DeFi Development Corp.
03/30/2026 | Press release | Distributed by Public on 03/30/2026 16:00
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
You should read the following "Management's Discussion and Analysis of Financial Condition and Results of Operations" in conjunction with the audited consolidated financial statements and the related notes that appear in this Annual Report. All references to "we," "us," "our," "the Company," and "DeFi Dev" refer to DeFi Development Corp. and its consolidated subsidiaries, unless otherwise noted.
This Management's Discussion and Analysis of Financial Condition and Results of Operations centers on a discussion of 2025 results as compared to 2024 results.
OVERVIEW
OUR COMPANY AND OUR BUSINESS
During 2025, we pivoted our primary business strategy to the acquisition, long-term holding, and active management of SOL and SOL-related digital assets. Our treasury strategy includes accumulating SOL, locked SOL, liquid staking tokens such as dfdvSOL, and other SOL-denominated or SOL-native positions. We also operate Solana validators, enabling us to participate directly in the Solana proof-of-stake consensus mechanism and generate staking rewards.
We continuously evaluate capital market conditions, the broader cryptoeconomy, and macroeconomic factors in determining the timing and structure of financing transactions used to support our digital asset treasury strategy. Our objective is to expand our exposure to the Solana ecosystem over the long term.
In addition to our digital asset treasury operations, we continue to operate our commercial real estate technology platform, which provides data, software subscriptions, and value-added services connecting commercial property borrowers and lenders, including banks, credit unions, REITs, debt funds, and other institutional capital providers.
As a result of expanding our treasury strategy we consider these our two operating segments: "Digital Asset Treasury" and the "Real Estate Platform".
2025 SIGNIFICANT DEVELOPMENTS
The following are the more significant developments in our business during 2025:
•On April 4, 2025, our previous Chief Executive Officer entered into a Stock Purchase Agreement with DeFi Dev LLC and 3277447 Nova Scotia Ltd where he sold approximately 51.0% of the Company's outstanding shares of common stock and all off the issued and outstanding Series A preferred stock for an aggregate purchase price of $4.0 million.
•On April 17, 2025, the Company changed its name from "Janover Inc." to "DeFi Development Corp." We also changed the ticker symbol for our common stock to "DFDV" on the Nasdaq Capital Market on May 5, 2025.
•The Board of Directors approved and we adopted a new treasury policy on April 4, 2025, authorizing the long-term accumulation of SOL.
•On May 1, 2025, under the terms of an asset purchase agreement, we acquired two validator nodes from Solsync Solutions Partnership, a SOL validator business owned by our current Chief Operating and Investment Officer for $3.6 million.
•We received net proceeds of $378.5 million through various financing transactions and used the proceeds to purchase digital assets and for working capital purposes.
•We received proceeds from digital asset financing arrangements of $172.0 million and repaid $85.7 million.
•On October 27, 2025 the Company issued approximately 3.9 million of warrant dividends.
•We repurchased a total of 2.0 million shares of our common stock for $11.5 million under our stock repurchase program.
SELECTEDCONSOLIDATED OPERATING RESULTS
| (in thousands) | 2025 | 2024 | $ Change | % Change | ||||||||||
| Revenue | $ | 11,386 | $ | 2,100 | $ | 9,286 | 442.2 | % | ||||||
| Net loss (gain) on digital assets | $ | 26,994 | $ | - | $ | 26,994 | NM | |||||||
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Operating expenses(a)
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$ | 20,790 | $ | 5,103 | $ | 15,687 | 307.4 | % | ||||||
| Operating (loss) income | $ | (36,398) | $ | (3,003) | $ | (33,395) | (1,112.1 | %) | ||||||
| Interest expense | $ | 8,931 | $ | - | $ | 8,931 | NM | |||||||
| (Loss) gain from derivative instruments | $ | (19,763) | $ | - | $ | (19,763) | NM | |||||||
| Investment and other (expense) income, net | $ | (8,687) | $ | 276 | $ | (8,963) | (3,247.5 | %) | ||||||
| Income tax (expense) benefit | $ | (9) | $ | - | $ | (9) | NM | |||||||
| Net (loss) income | $ | (73,788) | $ | (2,727) | $ | (71,061) | (2,605.8 | %) | ||||||
| (a) Excludes net loss (gain) on digital assets. | ||||||||||||||
| NM-Amounts are not meaningful. | ||||||||||||||
Consolidated Revenue
Our consolidated revenue increased $9.3 million, or 442.2%, in 2025 compared to 2024 primarily due to digital asset revenue generated from our treasury strategy, which began in the second quarter 2025, and was driven by rewards from staking our digital asset holdings.
Consolidated Net Loss (Gain) on Digital Assets
Consolidated net loss (gain) on digital assets was $27.0 million in 2025 primarily due to impairment charges of $36.8 million driven by liquid staking tokens and declines in the fair value of SOL relative to the U.S. Dollar, which was partially offset by realized gains resulting from converting a portion of our SOL holdings into locked SOL and liquid staking tokens.
Consolidated Operating Expenses
Our consolidated operating expenses increased $15.7 million, or 307.4%, in 2025 compared to 2024 primarily due to general and administrative expenses related to professional fees for legal and accounting services, employee-related costs and due to a $2.0 million loss on the disposition of JPro at our real estate platform segment.
The following graphs illustrate the primary components contributing to the change in consolidated operating expenses in 2025 compared to 2024 as well as consolidated general and administrative expenses.
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Consolidated Operating Expenses ($ thousands)
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Consolidated General & Administrative Expenses ($ thousands)
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Consolidated Interest Expense
Consolidated interest expense was $8.9 million in 2025, which was primarily comprised of $5.0 million attributable to the July 2030 convertible notes, $2.0 million attributable to our April 2030 convertible notes and $1.8 million attributable to borrowing fees related to digital asset financing arrangements.
The following graph illustrates the primary components contributing to the change in interest expense in 2025 compared to 2024.
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Consolidated Interest Expense ($ thousands)
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Consolidated (Loss) Gain From Derivative Instruments
Our consolidated (loss) gain from derivative instruments was $19.8 million in 2025, and included losses of $38.5 million related to declines in the fair value of collateral related to our digital asset financing arrangements, which was partially offset by $18.8 million of gains related to declines in the fair value of our digital asset financing arrangements.
Consolidated Investment and Other (Expense) Income, Net
Consolidated investment and other (expense) income, net decreased $9.0 million in 2025 compared to 2024 primarily due to $5.2 million of commitment fees related to an equity line of credit and $3.9 million of losses related to our investments, which was partially offset by interest and options trading income.
Consolidated Net (Loss) Income
We had a consolidated net loss of $73.8 million in 2025 compared to a consolidated net loss of $2.7 million in 2024 primarily due to impairments on our liquid staking tokens, increases in operating expenses related to general and administrative expenses and losses from our derivative instruments.
SEGMENT OPERATING RESULTS
Our segment operating results are presented based on how management evaluates operating performance and internally reports financial information. See Note 5-Segments, of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, for further discussion on our segments.
DIGITAL ASSET TREASURY
In April 2025, our Board of Directors adopted a new treasury policy, which updated our treasury management to include digital assets, starting with Solana's native token, SOL. We believe acquiring and holding SOL long-term provides diversification of our treasury holdings and additional growth opportunities through operating validators and staking rewards. We believe that investing in the Solana Network through its native token provides an opportunity for us to create value for our shareholders due to the continuous disruptive innovation
the network offers to various industries. Currently, Solana is a category leader in decentralized finance, gaming and metaverse, decentralized physical infrastructure networks, asset tokenization, payment processing, and global value transfer.
Our digital asset treasury strategy is primarily funded through various financing transactions including, among others, issuing common stock, and to a lesser extent, cash on hand from our operations. Management continuously evaluates current market conditions of the overall cryptoeconomy, capital market conditions, and macroeconomic conditions to determine whether to enter into additional financing transactions. Management intends to focus on accumulating digital assets, focusing on SOL, and holding it long-term. We do not currently maintain a specific target for the amount or type of digital assets we intend to acquire or hold, and we do not presently have plans to acquire a significant amount of any cryptocurrency other than SOL. From time to time, management may evaluate potential opportunities to acquire or hold other digital assets, which would depend on a variety of factors including but not limited to, market conditions, risk considerations and any necessary approval through our governance process.
Our operating results and financial condition is and will continue to be impacted by price volatility in digital asset markets, specifically SOL, which may cause significant fluctuations from period to period and may not be necessarily indicative of future performance. In addition, our revenue may vary due to changes in staking reward yields and Solana protocol defined reward structures, including its annual inflationary rate.
| (in thousands) | 2025 | 2024 | ||||||
| Revenue | $ | 9,188 | $ | - | ||||
| Operating expenses: | ||||||||
| Cost of revenue | 221 | - | ||||||
| Sales and marketing | 584 | - | ||||||
| Research and development | 672 | - | ||||||
| General and administrative | 13,088 | - | ||||||
| Depreciation and amortization | 810 | - | ||||||
| Net loss (gain) on digital assets | 26,994 | - | ||||||
| Total operating expenses | $ | 42,369 | $ | - | ||||
| Segment operating (loss) income | $ | (33,181) | $ | - | ||||
Revenue
Revenue was $9.2 million in 2025 which was primarily driven by rewards earned from staking our digital asset holdings and to a lesser extent from operating our owned and managed validators.
Operating Expenses
General and Administrative
General and administrative expenses in 2025 was $13.1 million, which was primarily driven by $5.5 million of professional fees for legal and accounting services and $5.3 million of employee-related costs.
Net Loss (Gain) on Digital Assets
Net loss (gain) on digital assets generated in 2025 was $27.0 million, which primarily reflects $36.8 million of impairments driven by liquid staking tokens and losses due to declines in the fair value of SOL relative to the U.S. Dollar, which was partially offset by realized gains resulting from converting a portion of our SOL holdings into locked SOL and liquid staking tokens.
REAL ESTATE PLATFORM
We have developed a platform that connects commercial mortgage and small business borrowers looking for debt to refinance, build, or buy commercial property, including apartment buildings, to commercial property lenders. These property lenders include traditional banks, credit unions, REITs, debt funds, and other financial
institutions looking to deploy capital into commercial mortgages. The platform connects borrowers to our internal capital markets advisors who guide the borrower through the process and connect them with the right loan product and lender.
The real estate segment derives its revenue primarily from platform fees and subscription revenue. Platform fees include referral and advisory fees generated from multifamily and commercial real estate and small business debt transactions. We earn platform revenue from fees charged to our customers that utilize our platform and our capital markets advisor sales team, who will assist in the match between lenders and borrowers. These fees include a share of the revenue per transaction by the lender, typically 1% of the loan amount, and in some cases a fixed negotiated fee from the borrower.
Our data and software offerings are generally offered on a subscription basis. We provide data, transparency, and tools, generally as annual software subscriptions, to help stakeholders navigate the most complex components of the multifamily and commercial property lifecycles - debt (Janover Capital Markets), insurance (Janover Insurance), and equity (Janover Connect, Janover Engage).
| (in thousands) | 2025 | 2024 | $ Change | % Change | ||||||||||
| Revenue | $ | 2,198 | $ | 2,100 | $ | 98 | 4.7 | % | ||||||
| Operating expenses: | ||||||||||||||
| Cost of revenue | 28 | 32 | (4) | (12.5) | % | |||||||||
| Sales and marketing | 1,661 | 1,497 | 164 | 11.0 | % | |||||||||
| Research and development | 470 | 655 | (185) | (28.2) | % | |||||||||
| General and administrative | 1,242 | 2,612 | (1,370) | (52.5) | % | |||||||||
| Depreciation and amortization | 235 | 307 | (72) | (23.5) | % | |||||||||
| Loss on the disposition of Janover Pro | 1,958 | - | 1,958 | NM | ||||||||||
| (Gain) from changes in fair value of contingent consideration | (179) | - | (179) | NM | ||||||||||
| Total operating expenses | $ | 5,415 | $ | 5,103 | $ | 312 | 6.1 | % | ||||||
| Segment operating (loss) income | $ | (3,217) | $ | (3,003) | $ | (214) | (7.1) | % | ||||||
Revenue
Real estate revenue increased $98.0 thousand, or 4.7%,in 2025 compared to 2024 primarily due to increased SaaS subscription revenue, partially offset by a decrease in our platform revenue. SaaS subscription revenue in 2025 was approximately $1.3 million, compared to $480.0 thousand for the same period in the prior year, an increase of 172.2%. We expect our SaaS subscription revenue to decline in fiscal 2026, after the sale of the JPro business unit in September 2025, which represented the majority of our subscription revenue in fiscal 2025.
Operating Expenses
Research and Development
Research and development expenses decreased $185.0 thousand, or 28.2%, in 2025 compared to 2024 primarily due to a reduction in employee-related costs and expenses related to contractors resulting from the disposition of JPro.
General and Administrative
General and administrative expenses decreased $1.4 million, or 52.5%, in 2025 compared to 2024 due to a reduction in employee-related costs, related to contractors, resulting from the disposition of JPro.
Loss on the Disposition of Janover Pro
We incurred a $2.0 million loss in 2025, resulting from the disposition of the assets and liabilities of JPro. See Note 7-Acquisitions and Dispositions, of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, for further discussion.
(Gain) From Changes in Fair Value of Contingent Consideration
In 2025, we recognized a gain of $179.0 thousand on contingent consideration related to the Groundbreaker acquisition. The gain was a result of fair value changes due to lower revenue projects, which determined that the milestones under the terms of the agreement could no longer be achieved.
LIQUIDITY AND CAPITAL RESOURCES
| (in thousands) | 2025 | 2024 | ||||||
| Sources of Liquidity: | ||||||||
| Cash and cash equivalents | $ | 5,920 | $ | 2,517 | ||||
| Marketable securities | $ | 698 | $ | 340 | ||||
| Accounts receivable (current and noncurrent) | $ | 52 | $ | 237 | ||||
| Obligations: | ||||||||
| Loans payable | $ | 107 | $ | - | ||||
| Digital asset financing arrangements | $ | 67,521 | $ | - | ||||
| Long-term debt, net | $ | 127,361 | $ | - | ||||
We rely substantially on access to equity and debt capital markets, digital asset financing arrangements and inflows generated from participation in the Solana ecosystem, including staking rewards, our validator operations and other Solana protocol-level incentives, to fund working capital needs, interest payments related to our convertible notes and other financial obligations.
We believe that the sources of liquidity discussed below are and will be sufficient in both the short and long term to meet our working capital requirements and future obligations.
SOURCES OF LIQUIDITY
Principal Sources of Liquidity
In 2025, our principal sources of liquidity consisted of cash and cash equivalents, marketable securities and accounts receivable.
•Cash and cash equivalents:represents our most immediately available source of liquidity and consisted of demand deposits and money market instruments.
•Marketable securities: consist of publicly-held equity securities, which are held at fair value and may be liquidated to generate cash, subject to market conditions.
•Accounts receivable:represents amounts due from customers that are expected to be collected and is impacted by the timing of collection.
Potential Sources of Liquidity
Equity Line of Credit
On June 11, 2025, we entered into a share purchase agreement that provided us with an equity line of credit ("ELOC"), where we have the right, but not the obligation, to sell up to $1.0 billion of our common stock over a 36 month period, subject to the terms and conditions of the agreement. We may request a one-time increase in the commitment amount up to an aggregate of $5.0 billion, subject to certain conditions.
The amount and timing of proceeds are at our discretion and are dependent on several factors, including the market price and trading volume of our common stock, current market conditions and compliance with contractual and regulatory limitations. Although the ELOC represents a significant potential source of liquidity, it does not constitute a committed source of cash, and we may not be able to access the facility on favorable terms, or at all, at the times or in the amounts desired.
During periods when market conditions are favorable, we expect to utilize the ELOC as an important component of our external liquidity strategy to fund working capital requirements, strategic initiatives and digital asset treasury activities. As of December 31, 2025, approximately $933.4 million remained available under the ELOC, subject to the terms and conditions of the agreement. See Note 11-Stockholders' Equity, of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, for further discussion.
Digital Assets
As of December 31, 2025, our digital asset holdings were $181.8 million, and had an aggregate fair value of $184.1 million (using exchange rates as of the balance sheet date), of which $76.9 million is unencumbered, and may be sold to generate liquidity. Management may from time to time, if necessary, and subject to crypto market conditions, monetize the digital assets we receive from staking activities and validator operations to meet liquidity needs. See Note 6-Digital Assets, of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, for further discussion.
CASH FLOWS
The following table summarizes our cash flows from operating, investing, and financing activities:
| (in thousands) | 2025 | 2024 | ||||||
| Net cash used in operating activities | $ | (17,967) | $ | (2,418) | ||||
| Net cash used in investing activities | $ | (221,543) | $ | (23) | ||||
| Net cash provided by (used in) financing activities | $ | 242,913 | $ | (118) | ||||
Net cash used in operating activities was $18.0 million in 2025 primarily due to payments for professional services and employee-related costs and payments for interest on our debt, which was partially offset by timing of our accounts payable.
Net cash used in investing activities was $221.5 million in 2025 primarily due to purchases of SOL and settlement of option contracts, which was partially offset by sales of digital assets.
Net cash provided by financing activities was $242.9 million in 2025 due to proceeds received from our convertible note offerings, proceeds from the issuance of our common stock and proceeds received from pre-funded warrants, which were partially offset by the payment for a prepaid forward stock purchase as part of our July 2030 convertible notes offerings and repurchases of shares of our common stock under our share repurchase program.
OBLIGATIONS
The following table summarizes payments due for our obligations by fiscal year as of December 31, 2025:
| (in thousands) | 2026 | Thereafter | Total | ||||||||
| Short-term debt | $ | 107 | $ | - | $ | 107 | |||||
| Digital asset financing arrangements | $ | 67,521 | $ | - | $ | 67,521 | |||||
| Long-term debt: | |||||||||||
| Principal payments | $ | - | $ | 133,971 | $ | 133,971 | |||||
| Interest payments | $ | 7,025 | $ | 24,513 | $ | 31,538 | |||||
Short-Term Obligations
Our short-term obligations include working capital requirements, short-term debt, digital asset financing arrangements, interest payments related to our 2030 convertible notes and an ELOC commitment fee.
•Short-term debt: In April 2025, we financed a portion of insurance premium related to Director and Officer insurance, payable over ten months with a contractual interest rate of 7.1%.
•Digital asset financing arrangements: During 2025, we entered into several digital asset financing arrangements where we borrowed SOL, with annual contractual borrowing fees ranging from 12.5% to 13.0% payable on the loan maturity date. These arrangements require us to provide collateral denominated in SOL with initial levels of 250% to 300% of the total loan value and must maintain a minimum collateral coverage of 200%. If the value of the posted collateral falls below this threshold we may be required to post additional SOL. If the collateral coverage declines to 150% or lower and is not remediated in a timely manner, the lender has the right to liquidate some or all of the posted collateral. Repayments of our digital asset financing arrangements is required to be settled in SOL. Our ability to repay the loans and comply with collateral requirements is subject to availability of SOL in our digital asset treasury and the fluctuations in the price of SOL. See Note 10-Derivatives, of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, for further discussion.
•Interest payments on long-term debt: Under the terms of our 2030 convertible notes, we are required to make periodic interest payments. The April 2030 convertible notes have an interest rate of 2.5%, which accrues daily and is required to be paid quarterly in arrears on March 31, June 30, September 30 and December 31 each year. Our July 2030 convertible notes have an interest rate of 5.5%, which is calculated based on a 360-day year and is required to be paid semi-annually in arrears on January 1 and July 1 of each year. See Note 9-Debt, of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, for further discussion.
•ELOC commitment fee: Under the terms of the ELOC agreement, we agreed to pay a commitment fee of $12.5 million over a twelve month period, in the form of our common stock. See Note 11-Stockholders' Equity, of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, for further discussion.
Long-Term Obligations
Our long-term obligations include outstanding principal repayments of our long-term debt and interest payments related to that debt, as well as funding commitments under a revolving credit facility to our equity method investee.
•Long-term debt: The outstanding principal balance on our convertible notes have maturity dates of April 6, 2030 and July 1, 2030. As of December 31, 2025, the outstanding principal balances on these convertible notes were $11.5 million and $122.5 million, respectively. See Note 9-Debt, of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, for further discussion.
•Revolving credit facility: On January 24, 2026, we entered into a Revolving Credit Facility Agreement (the "Revolver") with our equity method investee. Under the terms of the agreement we committed to provide a revolving credit facility of up to $4.75 million for 36 months. The credit facility bears an annual interest rate of 10%, which accrues daily based on a 360-day year. The first interest payment is due to us 18 months after the date of the Revolver.
SHARE REPURCHASES AND DIVIDENDS
In November 2023, our Board of Directors authorized a share repurchase program that provided for the repurchase of up to $1.0 million of our common stock, with no expiration from the date of authorization. In September 2025, our Board of Directors authorized an increase to the current share repurchase program up to $100.0 million. As of December 31, 2025, we had $88.5 million remaining under the authorization.
We expect to repurchase additional shares of our common stock under the authorization in the open market or in private transactions. The timing, method, and amount of future repurchases will be determined by management based on its evaluation of market conditions and other factors. The repurchase program does not obligate the Company to acquire any particular amount of common stock, and it may be modified, suspended, or discontinued at any time.
In October 2025, our Board of Directors declared a special dividend of warrants to holders of record as of October 23, 2025. Each holder of record received one warrant for each ten shares of common stock held as of
the record date with an exercise price of $22.50 per share until January 21, 2028. We do not expect to continue to distribute dividends but may do so in the future, subject to approval by our Board of Directors.
The following charts summarize stock repurchases and distributed dividends and weighted-average common shares outstanding on a diluted basis for 2025 and 2024.
| Stock Repurchases Under Share Repurchase Program and Distributed Dividends ($ thousands) | Diluted Weighted-Average of Common Shares Outstanding (in thousands) | |||||||||||||
CRITICAL ACCOUNTING ESTIMATES
The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that directly affect our reported financial condition and results of operations. We base our estimates on historical data and various other assumptions that management believes to be reasonable given the facts and circumstances. Actual results may differ significantly from these estimates and assumptions and may affect future results of our financial condition and results of operations.
Our significant accounting policies, including recent accounting pronouncements, are described in Note 1-Overview and Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report. The below discussion includes the accounting estimates and assumptions that we consider to be the most critical to our financial statements. We consider accounting estimates and assumptions critical if they require significant levels of judgment, involve inherent uncertainty and have the potential to materially impact our financial condition and results of operations.
Accounting for Income Taxes
We are subject to income taxes in the U.S. and in the various jurisdictions in which we operate. The accounting for income taxes requires significant judgment by management in determining our income tax provision, which includes deferred tax assets and liabilities, valuation allowance recorded against deferred tax assets and evaluating uncertain tax positions.
Deferred tax assets and liabilities are recognized for temporary differences between the financial reporting basis and income tax basis of assets and liabilities, based on enacted tax laws and statutory rates applicable to the periods in which we expect the temporary differences to reverse. We established a valuation allowance for deferred tax assets when it is not expected to be realized. The determination of the reversal of deferred taxes and the valuation allowance for deferred tax assets requires management to make certain judgments and assumptions, including forecasted taxable income, historical experience and tax planning strategies.
We recognize and measure uncertain tax positions when we determine the tax benefit from an uncertain tax position is more likely than not that the tax position will be sustained upon examination by taxing authorities.
The amount of benefit we recognize represents the portion that has a greater than fifty percent likelihood of being realized upon settlement.
Our income tax provision is significantly affected by tax laws related to the treatment of digital asset transactions. We evaluate estimates and assumptions quarterly and adjust tax positions as new information becomes available. If these estimates and assumptions materially change, or if actual facts and circumstances differ materially from those in the assumptions, our financial condition and results of operations could be materially impacted.
An increase or decrease in our effective tax rate by one percentage point would have resulted in an increase or decrease in our income tax expense of $0.7 million.
Valuation of Financial Instruments and Share-Based Compensation
We estimate the fair value of certain financial instruments, including convertible notes and warrants, as well as share-based compensation awards, using valuation models that incorporate significant assumptions. These assumptions include but are not limited to determining the appropriate valuation methodology and/or model, determining model inputs based on the evaluation of observable market data, such as risk-free interest rates and determining appropriate valuation adjustments such as stock price volatility and discount rates.
In conjunction with the 2030 April convertible note offering we issued warrants which we determined to be free-standing equity-linked instruments under generally accepted accounting principles and requires the proceeds to be allocated between the relative fair value of the convertible notes and warrants on the date of issuance. We used the Monte Carlo simulation to determine the fair value of the convertible notes and the Black-Scholes Options model for the valuation of the warrants. Each of the previously mentioned valuation models use significant judgment to determine model inputs. Changes in assumptions may result in different estimates of fair value, which would affect the allocation of proceeds between the convertible notes and warrants and, consequently, the initial carrying value of the debt, the resulting debt discount, and the amount of interest expense recognized over the term of the notes. In addition, substantially similar valuation methodologies and judgments were applied in connection with the evaluation of debt modifications. See Note 15-Fair Value Measurements of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, for further discussion on inputs used in the valuation models.
We issued warrants as a form of non-cash dividend to holders of our common stock, holders of our notes and other security holders. We accounted for these warrant dividends as equity-classified instruments under generally accepted accounting principles and are measured at fair value on grant date. We determined the fair value of the warrant dividend using the Monte Carlo simulation, which incorporates the probability of a range of possible outcomes appropriate for the instrument being valued, including but not limited to, future stock price outcomes. The model requires significant judgment, including expected volatility, expected term and simulated stock price paths. Changes in these assumptions would increase or decrease the amount recognized in retained earnings for the fair value of the warrant dividend. See Note 15-Fair Value Measurements of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, for further discussion on inputs used in the valuation models.
Accounting for share-based compensation awards under generally accepted accounting principles requires the measurement and recognition of compensation expense based on the fair value of the awards on the grant-date. We determine the fair value of share-based compensation using the Black-Scholes Option model. The Black-Scholes Option model uses significant judgments to determine model inputs, including but not limited to the expected volatility of our common stock. Changes in assumptions used would impact the amount of expense recognized over the vesting period. See Note 12-Share-Based Compensation of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, for further discussion on inputs used in the valuation of our share-based compensation.
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