{"url_path":"/sec/nakaw/10-q/2026/item-2","section_key":"item-2","section_title":"Item 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-13","source_url":"https://www.sec.gov/Archives/edgar/data/1946573/0001493152-26-022777-index.html","accession_number":"0001493152-26-022777","cik":"0001946573","ticker":"NAKA","issuer_name":"Nakamoto Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1946573/0001493152-26-022777-index.html","primary_entity_key":"0001946573","primary_entity_name":"Nakamoto Inc."},"word_count":4879,"has_tables":true,"body_markdown":"**ITEM\n2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**\n\n \n\nThe\nfollowing discussion and analysis provide information which we believe relevant to an assessment and understanding of our financial condition\nand results of operations. The following discussion and analysis of our financial condition and results of operations is derived from and should\nbe read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Form\n10-Q (the “Financial Statements”), and also with our audited consolidated financial statements and notes thereto included\nin our Form 10-K.\n\n \n\n**Cautionary\nNote Regarding Forward Looking Statements**\n\n** **\n\nThis\nQuarterly Report on Form 10-Q for the three months ended March 31, 2026 (“Form 10-Q”) contains certain “forward-looking\nstatements” within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section\n21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). All statements other than statements of historical\nfacts contained in this Form 10-Q, including statements regarding the financial position, business strategy and the plans and objectives\nof management for our future operations, are forward-looking statements. These forward-looking statements are based on the beliefs of\nmanagement, as well as assumptions made by and information currently available to us. When used in this Form 10-Q, the words “anticipate,”\n“believe,” “estimate,” “expect,” “forecasts,” “may,” “will,”\n“should,” “seek,” “scheduled,” “intend,” “plan,” and “expect”\nand variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify\nforward-looking statements.\n\n \n\nThe\nforward-looking statements in this Form 10-Q are not guarantees of future performance, conditions or results, and involve a number of\nknown and unknown risks, uncertainties, assumptions and other important factors, many of which are outside of the Company’s control,\nthat could cause the actual results or outcomes to differ materially from those discussed in the forward-looking statements. These forward-looking\nstatements speak only as of the date of this Form 10-Q and are subject to numerous risks, including, but not limited to the following:\n\n \n\n \n● \nOur\nability to raise capital is necessary to sustain our anticipated operations and implement our business plan;\n\n \n●\nOur\nability to implement our business plan;\n\n \n●\nOur\nability to generate sufficient cash to survive;\n\n \n●\nThe\ndegree and nature of our competition;\n\n \n●\nThe\nlack of diversification of our business plan;\n\n \n●\nThe\ngeneral volatility of the capital markets and the establishment of a market for our shares;\n\n \n●\nThe\npotential impact of a prolonged government shutdown;\n\n \n●\nDisruption\nin the economic and financial conditions primarily from the impact of past terrorist attacks in the United States, threats of future\nattacks, police, and military activities overseas and other disruptive worldwide political and economic events and environmental\nweather conditions;\n\n \n●\nThe\nprice and volatility of Bitcoin, including volatility in Bitcoin-related markets;\n\n \n●\nThe\nrisk that margin or collateral calls could require the forced liquidation of Bitcoin holdings at unfavorable prices;\n\n \n●\nRegulatory\ndevelopments affecting digital asset derivatives markets; and\n\n \n●\nOur\nability to implement our Bitcoin treasury strategy and its effects on our business.\n\n \n\nThese\nforward looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk\nFactors” included in our Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the U.S. Securities and\nExchange Commission (“SEC”) on March 30, 2026 (the “Form 10-K”). Moreover, we operate in a very competitive and\nrapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can\nwe assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results\nto differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions,\nthe forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely\nfrom those anticipated or implied in the forward-looking statements.\n\n \n\n21\n\n \n\n \n\nAlthough\nwe believe that the expectations reflected in the forward-looking statements are reasonable and the information included in this report\nis accurate, we cannot guarantee that the future results, level of activity, performance or events and circumstances reflected in the\nforward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for\nany reason after the date of this report to confirm these statements to actual results or changes in our expectations. We qualify all\nof our forward-looking statements by these cautionary statements.\n\n \n\n**Presentation\nof non-Generally Accepted Accounting Principles (“GAAP”) Information**\n\n \n\nWe\nuse non-GAAP financial performance measures, such as Adjusted operating income (loss), to supplement the financial information presented\non a GAAP basis. Non-GAAP financial measures are financial measures that are derived from our Financial Statements, but that\nare not presented in accordance with GAAP. Non-GAAP financial measures are subject to material limitations as they are not measurements\nprepared in accordance with GAAP and are not a substitute for such measurements. We use these non-GAAP financial measures and other\nkey metrics internally to facilitate analysis of our financial and business trends and for internal planning and forecasting purposes.\nWe believe these non-GAAP financial measures, when taken collectively, may be helpful to investors because they provide consistency and\ncomparability with past and future financial performance by excluding certain items that may not be indicative of our business, results\nof operations, or outlook. However, non-GAAP financial measures have limitations as an analytical tool and are presented for supplemental\ninformation purposes only. They should not be considered in isolation from, or as a substitute for, financial information prepared in\naccordance with GAAP. For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures,\nsee the reconciliation included herein.\n\n \n\n**Company\nOverview**\n\n \n\nWe\nhold Bitcoin on our balance sheet and, through our ecosystem-wide presence, seek to provide investors with exposure to Bitcoin’s\nglobal growth and to leverage our treasury to acquire and develop an ecosystem of Bitcoin companies across media, asset management and advisory.\nAdditionally, we operate a healthcare and healthcare data company, focused on holistic pain management, but in March 2026 we announced\nour intention to exit this legacy business.\n\n \n\nIn\nthe second half of 2025, we began our transformation from a healthcare company to a Bitcoin operating company and that\ntransformation continues into 2026. On August 14, 2025, we acquired Nakamoto Holdings Inc. (“Nakamoto Holdings”), a\nprivately held Bitcoin company led by David Bailey (the “Nakamoto Merger”), established a Bitcoin treasury and obtained\na call option to purchase BTC Inc. (“BTC Inc”), the leading provider of Bitcoin-related media and events. BTC Inc had a\ncall option to purchase UTXO Management GP, LLC (“UTXO”), an investment firm focused on private and public Bitcoin\ncompanies.\n\n \n\nOn\nFebruary 20, 2026, we completed the acquisitions of both (i) BTC Inc, a Delaware corporation founded in 2012 and headquartered in\nNashville, Tennessee, which operates a Bitcoin-focused media and events company that publishes Bitcoin Magazine and produces the\nBitcoin Conference (the “BTC Merger”), and (ii) UTXO, a Tennessee limited liability company formed in 2019, which serves\nas the general partner and investment manager of multiple digital asset focused funds (the “UTXO Acquisition” and\ntogether with the BTC Merger, the “Acquisitions”). BTC Inc and UTXO each became wholly-owned subsidiaries of the Company\non February 20, 2026. The Acquisitions represent a significant addition to our portfolio and advances our mission to develop an\necosystem of Bitcoin-native companies. The consideration for the Acquisitions consisted solely of shares of our common stock, par\nvalue $0.001 per share (our “Common Stock”) and assumed options to purchase shares of our Common Stock. In connection\nwith the BTC Merger, holders of BTC Inc common and preferred stock received the right to receive 259,886,237 shares of our Common\nStock, and we reserved 78,427,012 shares of our Common Stock for issuance upon the exercise of assumed BTC stock options, which were\naccelerated and converted into options to acquire shares of our Common Stock. In connection with the UTXO Acquisition, UTXO\nsecurityholders received the right to receive 26,481,860 shares of our Common Stock. BTC Inc and UTXO securityholders received or\nwere entitled to receive, on a fully-diluted basis, 364,795,109 shares of our Common Stock.\n\n \n\n22\n\n \n\n \n\n**Results\nof Operations**\n\n \n\nThe transformation from a healthcare company to a\nBitcoin operating company affects the comparison of our results in 2026 to 2025. The table below shows the segments included in each period:\n\n \n\n \n \nFor\nthe Three Months Ended\n\n \n \nMarch\n31, 2026\n \nMarch\n31, 2025\n\n \n \n \n \n \n\nMedia\n& Information Services\n \nIncluded\nfrom February 20\n \nN/A\n\nAsset\nManagement\n \nIncluded\nfrom February 20\n \nN/A\n\nBitcoin\nOperations\n \nIncluded\n \nN/A\n\nHealthcare\nOperations\n \nIncluded\n \nIncluded\n\nOther\n \nIncluded\n \nN/A\n\n \n\nThe\nfollowing tables set forth our summary consolidated results of operations in dollars for the periods presented. The period-to-period\ncomparisons of our historical results are not necessarily indicative of the results that may be expected in the future. The results of\noperations for the three months ended March 31, 2026, and March 31, 2025, have been derived from the Financial Statements included elsewhere\nin this Quarterly Report on Form 10-Q. Amounts may not foot due to rounding.\n\n \n\n  \n\nFor the Three Months Ended\n\nMarch 31,\n \n\n($ in thousands) \n2026  \n2025 \n\nOperating revenue: \n$2,678  \n$580 \n\n  \n    \n   \n\nOperating expenses: \n    \n   \n\nCost of revenue \n 232  \n 8 \n\nCompensation \n 7,347  \n 1,003 \n\nGeneral and administrative \n 9,784  \n 593 \n\nDepreciation and amortization \n 1,115  \n 18 \n\nLoss on change in fair value of digital assets \n 102,485  \n - \n\nLoss on investments \n 7,885  \n - \n\nTotal operating expenses \n 128,848  \n 1,622 \n\n  \n    \n   \n\nOperating loss \n (126,170) \n (1,042)\n\n  \n    \n   \n\nNon-operating income (expense): \n    \n   \n\nOther income (expense), net \n (642) \n 10 \n\nInterest expense \n (4,220) \n (6)\n\nChange in fair value of call option - related party \n (107,744) \n - \n\nTotal non-operating income (expense) \n (112,606) \n 4 \n\n  \n    \n   \n\nNet loss before provision for income taxes \n$(238,776) \n$(1,038)\n\n \n\nLoss\nbefore income taxes was $238.8 million for the three months ended March 31, 2026, compared to a loss before income taxes of $1.0 million\nfor the three months ended March 31, 2025. The loss for the three months ended March 31, 2026, is impacted by the following significant\nitems:\n\n \n\n \n●\nLoss on change in fair\nvalue of digital assets of $102.5 million primarily reflecting the decline in price of Bitcoin in the first quarter of 2026, from\n$87,519 on December 31, 2025, to $68,220 on March 31, 2026.\n\n \n●\nApproximately $6.9 million\nof expenses incurred in the three months ended March 31, 2026, that were associated with transaction-related expenses from\nthe Acquisitions and Nakamoto Merger.\n\n \n●\nDecrease in fair value\nof our call option to acquire BTC Inc of $107.7 million that was primarily the result of a decrease in fair value of BTC Inc (refer\nto Non-operating income (expense) section below) prior to our acquisition on February 20, 2026.\n\n \n\n**Segment\nResults**\n\n \n\nA\ndiscussion of our operating results for our Media & Information Services, Asset Management, Bitcoin Operations, Healthcare Operations\nand Other segments is below. Prior to the Nakamoto Merger in August 2025, we operated a single segment consisting of Healthcare Operations.\nAll operating expenses prior to the Nakamoto Merger are reflected in Healthcare Operations. Beginning in 2025 after the Nakamoto Merger,\nwe established our Bitcoin Operations segment and began separately tracking other corporate expenses, which are included in Other segment\nresults. Following the Acquisitions in the first quarter of 2026, we began operating additional segments consisting of Media & Information\nSegments and Asset Management.\n\n \n\n23\n\n \n\n \n\nA\nsummary of operating results for the three months ended March 31, 2026, follows and includes a reconciliation of our Operating income\n(loss) (GAAP) to Adjusted operating income (loss) (non-GAAP). Our Adjusted operating income (loss) removes the change in fair value of\ndigital assets, loss on investments, depreciation and amortization, transaction-related compensation and transaction-related general\nand administrative expenses from our operating loss.\n\n \n\n \nFor the Three Months Ended March 31, 2026 \n\n($ in thousands) \nMedia & Information Services  \nAsset Management  \nBitcoin Operations  \nHealthcare Operations  \nOther  \nEliminations  \nTotal \n\nOperating revenues: \n    \n    \n    \n    \n    \n    \n   \n\nMedia \n$477  \n$-  \n$-  \n$-  \n$-  \n$(68) \n$409 \n\nAdvisory \n 356  \n -  \n -  \n -  \n 154  \n -  \n 510 \n\nAsset management \n -  \n 209  \n -  \n -  \n -  \n -  \n 209 \n\nDerivative \n -  \n -  \n 1,071  \n -  \n -  \n -  \n 1,071 \n\nHealthcare \n -  \n -  \n -  \n 479  \n -  \n -  \n 479 \n\nTotal operating revenues \n 833  \n 209  \n 1,071  \n 479  \n 154  \n (68) \n 2,678 \n\n  \n    \n    \n    \n    \n    \n    \n   \n\nOperating expenses: \n    \n    \n    \n    \n    \n    \n   \n\nCost of revenue \n 77  \n -  \n 155  \n -  \n -  \n -  \n 232 \n\nCompensation \n 2,092  \n 239  \n 292  \n 836  \n 3,888  \n -  \n 7,347 \n\nGeneral and administrative \n 657  \n 96  \n 146  \n 233  \n 8,720  \n (68) \n 9,784 \n\nDepreciation and amortization \n 767  \n 330  \n -  \n 18  \n -  \n -  \n 1,115 \n\nLoss on change in fair value of digital assets \n -  \n -  \n 102,485  \n -  \n -  \n -  \n 102,485 \n\nLoss on investments \n -  \n -  \n 7,885  \n -  \n -  \n -  \n 7,885 \n\nTotal operating expenses \n 3,593  \n 665  \n 110,963  \n 1,087  \n 12,608  \n (68) \n 128,848 \n\n  \n    \n    \n    \n    \n    \n    \n   \n\nOperating income (loss) (GAAP) \n$(2,760) \n$(456) \n$(109,892) \n$(608) \n$(12,454) \n$-  \n$(126,170)\n\n  \n    \n    \n    \n    \n    \n    \n   \n\nAdjustments \n    \n    \n    \n    \n    \n    \n   \n\nLoss on change in fair value of digital assets \n -  \n -  \n 102,485  \n -  \n -  \n -  \n 102,485 \n\nLoss on investments \n -  \n -  \n 7,885  \n -  \n -  \n -  \n 7,885 \n\nDepreciation and amortization \n 767  \n 330  \n -  \n 18  \n -  \n -  \n 1,115 \n\nTransaction-related compensation \n -  \n -  \n 10  \n -  \n 844  \n -  \n 854 \n\nTransaction-related general and administrative \n -  \n -  \n -  \n -  \n 6,061  \n -  \n 6,061 \n\nTotal adjustments \n 767  \n 330  \n 110,380  \n 18  \n 6,905  \n -  \n 118,400 \n\n  \n    \n    \n    \n    \n    \n    \n   \n\nAdjusted operating income (loss) (non-GAAP) \n$(1,993) \n$(126) \n$488  \n$(590) \n$(5,549) \n$-  \n$(7,770)\n\n \n\nA\nsummary of operating results for the three months ended March 31, 2025, follows and includes a reconciliation of our Operating loss (GAAP)\nto Adjusted operating income (loss) (non-GAAP). Our Adjusted operating income (loss) removes depreciation and amortization from our operating\nloss.\n\n \n\n24\n\n \n\n \n\n \nFor the Three Months Ended March 31, 2025 \n\n($ in thousands) \nMedia & Information Services  \nAsset Management  \nBitcoin Operations  \nHealthcare Operations  \nOther  \nEliminations  \nTotal \n\nOperating revenues: \n    \n    \n    \n    \n    \n    \n   \n\nHealthcare \n$-  \n$-  \n$-  \n$580  \n$-  \n$-  \n$580 \n\nTotal operating revenues \n -  \n -  \n -  \n 580  \n -  \n -  \n 580 \n\n  \n    \n    \n    \n    \n    \n    \n   \n\nOperating expenses: \n    \n    \n    \n    \n    \n    \n   \n\nCost of revenue \n -  \n -  \n -  \n 8  \n -  \n -  \n 8 \n\nCompensation \n -  \n -  \n -  \n 1,003  \n -  \n -  \n 1,003 \n\nGeneral and administrative \n -  \n -  \n -  \n 593  \n -  \n -  \n 593 \n\nDepreciation and amortization \n -  \n -  \n -  \n 18  \n -  \n -  \n 18 \n\nTotal operating expenses \n -  \n -  \n -  \n 1,622  \n -  \n -  \n 1,622 \n\n  \n    \n    \n    \n    \n    \n    \n   \n\nOperating income (loss) (GAAP) \n$-  \n$-  \n$-  \n$(1,042) \n$-  \n$-  \n$(1,042)\n\n  \n    \n    \n    \n    \n    \n    \n   \n\nAdjustments \n    \n    \n    \n    \n    \n    \n   \n\nDepreciation and amortization \n -  \n -  \n -  \n 18  \n -  \n -  \n 18 \n\nTotal adjustments \n -  \n -  \n -  \n 18  \n -  \n -  \n 18 \n\n  \n    \n    \n    \n    \n    \n    \n   \n\nAdjusted operating income (loss) (non-GAAP) \n$-  \n$-  \n$-  \n$(1,024) \n$-  \n$-  \n$(1,024)\n\n \n\n*Media\n& Information Services*\n\n* *\n\nOur\nMedia & Information Services business began on February 20, 2026, when we acquired BTC Inc. BTC Inc is a prominent\nBitcoin media, events and intelligence company and operates in four primary areas: (i) Events, which produces the world’s largest\nBitcoin conferences and experiences; (ii) Digital, which encompasses Bitcoin Magazine’s digital properties, multimedia content\nand marketing services; (iii) Print, consisting of the Bitcoin Magazine print publication; and (iv) Advisory, which serves institutions\nand corporations seeking Bitcoin strategy, intelligence, and education through corporate subscription and consulting services.\n\n \n\nOur\nrevenue is seasonal and concentrated around the timing of our conferences or events. In an average year, we host four conferences\nglobally. In the three months ended March 31, 2026, there were no conferences and events. Our flagship annual Bitcoin Conference\ntook place in April 2026; all revenue earned by this conference will be reflected during the three months ended June 30, 2026. We\nrecorded $0.5 million of media revenue since the BTC Merger in the three months ended March 31, 2026, which primarily consisted of\ndigital revenue. We also recorded $0.4 million of advisory revenue in the three months ended March 31, 2026, which primarily relates\nto subscription revenue for our Bitcoin for Corporations membership program.\n\n \n\nTotal\noperating expenses for the three months ended March 31, 2026 were $3.6 million, of which $0.8 million related to amortization costs associated with intangible assets from the BTC Merger.\n\n* *\n\n*Asset\nManagement*\n\n* *\n\nOur\nAsset Management business began on February 20, 2026, when we acquired UTXO. UTXO is a fund manager focused generally on investments\nin the broader Bitcoin ecosystem. We generate revenue from management and performance fees associated with 210k Capital, LP fund (“210k\nCapital”) and the UTXO Bitcoin Ecosystem Master Fund 1 LP fund (“Bitcoin Ecosystem”). Revenues are generally tied to\nthe assets under management and the performance of those assets. Our assets under management at March 31, 2026, was approximately\n$109.5 million.\n\n \n\nManagement\nfees for 210k Capital are between 1.5% and 2.0% annually of the net asset value of a limited partner’s capital account and are\npaid monthly. Management fees for Bitcoin Ecosystem are generally 2.0% annually of the capital contributions of a limited\npartner’s capital account and are paid quarterly. Performance fees are earned when returns exceed specified benchmarks and are\nrecognized once they become\nfixed and determinable and not subject to reversal.\n\n \n\nWe recorded $0.2 million of operating revenue since the UTXO Acquisition in the three months ended March 31, 2026,\nwhich consisted of management fees. Our operating expenses for the three months ended March 31, 2026, was $0.7 million, of which $0.3 million related to\namortization costs associated with intangible assets from the UTXO Acquisition.\n\n \n\n25\n\n \n\n \n\n*Bitcoin\nOperations*\n\n \n\nWe\nlaunched our Bitcoin Operations strategy with the closing of the Nakamoto Merger on August 14, 2025. In February 2026, we began an actively\nmanaged Bitcoin derivatives program that is designed to (i) generate recurring volatility income from a portion of our Bitcoin and (ii)\nhedge a portion of our downside exposure to Bitcoin price risk. In the three months ended March 31, 2026, our revenues from this strategy\ntotaled $1.1 million.\n\n \n\nFor\nthe three months ended March 31, 2026, we had total operating expenses of $111.0 million, which primarily were driven by a loss on the\nchange in fair value of digital assets and a loss on our investments. The loss on the change in fair value of our digital assets was\n$102.5 million as the price of Bitcoin declined from $87,519 on December 31, 2025, to $68,220 per Bitcoin on March 31, 2026. Our loss\non investments was $7.9 million, which consisted of losses of $3.9 million from our investment in Metaplanet and a $4.0 million loss\nfrom our share of Treasury B.V.’s results.\n\n \n\n*Healthcare\nOperations*\n\n \n\nOur\nrevenues were $0.5 million in the three months ended March 31, 2026, compared to $0.6 million in the three months ended March 31, 2025.\nThe $0.1 million decline in revenues, representing a 17% decrease, was primarily attributable to a decrease in cash-pay patient care\nservices and the closing of our Bountiful, Utah location in April 2025.\n\n \n\nOur\noperating expenses for the three months ended March 31, 2026, were $1.1 million as compared to $1.6 million for the three months ended\nMarch 31, 2025, representing a change of 33%. The $0.5 million decrease in 2026 was primarily attributable to $0.4 million lower general\nand administrative expense and $0.2 million lower compensation expense. The general and administrative decrease for the first quarter\nof 2026 was due to reduced marketing, insurance and other overhead costs. The reduction in compensation expense in 2026 was primarily\ndue to lower headcount.\n\n \n\nIn\nMarch 2026, we announced that we intend to exit our legacy healthcare business and expect to be substantially complete with the shutdown by the end of our second quarter of 2026.\n\n \n\n*Other*\n\n \n\nOur\nother results consist primarily of our corporate overhead. We began separately tracking our corporate overhead upon the Nakamoto Merger\non August 14, 2025. In the three months ended March 31, 2026, other revenues totaled $0.2 million that related to Bitcoin advisory and\nconsulting services. Compensation for the three months ended March 31, 2026, totaled $3.9 million, of which approximately $0.8 million\nrelated to the prior Nakamoto Merger. General and administrative expenses for the three months ended March 31, 2026, totaled $8.7 million,\nof which approximately $6.1 million was related to one-time transaction related expenses associated with the Acquisitions.\n\n \n\n**Non-operating\nincome (expense)**\n\n \n\nNon-operating\nexpense for the three months ended March 31, 2026, was $112.6 million compared to $0.0 million for the three months ended March 31, 2025.\nWe had the following significant items impacting our non-operating income:\n\n \n\n \n●\nDecrease in fair value\nof our call option to acquire BTC Inc of $107.7 million that was primarily the result of a decline in the fair value of BTC Inc in\nthe first quarter prior to the Acquisitions on February 20, 2026. The ending value of the call option immediately prior to the Acquisitions\nwas $91.3 million. The value of the call option was largely due to us being able to purchase BTC Inc by issuing our Common Stock\nat $1.12 per share compared to the $0.25 per share it was trading at immediately prior to the Acquisitions.\n\n \n●\nInterest expense of $4.2\nmillion in the first three months of 2026 related to our debt.\n\n \n\n*Provision\nfor income taxes*\n\n \n\nOur\nprovision for income taxes was $0.0 million in both the three months ended March 31, 2026, and the three months ended March 31, 2025, as\nthe benefit from income taxes was fully offset in both periods by valuation allowances.\n\n \n\n26\n\n \n\n** **\n\n**Liquidity\nand Capital Resources**\n\n \n\n*Liquidity*\n\n \n\nOur\nassets primarily consist of Bitcoin held on our balance sheet, cash and cash equivalents, goodwill and intangibles, and investments in\nunconsolidated investees. Our operations have been primarily funded through net proceeds from sales of equity securities as well as through\ndebt we have incurred. Our cash requirements consist primarily of the payment of principal and interest on our debt and cash overhead\nexpenses.\n\n \n\nIn\nDecember 2025, we entered into the Master Loan Agreement with Kraken for a 210.0 million USDT, 8.0% per annum fixed rate fee loan that\nmatures on December 4, 2026 (the “Master Loan Agreement”). The Master Loan Agreement includes certain collateral requirements,\ncollateral maintenance and liquidation mechanics. The obligations under the Master Loan Agreement are prepayable at our option, provided\nthat prepayments made prior to the six-month anniversary of the initial funding date shall be subject to a make-whole payment for such\nsix-month period. As of March 31, 2026, approximately 4,405 of our 5,064 Bitcoin are held as collateral for the Master Loan Agreement.\n\n \n\nAs\nof March 31, 2026, we held approximately 659 unencumbered Bitcoin worth approximately $44.9 million, based on the $68,220 price of Bitcoin\non March 31, 2026, had cash and cash equivalents of $35.3 million and held an investment in a publicly traded stock of $5.5 million.\nBased on the foregoing, we have determined that our sources of liquidity will be sufficient to meet our cash needs for the one-year period\nfrom the issuance of these Financial Statements. However, our liquidity position may be materially impacted by volatility in the market\nprice of Bitcoin. For example, a decline in the price of Bitcoin could materially reduce the value of our liquid assets and our ability\nto fund operations, satisfy obligations or pursue strategic opportunities. Our ability to monetize Bitcoin holdings may also be affected\nby market liquidity, trading volumes, counterparty availability, custody arrangements, cybersecurity risks, regulatory developments, tax\nand accounting treatment, and disruptions affecting digital asset markets or service providers.\n\n \n\n*Derivative\nInstruments*\n\n \n\nWe\nwrite covered calls and call spreads to convert the implied volatility embedded in Bitcoin options markets into recurring premium income.\nWe also purchase protective puts and put spreads to reduce our mark-to-market exposures to adverse Bitcoin price movements over defined\ntime horizons.\n\n \n\nAs of March 31, 2026, we had the following derivative\ninstruments outstanding:\n\n \n\n●Written\ncall options on 1,850 Bitcoin at strike prices ranging from $83,000 to $100,000, with expiration\ndates ranging from April 24, 2026 through December 25, 2026.\n\n●Written\nput options on 1,000 Bitcoin at strike prices ranging from $45,000 to $50,000, with an expiration\ndate of April 24, 2026.\n\n ●Purchased put options covering up to 2,000 Bitcoin at strike prices ranging from $60,000 to $62,000, with expiration dates ranging from\nApril 24, 2026 through December 25, 2026.\n\n \n\n*Cash\nFlows*\n\n \n\nDuring\nthe three months ended March 31, 2026, our net cash used in operating activities was $23.3 million as compared to $0.9 million during\nthe three months ended March 31, 2025. The increase in net cash used in operating activities is primarily due to an increase in cash\noverhead expenses and BTC Inc and UTXO acquisition related expenses.\n\n \n\nDuring\nthe three months ended March 31, 2026, our net cash provided by investing activities was $36.6 million as compared to net cash used by\ninvesting activities of $0.2 million during the three months ended March 31, 2025. The increase in cash provided by investing activities\nwas primarily due to the sale of $20.5 million of Bitcoin and the partial sale of our investment in Metaplanet for $11.1 million.\n\n \n\nDuring\nthe three months ended March 31, 2026, our net cash used by financing activities was $0.6 million as compared to net cash used of $0.1\nmillion during the three months ended March 31, 2025. The increase in cash used by financing activities was due to an increase in share\nrepurchases made during the three months ended March 31, 2026.\n\n \n\n*Recent Developments*\n\n \n\nOn May 8, 2026, our stockholders approved an amendment\nto our Certificate of Incorporation to combine outstanding shares of our Common Stock, into a lesser number of outstanding shares, by\na ratio of not less than 1-for-20 and not more than 1-for-50, with the exact ratio to be set within this range by our Board in their sole\ndiscretion.\n\n \n\n**Critical\nAccounting Estimates**\n\n \n\nOur\nFinancial Statements are prepared in conformity with U.S. GAAP, which requires management to make estimates and assumptions\nthat affect the amounts reported in our Financial Statements. Actual results can and may differ from estimates.\nThese differences could be material to our Financial Statements.\n\n \n\n27\n\n \n\n \n\nWe\nbelieve our application of GAAP and the associated estimates are reasonable. Our accounting estimates are reevaluated, and adjustments\nare made when facts and circumstances dictate a change.\n\n \n\n*Fair\nValue of Financial Instruments*\n\n \n\nOur\ndigital assets, our investment in Metaplanet and our derivative assets and liabilities are all recorded at fair value. The fair value\nof a financial instrument is the amount we would receive to sell an asset, or pay to transfer a liability, in the principal\nor most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.\nChanges in the fair value of these instruments are recorded within operating expenses in our Financial Statements.\n\n \n\nIn\ndetermining fair value, we maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that observable\ninputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based\non market data obtained from independent sources. Unobservable inputs reflect our assumptions that market participants would use in pricing\nthe asset or liability based on the best information available in the circumstances. We apply a hierarchy to categorize our fair value\nmeasurements broken down into three levels based on the transparency of inputs, where Level 1 uses observable prices in active markets\nand Level 3 uses valuation techniques that generally incorporate significant unobservable inputs. Greater use of management judgment\nis required in determining fair value when inputs are less observable or unobservable in the marketplace.\n\n \n\nRefer\nto Note 4 – Digital Assets, Note 8 – Derivative Instruments and Note 9 – Fair Value Measurements to the Financial Statements included in this Quarterly Report on Form 10-Q for further information on our financial instruments at fair value.\n\n \n\n*Income\nTaxes*\n\n \n\nDeferred\nincome tax assets and liabilities are recorded with respect to temporary differences in the accounting treatment of items for financial\nreporting purposes and for income tax purposes. We record a valuation allowance to reduce our net deferred tax asset to the amount that\nis more likely than not to be realized. We are required to consider all available evidence, both positive and negative, and to weigh\nthe evidence when determining whether a valuation allowance is required and the amount of such valuation allowance.\n\n \n\n**Recent\nAccounting Developments**\n\n \n\nFor\na discussion of recently issued accounting developments and their impact on our Financial Statements, refer to Note 2—Summary\nof Significant Accounting Policies in our Financial Statements.\n\n \n\n**Emerging\nGrowth Company Status**\n\n \n\nWe\nare an emerging growth company, as defined in the Jumpstart Our Business Startups Act.\n\n \n\nWe have elected to use the extended\ntransition period available to emerging growth companies for complying with new or revised accounting standards that have different effective\ndates for public and private companies. As a result, our financial statements may not be comparable to the financial statements of companies\nthat comply with new or revised accounting standards as of public company effective dates. We will continue to use the extended transition\nperiod until the earlier of the date we are no longer an emerging growth company or the date we affirmatively and irrevocably opt out\nof the extended transition period.\n\n \n\n28\n\n \n\n \n\nWe\nwill 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\npublic 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\naccelerated filer, which means the market value of our shares of common stock that are held by non-affiliates exceeds $700 million as\nof 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\nyear period."}