ProCap Financial, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (in thousands, except share, per share data , Bitcoin, and per Bitcoin data ) Unless the context otherwise requires, all references in this section to the “Company,” “ProCap,” “we,” “us,” or “our” refer to ProCap Financial, Inc., a Delaware corporation, and its subsidiaries. The following discussion and analysis of the financial condition and results of operations of the Company should be read together with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report for the three months ended March 31, 2026 (the “Unaudited Condensed Consolidated Financial Statements”)the Annual Report on Form 10-K filed on February 18, 2026 (the “Annual Report”), and the Definitive Proxy Statement filed on March 2, 2026 and Risk Factors contained therein. This discussion contains forward-looking statements that involve risks and uncertainties. Cautionary Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” and “continue,” or the negative of such terms or other similar expressions. Such statements include, but are not limited to, possible business combinations and the financing thereof, and related matters, as well as all other statements other than statements of historical fact included in this Form 10-Q. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other SEC filings. Except as expressly required by applicable securities law, we disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Overview Founded in 2025, we are a U.S.-based, modern finance company. Our mission is to help independent investors make money. We initially launched with Bitcoin-focused media products and Bitcoin holdings on our balance sheet. We believe that Bitcoin represents a superior long-term store of value and a viable alternative to traditional fiat-based reserve assets and that Bitcoin will play an increasingly important role as a reserve asset for individuals, corporations, and governments worldwide. A key objective of ours is to support the broader Bitcoin information ecosystem, including through audio podcasts, video interviews, and text-based articles designed to help individuals and organizations understand Bitcoin’s significance and utility of its mission. To support our operations, we have initiated its plan to accumulate and hold Bitcoin as a long-term treasury reserve asset. Our business is also built upon a foundational belief that advances in artificial intelligence (“AI”) may enable more scalable and efficient tools for portfolio analysis, financial planning, and investor decision support. Consistent with this approach, we expect to increasingly rely on software-based systems and automated processes as part of our operating model. In 2026, we added strategies related to the use of AI and automation to support the development and delivery of financial products and services, including the launch of ProCap Insights and the acquisition of CFO Silvia, Inc, a Delaware corporation (“CFO Silvia”). The Company launched ProCap Insights, the first agentic research platform in finance, in April 2026. Leveraging the latest AI technology, ProCap aims to deliver institutional-grade research to help independent investors make more informed investment decisions. CFO Silvia has developed a consumer-facing AI platform that aggregates and organizes financial data to provide users with automated financial education, tracking and analytical tools. The CFO Silvia platform connects to financial account integrations, including brokerage accounts, retirement accounts, crypto currency wallets, real estate valuation services, and alternative investment platforms, to deliver users a consolidated, real-time view of their net worth, holdings and liabilities. The platform utilizes AI-driven analytical tools to perform portfolio tracking, concentration analysis, fee analysis, scenario modeling, and informational financial summaries through a conversational interface accessible via chat, email, and voice. The platform is designed to surface potential portfolio risks, including sector or asset class overconcentration, elevated fee structures, and inefficient cash allocation. The platform does not provide personalized investment advice within the meaning of the Investment Advisers Act of 1940 and is not intended to serve as a registered investment adviser or replace the judgment of a qualified financial professional. AI and Regulatory Uncertainty The Company’s AI-related initiatives are subject to evolving regulatory, technological, and competitive conditions, including uncertainty regarding data privacy, consumer protection, intellectual property, and the use of automated financial analysis tools. 22 Business Combination On December 5, 2025, we completed a business combination with Columbus Circle Capital Corp I (“CCCM”), a special purpose acquisition company, resulting in the Company becoming a publicly traded entity. The transaction was accounted for as a reverse recapitalization in accordance with U.S. GAAP, with our company being deemed the accounting acquirer. In connection with the transaction: ● Legacy ProCap equity holders received an aggregate of approximately 74.6 million shares of the Company’s common stock (after applying the exchange ratio, including preferred unit conversion). ● CCCM shareholders received approximately 10.6 million shares, after significant redemptions. ● Total common shares outstanding immediately following the transaction were approximately 85.2 million. ● Net proceeds from the transaction were approximately $12.2 million, after redemptions and transaction costs. As a result of the reverse recapitalization: ● The historical financial statements of ProCap became those of the Company. ● All prior-period equity amounts and share counts have been retroactively restated to reflect the exchange ratio established in the transaction. Additionally, previously issued public and private placement warrants of CCCM remained outstanding and became warrants of the Company. 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 our Annual Report. As of March 31, 2026, our material asset consists primarily of approximately 5,457 Bitcoin with a fair value of $372.3 million. Recent Developments Convertible Notes Repurchase On February 9, 2026, we entered into privately negotiated note repurchase agreements (the “Repurchase Agreements”) with certain holders (the “Noteholders”) of our outstanding 0.00% Convertible Senior Secured Notes due 2028 (the “Convertible Notes”) under the Indenture, pursuant to which we agreed to repurchase approximately $135.4 million in aggregate principal amount of the Convertible Notes held by the Noteholders for an aggregate of approximately $119.2 million in cash (the “Repurchase”). The Repurchase settled on or about February 10, 2026. Upon settlement of the Repurchase, the aggregate principal amount of the Convertible Notes outstanding was reduced to approximately $99.6 million. 2025 Repurchase Program On December 9, 2025, the board of directors of the Company (the “Board”) approved a share repurchase program (the “2025 Repurchase Program”) providing for the repurchase of up to $100 million of our outstanding shares of common stock, par value $0.001 (“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. 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. 23 During the quarter ended March 31, 2026, we repurchased 2,667,056 shares of Common Stock in the open market for approximately $8.0 million including commissions, at an average price of $3.00 per share. $89 million remains under the approved 2025 Repurchase Program. Merger with CFO Silvia On April 6, 2026, we completed our previously announced acquisition of CFO Silvia pursuant to the Agreement and Plan of Merger dated February 9, 2026 (the “Merger”). Following the closing, CFO Silvia became our wholly owned subsidiary. The transaction was approved by our stockholders on March 27, 2026. The merger consideration consisted of approximately 7.5 million shares of our Common Stock issued at closing, after adjustment for certain unpaid liabilities, 0.9 million shares placed in escrow to secure indemnification obligations for a period of twelve months, and up to 9.0 million additional shares issuable as earnout consideration upon achievement of specified stock price-based performance conditions during the five-year period following the closing date. The acquisition reflects our previously announced strategic focus on AI operations while continuing our Bitcoin treasury strategy. Beginning in the second quarter of 2026, the results of CFO Silvia will be included in our consolidated financial statements. The transaction resulted in acquisition-related and integration costs and may result in additional dilution if the earnout conditions are achieved and the related shares are issued. In connection with the transaction, we also entered into related ancillary agreements, including escrow, lock-up, registration rights and restrictive covenant arrangements. Additional information regarding the acquisition and related agreements is included in our Current Report on Form 8-K filed on April 6, 2026. Results of Operations The Company was incorporated on June 10, 2025 and therefore no comparable prior-year interim period exists for the three months ended March 31, 2026. The following table sets forth a summary of our results of operations: For the three months ended March 31, 2026 Revenue $ 1 Operating expenses General and administrative 4,059 Stock-based compensation 3,540 Loss from operations (7,598 ) Other income (expense): Change in fair value of digital assets (105,467 ) Change in fair value of Convertible Notes conversion feature 838 Change in fair value of sold put option liability (914 ) Gain on extinguishment of debt 5,933 Interest expense, net (1,100 ) Interest and dividend income 742 Other expense, net (99,968 ) Net loss before taxes (107,566 ) Income tax expense (193 ) Net loss $ (107,759 ) Revenues Revenue for the three months ended March 31, 2026, was $1 and not material to overall results. 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. The Company has not yet established material recurring revenue streams and expects operating results to depend on its ability to scale its AI and financial technology platforms, increase user adoption, and develop monetization revenues or profitability. 24 General and Administrative Expenses General and administrative expenses consist primarily of personnel-related costs, professional fees, and other corporate overhead expenses. For the three months ended March 31, 2026, general and administrative expenses totaled $4,059. Personnel-related costs included $730 of salary and bonus expense. Professional fees totaled $1,781 and were primarily attributable to legal, accounting and auditing, advisory, and other professional services, incurred in part due to the acquisition of CFO Silvia, as well as costs associated with being 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 three months ended March 31, 2026, was a net expense of $99,968 primarily driven by changes in fair value of digital assets, realized loss on put option liability, and interest expense, offset by change in fair value of Convertible Notes conversion feature, a gain on extinguishment of debt, and interest and dividend income. We recognized an unrealized loss of $105,467 related to changes in the fair value of our 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. Because unrealized gains and losses are recognized in earnings, the Company ’s reported operating results may vary significantly between periods and may not be indicative of underlying operating performance or cash flows. Other income included $838 related to a gain on the change in the fair value of the conversion feature embedded in the Company’s Convertible Notes and a gain on debt extinguishment of $5,933. Other expenses included $914 related to a realized loss on the put option liability. Interest expense, totaled $1,100, primarily attributable to amortization of capitalized financing-related costs incurred and amortization of debt discount during the three months ended March 31, 2026. Interest and dividend income during the period of $742 was primarily attributable to interest and dividends earned on cash balances. Liquidity and Capital Resources As of March 31, 2026, we had cash and cash equivalents of approximately $25,964 and working capital of approximately $25,466. For the three months ended March 31, 2026, we reported a net loss of approximately $107,759. This net loss was primarily driven by factors that are inherently volatile and subject to market conditions, including: ● Unrealized losses related to Bitcoin holdings due to fluctuations in the market price of Bitcoin and; ● General and administrative expenses associated with operating as a public company and stock-based compensation expense. 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 8 to our Unaudited Condensed Consolidated 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 $25,964 and our Bitcoin holdings of 5,457 with a fair value of $372,277 as of March 31, 2026, 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 Unaudited Condensed Consolidated Financial Statements. However, our liquidity position may be materially impacted by volatility in the market price of Bitcoin and other market conditions. As of March 31, 2026, we did not have any material commitments for capital expenditures. 25 Subsequent to quarter-end, we entered into an employment agreement with Shain Noor, Chief Technology Officer, that includes a one-time cash signing bonus of $5.0 million, payable within 90 days of commencement and subject to continued employment. This represents a contractual cash commitment that was funded from existing cash on hand in May 2026. Additional information is included in our Current Report on Form 8-K filed with the SEC on April 6, 2026. 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. Although we believe existing cash and Bitcoin holdings will be sufficient to meet anticipated operating requirements for at least the next twelve months, a significant decline in the market value or liquidity of Bitcoin could adversely affect the Company’s financial flexibility and liquidity position. Cash Flows for the Three Months Ended March 31, 2026 The following table summarizes our cash flows from operating, investing and financing activities for the three months ended March 31, 2026: For the three months ended March 31, 2026 Net cash used in operating activities $ (3,286 ) Net cash used in investing activities (36,108 ) Net cash used in financing activities $ (129,503 ) Cash Flows Used in Operating Activities Net cash used in operating activities for the three months ended March 31,2026, was $3,286. Non-cash and working capital adjustments to reconcile net loss to net cash used in operating activities was $104,473 and were primarily due to, an unrealized loss from the change in fair value of Bitcoin of $105,467, stock-based compensation expense of $3,540, amortization of discount and debt issuance costs on Convertible Notes of $1,100, realized loss on put option liability of $914, amortization of right-of use asset of $51, and depreciation expense of $39, offset by gain on debt extinguishment of $5,933, change in fair value of the Convertible Notes conversion feature of $838, and $133 changes in other operating assets and liabilities. Cash Flows Used in Investing Activities Net cash used in investing activities for the three months ended March 31, 2026, was $36,108 and was driven by purchases of Bitcoin of $35,953 and the purchase of fixed assets of $155. Cash Flows Used in Financing Activities Net cash used in financing activities for the three months ended March 31, 2026, was $129,503 and consisted of the payment of the Convertible Notes of $119,152, purchase of derivative securities of $1,653, purchase of treasury stock of $7,998, settlement of derivative securities of $578 and taxes paid on RSU vesting of $1,011, offset by proceeds from derivative securities of $889. Critical Accounting Policies and Estimates Our Unaudited Condensed Consolidated Financial Statements and the accompanying notes thereto included elsewhere in this Quarterly Report are prepared in accordance with GAAP. The preparation of our Unaudited Condensed Consolidated 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 unaudited condensed 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 Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for a description of our significant accounting policies. 26 Off-Balance Sheet Arrangements Other than collateral arrangements associated with financing 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 Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly 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, the Company 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 (expenses), net” on our unaudited condensed consolidated statement of operations. 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 the risk factors included under the heading “ Risks Related to Our Business and Bitcoin Treasury Strategy ” in our Annual Report for more information regarding the risks related to our Bitcoin holdings As of March 31, 2026 and December 31,2025, the fair value of our Bitcoin investment included in digital assets was $372,277 and $441,791, respectively, and for the three months ended March 31, 2026, an unrealized loss from the remeasurement of our Bitcoin investment of $105,467. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Smaller reporting companies are not required to provide the information required by this item. 27