ProCap Financial, Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Unless the context otherwise requires, all references in this section to “Pubco,” the “Company,” “ProCap,” “we,” “us,” or “our” refer to ProCap Financial, Inc., a Delaware corporation. The following discussion and analysis of the financial condition and results of operations of the Company should be read together with our audited consolidated financial statements and the related notes included elsewhere in this Annual Report for the period from June 17, 2025 (inception) through December 31, 2025 (the “Audited Financial Statements”). This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those described under “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this Annual Report. Overview We were incorporated on June 17, 2025, and on December 5, 2025, completed the Business Combination with CCCM pursuant to which we became a publicly traded company. The Business Combination was accounted for as a reverse recapitalization, with our Company treated as the accounting acquirer. Accordingly, the Audited Financial Statements included elsewhere in this Annual Report reflect the historical operations of our Company prior to the Business Combination and the combined results thereafter. We are an early-stage company with a limited operating history. As a result, investors should consider the risks associated with evaluating our Company with limited historical financial information and evolving operations, as described in Part I, Item 1A. “Risk Factors” of this Annual Report. Our strategy was historically centered on holding Bitcoin as our primary treasury reserve asset while pursuing complementary media operations activities intended to support its treasury strategy and generate revenue over time. During the period presented, our Company’s activities were primarily focused on completing the Business Combination, raising capital, acquiring Bitcoin, establishing custody and collateral arrangements, launching media operations, and implementing our treasury and risk management framework. In F ebruary 2026, we added strategies related to the use of AI and automation to support the development and delivery of financial products and services. Our business is built upon a foundational belief that advances in AI may enable more scalable and efficient tools for portfolio analysis, financial planning, and investor decision support. Consistent with this approach, the Company expects to increasingly rely on software-based systems and automated processes as part of our operating model. ProCap further believes that Bitcoin represents a superior long-term store of value and a viable alternative to traditional fiat-based reserve assets. We believe Bitcoin will play an increasingly important role as a reserve asset for individuals, corporations, and governments worldwide. To support our operations, and in addition to our efforts in utilizing AI technologies, we will continue our plan to accumulate and hold Bitcoin as a long-term treasury reserve asset. Our material assets consist solely of approximately 5,007 Bitcoin as of February 12, 2026. Business Combination Transaction and Recent Developments Business Combination On December 5, 2025, we completed the Business Combination contemplated by the Business Combination Agreement by and among CCCM, ProCap, SPAC Merger Sub, Company Merger Sub, Legacy ProCap and Seller. The Business Combination was accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, although CCCM acquired the outstanding equity in the Company in the Business Combination, CCCM is treated as the “acquired company” and ProCap was treated as the accounting acquirer for financial statement purposes. Accordingly, the Business Combination was treated as the equivalent of ProCap issuing stock for the net assets of CCCM, accompanied by a recapitalization. The net assets of CCCM are stated at historical cost, with no goodwill or other intangible assets recorded. Furthermore, the historical financial statements of ProCap became the historical financial statements of the Company upon the consummation of the merger. As a result, the financial statements included in this Annual Report reflect (i) the historical operating results of ProCap and Procap BTC prior to the merger; (ii) the combined results of CCCM and ProCap following the close of the merger; (iii) the assets and liabilities of CCCM at their historical cost and (iv) ProCap’s equity structure for all periods presented, as affected by the recapitalization presentation after completion of the merger. See Note 4 to our Audited Financial Statements for further details of the merger. Following the completion of the Business Combination, on December 8, 2025, the shares of Pubco Common Stock commenced trading on the Nasdaq Global Market under the symbol “BRR” and the Pubco Warrants commenced trading on the Nasdaq Capital Market under the symbol “BRRWW.” - 71 - Convertible Notes On December 5, 2025, certain qualified investors (the “Convertible Note Investors”) purchased convertible notes issued by Pubco (“Convertible Notes”), in an aggregate principal amount of $235 million, for an aggregate purchase price equal to 97% of the aggregate principal amount of the Convertible Notes (the “Convertible Note Financing”). The Convertible Note Financing was funded and contingent upon the Closing. The Convertible Notes have a conversion rate of 76.9 shares per $1,000 equal to an approximately $13.00 conversion price, zero interest rate, maturity of up to 36 months, and are 1:1 times collateralized by cash, cash equivalents and certain Bitcoin assets ( with Bitcoin having a value of 0.50 to 1) . U.S. Bank Trust Company, National Association serves as collateral agent and trustee with regard to the Convertible Notes and associated Indenture and security arrangements. The Company used $200.0 million of the proceeds from the Convertible Note Financing to purchase Bitcoin in the Convertible Bitcoin Purchase (as described below) and expects to use the remainder of the proceeds to pay certain transaction expenses and fees. Convertible Notes Repurchase On February 9, 2026, we entered into privately negotiated notes repurchase agreements (the “Repurchase Agreements”) with certain holders (the “Noteholders”) of certain of our outstanding 0.00% Convertible Senior Secured Notes due 2028 (the “2026 Convertible Notes”) under the Indenture, pursuant to which we agreed to repurchase (the “Repurchase”) approximately $135.4 million in aggregate principal amount of the 2026 Convertible Notes held by the Noteholders for an aggregate of approximately $119.2 million in cash. The Repurchase settled on or about February 10, 2026. Upon settlement of the Repurchase, the aggregate principal amount of the 2026 Convertible Notes outstanding was reduced to approximately $99.6 million. Pursuant to the terms of the Indenture, the Company must maintain a 1:1 loan-to-collateral ratio, where Bitcoin is treated as 0.50 to 1.00 and cash is treated as 1.00 to 1.00. As of February 12, 2026 the company held 3,000 Bitcoin and $26.7 million in cash with US Bank for collateral of the Convertible Notes. This collateral composition is subject to change to account for market conditions, including the price of Bitcoin. Preferred Equity Subscription Agreements On the Execution Date and in connection with the Business Combination Agreement, certain “qualified investors” (defined to include “qualified institutional buyers” (“QIBs”), as defined in Rule 144A of the Securities Act, and institutional “accredited investors”, as defined in Rule 501 of Regulation D) (the “Preferred Equity Investors”) each entered into a Preferred Equity Subscription Agreement (collectively, the “Preferred Equity Subscription Agreements”) with CCCM, and ProCap, pursuant to which the Preferred Equity Investors subscribed to purchase an aggregate of 51,650,000 non-voting preferred units of ProCap (“Preferred Units”), at a purchase price of $10.00 per unit in a private placement, for an aggregate amount of $516.5 million of such Preferred Units (the “Preferred Equity Investment”) which were converted and exchanged for 64,562,500 shares of Common Stock of the Company at the Closing of the Business Combination. Additionally, each Preferred Equity Investor executed a joinder agreement to that certain Limited Liability Company Operating Agreement of the Company, dated as of June 22, 2025, by and among the Company and the members identified therein (the “LLC Agreement”), pursuant to which each Preferred Equity Investor accepted the rights, duties and obligations set forth in the LLC Agreement and became a preferred member of the Company. ProCap BTC used all of the proceeds from the Preferred Equity Investment to purchase Bitcoin (the “Purchased Bitcoin”), and such Purchased Bitcoin is held in a custody account in accordance with a custody agreement by and between ProCap BTC and Anchorage, until the Closing, upon which time it will be contributed to Procap BTC. Pursuant to the Preferred Equity Subscription Agreements, ProCap BTC agreed to use commercially reasonable efforts to register the offer and sale of Pubco Common Stock, into which the Preferred Units were converted pursuant to the Business Combination Agreement upon the Closing, on the Registration Statement. To the extent that any such shares of Pubco Common Stock are unable to be included in the Registration Statement, Pubco agreed to certain customary resale registration rights, including that, within 45 calendar days after the Closing, Pubco will file with the SEC (at Pubco’s sole cost and expense) a registration statement registering the offer and resale of such Pubco Common Stock (the “Resale Registration Statement”), and Pubco shall use its commercially reasonable efforts to have the Resale Registration Statement declared effective as soon as practicable after the filing thereof, but no later than 60 calendar days after the Closing, which may be extended an additional 30 calendar days upon certain circumstances. - 72 - Services Agreement Professional Capital Management and ProCap BTC entered into the Services Agreement on the Execution Date. Pursuant to the Services Agreement, Professional Capital Management agreed to provide certain services to ProCap BTC, with the services provided pursuant to statements of work. The Services Agreement has a term of four (4) years following the Execution Date and will automatically renew for a subsequent one (1) year term, unless either party gives the other party at least sixty (60) days’ prior written notice of non-renewal or otherwise terminates the Services Agreement or any statement of work as set forth therein. In consideration for the services and work performed under the Services Agreement, Legacy ProCap issued an aggregate of 10,000,000 Common Units of ProCap to Professional Capital Management. Non-Competition Agreement Contemporaneously with the execution and delivery of the Business Combination Agreement, Pubco, CCCM, ProCap BTC and Mr. Anthony Pompliano entered into a non-competition and non-solicitation agreement, pursuant to which, until the earlier of (i) the date that is eighteen (18) months following the Closing Date and (ii) the date that is six (6) months after such date as Mr. Pompliano ceases to be a Control Person of ProCap BTC or Pubco, Mr. Pompliano will not, directly or indirectly, become a Control Person of a public company with a primary portion of its business comprised of pursuing a Bitcoin treasury strategy program. For purposes of the non-competition agreement, “Control Person” shall mean (x) the chairman of a board of directors, chief executive officer or president, or (y) the owner of such equity interests or right to acquire equity interests of a Person (as defined in the non-competition and non-solicitation agreement) which entitles the holder thereof to the ability to manage or control such Person. Sponsor Earnout Agreement Effective December 3, 2025, prior to the meeting, the Company and Columbus Circle 1 Sponsor Corp LLC (the “Sponsor”) entered into an agreement (the “Sponsor Earnout Agreement”), providing that 8,333,333 shares of Pubco Common Stock (such shares subject to earnout, the “Earnout Founder Shares”), representing all of the shares of Pubco Common Stock issuable to the Sponsor or its transferees in exchange for their Class B ordinary shares of CCCM (“Class B Ordinary Shares”) upon the Closing, shall be subject to transfer restrictions set forth in the Sponsor Earnout Agreement (the “Sponsor Transfer Restrictions”) and shall vest and be released from such restriction only if certain price targets are achieved during the two-year period following the Closing (the “Earnout Period”). The Sponsor Earnout Agreement provided that the Earnout Founder Shares shall vest and shall no longer be subject to the Sponsor Transfer Restrictions as follows: ●100% of the Earnout Founder Shares will vest and shall no longer be subject to the Sponsor Transfer Restrictions if the closing price of the Pubco Common Stock equals or exceeds $10.21 per share (as may be adjusted) for any 20 trading days within any consecutive 30-trading day period during the Earnout Period (the “Share Price Trigger Event”). ●100% of the Earnout Founder Shares will vest and shall no longer be subject to the Sponsor Transfer Restrictions if the BTC VWAP (as defined below) equals or exceeds $140,000 during any five-day period during the Earnout Period (the “BTC Price Trigger Event”). In the event that neither a Share Price Trigger Event nor a BTC Price Trigger Event has occurred on or prior to the second anniversary of the Closing Date, then, subject to the terms and conditions of the Sponsor Earnout Agreement, on such second anniversary, 100% of the Earnout Founder Shares will vest and will no longer be subject to the Sponsor Transfer Restrictions. - 73 - Notwithstanding the foregoing, in the event that during the Earnout Period, the Company is subject to a change of control and the implied consideration per share of Pubco Common Stock pursuant to which the Company or its stockholders have the right to receive in such change of control equals or exceeds $10.21 (or the equivalent fair market value thereof, as determined by the board of directors of the Company following the Closing in good faith, in the event of any non-cash consideration), then, all of the Earnout Founder Shares that have not previously vested will vest and shall no longer be subject to the Sponsor Transfer Restrictions. “BTC VWAP” means the dollar volume-weighted average price for Bitcoin (BTC) during any one hundred twenty (120)-hour period ending at the time of determination, as reported by Bloomberg through its “VAP” function for “XBTUSD BGN Currency” (or such other comparable calculation methodology as the Disinterested Independent Directors (as defined in the Sponsor Earnout Agreement) may determine in good faith if such Bloomberg function is no longer available). If the BTC VWAP cannot be calculated for Bitcoin (BTC) on such date on any of the foregoing bases, the BTC VWAP of Bitcoin (BTC) on such date shall be the fair market value as determined by the Disinterested Independent Directors of the Company acting in good faith. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination, recapitalization or other similar transaction during such period. Effective December 3, 2025, prior to the meeting, the Company and Seller entered into an agreement (the “Seller Earnout Agreement”), providing that 9,500,000 shares of Pubco Common Stock (such shares subject to earnout, the “Earnout Seller Shares”), representing all of the shares of Pubco Common Stock otherwise issuable to the Seller upon the Closing, shall be subject to the transfer restrictions set forth in the Seller Earnout Agreement (the “Seller Transfer Restrictions”) and shall vest and be released from such restriction only if certain price targets are achieved during the Earnout Period. The Seller Earnout Agreement provides that the Earnout Seller Shares shall vest and shall no longer be subject to the Seller Transfer Restrictions as follows: ●100% of the Earnout Seller Shares will vest and shall no longer be subject to the Seller Transfer Restrictions upon a Share Price Trigger Event. ●100% of the Earnout Seller Shares will vest and shall no longer be subject to the Seller Transfer Restrictions upon a BTC Price Trigger Event. In the event that neither a Share Price Trigger Event nor a BTC Price Trigger Event has occurred on or prior to the second anniversary of the Closing Date, then, subject to the terms and conditions of the Seller Earnout Agreement, on such second anniversary, 100% of the earnout shares will vest and shall no longer be subject to the Seller Transfer Restrictions. Notwithstanding the foregoing, in the event that during the Earnout Period, the Company is subject to a change of control and the implied consideration per share of Pubco Common Stock pursuant to which the Company or its stockholders have the right to receive in such change of control equals or exceeds $10.21 (or the equivalent fair market value thereof, as determined by the board of directors of the Company following the Closing in good faith, in the event of any non-cash consideration), then, all of the Earnout Seller Shares that have not previously vested shall vest and shall no longer be subject to the Seller Transfer Restrictions. 2025 Repurchase Program On December 9, 2025, the Board of the Company approved the 2025 Repurchase Program providing for the repurchase of up to $100 million of our outstanding shares of Common Stock. Under the 2025 Repurchase Program, we are authorized to repurchase shares of Common Stock through open market purchases, privately-negotiated transactions, accelerated share repurchases, or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act. The 2025 Repurchase Program does not obligate us to repurchase shares of Common Stock and the specific timing and amount of repurchases will vary based on available capital resources and other financial and operational performance metrics, market conditions, securities law limitations and other factors. - 74 - In connection with the 2025 Repurchase Program, on December 12, 2025, we entered into an Open Market Share Repurchase Agreement (the “Repurchase Agreement”) with TD Securities Inc. (the “Broker”) whereby the Broker has agreed to act as a non-exclusive agent on behalf of us to repurchase shares of Common Stock in the open market pursuant to Rule 10b5-1 and Rule 10b-18 of the Exchange Act. The Repurchase Agreement will continue in effect until terminated by either us or the Broker, with or without cause, upon written notice to the other party. We will pay the Broker a commission at a rate of $0.01 for each share of Common Stock repurchased pursuant to the Repurchase Agreement. Merger Agreement with CFO Silvia To support our AI strategy, on February 9, 2026, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Silvia Merger Sub, Inc., a Delaware corporation and a direct wholly owned subsidiary of the Company (“Merger Sub”), CFO Silvia, the Seller, Shain Noor (“Shain Noor” and, together with the Seller, the “Merger Sellers”), and Shain Noor, solely in his capacity as the stockholder representative. Under the Merger Agreement, Merger Sub will merge with and into CFO Silvia, with CFO Silvia surviving as a direct wholly owned subsidiary of the Company (the “Merger”). At the effective time of the Merger (the “Effective Time”), each share of CFO Silvia common stock outstanding immediately prior to the Effective Time (other than dissenting shares and treasury shares) will be converted into the right to receive shares of Common Stock of the Company, consisting of (i) the per share merger consideration, and (ii) any per share earnout consideration, in each case as described in the Merger Agreement and related spreadsheet to be delivered prior to closing. In addition, each outstanding simple agreement for future equity (“SAFE”) will be terminated at the Effective Time, and each SAFE holder will be entitled to receive a portion of the total merger consideration and earnout shares (if any), in accordance with the Merger Agreement. A portion of the merger consideration otherwise payable to equity holders will be deposited into an escrow account for a period of twelve months to secure indemnification obligations. The shares of Company Common Stock issued in the Merger will be subject to transfer restrictions, including lock-up provisions, as further described in the Merger Agreement. The closing of the Merger is subject to customary closing conditions, including the filing of a certificate of merger with the Delaware Secretary of State, specified regulatory approvals (including any required filings under the Hart-Scott-Rodino Antitrust Improvements Act, if applicable), and the receipt of requisite approvals from CFO Silvia stockholders and Company stockholders, among other conditions set forth in the Merger Agreement. Registration Rights Agreement in Connection with the Merger In connection with the Merger, the Company and certain equity holders of CFO Silvia will enter into a registration rights agreement (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, a majority-in-interest of the then outstanding Registrable Securities (as defined in the Registration Rights Agreement) may make a written demand for registration of all or part of the Registrable Securities. The Company will not be obligated to effect more than three registrations pursuant to a demand registration. The Registration Rights Agreement provides customary piggyback registration rights, certain restrictions on registration rights, customary indemnification and contribution provisions, termination rights, and all other provisions that are included in the Registration Rights Agreement. The Registration Rights Agreement is subject to the receipt of requisite approvals from stockholders. Lock-Up Agreement in Connection with the Merger At or prior to the closing of the Merger, each of the Merger Sellers and certain other investors receiving shares of Company Common Stock in the Merger will enter into a lock-up agreement with the Company (each, a “Lock-Up Agreement”). Under the Lock-Up Agreements, such holders will agree that, (i) with respect to the shares of Company Common Stock issued at the closing, until the longer of (x) the six month period following the closing and (y) the date on which the volume-weighted trading price of the Company Common Stock equals or exceeds $9.00 and (ii) with respect to the earnout shares, the six month period following issuance of such earnout shares (the “Lock-Up Period”), they will not, directly or indirectly, offer, sell, contract to sell, pledge, grant any option to purchase or otherwise dispose of, or engage in any hedging or derivative transactions with respect to, any shares of Company Common Stock received in the Merger (including any escrow releases and earnout shares when issued), subject to customary permitted transfers, provided that the transferee agrees in writing to be bound by the Lock-Up Agreement for the remainder of the Lock-Up Period. The Lock-Up Agreement is subject to the receipt of requisite approvals from stockholders. - 75 - Safe Termination Agreements in Connection with the Merger At or prior to the Effective Time, each outstanding SAFE of CFO Silvia will be terminated pursuant to a SAFE termination agreement among the Company, CFO Silvia and the applicable SAFE holder (each, a “SAFE Termination Agreement”). Under the SAFE Termination Agreements, each SAFE will be canceled and of no further force or effect in exchange for the right to receive the portion of the merger consideration allocable to such SAFE in accordance with the Merger Agreement and the final allocation schedule (including any earnout and escrow shares when and if issued), and each SAFE holder will release claims arising under the applicable SAFE, subject to customary exceptions (including fraud and willful misconduct). The SAFE Termination Agreements are expected to include customary representations and acknowledgments of the SAFE holders (including ownership and authority), tax forms, and covenants to deliver any additional instruments reasonably requested to evidence the termination, and will provide that no additional consideration is payable and that any most-favored-nations, anti-dilution or valuation cap provisions under the SAFEs are waived to the extent inconsistent with the Merger Agreement. The SAFE Termination Agreement is subject to the receipt of requisite approvals from stockholders. Shain Noor Agreements in Connection with the Merger Upon closing of the Merger, the Company and Noor will enter into an employment agreement setting forth the terms and conditions of his employment as Chief Technology Officer of the Company (or its post-closing subsidiary) (the “Employment Agreement”). Under the terms of the Employment Agreement, Noor will be entitled to receive (i) an annual base salary of $700,000, subject to review and adjustment by the Company from time to time, (ii) eligibility for an annual performance-based cash bonus with a target amount equal to $300,000, subject to approval by the compensation committee of the Board of the Company in its sole discretion and continuous employment with the Company, and (iii) a one-time signing bonus equal to $5,000,000, subject to continuous employment with the Company. Noor will also be eligible to receive a grant of time-based restricted stock units equal to $4,000,000, which vest in equal installments over four years following the date of grant, subject to Board (or its compensation committee) approval, vesting conditions, continuous employment with the Company and other conditions. The Employment Agreement contains customary confidentiality and intellectual property provisions and may be terminated by either party in accordance with its terms. Upon closing of the Merger, Noor will enter into a Non-Competition and Non-Solicitation Agreement (the “Non-Competition Agreement”) in favor of the Company and its affiliates (including CFO Silvia) in connection with the Merger, imposing a three-year post-closing restricted period that, among other things, limits Noor from becoming a control person of a company that operates in the same or substantially similar line of business as CFO Silvia in the United States and other covered markets, imposes employee and customer non-solicitation covenants and confidentiality on Noor, provides for mutual non-disparagement obligations, includes customary equitable-relief and fee-shifting remedies (with tolling during violations), and provides for automatic termination if the Merger Agreement is terminated. The Employment Agreement and the Non-Competition Agreement are subject to the receipt of requisite approvals from stockholders. Results of Operations The following table sets forth a summary of our results of operations. This information should be read together with our Audited Financial Statements and related notes. For the period from June 17, 2025 (inception) through December 31, 2025 Revenue $ 85,000 Operating expenses General and administrative 7,630,335 Stock-based compensation 442,043 Loss from operations (7,987,378 ) Other income (expense): Realized loss on sale of digital assets (54,463,684 ) Change in fair value of digital assets (25,005,384 ) Change in fair value of conversion feature - preferred units 56,298,500 Change in fair value of convertible note conversion feature 2,350,290 Change in fair value of derivative securities 106,264 Interest income 259,942 Interest expense (534,054 ) Other expense, net (20,988,126 ) Net loss $ (28,975,504 ) Weighted average number of shares of common stock outstanding, basic and diluted 73,685,031 Net loss per common stock, basic and diluted $ (0.39 ) Revenues Revenue for the period from June 17, 2025 (inception) through December 31, 2025 was $85,000 and not material to overall results. The Company currently generates limited revenue from digital advertising and marketing services, which are recognized over time as performance obligations are satisfied. The Company has not yet demonstrated an ability to generate sustainable or predictable revenue, and there can be no assurance that it will do so in the future. - 76 - General and Administrative Expenses General and administrative expenses consist primarily of personnel-related costs, professional fees, and other corporate overhead expenses. For the period from June 17, 2025 (inception) through December 31, 2025, general and administrative expenses totalled $7.6 million. Personnel-related costs included $2.3 million of salary expense and accrued bonuses. Professional fees totalled $4.6 million and were primarily attributable to legal, accounting, advisory, and other professional services incurred in connection with the consummation of the Business Combination and the Company’s transition to operating as a public company. The remaining general and administrative expenses consisted of insurance, technology, facilities, and other corporate costs incurred during the period. Other Income (Expense) Other income (expense) for the period from June 17, 2025 (inception) through December 31, 2025, was $21.0 million primarily driven by realized loss on sale of digital assets, changes in fair value of conversion feature, digital assets and derivative securities, as well as interest expense and interest income. We recognized a realized loss of $54.5 million on the sale of digital assets and an unrealized loss of $25.0 million related to changes in the fair value of our remaining digital asset holdings. These losses were driven by volatility in Bitcoin market prices during the period and reflect the Company’s strategy of holding Bitcoin as a primary treasury reserve asset, which subjects results of operations to significant market price fluctuations. Other income included a gain in the change in fair value of conversion feature - preferred units of $56.3 million, $2.4 million gain related to changes in the fair value of the conversion feature embedded in the Company’s Convertible Notes and a $0.1 million gain related to changes in the fair value of the Company’s put option liability. These amounts reflect non-cash fair value remeasurements recognized in earnings during the period from June 17, 2025 (inception) through December 31, 2025. Interest expense, totaled $0.5 million, primarily attributable to amortization of capitalized financing-related costs incurred and amortization of debt discount during the period from June 17, 2025 (inception) through December 31, 2025. Interest income during the period of $0.3 million was primarily attributable to interest earned through the US Bank collateral account. Liquidity and Capital Resources As of December 31, 2025, we had cash and cash equivalents of approximately $45.0 million, restricted cash of approximately $149.9 million, and working capital of approximately $194.8 million. Restricted cash primarily relates to collateral requirements under the Company’s Convertible Notes and Bitcoin put option contracts. For the period from June 17, 2025 (inception) through December 31, 2025, we reported a net loss of approximately $29.0 million. This net loss was primarily driven by factors that are inherently volatile and subject to market conditions, including: ● Realized and unrealized losses related to Bitcoin holdings due to fluctuations in the market price of Bitcoin; ● General and administrative expenses associated with the Business Combination and operating as a public company. Because digital assets and derivative instruments are measured at fair value, our results of operations may fluctuate significantly from period to period, as discussed further in Note 11 to our Audited Financial Statements for more information. On December 5, 2025, we completed the Business Combination and issued the Convertible Notes in the aggregate principal amount of $235.0 for an aggregate purchase price equal to 97% of the aggregate principal amount of the Convertible Notes. See Note 8 to our Audited Financial Statements for more information. We do not maintain any committed external sources of liquidity, including credit facilities or other financing arrangements. Our liquidity is derived primarily from cash on hand. Based on the cash and cash equivalents balance of $44,976,127 and our Bitcoin holdings of 5,000 as of December 31, 2025, we have determined that our sources of liquidity will be sufficient to meet our needs for the one-year period from the issuance of the Audited Financial Statements. However, our liquidity position may be materially impacted by volatility in the market price of Bitcoin and other market conditions. As of December 31, 2025, we did not have any material commitments for capital expenditures. However, we are party to written Bitcoin put option contracts that may require us to purchase Bitcoin or settle such contracts on a net cash basis in the future, depending on market conditions at expiration. While these arrangements are collateralized and may or may not result in cash outflows, they represent potential future cash requirements. In the short term, we expect to use cash primarily to fund working capital requirements and operating expenses. Over the long term, cash may be used to support expansion initiatives, technology investments, and potential strategic acquisitions. The timing and extent of such expenditures will depend on market conditions, business performance, and capital availability. - 77 - Cash Flows for the period from June 17, 2025 (inception) through December 31, 2025 The following table summarizes our cash flows from operating, investing and financing activities for period from June 17, 2025 (inception) through December 31, 2025: For the period June 17, 2025 (inception) through December 31, 2025 Net cash used in operating activities $ (7,491,814 ) Net cash used in investing activities $ (521,344,966 ) Net cash provided by financing activities $ 723,698,239 Cash Flows Used in Operating Activities Net cash used in operating activities for the period from June 17, 2025 (inception) through December 31, 2025, was $7.5 million. Non-cash adjustments to reconcile net loss to net cash used in operating activities was $21.5 million and were primarily due to, a realized loss on the sale of Bitcoin of $54.5 million an unrealized loss change in fair value of Bitcoin of $25.0 million, amortization of debt discount and debt issuance costs of $0.5 million, stock-based compensation expense of $0.4 million, and depreciation expense of $0.03 million offset by an unrealized gain from the change in fair value of the Convertible Notes’ conversion feature of $2.4 million, an unrealized gain change in fair value of the derivative securities liability of $0.1 million, and an unrealized gain in the change in the fair value of the preferred units conversion feature of $56.3 million and $0.2 million in changes in operating assets and liabilities. Cash Flows Used by Investing Activities Net cash used in investing activities for the period from June 17, 2025 (inception) through December 31, 2025, was $521.3 million, driven by purchases of Bitcoin of $983.3 million and the purchase of fixed assets of $0.1 million, partially offset by proceeds from the sale of Bitcoin of $462.0 million, as reflected in the accompanying consolidated Statement of Cash Flows included in our Audited Financial Statements. Cash Flows Provided by Financing Activities Net cash provided by financing activities for the period from June 17, 2025 (inception) through December 31, 2025, was $723.7 million and consisted of proceeds from the sales of Preferred Units of $495.7 million and issuance of Convertible Notes of $228.0 million, proceeds from the reverse recapitalization of $12.2 million, proceeds from derivative securities of $0.5 million, and proceeds from the promissory note, related party of $1.8 million, offset by debt issuance costs of $9.7 million, payment of the promissory note, related party of $1.8 million, and purchase of treasury stock of $2.9 million. Critical Accounting Policies and Estimates Our Audited Financial Statements and the accompanying notes thereto included elsewhere in this Annual Report are prepared in accordance with GAAP. The preparation of our Audited Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, costs and expenses, and related disclosure of contingent assets and liabilities. We have based our estimates on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We are subject to uncertainties such as the impact of future events, economic and political factors, and changes in our business environment; therefore, actual results could differ significantly from these estimates under different assumptions or conditions. To the extent that there are differences between our estimates and actual results, our future consolidated financial statement presentation, financial condition, results of operations, and cash flows will be affected. Note that the Company has no critical accounting estimates. See “Summary of Significant Accounting Policies” described in Note 3 to our Audited Financial Statements included elsewhere in this Annual Report for a description of our significant accounting policies. - 78 - Off-Balance Sheet Arrangements Other than collateral arrangements associated with financing and derivative activities, we do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources. Recent Accounting Pronouncements See “Recent Accounting Pronouncements” described in Note 3 of our Audited Financial Statements included elsewhere in this Annual Report. Emerging Growth Company Status We are an emerging growth company (“EGC”), as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as to those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an EGC or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an EGC, Pubco intends to rely on such exemptions, it is not required to, among other things: (i) provide an auditor’s attestation report on its system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis); and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation. We will remain an EGC until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of the initial public offering, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our shares of common stock that are held by non-affiliates exceeds $700 million as of the prior June 30, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three year period. Bitcoin Market Price Risk Our Bitcoin investment is measured using observed prices from active exchanges and adjustments are recorded in net income through “other income, net” on our statements of income. The Bitcoin market price may fluctuate significantly and a decline in the market price of Bitcoin could result in a material adverse effect on our financial results in future periods. See Part I, Item 1A, “ Risks Related to Our Business and Bitcoin Treasury Strategy ” for information regarding the risks related to our Bitcoin holdings. As of December 31, 2025, the fair value of our Bitcoin investment included in digital assets was $441.8 million, and for the period from June 17, 2025 (inception) through December 31, 2025, we recognized a realized loss from the sale of Bitcoin of $54.5 million and an unrealized loss from the remeasurement of our Bitcoin investment of $25.0 million. - 79 - ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Smaller reporting companies are not required to provide the information required by this item.