Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
References in this report (the “Annual
Report”) to “we,” “us” or the “Company” refer to Digital Asset Acquisition Corp. References
to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor”
refer to DAAQ Sponsor LLC. The following discussion and analysis of the Company’s financial condition and results of operations
should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Annual Report. Certain
information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
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Special Note Regarding Forward-Looking Statements
This Annual Report includes “forward-looking
statements” that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially
from those expected and projected. All statements, other than statements of historical fact included in this Annual Report including,
without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations,
are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,”
“estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking
statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs,
based on information currently available. A number of factors could cause actual events, performance or results to differ materially
from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that
could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors
section of the Company’s final prospectus for its Initial Public Offering (as defined below) filed with the U.S. Securities and
Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s
website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation
to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a blank check company incorporated in
Cayman Islands on December 9, 2024 formed for the purpose of entering into a merger, share exchange, asset acquisition, share purchase,
reorganization or similar business combination with one or more businesses (a “Business Combination”). We have not selected
any Business Combination target and we have not, nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly,
with any Business Combination target. We intend to effectuate our initial Business Combination using cash from the proceeds of our initial
public offering (the “Initial Public Offering”) and the sale of the Private Placement Warrants (as defined below), the proceeds
of the sale of our shares in connection with our initial Business Combination pursuant to the forward purchase agreements (or backstop
agreements we may enter into or otherwise), shares issued to the owners of the target, debt issued to bank or other lenders or the owners
of the target, or a combination of the foregoing or other sources.
Results of Operations
We have neither engaged in any operations nor
generated any revenues to date. Our only activities for the year ended December 31, 2025, were organizational activities, those necessary
to prepare for our Initial Public Offering, as described below, and identifying a target company for our Business Combination. We do not expect to generate any operating revenues until after the completion
of our initial Business Combination. We generate non-operating income in the form of interest income on assets held in our Trust
Account (defined below) and on our cash equivalents. We incur expenses as a result of being a public company (for legal, financial
reporting, accounting and auditing compliance), as well as for due diligence expenses.
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For the year ended December 31, 2025, we had
net income of $4,244,525, which resulted from earnings and realized gain on marketable securities held in Trust Account of $4,606,744
and investment earnings on cash equivalents held in the Operating Account of $16,940 offset by general and administrative expenses
of $379,159.
For the year ended December 31, 2024, we had
a net loss of $5,112, which resulted from general and administrative expenses.
Through December 31, 2025, our efforts have
been limited to organizational activities, activities relating to the Initial Public Offering, and activities relating to identifying a target company for our Business Combination.
Liquidity, Capital Resources and Going Concern
For the year ended December 31, 2025, net cash
used in operating activities was $2,183. Net income of $4,244,525 was adjusted for earnings on marketable securities in our Trust Account
of $4,624,457, operating expenses paid via promissory note - related party of $112,848, and operating expenses paid by Sponsor from proceeds
withdrawn from Trust Account of $267,836. Changes in operating assets and liabilities totaled $2,935, primarily driven by increases in
prepaid insurance as well as prepaid expenses and other current assets, offset by increases in accrued expenses and due to related party.
For the year ended December 31, 2024, net
cash used in operating activities was $ 0. The net loss of $5,112 was
fully offset by $5,112 due to operating assets and liabilities, primarily driven by increases in accrued expenses and amounts due
to related party.
For the year ended December 31, 2025, net cash
used in investing activities was $172,500,000 and affected by cash deposited in Trust Account.
For the year ended December 31, 2024, net cash
used in investing activities was $ 0.
For the year ended December 31, 2025, net cash
provided by financing activities was $173,563,104, which was due to proceeds from the sale of Units (as defined below), Private Placement
Warrants (as defined below) and public warrants issued as part of the Units.
For the year ended December 31, 2024, net cash
provided by financing activities was $ 0.
The Company’s Initial Public Offering was
declared effective on April 28, 2025. On April 30, 2025, the Company consummated the Initial Public Offering of 17,250,000 units,
(the “Units” and, with respect to the shares of Class A ordinary shares included in the Units sold, the “Public Shares”),
including 2,250,000 Units issued pursuant to the exercise of the Underwriters’ (as defined below) over-allotment option in full,
generating gross proceeds of $172,500,000. Each Unit consists of one Class A ordinary share and one-half of one redeemable warrant of
the Company (the “Public Warrants”), with each whole warrant entitling the holder thereof to purchase one Class A ordinary
share at $11.50 per share.
Simultaneously with the closing of the Initial
Public Offering, the Company consummated the sale of 5,450,000 warrants at a price of $1.00 per warrant (the “Private Placement
Warrants”), generating gross proceeds of $5,450,000. Of the 5,450,000 Private Placement Warrants, (i) Cohen & Company Capital
Markets, a division of Cohen & Company Securities, LLC (the “Representative”), purchased 1,466,250 Private Placement
Warrants, (ii) Clear Street LLC (“Clear Street” and together with the Representative, the “Underwriters”) purchased
258,750 Private Placement Warrants and (iii) the Sponsor purchased 3,725,000 Private Placement Warrants.
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Following the closing of the Initial Public Offering
on April 30, 2025, an amount of $172,500,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering
and the sale of the Private Placement Warrants was placed in a trust account located in the United States (the “Trust Account”).
We intend to use substantially all of the funds
held in the Trust Account, including any amounts representing interest earned on the funds held in the Trust Account and not previously
released to us to pay our taxes (which interest shall be net of taxes paid or payable and excluding deferred underwriting commissions)
to complete our initial Business Combination. We may withdraw interest to pay our taxes, if any. Our annual income tax obligations will
depend on the amount of interest and other income earned on the amounts held in the Trust Account. We expect the interest earned on the
amount in the Trust Account will be sufficient to pay our taxes. We expect the only taxes payable by us out of the funds in the Trust
Account will be income and franchise taxes, if any. To the extent that our ordinary shares or debt is used, in whole or in part, as consideration
to complete our initial Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance
the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
After taking into consideration the consummation
of the Initial Public Offering, we do not believe we will need to raise additional funds in order to meet the expenditures required for
operating our business. However, if our estimates of the costs of identifying a target business, undertaking in-depth due diligence and
negotiating an initial Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available
to operate our business prior to our initial Business Combination. Moreover, we may need to obtain additional financing either to complete
our initial Business Combination or because we become obligated to redeem a significant number of our public shares upon completion of
our initial Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination.
In connection with our assessment of going
concern considerations in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) Topic 205-40, “Presentation of Financial Statements - Going Concern,” we have determined that
the mandatory liquidation raises substantial doubt about our ability to continue as a going concern. Management continues to
seek to complete the Business Combination prior to the mandatory liquidation date. No adjustments have been made to the carrying
amounts of assets or liabilities should we be required to liquidate after October 30, 2026 (or January 30, 2027).
Off-Balance Sheet Arrangements
As of December 31, 2025, we did not have
any off-balance sheet arrangements.
Contractual Obligations
Registration Rights
The holders of the (i) Class B ordinary shares,
which were issued in a private placement prior to the closing of the Initial Public Offering (the “Founder Shares”), (ii)
Private Placement Warrants and the Class A ordinary shares underlying such Private Placement Warrants and (iii) Private Placement Warrants
that may be issued upon conversion of working capital loans will have registration rights to require the Company to register a sale of
any of the Company’s securities held by them and any other securities of the Company acquired by them prior to the consummation
of the Company’s initial Business Combination pursuant to a registration rights agreement signed on the effective date of the Initial
Public Offering. Pursuant to the registration rights agreement and assuming $1,500,000 of working capital loans are converted into warrants,
the Company will be obligated to register up to 12,700,000 Class A ordinary shares and 6,950,000 warrants. The number of Class A ordinary
shares includes (i) 5,750,000 Class A ordinary shares to be issued upon conversion of the Founder Shares, (ii) 5,450,000 Class A ordinary
shares underlying the Private Placement Warrants and (iii) 1,500,000 Class A ordinary shares underlying the warrants that may be issued
upon conversion of working capital loans. The number of warrants includes up to 5,450,000 Private Placement Warrants and 1,500,000 warrants
that may be issued upon the conversion of working capital loans. The holders of these securities are entitled to make up to three demands,
excluding short form demands, that the Company registers such securities. In addition, the holders have certain “piggyback”
registration rights with respect to registration statements filed subsequent to the Company’s completion of the Company’s
initial Business Combination. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
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Promissory Notes - Related Party
On December 11, 2024, the Sponsor agreed to loan
the Company an aggregate of up to $300,000 to cover expenses related to the Initial Public Offering pursuant to a promissory note (the
“Promissory Note”). The Promissory Note is non-interest bearing and payable on the earlier of December 31, 2025 or the date
on which the Company consummates the Initial Public Offering of its securities. During the year ended December 31, 2025, the balance
of the Promissory Note was paid in full and borrowings under the note are no longer available.
Underwriting Agreement
The Company granted the Underwriters a 45-day
option to purchase up to 2,250,000 additional Units to cover over-allotments at the Initial Public Offering price, less the underwriting
commissions. Simultaneously with the closing of the Initial Public Offering, the Underwriters elected to fully exercise the over-allotment
option to purchase the additional 2,250,000 Units at a price of $10.00 per Unit.
The Underwriters were entitled to (1) an underwriting
discount of $0.20 per Unit, or $3,450,000 in the aggregate, of which (i) $0.10 per Unit was paid to the Underwriters in cash at the closing
of the Initial Public Offering and (ii) $0.10 per Unit was used by the Underwriters to purchase Private Placement Warrants, and (2) a
deferred fee of $0.40 per Unit, or $6,900,000. The deferred fee will become payable to the Underwriters from the amounts held in the
Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement,
and will be based on the amount of funds remaining in the Trust Account after shareholder redemptions of Public Shares in connection
with the consummation of a Business Combination.
Critical Accounting Estimates
The preparation of financial statements and
related disclosures in conformity with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could
materially differ from those estimates. We have not identified any critical accounting estimates.
Recent Accounting Standards
In November 2023, the FASB issued Accounting
Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU
2023-07”). The amendments in this ASU require disclosures, on an annual and interim basis, of significant segment expenses that
are regularly provided to the chief operating decision maker (“CODM”), as well as the aggregate amount of other segment items
included in the reported measure of segment profit or loss.
The ASU requires that a public entity disclose
the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing
segment performance and deciding how to allocate resources. Public entities will be required to provide all annual disclosures currently
required by ASC Topic 280, Segment Reporting (“ASC 280”) in interim periods, and entities with a single reportable
segment are required to provide all the disclosures required by the amendments in this ASU and existing segment disclosures in ASC 280.
The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December
15, 2024, with early adoption permitted. The Company adopted ASU 2023-07 on December 9, 2024, the date of its incorporation.
The Company’s management does not believe
that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect
on the accompanying financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
We are a smaller reporting company as defined
by Rule 12b-2 of the Exchange Act of 1934, as amended, and are not required to provide the information otherwise required under this
item.
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