUREMENTS

 

The following tables presents the Company’s financial instruments measured at fair value on a recurring basis as of December 31, 2024 and 2023 (in thousands):

 

Fair Value Measurements Using

Quoted

Prices in

Active

Markets

Significant

for

Other

Significant

Balance at

Identical

Observable

Unobservable

December

Items

Inputs

Inputs

31, 2024

(Level 1)

(Level 2)

(Level 3)

Assets

Restricted cash held as a certificate of deposit

$

477

$

477

$

—

$

—

   

						Fair Value Measurements Using
						Quoted
						Prices in
						Active
						Markets				Significant
						for				Other				Significant
		Balance at				Identical				Observable				Unobservable
		December				Items				Inputs				Inputs
		31, 2023				(Level 1)				(Level 2)				(Level 3)
Assets
Restricted cash held as a certificate of deposit		$	476			$	476			$	—			$	—
Liabilities
Warrant liability		$	334			$	—			$	334			$	—

 

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

 

The Secured Convertible Notes and Unsecured Convertible Notes (see Note 13, “Convertible Notes”) are carried at proceeds, net of discounts, which management believes approximates fair value. As a result of certain call and put options within the Secured Convertible Notes and Unsecured Convertible Notes, the Company recorded an embedded derivative liability on its consolidated balance sheets with a corresponding debt discount which is netted against the face value of the Secured Convertible Notes and Unsecured Convertible Notes. The fair value of the embedded derivatives were calculated using the Black Scholes valuation model using Level 2 inputs of the fair value hierarchy.

 

The fair value of the December 2023 Warrants issued in conjunction with the 2023 Warrant Reprice Transaction as well as the accounting for the warrant amendment and preferred stock conversion price adjustments that resulted from the 2023 Warrant Reprice Transaction were classified within Level 2. The fair value of the March 2024 Warrant issued in conjunction with the 2024 Subsidiary Guarantee Termination was classified within Level 2.

 

See Note 14, “Common Stock Warrants and Warrant Liabilities,” subheading “Summary of Common Stock Warrant Liabilities,” for a reconciliation of the beginning and ending balances for the warrant liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended December 31, 2024 and 2023.

 

Black Scholes Valuation Models and Assumptions

 

The Company utilizes a Black Scholes model for various valuations as outlined throughout this annual report. The following tables summarize the assumptions utilized for valuations impacting results for the years ended December 31, 2024 and 2023. See also Note 16, “Equity-Based Compensation” for related Black Scholes valuation assumptions.

 

Warrant Liabilities

 

Various of the Company’s warrants have been subject to stockholder approval upon issuance or amendment and prior to exercise. Warrants requiring stockholder approval are recorded as a liability at fair value upon issuance or amendment and continue to be recorded as a liability at fair value at each reporting date until stockholder approval occurs at which time they are transferred to stockholders’ equity at their fair value on the date of approval. Fair value was determined using a Black Scholes model as outlined below. See Note 14, “Common Stock Warrants and Warrant Liabilities” for additional information and the definitions of the Company’s warrants.

 

	May 2023 Warrants					May 2023 Warrants
Measurement event	Issuance					Stockholder Approval
Date	May 1, 2023					June 9, 2023
Total Value	$1.6 million					$1.4 million
Gain (Loss)	not applicable					$0.2 million
Assumptions:
Exercise price	$	45.50				$	45.50
Market price	$	25.20			(a)	$	23.80
Volatility		80.1			%		77.6			%
Risk-free rate		3.60	-	4.04	%		3.92	-	4.59	%
Dividend yield		0.0			%		0.0			%
Term (years)		2.1	-	5.1			2.0	-	5.0

  

		December 2023 Warrants				December 2023 Warrants
Measurement event		Reporting Date				Stockholder Approval
Date		December 31, 2023				May 28, 2024
Total Value		$0.3 million				$0.2 million
Gain (Loss)		$56 thousand				$(51 thousand)
Assumptions:
Exercise price		$	8.75			$	8.75
Market price		$	7.14			$	4.94
Volatility			79.3	%			83.9	%
Risk-free rate			3.85	%			4.56	%
Dividend yield			0.0	%			0.0	%
Term (years)			5.5				5.1

 

		March				March
		2024				2024
		Warrant				Warrant
Measurement event		Reporting Date				Stockholder Approval
Date		March 31, 2024				May 28, 2024
Total Value		$0.1 million				$0.1 million
Gain (Loss)		$21 thousand				$(28 thousand)
Assumptions:
Exercise price		$	4.90			$	4.90
Market price		$	3.66			$	4.94
Volatility			86.9	%			83.9	%
Risk-free rate			4.21	%			4.56	%
Dividend yield			0.0	%			0.0	%
Term (years)			5.5				5.3

 

(a)

Adjusted for the dilutive effect of the 2023 Private Placement. See additional discussion above.

 

Warrant Modifications

 

Amendments to warrant terms are recorded as a non-cash gain (or loss) on modification of common stock warrants. The gain or loss represents the decrease or increase in the fair value of the amended warrants when comparing the value immediately before and after amendment using the Black Scholes option pricing model. Fair value was determined using a Black Scholes model as outlined below.

 

		July 2020, November 2021, September 2022 & November 2022 Warrants
Measurement event		Prior to amendment						After amendment
Date		April 27, 2023						April 27, 2023
Total Value		$0.3 million						$0.5 million
Loss		not applicable						$0.2 million
Assumptions:
Exercise price		$	220.50					$	52.50
Market price		$	25.20			(a)		$	25.20			(a)
Volatility			80.1			%			80.1			%
Risk-free rate			3.59	-	4.73	%			3.59	-	4.73	%
Dividend yield			0.0			%			0.0			%
Term (years)			1.1	-	5.6				1.1	-	5.6

 

		May 2023 Warrants
Measurement event		Prior to amendment						After amendment
Date		December 21, 2023						December 21, 2023
Total Value		$56 thousand						$0.2 million
Loss		not applicable						$0.1 million
Assumptions:
Exercise price		$	45.50					$	8.75
Market price		$	8.07					$	8.07
Volatility			79.3			%			79.3			%
Risk-free rate			3.92	-	4.62	%			3.92	-	4.62	%
Dividend yield			0.0			%			0.0			%
Term (years)			1.5	-	4.5				1.5	-	4.5

 

		September 2022, November 2022, and May 2023 Warrants
Measurement event		Prior to amendment						After amendment
Date		June 14, 2024						June 14, 2024
Total Value		$66 thousand						$0.1 million
Loss		not applicable						$70 thousand
Assumptions:
Exercise price		$	8.75-52.50					$	2.50
Market price		$	2.51					$	2.51
Volatility			89.3			%			89.3			%
Risk-free rate			4.27	-	5.08	%			4.27	-	5.08	%
Dividend yield			0.0			%			0.0			%
Term (years)			1.0	-	4.4				1.0	-	4.4	%

 

(a)

Adjusted for the dilutive effect of the 2023 Private Placement. See additional discussion above.

 

Warrant Down Round Feature Adjustment

 

Terms of the Company’s outstanding 2024 July Warrants included a down round feature adjustment whereby the applicable exercise price was automatically adjusted (see Note 11, “Financing Activities”). When the exercise price was adjusted, the Company recorded a deemed dividend as a reduction to income available to common stockholders. In accordance with ASC 820, the deemed dividend is measured as the difference between (1) the fair value of the 2024 July Warrants immediately prior to the conversion price adjustment and (2) the fair value of the 2024 July Warrants immediately after the conversion price adjustment. Fair value was determined using a Black Scholes model, as outlined below.

 

		Series F-1
Measurement event		Prior to adjustment				After adjustment
Date		September 27, 2024				September 27, 2024
Total value		$1.7 million				$1.9 million
Deemed dividend		not applicable				$0.2 million
Assumptions:
Exercise price		$	1.10			$	0.66
Market price		$	0.71			$	0.71
Volatility			97.1	%			97.1	%
Risk-free rate			3.55	%			3.55	%
Dividend yield			0.0	%			0.0	%
Term (in years)			4.84				4.84

 

		Series F-2
Measurement event		Prior to adjustment				After adjustment
Date		September 27, 2024				September 27, 2024
Total value		$0.2 million				$0.6 million
Deemed dividend		not applicable				$0.4 million
Assumptions:
Exercise price		$	1.10			$	0.66
Market price		$	0.71			$	0.71
Volatility			97.1	%			97.1	%
Risk-free rate			4.64	%			4.64	%
Dividend yield			0.0	%			0.0	%
Term (in years)			0.34				0.34

 

		Series F-3
Measurement event		Prior to adjustment				After adjustment
Date		September 27, 2024				September 27, 2024
Total value		$0.6 million				$1.0 million
Deemed dividend		not applicable				$0.4 million
Assumptions:
Exercise price		$	1.10			$	0.66
Market price		$	0.71			$	0.71
Volatility			97.1	%			97.1	%
Risk-free rate			4.10	%			4.10	%
Dividend yield			0.0	%			0.0	%
Term (in years)			0.84				0.84

 

Preferred Stock Conversion Price Adjustments

 

Terms of the Company’s outstanding Preferred Stock historically included a Ratchet whereby the applicable conversion price could be adjusted (see Note 15, “Stockholders’ Equity”). The applicable Ratchet provisions of the Company’s outstanding Preferred Stock terminated during the quarter ended March 31, 2024. When a conversion price was adjusted under the Ratchet, the Company recorded a deemed dividend as a reduction to income available to common stockholders. In accordance with ASC 820, the deemed dividend is measured as the difference between (1) the fair value of the Preferred Stock immediately prior to the conversion price adjustment (but without the anti-dilution protection feature) and (2) the fair value of the Preferred Stock immediately after the conversion price adjustment (but without the anti-dilution protection feature). Fair value was determined using a Black Scholes model as outlined below.

 

		Series B & C Preferred Stock
Measurement event		Prior to Ratchet				After Ratchet
Date		April 27, 2023				April 27, 2023
Total value (b)		$9.6 million				$11.6 million
Deemed dividend		not applicable				$2.0 million
Assumptions:
Exercise price		$	220.50			$	45.50
Market price		$	25.20	(a)		$	25.20	(a)
Volatility			80.1	%			80.1	%
Risk-free rate			4.91	%			4.91	%
Dividend yield			0.0	%			0.0	%
Term (in years)			0.8				0.8

 

		Series B & C Preferred Stock
Measurement event		Prior to Ratchet				After Ratchet
Date		December 21, 2023				December 21, 2023
Total value (b)		$1.7 million				$6.8 million
Deemed dividend		not applicable				$5.1 million
Assumptions:
Exercise price		$	45.50			$	8.75
Market price		$	8.07			$	8.07
Volatility			79.3	%			79.3	%
Risk-free rate			5.43	%			5.43	%
Dividend yield			0.0	%			0.0	%
Term (years)			0.3				0.3

 

		Series C Preferred Stock
Measurement event		Prior to Ratchet				After Ratchet
Date		March 24, 2024				March 24, 2024
Total value (b)		$0.5 million				$0.9 million
Deemed dividend		not applicable				$0.4 million
Assumptions:
Exercise price		$	8.75			$	4.90
Market price		$	4.77			$	4.77
Volatility			79.9	%			79.9	%
Risk-free rate			5.51	%			5.51	%
Dividend yield			0.0	%			0.0	%
Term (in years)			0.1				0.1

 

(a)

Adjusted for the dilutive effect of the 2023 Private Placement. See additional discussion above.

(b)

Includes value of incremental shares underlying preferred stock and adjusted for probability of occurrence.

 

Bifurcatable Derivatives

 

Upon issuance in March 2024, the Unsecured Convertible Notes contained a lender’s conversion option which represented an embedded call option requiring bifurcation as an embedded derivative liability at fair value (see Note 13, “Convertible Notes” for additional discussion). Fair value was determined using a Black Scholes model as outlined below.

 

		Unsecured Convertible Notes derivative				Unsecured Convertible Notes derivative
Measurement event		Issuance				Shareholder Approval
Date		March 25, 2024				May 28, 2024
Total value		$0.2 million				$0.2 million
Gain (Loss)		not applicable				$(82 thousand)
Assumptions:
Exercise price		$	4.90			$	4.90
Market price		$	4.51			$	4.94
Volatility			86.9	%			83.9	%
Risk-free rate			4.54	%			4.94	%
Dividend yield			0.0	%			0.0	%
Term (years)			2.0				1.8

 

Upon issuance in May 2023, the Secured Convertible Notes contained a lender’s conversion option which represented an embedded call option requiring bifurcation as an embedded derivative liability at fair value (see Note 13, “Convertible Notes” for additional discussion). Fair value was determined using a Black Scholes model as outlined below.

 

		Secured Convertible Notes derivative				Secured Convertible Notes derivative
Measurement event		Issuance				Shareholder Approval
Date		April 27, 2023				June 9, 2023
Total value (b)		$0.2 million				$0.2 million
Gain		not applicable				$40 thousand
Assumptions:
Exercise price		$	45.50			$	45.50
Market price			25.20	(a)		$	23.80
Volatility			80.1	%			76.9	%
Risk-free rate			4.88	%			5.41	%
Dividend yield			0.0	%			0.0	%
Term (years)			0.8				0.7

 

(a)

Adjusted for the dilutive effect of the 2023 Private Placement. See additional discussion above.

(b)

Adjusted for probability of occurrence.