FACT II Acquisition Corp. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to FACT II Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors, references to the “Sponsor” refer to FACT II Acquisition Parent LLC, and references to “Sponsor HoldCo” refer to FACT II Acquisition LLC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Special Note Regarding Forward-Looking Statements This Quarterly Report includes “forward-looking statements” within the meaning of applicable securities laws 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 Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the completion of an initial business combination, our 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, including our ability to identify a suitable target business and complete an initial business combination within the required time period. 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 our Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the Securities and Exchange Commission (“SEC”). Our 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, 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 We are a blank check company incorporated on June 19, 2024 as a Cayman Islands exempted company, formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. We intend to effectuate our initial business combination using cash derived from the proceeds of our initial public offering (“IPO”) and the sale of our securities in a private placement that closed simultaneously with the closing of the IPO, our shares, debt or a combination of cash, shares and debt. Although we are not limited to a particular industry or geographic region for purposes of completing an initial business combination, we are focusing our search on a target in an industry where we believe our management’s expertise will provide us with a competitive advantage. We are an early stage and emerging growth company and, as such, we are subject to all of the risks associated with early stage and emerging growth companies. We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a business combination will be successful. Termination of the PAD Business Combination Agreement On November 26, 2025, we entered into a business combination agreement, as amended by Amendment No. 1 thereto, dated May 17, 2026 (the “PAD Business Combination Agreement”) with Sponsor HoldCo, Patriot Merger Subsidiary, Inc., a Florida corporation and our direct, wholly-owned subsidiary (“Merger Sub”) and Precision Aerospace & Defense Group, Inc., a Florida corporation (“PAD”). The PAD Business Combination Agreement provided, among other things, that on the terms and subject to the conditions set forth therein: (i) we would domesticate as a Delaware corporation in accordance with Section 388 of the Delaware General Corporation Law and Part XII of the Companies Act (As Revised) of the Cayman Islands (the “Domestication”); and (ii) following the Domestication, Merger Sub would merge with and into PAD with PAD surviving the merger as our wholly-owned subsidiary (the “Merger”), in accordance with the PAD Business Combination Agreement and the Florida Business Corporation Act. On July 16, 2026, the PAD Business Combination Agreement was terminated in accordance with its terms (the “Termination”). No termination fee was payable by either party. As a result of the Termination, the voting and support agreement, dated November 26, 2025, by and among Sponsor HoldCo, the Company and PAD (the “Sponsor Support Agreement”), terminated in accordance with its terms, and the voting and support agreements, dated January 6, 2026 and January 19, 2026, by and among PAD, the Company and certain stockholders of PAD (the “PAD Stockholder Support Agreements,” and together with the Sponsor Support Agreement, the “PAD Support Agreements”). Following the Termination, we intend to continue to identify and evaluate opportunities to consummate an initial business combination. We must complete an initial Business Combination by November 27, 2026, unless the period within which we must complete an initial business combination is extended pursuant to our Amended and Restated Memorandum and Articles of Association (the “Extension Period”). 17 Results of Operations We have neither engaged in any operations nor generated any revenues to date. Our only activities from June 19, 2024 (inception) through June 30, 2026 were organizational activities, activities necessary to prepare for and consummate our IPO, and subsequent to the IPO, identifying a target company for our initial business combination and negotiating and attempting to complete the proposed PAD Business Combination, which terminated on July 16, 2026. We intend to continue to identify and evaluate opportunities to consummate an initial business combination. We do not expect to generate any operating revenues until after the completion of our initial business combination. Subsequent to our IPO, we have generated non-operating income in the form of interest income on cash held in a trust account established in connection with our IPO (the “Trust Account”). 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 in connection with seeking a target for, and completing, our initial business combination. For the three months ended June 30, 2026, we had net income of $859,927, which consists of interest income on cash held in the Trust Account of $1,559,305, and interest earned on bank account of $887, offset by general and administrative expenses of $700,265. For the six months ended June 30, 2026, we had net income of $1,894,060, which consists of interest income on cash held in the Trust Account of $3,108,089, and interest earned on bank account of $3,852, offset by general and administrative expenses of $1,217,881. For the three months ended June 30, 2025, we had net income of $1,631,524, which consists of interest income on cash held in the Trust Account of $1,819,161 and interest earned on bank account of $11,921, offset by general and administrative expenses of $199,558. For the six months ended June 30, 2025, we had net income of $3,079,421, which consists of interest income on cash held in the Trust Account of $3,604,845, change on overallotment liability of $26,558 and interest earned on bank account of $11,921, offset by general and administrative expenses of $563,903. Liquidity and Capital Resources On November 25, 2024, the registration statement relating to our IPO was declared effective by the SEC. On November 27, 2024, we consummated our IPO of 17,500,000 units at $10.00 per unit, generating gross proceeds of $175,000,000. Cohen & Company Capital Markets, a division of J.V.B. Financial Group, LLC (“CCM”), and Seaport Global Securities LLC (“Seaport”) acted as underwriters of the IPO, which has now terminated. Simultaneously with the closing of our IPO, we consummated the sale of 663,125 private placement units at a price of $10.00 per private placement unit, generating gross proceeds of $6,631,250, as follows: (A) 17,500 private placement units ($175,000 in the aggregate) with the Sponsor, (B) (i) 260,000 private placement units and (ii) 162,500 private placement units and 325,000 restricted Class A ordinary shares ($4,225,000 in the aggregate) with Sponsor HoldCo, (C) 178,500 private placement units ($1,785,000 in the aggregate) with CCM and (D) 44,625 private placement units ($446,250 in the aggregate) with Seaport. Following the closing of our IPO and the concurrent private placement, a total of $175,875,000 was placed in the Trust Account. We incurred $11,028,226 of transaction costs, consisting of $3,500,000 of cash underwriting fee, $7,000,000 of deferred underwriting fee, and $528,226 of other offering costs. No offering expenses were paid or are payable, directly or indirectly, to our directors or officers, to persons owning 10% or more of any class of our equity securities, or to any of our affiliates. For the six months ended June 30, 2026, cash used in operating activities was $374,314. Net income of $1,894,060 was affected by interest earned on cash held in the Trust Account of $3,108,089 and net change in operating assets and liabilities of $839,715. For the six months ended June 30, 2025, cash used in operating activities was $359,456. Net income of $3,079,421 was affected by interest earned on cash held in the Trust Account of $3,604,845, change in fair value of overallotment liability of $26,558, and net change in operating assets and liabilities of $192,526. 18 As of June 30, 2026, we had cash held in the Trust Account of $186,893,545. We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (which interest shall be net of any franchise and income taxes payable and excluding deferred underwriting commissions), to complete our initial business combination. To the extent that our share capital 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. As of June 30, 2026, we had cash and cash equivalents of $170,477 in our operating bank account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete an initial business combination. In order to fund working capital deficiencies or finance transaction costs in connection with an initial business combination, either of Sponsor HoldCo, the Sponsor, any of their respective affiliates or certain of our directors and officers may, but are not obligated to, loan us funds as may be required (“Working Capital Loans”). If we complete an initial business combination, we may repay such loaned amounts out of the proceeds of the Trust Account released to us. In the event that an initial business combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts, but no proceeds from our Trust Account would be used for such repayment. Upon consummation of a business combination, the Working Capital Loans would either be repaid, without interest, or, at the option of the applicable lender, up to $2,000,000 of any such Working Capital Loans may be convertible into Class A ordinary shares or units at a price of $10.00 per Class A ordinary share or unit, as applicable. Such Class A ordinary shares would be identical to the shares underlying the private placement units, and such units would be identical to the private placement units. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. As of June 30, 2026 and December 31, 2025, there were no Working Capital Loans outstanding. We have incurred and expect to continue to incur significant professional costs to remain as a publicly traded company and to incur significant transaction costs in pursuit of the consummation of a business combination. In connection with our assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that our current conditions, including the termination of the PAD Business Combination Agreement and the limited period remaining to identify and complete an alternative initial business combination, raise substantial doubt about our ability to continue as a going concern within one year after the date that our financial statements are issued. In addition, management has determined that if we are unable to complete an initial business combination within the Extension Period, then we will cease all operations except for the purpose of liquidating. While we would intend to complete a business combination before the end of the Extension Period, there can be no assurance that any plans to raise capital or to consummate an initial business combination will be successful. Off-Balance Sheet Arrangements We have no obligations, assets or liabilities that would be considered off-balance sheet arrangements as of June 30, 2026. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets. Contractual Obligations We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities. The underwriters of our IPO had a 45-day option from the date of our IPO to purchase up to an additional 2,625,000 units to cover over-allotments, if any. The over-allotment option expired unexercised on January 10, 2025 and Sponsor HoldCo forfeited 875,000 founder shares upon such expiration. 19 The underwriters were entitled to a cash underwriting discount of $0.20 per Unit, or $3,500,000 in the aggregate, which was paid upon the closing of our IPO. In addition, the underwriters were entitled to a deferred fee of $0.40 per Unit sold in the offering of our IPO, or $7,000,000 in the aggregate, payable based on the percentage of funds remaining in the Trust Account after the redemption of public shares, solely in the event that we complete an initial business combination, subject to the terms of the underwriting agreement. Critical Accounting Estimates The preparation of unaudited condensed consolidated 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 unaudited condensed consolidated financial statements, and income and expenses during the periods reported. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the unaudited condensed consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could materially differ from those estimates. As of June 30, 2026, we did not have any critical accounting estimates to be disclosed. Recent Accounting Standards Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our unaudited condensed consolidated financial statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not required for smaller reporting companies.