HSCS 8-K/A
HeartSciences Inc. (HSCS)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
(Exact name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction of Incorporation) |
(Commission File Number) | (IRS Employer Identification No.) |
|
|
||
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s Telephone Number, Including
Area Code: (
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The | ||||
| The |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Explanatory Note
1
Additional Information and Where to Find It
HeartSciences intends to file with the U.S. Securities and Exchange Commission (“SEC”) a proxy statement (together with any amendments or supplements thereto, the “Proxy Statement”) in connection with the Transactions. The definitive Proxy Statement and other relevant documents will be mailed to stockholders of HeartSciences as of a record date to be established for voting on the Transactions and other matters as described in the Proxy Statement. HeartSciences will also file other documents regarding the Transactions with the SEC. This Amendment does not contain all of the information that should be considered concerning the Transactions and is not intended to form the basis of any investment decision or any other decision in respect of the Transactions. BEFORE MAKING ANY VOTING OR INVESTMENT DECISION, STOCKHOLDERS OF HEARTSCIENCES AND OTHER INTERESTED PARTIES ARE URGED TO READ, WHEN AVAILABLE, THE PRELIMINARY PROXY STATEMENT, AND AMENDMENTS THERETO, AND THE DEFINITIVE PROXY STATEMENT AND ALL OTHER RELEVANT DOCUMENTS FILED OR THAT WILL BE FILED WITH THE SEC IN CONNECTION WITH HEARTSCIENCES’ SOLICITATION OF PROXIES FOR THE SPECIAL MEETING OF ITS STOCKHOLDERS TO BE HELD TO APPROVE THE TRANSACTIONS AND OTHER MATTERS AS DESCRIBED IN THE PROXY STATEMENT BECAUSE THESE DOCUMENTS WILL CONTAIN IMPORTANT INFORMATION ABOUT HEARTSCIENCES AND FORTITUDE AND THE TRANSACTIONS. Investors and security holders will also be able to obtain copies of the Proxy Statement and all other documents filed or that will be filed with the SEC by HeartSciences, without charge, once available, on the SEC’s website at www.sec.gov.
NEITHER THE SEC NOR ANY STATE SECURITIES REGULATORY AGENCY HAS APPROVED OR DISAPPROVED THE TRANSACTIONS DESCRIBED HEREIN, PASSED UPON THE MERITS OR FAIRNESS OF THE TRANSACTIONS OR ANY RELATED TRANSACTIONS OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THIS AMENDMENT. ANY REPRESENTATION TO THE CONTRARY CONSTITUTES A CRIMINAL OFFENSE.
Participants in the Solicitation
HeartSciences, Fortitude, HoldCo and their respective directors and executive officers, and certain executive officers of Digital Currency Group, Inc., the sole stockholder of Fortitude, may be deemed under SEC rules to be participants in the solicitation of proxies from HeartSciences’ stockholders in connection with the Transactions. A list of the names of such persons, and information regarding their interests in the Transactions and their ownership of HeartSciences’ securities are, or will be, contained in HeartSciences’ filings with the SEC, including HeartSciences’ Annual Report on Form 10-K for the year ended April 30, 2026 filed with the SEC on July 23, 2026. Additional information regarding the interests of the persons who may, under SEC rules, be deemed participants in the solicitation of proxies of HeartSciences’ stockholders in connection with the Transactions, including the names and interests of Fortitude’s directors and executive officers, will be set forth in the Proxy Statement and other relevant materials, which are expected to be filed by HeartSciences with the SEC when they become available. Investors and security holders may obtain free copies of these documents as described above.
2
No Offer or Solicitation
The information contained in this Amendment and the exhibits filed or furnished herewith are for informational purposes only and are not a proxy statement or solicitation of a proxy, consent or authorization with respect to any securities or in respect of the Transactions and shall not constitute an offer to sell or exchange, or a solicitation of an offer to buy or exchange the securities of HeartSciences, or any commodity or instrument or related derivative, nor shall there be any sale of any such securities in any state or jurisdiction in which such offer, solicitation, sale or exchange would be unlawful prior to registration or qualification under the securities laws of such state or jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of the Securities Act or an exemption therefrom. Investors should consult with their counsel as to the applicable requirements for a purchaser to avail itself of any exemption under the Securities Act.
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
In accordance with Item 9.01(a) of Form 8-K, (i) the audited financial statements of Fortitude as of December 31, 2025, and 2024 and for the years then ended, and the accompanying notes, are filed herewith as Exhibit 99.1 and incorporated by reference into this Item 9.01(a), and (ii) the unaudited consolidated financial statements of Fortitude for the three months ended March 31, 2026 and 2025, and the accompanying notes, are filed herewith as Exhibit 99.2 and incorporated by reference into this Item 9.01(a). The consent of CBIZ CPAs, P.C., Fortitude’s independent registered public accounting firm as of and for the years ended December 31, 2025, and 2024, is filed herewith as Exhibit 23.1.
(b) Pro Forma Financial Information.
In accordance with Item 9.01(b) of Form 8-K, the following unaudited pro forma financial information with respect to the Transactions is filed herewith as Exhibit 99.3 and incorporated by reference into this Item 9.01(b): (x) the unaudited pro forma condensed combined statement of financial condition as of April 30, 2026 with respect to HeartSciences and as of March 31, 2026 with respect to Fortitude, and (y) the unaudited pro forma condensed combined statement of operations for the fiscal year ended April 30, 2026 with respect to HeartSciences and for the twelve months ended March 31, 2026 with respect to Fortitude, and the accompanying notes.
(d) Exhibits
| * | Filed herewith. |
| ** | Furnished herewith. |
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| HEARTSCIENCES INC. | ||
| Date: July 27, 2026 | By: | /s/ Andrew Simpson |
| Name: | Andrew Simpson | |
| Title: | President, Chief Executive Officer and Chairman of the Board of Directors | |
4
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in this Registration Statement on Form S-3 (No. 333-274554) and on Form S-8 (Nos. 333-277374 and 333-291297) of HeartSciences Inc. and the Offering Statement on Form 1-A (File No. 024-12572) of HeartSciences Inc. of our report dated March 13, 2026 with respect to the consolidated financial statements of Fortitude Mining Holdings, Inc. and Subsidiaries for the years ended December 31, 2025 and 2024 appearing in this Current Report of HeartSciences Inc. on Form 8-K/A dated July 27, 2026.
/s/ CBIZ CPAs P.C.
New York, NY
July 27, 2026
Exhibit 99.1
CONSOLIDATED FINANCIAL STATEMENTS
Fortitude Mining Holdings, Inc. and Subsidiaries As of and for the Years Ended December 31, 2025 and 2024 With Report of Independent Registered Public Accounting Firm |
Fortitude Mining Holdings, Inc. and Subsidiaries
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Member and Board of Directors of
Fortitude Mining Holdings, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Fortitude Mining Holdings, Inc. and Subsidiaries (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of operations, changes in stockholder’s / member’s equity, and cash flows for each of the two years in the period ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provides a reasonable basis for our opinion.
/s/ CBIZ CPAs P.C.
We have served as the Company’s auditor since 2025.
New York, NY
March 13, 2026
1
Fortitude Mining Holdings, Inc. and Subsidiaries
(in thousands, except share and per share amounts)
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Assets | ||||||||
| Cash | $ | 9,995 | $ | 4,496 | ||||
| Digital assets | 3,413 | 77 | ||||||
| Deposits | 903 | 1,576 | ||||||
| Due from related party | 13 | 46 | ||||||
| Prepaid expenses and other current assets | 984 | 324 | ||||||
| Total current assets | 15,308 | 6,519 | ||||||
| Property and equipment, net | 39,646 | 59,938 | ||||||
| Deposits, net of current portion | 10,767 | 8,986 | ||||||
| Right-of-use assets | 2,812 | 1,732 | ||||||
| Intangible asset, net | 4,259 | — | ||||||
| Total assets | $ | 72,792 | $ | 77,175 | ||||
| Liabilities and stockholder's / member's equity | ||||||||
| Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 2,989 | $ | 2,648 | ||||
| Lease liabilities, current portion | 350 | 278 | ||||||
| Total current liabilities | 3,339 | 2,926 | ||||||
| Deferred tax liability | 4,172 | — | ||||||
| Lease liabilities, net of current portion | 2,454 | 1,420 | ||||||
| Total liabilities | 9,965 | 4,346 | ||||||
| Commitments and Contingencies (Note 15) | ||||||||
| Stockholder's / member's equity: | ||||||||
| Member's equity | — | 72,829 | ||||||
| Common stock, $0.0001 par value; 10,000,000 shares authorized; 5,000,000 issued and outstanding as of December 31, 2025 | 1 | — | ||||||
| Additional paid-in capital | 59,507 | — | ||||||
| Retained earnings | 3,319 | — | ||||||
| Total stockholder's / member's equity | 62,827 | 72,829 | ||||||
| Total liabilities and stockholder's / member's equity | $ | 72,792 | $ | 77,175 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
2
Fortitude Mining Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands)
| Years Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenues: | ||||||||
| Mining revenues, net (includes related party amounts of $58,091 and $61,364, respectively) | $ | 89,482 | $ | 81,780 | ||||
| Other revenue | 15 | — | ||||||
| Total revenues | 89,497 | 81,780 | ||||||
| Costs and expenses: | ||||||||
| Cost of revenues (exclusive of depreciation shown below) | 60,455 | 54,653 | ||||||
| Depreciation and amortization | 32,570 | 30,374 | ||||||
| General and administrative expenses | 9,936 | 7,997 | ||||||
| Loss on disposal of equipment, net | 2,600 | 2,767 | ||||||
| Impairment of mining equipment | — | 552 | ||||||
| Change in fair value of digital assets, net | 367 | (173 | ) | |||||
| Total operating expenses | 105,928 | 96,170 | ||||||
| Other income: | ||||||||
| Rental income - related party | 72 | 8 | ||||||
| Total other income | 72 | 8 | ||||||
| Loss before income taxes | (16,359 | ) | (14,382 | ) | ||||
| Income tax benefit | 3,683 | — | ||||||
| Net loss | $ | (12,676 | ) | $ | (14,382 | ) | ||
The accompanying notes are an integral part of these consolidated financial statements.
3
Fortitude Mining Holdings, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholder's / Member's Equity
(in thousands, except share amounts)
| Member's | Common Stock | Additional Paid-in | Retained | |||||||||||||||||||||
| Equity | Shares | Amount | Capital | Earnings | Total | |||||||||||||||||||
| Balance, January 1, 2024 | $ | 63,260 | — | $ | — | $ | — | $ | — | $ | 63,260 | |||||||||||||
| Net investment from Parent | 20,676 | — | — | — | — | 20,676 | ||||||||||||||||||
| Capital contributions from Parent | 2,936 | — | — | — | — | 2,936 | ||||||||||||||||||
| Stock-based compensation | 339 | — | — | — | — | 339 | ||||||||||||||||||
| Net loss | (14,382 | ) | — | — | — | — | (14,382 | ) | ||||||||||||||||
| Balance, December 31, 2024 | 72,829 | — | — | — | — | 72,829 | ||||||||||||||||||
| Capital contributions from Parent | 200 | — | — | 9,616 | — | 9,816 | ||||||||||||||||||
| Stock-based compensation | 30 | — | — | 65 | — | 95 | ||||||||||||||||||
| Net (loss) income | (15,995 | ) | — | — | — | 3,319 | (12,676 | ) | ||||||||||||||||
| Effect of the Reorganization | (57,064 | ) | 5,000,000 | 1 | 49,826 | — | (7,237 | ) | ||||||||||||||||
| Balance, December 31, 2025 | $ | — | 5,000,000 | $ | 1 | $ | 59,507 | $ | 3,319 | $ | 62,827 | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
Fortitude Mining Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
| Years Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (12,676 | ) | $ | (14,382 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 32,570 | 30,374 | ||||||
| Impairment of mining equipment | — | 552 | ||||||
| Loss on disposal of equipment, net | 2,600 | 2,767 | ||||||
| Mining revenues, net | (89,482 | ) | (81,780 | ) | ||||
| Other revenue | (15 | ) | — | |||||
| Proceeds from the sale of digital assets | 81,681 | 78,627 | ||||||
| Digital assets paid for services | 4,113 | 3,249 | ||||||
| Change in fair value of digital assets, net | 367 | (173 | ) | |||||
| Stock-based compensation | 95 | 339 | ||||||
| Deferred income taxes | (3,065 | ) | — | |||||
| Change in operating assets and liabilities: | ||||||||
| Deposits | 2,863 | (1,022 | ) | |||||
| Due from related party | 33 | (46 | ) | |||||
| Prepaid expenses and other current assets | (660 | ) | (164 | ) | ||||
| Right-of-use assets | 329 | 274 | ||||||
| Accounts payable and accrued expenses | 341 | 645 | ||||||
| Lease liabilities | (303 | ) | (264 | ) | ||||
| Net cash provided by operating activities | 18,791 | 18,996 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | (9,570 | ) | (37,379 | ) | ||||
| Deposits on property and equipment | (7,004 | ) | (1,449 | ) | ||||
| Proceeds from disposal of property and equipment | 230 | 716 | ||||||
| Aurora acquisition | (6,305 | ) | — | |||||
| Net cash used in investing activities | (22,649 | ) | (38,112 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Capital contributions from Parent | 9,357 | 2,936 | ||||||
| Net investment from Parent | — | 20,676 | ||||||
| Net cash provided by financing activities | 9,357 | 23,612 | ||||||
| Net increase in cash | 5,499 | 4,496 | ||||||
| Cash, beginning of year | 4,496 | — | ||||||
| Cash, end of year | $ | 9,995 | $ | 4,496 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | — | $ | — | ||||
| Cash paid for taxes | $ | — | $ | — | ||||
| Non-cash investing and financing activities: | ||||||||
| Capitalizations of deposits to property and equipment | $ | 1,449 | $ | 10,293 | ||||
| Deferred tax liability contributed from Parent | $ | 7,237 | $ | — | ||||
| Property and equipment contributed from Parent | $ | 459 | $ | — | ||||
| Hosting deposit applied to Aurora acquisition purchase price | $ | 1,584 | $ | — | ||||
| Right-of-use assets obtained in exchange for lease liabilities | $ | 1,409 | $ | — | ||||
The accompanying notes are an integral part of these consolidated financial statements.
5
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share, per share, and digital asset amounts)
Note 1. Organization and Nature of Operations
Fortitude Mining Holdings, Inc. (together, with its wholly-owned subsidiaries collectively referred to as “Fortitude” or the “Company”) was incorporated in the state of Delaware on August 12, 2025 in connection with an internal corporate reorganization, as further described below. The Company is a wholly-owned subsidiary of Digital Currency Group, Inc. (“DCG” or the “Parent”). The Company operates a digital asset mining business focused on achieving strong returns by mining Bitcoin and other high-growth digital assets in emerging ecosystems. The Company performs its mining operations at its owned and leased mining sites.
The digital asset mining operations of the Company historically were a component of Foundry Digital, LLC (“Foundry”), a wholly-owned subsidiary of DCG, and did not operate as a standalone company. On October 1, 2024, as further detailed below, the digital asset mining operations were carved out of Foundry, and Fortitude began operating as a standalone entity (the “Transaction”).
Reorganization
On August 14, 2025, pursuant to a distribution and contribution agreement, DCG implemented an internal corporate reorganization in which DCG and certain of its subsidiaries contributed the membership interests of Fortitude Mining, LLC to the Company in exchange for 5,000,000 shares of common stock of the Company (the “Reorganization”). The Reorganization was considered to be a transaction between entities under common control and the historical operations of Fortitude Mining, LLC prior to the Reorganization are deemed to be those of the Company. Thus, these consolidated financial statements reflect (i) the historical operating results of Fortitude Mining, LLC prior to the Reorganization, including the assets and liabilities of Fortitude Mining, LLC at their historical cost; and (ii) the consolidated results of the Company following the Reorganization. Further, in connection with the Reorganization and the Company’s change in tax status as an entity subject to U.S. federal and state income taxes, certain deferred tax liabilities relating to the historical operations of the Company in the amount of $7,237 were contributed from DCG to the Company. The Reorganization, including these deferred tax liabilities, are presented within the effect of the Reorganization in the Consolidated Statements of Changes in Stockholder’s / Member’s Equity.
Liquidity and Capital Resources
On an annual basis, as required by Accounting Standards Codification (“ASC”) 205, Presentation of Financial Statements – Going Concern, the Company performs an evaluation to determine whether there are conditions or events (known and reasonably knowable), considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are available to be issued. The Company has funded its operational strategy with cash flows from operations including the liquidation of digital assets mined, as well as capital contributions from Parent. The Company historically has required significant investments in property and equipment for use in its mining operations.
As of December 31, 2025, the Company had cash and working capital balances of $9,995 and $11,969, respectively. The Company believes that its existing financial resources, including its anticipated cash flows from operations, will be sufficient to meet its operating and capital requirements for at least 12 months from the date these consolidated financial statements are issued. In the event additional liquidity is required, the Company may not be able to timely secure additional debt or equity financings on favorable terms, if at all, from Parent or third parties, which could limit the Company’s ability to support its operational strategy.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company, and have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Prior to the Transaction on October 1, 2024, the financial statements have been prepared on a carve-out basis. All intercompany transactions and balances have been eliminated in consolidation.
On June 18, 2024, the Company, entered into an asset contribution agreement with Foundry and DCG Holdco II, LLC (“DCG Holdco”), as amended and restated, pursuant to which Foundry agreed to contribute certain assets and liabilities of Foundry’s digital asset mining operations to DCG Holdco, and thereafter, DCG Holdco further contributed such assets to the Company for no consideration effective October 1, 2024. In addition, on November 6, 2024, the Company entered into a contribution agreement by and among DCG, DCG Real Estate Holdings LLC, DCG Real Estate LLC, and DCG Holdco pursuant to which DCG Real Estate Holdings LLC contributed all of the issued and outstanding membership interests of Fairport 45 O’Connor LLC through a series of transactions to the Company for no consideration (together, the “Contribution Agreement”). The net assets transferred pursuant to the Contribution Agreement represent a transfer of net assets under common control and therefore were recognized by the Company at the historical cost and carrying value of Foundry.
Prior to the Transaction, the digital asset mining operations of the Company historically were a component of Foundry and did not operate as a standalone company. These consolidated financial statements, representing the historical assets, liabilities, operations and cash flows attributable to the digital asset mining operations of the Company, have been prepared on a carve-out basis. Subsequent to October 1, 2024 and the effectiveness of the Contribution Agreement, the assets, liabilities, operations and cash flows presented within these consolidated financial statements are of Fortitude as a standalone legal entity. Historically, separate financial statements had not been prepared for Fortitude and it had not operated as a standalone business from Foundry.
6
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share, per share, and digital asset amounts)
All revenues and costs, as well as assets and liabilities that were directly associated with what was historically Foundry’s mining operations, are included in these consolidated financial statements on a carve-out basis. Additional costs allocated to Fortitude include corporate general and administrative expenses including, but not limited to, employee compensation and benefits, professional services, facilities and corporate office expenses, information technology, and stock-based compensation. Other than costs that were identified as directly attributable to the digital asset mining operations, the corporate and general and administrative expenses allocated are primarily based on an estimate of headcount and time-spent of historical Foundry employees that participated in the digital asset mining operations. Management believes the assumptions underlying these consolidated financial statements, including the expense methodology and resulting allocation, are reasonable for all periods presented, however, the allocations may not include all of the actual expenses that would have been incurred by the Company and may not reflect its results of operations, financial position and cash flows had it been a standalone company during the carve-out periods presented. Actual costs that might have been incurred had the Company been a standalone company during the entirety of the periods presented would depend on a number of factors, including the organizational structure, what corporate functions the Company might have performed directly or outsourced, and strategic decisions the Company might have made in areas such as executive management, legal and other professional services, and certain corporate overhead functions. These costs also may not be indicative of the expenses that the Company will incur in the future or would have incurred if the Company had obtained these services from a third party.
All intracompany transactions within Fortitude have been eliminated, and all intercompany transactions between Fortitude, Foundry, or Parent prior to the Transaction are considered to be effectively settled in Fortitude’s consolidated financial statements at the time the transactions are recorded. The total net effect of these intercompany transactions considered to be settled is reflected in the Consolidated Statements of Cash Flows within financing activities and in the Consolidated Statements of Changes in Stockholder’s / Member’s Equity as net investment from Parent and capital contributions from Parent.
Fortitude’s equity balance in its consolidated financial statements represents the excess of total liabilities over assets. Net investment from Parent is primarily impacted by contributions or distributions with Parent which are the result of net funding provided by or distributed to Parent.
Prior to the Transaction, cash was managed through bank accounts controlled and maintained by Foundry. Fortitude did not have legal ownership of any bank accounts containing cash balances prior to the Transaction. As such, cash held in commingled accounts with Foundry prior to the Transaction is presented within net investment from Parent, which is a component of stockholder’s / member’s equity on the Consolidated Balance Sheets. In addition, all digital assets acquired in mining operations were managed in wallets controlled and maintained by Foundry. Fortitude did not have legal ownership of any wallets containing digital assets and therefore did not recognize any gains or losses from digital assets prior to the Transaction. As such, digital assets held in commingled accounts with Foundry prior to the Transaction are also presented within net investment from Parent.
Use of Estimates
The preparation of the consolidated financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. The Company’s significant estimates and assumptions include estimation of useful lives of property and equipment, fair value of the intangible asset, evaluation of impairment of property and equipment and intangible asset, deferred income taxes and the fair value of stock-based awards. Actual results could differ from those estimates.
Revenue Recognition
The Company participates in mining pools operated by a third party, as well as pools operated by Foundry. As a participant in the mining pools, the Company provides a service to perform hash calculations for the mining pool, which is an output of its ordinary activities.
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of the revenue standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle: (1) identify the customer contract; (2) identify performance obligations that are distinct; (3) determine the transaction price; (4) allocate the transaction price to the distinct performance obligations; and (5) recognize revenue as the performance obligations are satisfied.
The Company considers the mining pool operators to be its customers under ASC 606. Contract inception and the Company’s enforceable right to consideration begins when the Company commences providing hash calculation services to the mining pool operators. Refer to Note 3 for further information.
Cost of Revenues
Cost of revenues consists primarily of direct costs related to mining operations, including electricity and other utilities, co-location hosting fees, labor, insurance, and equipment repairs, but excludes depreciation, which is separately presented.
7
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share, per share, and digital asset amounts)
Cash
The Company maintains cash at institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”). Cash balances, at times, may exceed levels insured by the FDIC, however, the Company does not believe there is a significant credit risk with respect to these balances.
Digital Assets
Digital assets are earned as noncash consideration for providing hash computation services to mining pools, in accordance with the Company’s revenue recognition policy. The Company uses fair value as its method of accounting for its digital assets that are within the scope of ASC 350-60, Intangibles - Goodwill and Other - Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets. The fair value for each underlying digital asset is determined by which of the eligible digital asset exchanges is the Company’s principal market and valued using the prices as reported by such digital asset exchanges as of 4 pm EST on the last day of the Company’s reporting period. The Company has deemed the price of its digital assets to be a Level 1 input under the ASC 820, Fair Value Measurement (“ASC 820”), hierarchy as these were based on observable quoted prices in the Company’s principal market for identical assets. Gains and losses from remeasurement of digital assets are recorded within change in fair value of digital assets, net on the Consolidated Statements of Operations. Realized gains and losses are calculated using the specific identification method and are also recorded within change in fair value of digital assets, net on the Consolidated Statements of Operations. The cost of each digital asset is determined using a specific identification method which allocates cost based on a tranche methodology, with each group of digital assets acquired being deemed a tranche.
Property and Equipment, Net
Property and equipment is stated at cost, less accumulated depreciation. Maintenance and repairs are expensed when incurred. Additions and improvements that extend the economic useful life of the asset are capitalized and depreciated over the remaining useful lives of the assets. The cost and accumulated depreciation of assets sold or retired are removed from the respective accounts, and any resulting gain or loss is reflected in current earnings. Depreciation is provided using the straight-line method in amounts considered to be sufficient to amortize the cost of the assets to operations over their estimated useful lives as follows. Land is not depreciated.
| Useful life (years) | ||||
| Mining and other computer equipment | 3 - 5 | |||
| Buildings | 39 | |||
| Furniture and fixtures | 5 | |||
| Leasehold improvements | ** | |||
** Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset.
Long-Lived Assets, Including Definite-Lived Intangible Asset
The Company’s definite-lived intangible asset consists of strategic contracts which are amortized using the straight-line method over the estimated economic life of the asset.
Long-lived assets, including the definite-lived intangible asset and property and equipment, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such assets. Factors that the Company considers in deciding when to perform an impairment review include significant changes in the Company’s forecasted projections for the asset or asset group for reasons including, but not limited to, significant changes, or planned changes in the Company’s use of the assets and significant negative industry or economic trends. The impairment test is based on a comparison of the undiscounted cash flows expected to be generated from the use of the asset group to the carrying value of the assets. If impairment is indicated, the asset is written down by the amount by which the carrying value of the asset exceeds the related fair value of the asset with the related impairment charge recognized within the Consolidated Statements of Operations. No impairments of the definite-lived intangible asset or property and equipment were recognized during the year ended December 31, 2025. See Note 5 for additional information regarding impairments of property and equipment during the year ended December 31, 2024.
Asset Acquisitions
The Company assesses acquisitions of assets and other similar transactions to determine whether the transaction should be accounted for as a business combination or an asset acquisition in accordance with ASC 805, Business Combinations. A transaction is accounted for as an asset acquisition when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, or when the acquired set does not meet the definition of a business.
8
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share, per share, and digital asset amounts)
In an asset acquisition, the cost of the acquisition is allocated to the individual assets acquired and liabilities assumed on a relative fair value basis. Transaction costs are capitalized as part of the cost of the assets acquired. No goodwill is recognized in an asset acquisition. Any difference between the cost of an asset acquisition and the fair value of the net assets acquired is allocated to the non-monetary identifiable assets based on their relative fair values.
Leases
The Company determines if an arrangement is a lease at inception and classifies its leases at commencement. As lessee, operating leases are presented as right-of-use (“ROU”) assets and the corresponding operating lease liabilities are included in lease liabilities, current portion and lease liabilities, net of current portion on the Company’s Consolidated Balance Sheets. ROU assets represent the Company’s right to use an underlying asset, and lease liabilities represent the Company’s obligation for lease payments in exchange for the ability to use the asset for the duration of the lease term.
ROU assets and lease liabilities are recognized at commencement date and are based on the discounted future lease payments over the term of the lease. As the rate implicit in the Company’s lease agreements is not easily determinable, the Company’s applicable incremental borrowing rate is used in calculating the present value of the sum of the lease payments. The lease term may include options to extend when it is reasonably certain that the Company will exercise that option. In addition, the Company does not recognize short-term leases that have a term of twelve months or less as ROU assets or lease liabilities for all asset classes. The Company recognizes operating lease expense on a straight-line basis over the lease term.
The Company has lease agreements which contain both lease and non-lease components, which it has elected to account for as a single lease component for all asset classes when the payments are fixed. As such, variable lease payments, including those not dependent on an index or rate, such as real estate taxes, common area maintenance, and other costs that are subject to fluctuation from period to period, are not included in lease measurement.
Fair Value Measurement
The Company applies ASC 820, which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. ASC 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.
Certain assets and liabilities of the Company are required to be recorded at fair value either on a recurring or nonrecurring basis. The Company’s non-financial assets such as property and equipment are recorded at cost. Fair value adjustments are made to these non-financial assets, on a nonrecurring basis, in the period an impairment charge is recognized.
The carrying amounts reflected in the Consolidated Balance Sheets for cash, prepaid expenses and other current assets, deposits, due from related party, and accounts payable and accrued expenses approximate fair value due to their short-term nature.
The valuation hierarchy is composed of three levels. The classification within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The levels within the valuation hierarchy are described below:
| ● | Level 1 — Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities. | |
| ● | Level 2 — Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals. | |
| ● | Level 3 — Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities. |
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given financial instrument is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.
9
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share, per share, and digital asset amounts)
The following table presents information about the Company’s assets measured at fair value on a recurring basis as of the Consolidated Balance Sheet date:
| Fair Value Measurement Using | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| December 31, 2025 | ||||||||||||||||
| Digital assets | $ | 3,413 | $ | 3,413 | $ | — | $ | — | ||||||||
| $ | 3,413 | $ | 3,413 | $ | — | $ | — | |||||||||
| December 31, 2024 | ||||||||||||||||
| Digital assets | $ | 77 | $ | 77 | $ | — | $ | — | ||||||||
| $ | 77 | $ | 77 | $ | — | $ | — | |||||||||
There were no transfers between Levels 1, 2 or 3 during the years ended December 31, 2025 and 2024.
Stock-Based Compensation
The Company recognizes stock-based compensation expense for stock appreciation rights (“SARs”) that provide for cash settlement as employee awards within the scope of ASC 718, Stock Compensation (“ASC 718”). The awards reference the shares of DCG and not the Company. The SARs are recorded as a liability on the books and records of DCG. Compensation cost is recognized within general and administrative expenses on the Consolidated Statements of Operations using a straight-line method over the requisite period of the award, which is generally the vesting term. The impact of remeasuring SARs each reporting period and the recognition of stock-based compensation cost is reflected in the Company’s consolidated financial statements as a capital contribution (or investment from Parent) (i.e., compensation cost with an offsetting entry to stockholder’s / member’s equity). The Company does not record a liability related to SARs given the liability-classified awards are reflected as a liability by DCG and are remeasured at intrinsic value under the practical expedient provided in Accounting Standards Update (“ASU”) 2016-09, Compensation–Stock Compensation.
Segment Reporting
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance. The Company’s CODM is its Chief Executive Officer. The CODM is regularly provided with the consolidated expenses as presented in the Consolidated Statements of Operations and the Company has determined that the expenses presented in the Consolidated Statements of Operations represent significant segment expenses. The CODM reviews financial performance and allocates resources at a consolidated level on a recurring basis, such that the Company has one operating and one reportable segment.
The CODM manages the one reportable segment on a consolidated basis using consolidated net loss. The CODM reviews the measure of consolidated net loss to evaluate the Company’s operating results and the effectiveness of business strategies. As the Company discloses a single reportable segment, total revenue is reported in the Consolidated Statements of Operations, segment assets are reported in the Consolidated Balance Sheets, and capital expenditures are reported in the Consolidated Statements of Cash Flows.
Income Taxes
On August 14, 2025, pursuant to the Reorganization, DCG and certain of its subsidiaries contributed the membership interests of Fortitude Mining, LLC to the Company, a corporate entity for tax purposes. Prior to August 2025, the Company operated as a limited liability company that by default is classified as a disregarded entity for tax purposes, and was included in the consolidated federal income tax return, as well as various combined state and local income tax returns, with DCG. For the period from January 1, 2025 through the Reorganization date, the Company has elected to include in its separately issued financial statements the allocated amount of current and deferred income tax expense in accordance with ASC 740-10-30-27A. The Company is included in the consolidated federal, state and local income tax returns of DCG and has a tax-sharing agreement with DCG, pursuant to which tax liabilities and attributes are settled as payable and utilized by DCG.
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events on the consolidated financial statements in accordance with ASC 740, Income Taxes. Under this accounting standard, deferred tax assets and liabilities are based on the differences between the book value of assets and liabilities on the consolidated balance sheet and tax bases of assets and liabilities, by applying the enacted statutory tax rates in effect for the years when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to an amount that, in the opinion of management, is “more-likely-than-not” to be realized.
Under ASC 740-10-25, guidance on accounting for uncertainty in income tax positions describes how uncertain tax positions should be recognized, measured, presented and disclosed in the consolidated financial statements. The guidance requires the Company to determine whether a tax position is “more-likely-than-not” to be sustained upon examination, including resolution of any related appeals or litigation process, based on the technical merits of the position. For tax positions meeting the “more-likely-than-not-threshold”, the tax benefit recognized in the consolidated financial statements is the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the relevant taxing authorities.
10
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share, per share, and digital asset amounts)
The Company’s policy is to accrue interest and penalties associated with unrecognized tax benefits, if applicable, as a component of the income tax benefit on the Consolidated Statements of Operations, and the corresponding asset netted within deferred tax liability, on the Consolidated Balance Sheets.
Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”) to provide more detailed tax disclosure requirements. The guidance requires entities to disclose qualitative information about significant differences between the statutory tax rate and effective tax rate, income taxes paid, and disaggregate information by foreign and domestic income from continuing operations. The disclosure requirements will be applied on a prospective basis, with the option to apply it retrospectively. The effective date for ASU 2023-09 is for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company adopted ASU 2023-09 effective January 1, 2025. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures. The amendments require the disclosure of specified information about certain costs and expenses including purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depreciation, depletion, and amortization recognized as part of oil and gas producing activities. It also requires the disclosure of a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively as well as the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. The standard will be effective for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. The Company is currently evaluating the impact that the adoption of the provisions of the ASU will have on the Company’s consolidated financial statements.
Note 3. Revenues
The Company participates in mining pools operated by a third party, as well as pools operated by Foundry. As a participant in the mining pools, the Company provides a service to perform hash calculations for the mining pool, and the Company is entitled to non-cash consideration based on the pool operator’s payout model. The payout methodologies differ depending on the type of operated mining pool. Full-Pay-Per-Share (“FPPS”), Pay-Per-Share+ (“PPS+”) and Pay Per Last N Shares (“PPLNS”) pools pay block rewards and transaction fees, less mining pool fees. For FPPS and PPS+ pools, the Company is entitled to non-cash consideration even if a block is not successfully validated by the mining pool operators.
The contracts are terminable at any time by either party with no substantive termination penalty. The Company’s enforceable right to compensation begins when, and lasts for as long as, the Company provides computing power to the mining pool operator. The Company’s performance obligation extends over the contract term given the Company’s continuous provision of hashrate. This period of time corresponds with the period of service for which the mining pool operator determines compensation due to the Company. Given cancellation terms of the contract, and the Company’s customary business practice, the contract effectively provides the Company with the option to renew for successive contract terms of 24 hours. The options to renew are not material rights because they are offered at the standalone selling price of computing power. The Company elected the optional exemption to not disclose the transaction price allocated to remaining performance obligations that are part of a contract that has an original expected duration of one year or less.
FPPS Mining Pools
The Company primarily participates in mining pools that use the FPPS payout method. The Company is entitled to compensation once it begins to perform hash calculations for the pool operator in accordance with the operator’s specifications over a 24-hour period beginning midnight UTC and ending 23:59:59 UTC on a daily basis. The non-cash consideration that the Company is entitled to for providing hash calculations to the pool operator under the FPPS payout method is made up of block rewards and transaction fees less pool operator expenses determined as follows:
| ● | The non-cash consideration in the form of a block reward is based on the total blocks expected to be generated on the Bitcoin network for the daily 24-hour period beginning midnight UTC and ending 23:59:59 UTC in accordance with the following formula: the daily hash calculations that the Company provided to the pool operator as a percent of the Bitcoin network’s implied hash calculations as determined by the network difficulty, multiplied by the total Bitcoin network block rewards expected to be generated for the same daily period. |
| ● | The non-cash consideration in the form of transaction fees paid by transaction requestors is based on the share of total actual fees paid over the daily 24-hour period beginning midnight UTC and ending 23:59:59 UTC in accordance with the following formula: total actual transaction fees generated on the Bitcoin network during the 24-hour period as a percent of total block rewards the Bitcoin network actually generated during the same 24-hour period, multiplied by the block rewards the Company earned for the same 24-hour period noted above. |
| ● | The block reward and transaction fees earned by the Company is reduced by mining pool fees charged by the operator for operating the pool based on a rate schedule per the mining pool contract. The mining pool fee is only incurred to the extent the Company performs hash calculations and generates revenue in accordance with the pool operator’s payout formula during the same 24-hour period beginning midnight UTC daily. |
11
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share, per share, and digital asset amounts)
Since the amount of block rewards earned depends on the amount of hash calculations the Company performs, the amount of transaction fees the Company is entitled to depends on the actual Bitcoin network transaction fees over the same 24-hour period. The operator fees for the same 24-hour period are variable since they are determined based on the total block rewards and transaction fees in accordance with the pool operator’s agreement, and therefore the above non-cash consideration is variable. While the non-cash consideration is variable, the Company has the ability to estimate the variable consideration at contract inception with reasonable certainty without the risk of significant revenue reversal. The Company does not constrain this variable consideration because it is probable that a significant reversal in the amount of revenue recognized from the contract will not occur when the uncertainty is subsequently resolved and recognizes the non-cash consideration on the same day that control of the contracted service of providing hashrate is transferred, which is the same day as contract inception.
The Company measures the non-cash consideration at contract inception based on the daily spot rate of Bitcoin determined using the Company’s principal market for Bitcoin.
PPS+ Mining Pools
The Company participated in PPS+ pools that provide non-cash consideration similar to the FPPS pools except the PPS+ amount of transaction fees is determined based on the share of actual transaction fees paid to the specific blocks the mining pool successfully mined in the Litecoin and Dogecoin blockchains in a daily 24-hour period in accordance with the operator’s specifications. Within the PPS+ pools, the non-cash consideration received by the Company is made up of block rewards and transaction fees less mining pool fees. While the non-cash consideration is variable, the Company has the ability to estimate the variable consideration at contract inception with reasonable certainty. The Company does not constrain this variable consideration because it is probable that a significant reversal in the amount of revenue recognized from the contract will not occur when the uncertainty is subsequently resolved and recognizes the non-cash consideration on the same day that control of the contracted service of providing hashrate is transferred, which is the same day as contract inception.
The Company measures the non-cash consideration at contract inception based on the daily spot rate of Litecoin and Dogecoin determined using the Company’s principal market for Litecoin and Dogecoin.
PPLNS Mining Pools
The Company also participated in PPLNS pools that pay rewards only when the pool successfully validates a block. For these pools, the Company only earns a reward when the pool successfully mines a block and its reward is the fractional share of the successfully mined block and transaction fees, reduced by pool operator expenses, based on the proportion of hash calculations the Company performed for the mining pool operator to the total hash calculations performed by all mining pool participants in validating the block during the 24-hour period beginning at midnight UTC and ending 23:59:59 UTC daily.
Contract inception and the enforceable right to consideration begins when the Company commences the performance of hash calculations for the mining pool operator. The non-cash consideration is variable as it depends on whether the mining pool successfully validates a block during each 24-hour period. In addition, other inputs such as the amount of hash calculations and the Company’s fractional share of consideration earned by the pool operator also cause variability. The Company does not have the ability to estimate whether a block will be successfully validated with reasonable certainty at contract inception. The Company constrains the variable consideration at contract inception because it is not probable that a significant reversal in the amount of revenue recognized from the contract will not occur when the uncertainty is subsequently resolved. Once a block is successfully validated, the constraint is lifted. The Company recognizes the non-cash consideration on the same day that control of the contracted service of providing hashrate is transferred, which is the same day as contract inception.
The Company measures the non-cash consideration at contract inception based on the daily spot rate of Zcash determined using the Company’s principal market for Zcash.
The following table presents disaggregation of the Company’s mining revenues:
| Years Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenues from contracts with customers: | ||||||||
| Mining pool participant – related party | ||||||||
| Bitcoin | $ | 58,072 | $ | 61,170 | ||||
| Other | 19 | 194 | ||||||
| Total mining pool participant – related party | 58,091 | 61,364 | ||||||
| Mining pool participant – third party | ||||||||
| Zcash | 25,188 | 11,745 | ||||||
| Bitcoin | — | 1,620 | ||||||
| Other | 6,203 | 7,051 | ||||||
| Total mining pool participant – third party | 31,391 | 20,416 | ||||||
| Total mining revenues | $ | 89,482 | $ | 81,780 | ||||
12
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share, per share, and digital asset amounts)
The following table presents information about the Company’s concentration of mining revenues by digital asset:
| Years Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Bitcoin | 65 | % | 77 | % | ||||
| Zcash | 28 | % | 14 | % | ||||
| Other | 7 | % | 9 | % | ||||
Note 4. Aurora Acquisition
On October 22, 2025, the Company entered into a purchase agreement with a third party, pursuant to which the Company acquired certain mining related assets including power contracts, land, a building and other mining equipment located in Aurora, Nebraska (the “Aurora Acquisition”). As consideration for the acquired assets, the Company agreed to pay $7,650, of which $1,584 was paid by application of a previously paid hosting deposit, with the remainder being paid in cash at closing. The primary purpose of the Aurora Acquisition is to acquire owned and controlled power in efforts for vertical integration.
The transaction was determined to be an asset acquisition pursuant to ASC 805, Business Combinations, and therefore the purchase price, including transaction costs of $239, were allocated to the assets acquired based on their relative fair values as a percentage of the total fair value of the assets acquired, with no goodwill recognized. The total purchase consideration was allocated to the acquired assets as follows:
| Amount | ||||
| Intangible asset | $ | 4,473 | ||
| Mining and other computer equipment | 2,715 | |||
| Building | 567 | |||
| Land | 134 | |||
| Total | $ | 7,889 | ||
The power contract intangible asset was valued utilizing a with-and-without methodology, which incorporates significant unobservable inputs, including remaining useful life of the power contract, discount rate, and market-based power pricing information. Because these inputs are not directly observable in the market and require significant management judgment, the power contract is classified as Level 3 within the fair value hierarchy. See Note 6 for additional information related to the intangible asset acquired.
Note 5. Property and Equipment, Net
Property and equipment, net consists of the following:
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Mining and other computer equipment | $ | 126,514 | $ | 128,935 | ||||
| Leasehold improvements | 3,982 | 3,434 | ||||||
| Buildings | 1,547 | 980 | ||||||
| Furniture and fixtures | 348 | 395 | ||||||
| Land | 377 | 243 | ||||||
| Total | 132,768 | 133,987 | ||||||
| Less: accumulated depreciation | (93,122 | ) | (74,049 | ) | ||||
| Property and equipment, net | $ | 39,646 | $ | 59,938 | ||||
Depreciation expense was $32,356 and $30,374 for the years ended December 31, 2025 and 2024, respectively.
During the years ended December 31, 2025 and 2024, the Company acquired property and equipment of $12,986 and $37,379, respectively, of which $3,416 was acquired as part of the Aurora Acquisition during the year ended December 31, 2025. In addition, mining equipment deposits of $1,449 and $10,293 were capitalized into property and equipment during the years ended December 31, 2025 and 2024, respectively.
During the years ended December 31, 2025 and 2024, the Company sold or otherwise disposed of property and equipment resulting in net proceeds of $230 and $716, respectively, and a loss on disposal of equipment, net of $2,600 and $2,767, respectively.
13
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share, per share, and digital asset amounts)
During the year ended December 31, 2024, the Company recorded impairment to mining and other computer equipment due to decreases in the observable market prices of similar equipment of $552 which is included in impairment of mining equipment on the Consolidated Statements of Operations. No impairment expense was recorded for the year ended December 31, 2025.
Note 6. Intangible Asset, Net
Intangible asset, net consists of the following as of December 31, 2025:
| Gross Book Value | Accumulated Amortization | Net Book Value | Weighted-Average Remaining Amortization (Years) | |||||||||||||
| Strategic contracts | $ | 4,473 | $ | (214 | ) | $ | 4,259 | 3.75 | ||||||||
During the years ended December 31, 2025 and 2024, amortization expense related to the Company’s intangible asset was $214 and $0, respectively.
The following table presents the estimated future amortization of the Company’s intangible asset as of December 31, 2025:
| 2026 | $ | 1,118 | ||
| 2027 | 1,118 | |||
| 2028 | 1,118 | |||
| 2029 | 905 | |||
| Total | $ | 4,259 |
Note 7. Deposits
The Company contracts with mining equipment manufacturers to procure equipment necessary for the operation of its mining operations. These agreements typically require a certain percentage of the value of the total order to be paid in advance at specific intervals, usually within several days of execution of a contract and periodically thereafter with final payments due prior to each shipment date. Deposits on mining equipment are included within deposits, net of current portion on the Consolidated Balance Sheets which totaled $5,420 and $1,449 as of December 31, 2025 and 2024, respectively.
In addition, the Company contracts with various service providers for hosting of its equipment, operational support in data centers where the Company’s equipment is deployed and construction of data centers on leased sites. These contracts typically require advance payments to service providers in conjunction with the contractual obligations associated with these services. The Company includes these deposits within deposits which totaled $903 and $1,576 and deposits, net of current portion which totaled $5,347 and $7,537 on the Consolidated Balance Sheets as of December 31, 2025 and 2024, respectively.
Note 8. Digital Assets
The following table presents the digital assets held by the Company:
| December 31, 2025 | ||||||||||||||||
| Quantity | Cost Basis | Fair Value | Concentration | |||||||||||||
| Zcash | 6,273 | $ | 3,528 | $ | 3,195 | 94 | % | |||||||||
| Other | 397 | 218 | 6 | % | ||||||||||||
| $ | 3,925 | $ | 3,413 | 100 | % | |||||||||||
| December 31, 2024 | ||||||||||||||||
| Quantity | Cost Basis | Fair Value | Concentration | |||||||||||||
| Zcash | 697 | $ | 39 | $ | 39 | 50 | % | |||||||||
| Dogecoin | 64,093 | 21 | 20 | 26 | % | |||||||||||
| Horizen | 568 | 16 | 16 | 21 | % | |||||||||||
| Other | 2 | 2 | 3 | % | ||||||||||||
| $ | 78 | $ | 77 | 100 | % | |||||||||||
14
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share, per share, and digital asset amounts)
The following table presents information about the Company’s digital assets:
| Balance, January 1, 2024 | $ | — | ||
| Revenue recognized from digital assets mined | 81,780 | |||
| Proceeds from sale of digital assets | (78,627 | ) | ||
| Digital assets paid for services | (3,249 | ) | ||
| Change in fair value of digital assets, net | 173 | |||
| Balance, December 31, 2024 | 77 | |||
| Revenue recognized from digital assets mined | 89,482 | |||
| Other revenue | 15 | |||
| Proceeds from sale of digital assets | (81,681 | ) | ||
| Digital assets paid for services | (4,113 | ) | ||
| Change in fair value of digital assets, net | (367 | ) | ||
| Balance, December 31, 2025 | $ | 3,413 |
Realized gains from the sale of digital assets, net, were $138 and $173 for the years ended December 31, 2025 and 2024, respectively, and are included in change in fair value of digital assets, net on the Consolidated Statements of Operations.
Note 9. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Accounts payable | $ | 1,458 | $ | 904 | ||||
| Accrued bonus expense | 1,207 | 423 | ||||||
| Accrued hosting expenses | 187 | 1,196 | ||||||
| Other | 137 | 125 | ||||||
| Total | $ | 2,989 | $ | 2,648 | ||||
Note 10. Income Taxes
The components of the income tax benefit attributable to loss before income taxes are as follows:
| Year ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Current income tax benefit: | ||||||||
| Federal | $ | (268 | ) | $ | — | |||
| State and local | (350 | ) | — | |||||
| Total current income tax benefit | (618 | ) | — | |||||
| Deferred income tax benefit: | ||||||||
| Federal | (3,056 | ) | — | |||||
| State and local | (9 | ) | — | |||||
| Total deferred income tax benefit | (3,065 | ) | — | |||||
| Income tax benefit | $ | (3,683 | ) | $ | — | |||
15
The following table displays the difference between the U.S. federal statutory corporate tax rate and the effective tax rate:
| Year ended December 31, 2025 | ||||||||
| Amount | Rate | |||||||
| Tax benefit at federal statutory rate | $ | (3,437 | ) | 21.00 | % | |||
| Increase (decrease) in tax benefit at federal statutory rate: | ||||||||
| State and local income taxes, net of federal tax | (288 | ) | 1.76 | % | ||||
| Other | 42 | -0.25 | % | |||||
| Effective tax rate | $ | (3,683 | ) | 22.51 | % | |||
Temporary differences accumulate in deferred income tax balances and are recorded as deferred tax assets and deferred tax liabilities.
The components of deferred tax assets and liabilities were as follows:
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Deferred tax assets | ||||||||
| Lease liability | $ | 638 | $ | — | ||||
| Unrealized losses | 115 | — | ||||||
| Other | 6 | — | ||||||
| Subtotal | 759 | — | ||||||
| Valuation allowance | — | — | ||||||
| Total deferred tax asset | 759 | — | ||||||
| Deferred tax liabilities | ||||||||
| Depreciation and amortization | (4,208 | ) | — | |||||
| Right-of-use assets | (640 | ) | — | |||||
| Prepaid expenses | (83 | ) | — | |||||
| Total deferred tax liability | (4,931 | ) | — | |||||
| Net deferred tax liability | $ | (4,172 | ) | $ | — | |||
On August 14, 2025, pursuant to the Reorganization, DCG and certain of its subsidiaries contributed the membership interests of Fortitude Mining, LLC to the Company, a corporate entity for tax purposes. Prior to August 2025, the Company operated as a limited liability company that by default is classified as a disregarded entity for tax purposes, and was included in the consolidated federal income tax return, as well as various combined state and local income tax returns with DCG. For the period from January 1, 2025 through the Reorganization date, the Company has elected to include in its separately issued financial statements the allocated amount of current and deferred income tax expense in accordance with ASC 740-10-30-27A.
The Company has not identified any uncertain tax positions that warrant tax reserves based on the “more-likely-than-not” threshold. The Company does not expect unrecognized tax benefits to significantly change in the next twelve months.
Management has assessed positive and negative evidence to determine whether a valuation allowance against the existing gross deferred tax assets is required. Although this is the first year of operations, the Company and its ultimate parent generated significant taxable income in each year and projects that sufficient future taxable income will be generated. Additionally, the Company has a net deferred tax liability, and therefore after consideration of the evidence applicable to the Company, management believes that it is more-likely-than-not that the gross deferred tax asset will be realized in the future. As a result, as of December 31, 2025, the Company did not have a valuation allowance recorded against its deferred tax asset.
The Company is subject to U.S. federal income tax and state and local income tax in multiple jurisdictions. As of December 31, 2025, the earliest year the Company remains subject to examination by the Internal Revenue Service is for the tax year ended December 31, 2024. The earliest year the Company remains subject to examination by state and local tax authorities is for the tax year ended December 31, 2024. The Company is not currently under examination for any open tax periods.
Note 11. Stockholder's / Member's Equity
Fortitude Mining, LLC Member's Equity
Prior to the Reorganization and pursuant to the terms of the Limited Liability Company Agreement, the business and affairs of the Company were managed and operated by the management of the Company, however, as a single member, LLC membership interests were ultimately controlled by DCG.
All member’s equity presented prior to the Transaction represents Parent’s historical net investment in the Company, as well as the accumulated net losses and the net effect of settled transactions with and allocations from Parent.
16
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share, per share, and digital asset amounts)
Fortitude Mining Holdings, Inc. Stockholder's Equity
On August 12, 2025, in connection with the Reorganization, the Company’s Board of Directors approved the certificate of incorporation. The certificate of incorporation authorizes the issuance of 10,000,000 shares of common stock, par value $0.0001 per share. Holders of common stock are entitled to one vote per share on all matters submitted to a vote of stockholders, including the election of directors. As of December 31, 2025, 5,000,000 shares of common stock were issued and outstanding, all of which is ultimately held by Parent as a result of the Reorganization.
Note 12. Stock-based Compensation
Digital Currency Group, Inc. Stock Appreciation Rights Plan
The Stock Appreciation Rights Plan (the “SARs Plan”) provides for the grant of SARs to employees, directors, and key persons of DCG and any subsidiary. The awards reference the shares of DCG and not the Company. The SARs Plan provides the employees with the right to receive, at the date the rights are exercised, cash settlements in the amount equal to the fair value of the market appreciation of the common stock since the grant date of the rights. The SARs typically vest 25% on the one-year anniversary from the grant date with the remaining 75% vesting in equal quarterly installments over the following three years. DCG’s Board of Directors is responsible for administration of the SARs Plan and has the sole discretion to determine which grantees will be granted awards and the terms and conditions of the awards granted.
The following table summarizes the activities related to SARs granted by DCG to employees of the Company:
Number of SARs (in Shares) | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | ||||||||||
| Outstanding, January 1, 2024 | 10,639 | $ | 53.59 | 9.0 | ||||||||
| Granted | 6,145 | 55.87 | ||||||||||
| Exercised | (4,475 | ) | 27.93 | |||||||||
| Outstanding, December 31, 2024 | 12,309 | 64.05 | 8.4 | |||||||||
| Granted | 1,894 | 54.03 | ||||||||||
| Exercised | (895 | ) | 27.93 | |||||||||
| Forfeited or cancelled | (531 | ) | 54.40 | |||||||||
| Outstanding, December 31, 2025 | 12,777 | $ | 65.50 | 7.6 | ||||||||
| Exercisable, December 31, 2025 | 7,627 | $ | 73.61 | 7.1 | ||||||||
During the years ended December 31, 2025 and 2024, the Company recorded stock-based compensation expense of $95 and $339, respectively, which includes an allocation of cost related to Foundry employees that participated in the digital asset mining business prior to the legal separation of Fortitude. As of December 31, 2025, $30 of unrecognized compensation expense related to non-vested SARs awards is expected to be recognized over the weighted average remaining vesting period of 2.3 years, which is dependent on the subsequent intrinsic value of the awards.
Note 13. Risk and Uncertainties
The Company’s operating activities expose it to various types of risk that are associated with the mining, liquidation, and holding of digital assets. The significant types of risks to which the Company is exposed include, but are not limited to, market risk, industry risk, regulatory risk, liquidity risk, concentration risk, credit risk, counterparty risk, and digital asset risk. Certain aspects of those risks include, but are not limited to, the risk of loss related to value of digital assets mined but not yet liquidated, the risk that the type of digital assets that the Company mines will decrease in value, the risk of reliance on mining revenues which are highly concentrated, and the risk of reliance on vendors such as mining pool operators, equipment vendors and hosting and energy providers.
The digital asset industry is currently largely unregulated, highly speculative, and volatile. The price of digital assets has a limited history. During such history, digital asset prices have been volatile and subject to influence by many factors including the levels of liquidity. If digital asset markets continue to experience significant price fluctuations, the Company may experience substantial losses. Several factors may affect the price of digital assets, including, but not limited to, global supply and demand, and competition from other forms of digital asset or payment services.
Note 14. Related Party Transactions
Foundry is a mining pool operator in which the Company is a mining participant. For the years ended December 31, 2025 and 2024 related party mining participant revenue was $58,091 and $61,364, respectively.
17
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share, per share, and digital asset amounts)
The Company recognizes stock-based compensation expense for awards that reference the shares of DCG and not the Company. Awards that reference the shares of DCG and are expected to be settled in cash are recorded as a liability on the books and records of DCG (see Note 12 for further details).
The Company has a tax-sharing agreement with DCG whereby any tax liabilities or benefits attributable to the Company will be settled between the Company and DCG when such tax liabilities or benefits are used in the consolidated tax returns of DCG. As of December 31, 2025 and 2024, the Company recognized $618 and $0, respectively, within prepaid expenses and other current assets on the Consolidated Balance Sheets in relation to these tax attributes.
During the year ended December 31, 2025, DCG contributed $9,357 to the Company which was used to finance the Aurora Acquisition and acquisitions of other property and equipment. In addition, DCG, via Foundry, contributed $459 of property and equipment to the Company.
During the year ended December 31, 2024, the Company had net contributions from Parent of $20,676, which primarily represent contributions from Parent to acquire property and equipment, partially offset by the Company’s cash flows from operations that were controlled and maintained by Foundry prior to the legal separation of Fortitude. Transactions with Foundry that were not settled in cash are presented within the Consolidated Statements of Changes in Stockholder’s / Member’s Equity as net investment from Parent. In addition, subsequent to the Transaction, DCG contributed $2,936 to the Company during the year ended December 31, 2024 which was used to acquire property and equipment.
During the year ended December 31, 2024, the Company’s consolidated financial statements include corporate general and administrative expenses of Foundry that have been allocated to the Company for purposes of these consolidated financial statements and presentation of Fortitude as a standalone company. The allocations include significant support functions provided by Foundry including, but not limited to, employee compensation and benefits, professional services, facilities and corporate office expenses, and information technology, some of which are continuing after the legal separation of Fortitude pursuant to a certain shared services agreement further detailed below. These expenses have been allocated to the Company on the basis of direct usage when identifiable, with the remainder primarily allocated on the basis of headcount or other allocation methodology that is considered to be a reasonable reflection of the utilization of the services by the Company. The allocations, however, may not be indicative of the actual expenses that would have been incurred had the Company operated as a standalone company and obtained services from unaffiliated entities. See Note 2 for further information on the carve-out and basis of presentation.
Effective October 1, 2024, the Company entered into a shared services agreement (the “SSA”) with Foundry, under which Foundry agreed to provide certain services, including data platform, energy management advisory, information technology and infrastructure support, human resources support and other services to the Company. The SSA includes both fixed monthly fees and variable components based on usage of certain services which are due and payable on a monthly basis. The SSA includes automatic one-year renewals unless terminated by either party. Further effective October 1, 2024, the Company entered into a managed services agreement (the “MSA”) with Foundry, under which Foundry agreed to provide on-site and remote management and monitoring services at the Company’s mining locations. The MSA includes both fixed monthly fees and variable components based on usage of certain services which are due and payable on a monthly basis. The MSA has an initial term of two years, and includes automatic one-year renewals unless terminated by either party. During the years ended December 31, 2025 and 2024, the Company incurred costs of $1,399 and $423 pursuant to the SSA and MSA, which are included within cost of revenues and general and administrative expenses on the Consolidated Statements of Operations based on the nature of the costs.
Effective January 1, 2025, the Company entered into a transition services agreement (the “TSA”) with DCG, under which DCG agreed to provide certain services, including financial planning and analysis, accounting support, communications and events support and other services to the Company. The TSA includes fixed monthly fees and also requires payment for any additional services performed. During the year ended December 31, 2025, the Company incurred costs of $329 pursuant to the TSA, which are included within general and administrative expenses on the Consolidated Statements of Operations.
The Company leased a portion of its building site to Foundry which is included in rental income - related party on the Consolidated Statements of Operations. On November 1, 2025, the lease was terminated by both parties.
As of December 31, 2025 and 2024, amounts due from related party resulting from the aforementioned agreements totaled $13 and $46, respectively, and are included within due from related party on the Consolidated Balance Sheets. These amounts are expected to be settled in the short term and are non-interest bearing.
Note 15. Commitments and Contingencies
Leases
The Company, as lessee, leases building and mining site operational space under various operating lease arrangements. Certain lease arrangements include renewal options, and certain of the Company’s lease agreements require compliance with certain customary covenants throughout the term of the leases.
Operating lease costs totaled $449 and $360 for the years ended December 31, 2025 and 2024, respectively, and are included in general and administrative expenses on the Consolidated Statements of Operations. The weighted-average remaining lease term for operating leases was 8.0 years and the weighted-average discount rate was 4.92% as of December 31, 2025.
18
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share, per share, and digital asset amounts)
The following table presents the Company’s future minimum operating lease payments as of December 31, 2025:
| 2026 | $ | 480 | ||
| 2027 | 461 | |||
| 2028 | 458 | |||
| 2029 | 461 | |||
| 2030 | 463 | |||
| Thereafter | 1,126 | |||
| Total minimum lease payments | 3,449 | |||
| Less effects of discounting | (645 | ) | ||
| Total lease liabilities | $ | 2,804 |
Other Commitments and Contingencies
The Company is subject at times to various claims, lawsuits and governmental proceedings that arise in the ordinary course of business. The Company reviews its legal proceedings on an ongoing basis and provides disclosure and records loss contingencies pursuant to the loss contingencies accounting guidance. The Company establishes accruals for such matters when potential losses become probable and can be reasonably estimated. If the Company determines that a loss is reasonably possible and the loss or range of loss can be estimated, the Company discloses the possible loss in the consolidated financial statements.
Note 16. Subsequent Events
The Company evaluated subsequent events through March 13, 2026, the issuance date of these consolidated financial statements.
Under certain hosting arrangements, the Company has the ability to shut off hosted mining machines as a “stop-loss” contract mechanic, provided that the hosting facility has the ability to utilize the Company’s mining machines during the shutdown period for its own benefit. Effective March 1, 2026, the Company made a strategic decision to suspend operation of certain mining machines at a hosting provider based on the underlying productivity of the machines. The Company has the right to renew operation of the machines at its discretion.
19
Exhibit 99.2
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Fortitude Mining Holdings, Inc. and Subsidiaries
As of and for the Three Months Ended March 31, 2026 and 2025
Fortitude Mining Holdings, Inc. and Subsidiaries
Table of Contents
Fortitude Mining Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share amounts)
| March 31, 2026 | December 31, 2025 | |||||||
| Assets | ||||||||
| Cash | $ | 8,899 | $ | 9,995 | ||||
| Digital assets | 1,912 | 3,413 | ||||||
| Deposits | 728 | 903 | ||||||
| Prepaid expenses and other current assets | 1,643 | 997 | ||||||
| Total current assets | 13,182 | 15,308 | ||||||
| Property and equipment, net | 35,486 | 39,646 | ||||||
| Deposits, net of current portion | 11,653 | 10,767 | ||||||
| Right-of-use assets | 2,721 | 2,812 | ||||||
| Intangible asset, net | 3,980 | 4,259 | ||||||
| Total assets | $ | 67,022 | $ | 72,792 | ||||
| Liabilities and stockholder’s equity | ||||||||
| Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 3,362 | $ | 2,989 | ||||
| Lease liabilities, current portion | 341 | 350 | ||||||
| Total current liabilities | 3,703 | 3,339 | ||||||
| Deferred tax liability | 2,766 | 4,172 | ||||||
| Lease liabilities, net of current portion | 2,372 | 2,454 | ||||||
| Total liabilities | 8,841 | 9,965 | ||||||
| Commitments and Contingencies (Note 14) | ||||||||
| Stockholder’s equity: | ||||||||
| Common stock, $0.0001 par value; 10,000,000 shares authorized; 5,000,000 issued and outstanding as of March 31, 2026 and December 31, 2025 | 1 | 1 | ||||||
| Additional paid-in capital | 59,510 | 59,507 | ||||||
| Retained earnings (deficit) | (1,330 | ) | 3,319 | |||||
| Total stockholder’s equity | 58,181 | 62,827 | ||||||
| Total liabilities and stockholder’s equity | $ | 67,022 | $ | 72,792 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
Fortitude Mining Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands)
| Three Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Revenues: | ||||||||
| Mining revenues, net (includes related party amounts of $8,125 and $17,310, respectively) | $ | 19,211 | $ | 21,961 | ||||
| Other revenue | 14 | — | ||||||
| Total revenues | 19,225 | 21,961 | ||||||
| Operating expenses: | ||||||||
| Cost of revenues (exclusive of depreciation and amortization) | 10,422 | 17,124 | ||||||
| Depreciation and amortization | 5,942 | 9,342 | ||||||
| General and administrative expenses | 5,397 | 1,567 | ||||||
| Loss on disposal of equipment | 588 | 577 | ||||||
| Change in fair value of digital assets, net | 2,879 | 193 | ||||||
| Total operating expenses | 25,228 | 28,803 | ||||||
| Other income: | ||||||||
| Rental income - related party | — | 14 | ||||||
| Total other income | — | 14 | ||||||
| Loss before income taxes | (6,003 | ) | (6,828 | ) | ||||
| Income tax benefit | 1,354 | — | ||||||
| Net loss | $ | (4,649 | ) | $ | (6,828 | ) | ||
The accompanying notes are an integral part of these consolidated financial statements.
2
Fortitude Mining Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholder's / Member's Equity
(Unaudited)
(in thousands, except for share amounts)
| Member’s | Common Stock | Additional Paid-in | Retained Earnings | |||||||||||||||||||||
| Equity | Shares | Amount | Capital | (Deficit) | Total | |||||||||||||||||||
| Balance, January 1, 2025 | $ | 72,829 | — | $ | — | $ | — | $ | — | $ | 72,829 | |||||||||||||
| Capital contributions from Parent | 200 | — | — | — | — | 200 | ||||||||||||||||||
| Stock-based compensation | 12 | — | — | — | — | 12 | ||||||||||||||||||
| Net loss | (6,828 | ) | — | — | — | — | (6,828 | ) | ||||||||||||||||
| Balance, March 31, 2025 | $ | 66,213 | — | $ | — | $ | — | $ | — | $ | 66,213 | |||||||||||||
| Member’s | Common Stock | Additional Paid-in | Retained Earnings | |||||||||||||||||||||
| Equity | Shares | Amount | Capital | (Deficit) | Total | |||||||||||||||||||
| Balance, January 1, 2026 | $ | — | 5,000,000 | $ | 1 | $ | 59,507 | $ | 3,319 | $ | 62,827 | |||||||||||||
| Stock-based compensation | — | — | — | 3 | — | 3 | ||||||||||||||||||
| Net loss | — | — | — | — | (4,649 | ) | (4,649 | ) | ||||||||||||||||
| Balance, March 31, 2026 | $ | — | 5,000,000 | $ | 1 | $ | 59,510 | $ | (1,330 | ) | $ | 58,181 | ||||||||||||
See accompanying notes to the consolidated financial statements.
3
Fortitude Mining Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
| Three Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (4,649 | ) | $ | (6,828 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 5,942 | 9,342 | ||||||
| Loss on disposal of equipment | 588 | 577 | ||||||
| Mining revenues, net | (19,051 | ) | (21,961 | ) | ||||
| Other revenue | (14 | ) | — | |||||
| Proceeds from the sale of digital assets | 12,316 | 20,071 | ||||||
| Digital assets paid for services | 303 | 1,719 | ||||||
| Change in fair value of digital assets, net | 2,879 | 193 | ||||||
| Non-cash lease expense | — | 2 | ||||||
| Stock-based compensation | 3 | 12 | ||||||
| Deferred income taxes | (1,406 | ) | — | |||||
| Change in operating assets and liabilities: | ||||||||
| Deposits | 1,039 | 398 | ||||||
| Prepaid expenses and other current assets | (646 | ) | (223 | ) | ||||
| Accounts payable and accrued expenses | 373 | (289 | ) | |||||
| Net cash (used in) provided by operating activities | (2,323 | ) | 3,013 | |||||
| Cash flows from investing activities: | ||||||||
| Proceeds from the sale of digital assets | 5,068 | — | ||||||
| Purchases of property and equipment | (2,113 | ) | (2,132 | ) | ||||
| Deposits on property and equipment | (1,750 | ) | (221 | ) | ||||
| Proceeds from disposal of property and equipment | 22 | 134 | ||||||
| Net cash provided by (used in) investing activities | 1,227 | (2,219 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Capital contributions from Parent | — | 200 | ||||||
| Net cash provided by financing activities | — | 200 | ||||||
| Net increase in cash | (1,096 | ) | 994 | |||||
| Cash, beginning of year | 9,995 | 4,496 | ||||||
| Cash, end of year | $ | 8,899 | $ | 5,490 | ||||
| Non-cash investing and financing activities: | ||||||||
| Capitalizations of deposits to property and equipment | $ | — | $ | 1,449 | ||||
See accompanying notes to the consolidated financial statements.
4
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands, except share, per share, and digital asset amounts)
Note 1. Organization and Nature of Operations
Fortitude Mining Holdings, Inc. (together, with its wholly-owned subsidiaries collectively referred to as “Fortitude” or the “Company”) was incorporated in the state of Delaware on August 12, 2025 in connection with an internal corporate reorganization, as further described below. The Company is a wholly-owned subsidiary of Digital Currency Group, Inc. (“DCG” or the “Parent”). The Company operates a digital asset mining business focused on achieving strong returns by mining Zcash, Bitcoin and other high-growth digital assets in emerging proof-of-work ecosystems. The Company performs its mining operations at its owned and leased mining sites.
Reorganization
On August 14, 2025, pursuant to a distribution and contribution agreement, DCG implemented an internal corporate reorganization in which DCG and certain of its subsidiaries contributed the membership interests of Fortitude Mining, LLC to the Company in exchange for 5,000,000 shares of common stock of the Company (the “Reorganization”). The Reorganization was considered to be a transaction between entities under common control and the historical operations of Fortitude Mining, LLC prior to the Reorganization are deemed to be those of the Company. Thus, these condensed consolidated financial statements reflect (i) the historical operating results of Fortitude Mining, LLC prior to the Reorganization, including the assets and liabilities of Fortitude Mining, LLC at their historical cost; and (ii) the condensed consolidated results of the Company following the Reorganization. Further, in connection with the Reorganization and the Company’s change in tax status as an entity subject to U.S. federal and state income taxes, certain deferred tax liabilities relating to the historical operations of the Company in the amount of $7,237 were contributed from DCG to the Company.
Liquidity and Capital Resources
The Company has historically funded its operational strategy with cash flows from operations including the liquidation of digital assets mined, as well as capital contributions from Parent. The Company historically has required significant investments in property and equipment for use in its mining operations.
As of March 31, 2026, the Company had cash and working capital balances of $8,899 and $9,479, respectively. The Company believes that its existing financial resources, including its anticipated cash flows from operations, will be sufficient to meet its operating and capital requirements for at least 12 months from the date these condensed consolidated financial statements are issued. In the event additional liquidity is required, the Company may not be able to timely secure additional debt or equity financings on favorable terms, if at all, from Parent or third parties, which could limit the Company’s ability to support its operational strategy.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. The unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the Company’s financial position and results of operations as of and for the interim periods presented. All intercompany transactions and balances have been eliminated in consolidation. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes for the fiscal years ended December 31, 2025 and 2024.
5
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands, except share, per share, and digital asset amounts)
Use of Estimates
The preparation of the condensed consolidated financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. The Company’s significant estimates and assumptions include estimation of useful lives of property and equipment, evaluation of impairment of property and equipment and intangible asset, deferred income taxes, and the fair value of stock-based awards. Actual results could differ from those estimates.
Revenue Recognition
The Company participates in mining pools operated by third parties, as well as pools operated by a related party. As a participant in the mining pools, the Company provides a service to perform hash calculations for the mining pool, which is an output of its ordinary activities.
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of the revenue standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle: (1) identify the customer contract; (2) identify performance obligations that are distinct; (3) determine the transaction price; (4) allocate the transaction price to the distinct performance obligations; and (5) recognize revenue as the performance obligations are satisfied.
The Company considers the mining pool operators to be its customers under ASC 606. Contract inception and the Company’s enforceable right to consideration begins when the Company commences providing hash calculation services to the mining pool operators. Refer to Note 3 for further information.
Cost of Revenues
Cost of revenues consists primarily of direct costs related to mining operations, including electricity and other utilities, co-location hosting fees, labor, insurance, and equipment repairs, but excludes depreciation and amortization, which is separately presented.
Digital Assets
Digital assets are earned as noncash consideration for providing hash computation services to mining pools, in accordance with the Company’s revenue recognition policy. The Company uses fair value as its method of accounting for its digital assets that are within the scope of ASC 350-60, Intangibles - Goodwill and Other - Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets. The fair value for each underlying digital asset is determined by which of the eligible digital asset exchanges is the Company’s principal market and valued using the prices as reported by such digital asset exchanges as of 4 pm EST on the last day of the Company’s reporting period. The Company has deemed the price of its digital assets to be a Level 1 input under the ASC 820, Fair Value Measurement (“ASC 820”), hierarchy as these were based on observable quoted prices in the Company’s principal market for identical assets. Gains and losses from remeasurement of digital assets are recorded within change in fair value of digital assets, net on the Condensed Consolidated Statements of Operations. Realized gains and losses are calculated using the specific identification method and are also recorded within change in fair value of digital assets, net on the Condensed Consolidated Statements of Operations. Proceeds from the sale of digital assets that occur nearly immediately after receipt are included within operating activities on the Condensed Consolidated Statements of Cash Flows. To the extent the Company holds digital assets for more than a few days, proceeds from the sale of digital assets are included within investing activities on the Condensed Consolidated Statements of Cash Flows. The cost of each digital asset is determined using a specific identification method which allocates cost based on a tranche methodology, with each group of digital assets acquired being deemed a tranche.
6
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands, except share, per share, and digital asset amounts)
Property and Equipment, Net
Property and equipment, net is stated at cost, less accumulated depreciation. Maintenance and repairs are expensed when incurred. Additions and improvements that extend the economic useful life of the assets are capitalized and depreciated over the remaining useful lives of the assets. Costs incurred during construction are capitalized as construction in progress and reclassified to the appropriate categories and depreciated when the project is completed and the assets are placed in service. The cost and accumulated depreciation of assets sold or retired are removed from the respective accounts, and any resulting gain or loss is reflected in current earnings. Depreciation is provided using the straight-line method in amounts considered to be sufficient to amortize the cost of the assets to operations over their estimated useful lives as follows. Land is not depreciated.
| Useful life (years) | ||||
| Mining and other computer equipment | 3 - 5 | |||
| Buildings | 39 | |||
| Furniture and fixtures | 5 | |||
| Leasehold improvements | ** | |||
** Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset.
Fair Value Measurement
Certain assets and liabilities of the Company are required to be recorded at fair value either on a recurring or non-recurring basis. The Company’s non-financial assets such as property and equipment are recorded at cost. Fair value adjustments are made to these non-financial assets, on a non-recurring basis, in the period an impairment charge is recognized.
The carrying amounts reflected in the Condensed Consolidated Balance Sheets for cash, prepaid expenses and other current assets, deposits, and accounts payable and accrued expenses approximate fair value due to their short-term nature.
The valuation hierarchy is composed of three levels. The classification within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The levels within the valuation hierarchy are described below:
| ● | Level 1 — Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities. |
| ● | Level 2 — Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals. |
| ● | Level 3 — Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities. |
7
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands, except share, per share, and digital asset amounts)
The following table presents information about the Company’s assets measured at fair value on a recurring basis as of the Condensed Consolidated Balance Sheet date:
| Fair Value Measurement Using | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| March 31, 2026 | ||||||||||||||||
| Digital assets | $ | 1,912 | $ | 1,912 | $ | — | $ | — | ||||||||
| $ | 1,912 | $ | 1,912 | $ | — | $ | — | |||||||||
| December 31, 2025 | ||||||||||||||||
| Digital assets | $ | 3,413 | $ | 3,413 | $ | — | $ | — | ||||||||
| $ | 3,413 | $ | 3,413 | $ | — | $ | — | |||||||||
There were no transfers between Levels 1, 2 or 3 during the three months ended March 31, 2026.
Segment Reporting
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance. The Company’s CODM is its Chief Executive Officer. The CODM is regularly provided with the consolidated expenses as presented in the Condensed Consolidated Statements of Operations and the Company has determined that the expenses presented in the Condensed Consolidated Statements of Operations represent significant segment expenses. The CODM reviews financial performance and allocates resources at a consolidated level on a recurring basis, such that the Company has one operating and one reportable segment.
The CODM manages the one reportable segment on a consolidated basis using consolidated net loss. The CODM reviews the measure of consolidated net loss to evaluate the Company’s operating results and the effectiveness of business strategies. As the Company discloses a single reportable segment, total revenue is reported in the Condensed Consolidated Statements of Operations, segment assets are reported in the Condensed Consolidated Balance Sheets, and capital expenditures are reported in the Condensed Consolidated Statements of Cash Flows.
Income Taxes
On August 14, 2025, pursuant to the Reorganization, DCG and certain of its subsidiaries contributed the membership interests of Fortitude Mining, LLC to the Company, a corporate entity for tax purposes. Prior to August 2025, the Company operated as a limited liability company that by default is classified as a disregarded entity for tax purposes, and was included in the consolidated federal income tax return, as well as various combined state and local income tax returns, with DCG. For the period from January 1, 2025 through the Reorganization date, the Company has elected to include in its separately issued financial statements the allocated amount of current and deferred income tax expense in accordance with ASC 740-10-30-27A. The Company is included in the consolidated federal, state, and local income tax returns of DCG and has a tax-sharing agreement with DCG, pursuant to which tax liabilities and attributes are settled as payable and utilized by DCG.
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events on the condensed consolidated financial statements in accordance with ASC 740, Income Taxes. Under this accounting standard, deferred tax assets and liabilities are based on the differences between the book value of assets and liabilities on the condensed consolidated balance sheet and tax bases of assets and liabilities, by applying the enacted statutory tax rates in effect for the years when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to an amount that, in the opinion of management, is “more-likely-than-not” to be realized. The effective tax rate used for interim purposes is based on the Company’s best estimate of factors impacting the effective tax rate for the annual period. There can be no assurance that the effective tax rate estimated for interim purposes will approximate the determined annual effective tax rate.
8
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands, except share, per share, and digital asset amounts)
Under ASC 740-10-25, guidance on accounting for uncertainty in income tax positions describes how uncertain tax positions should be recognized, measured, presented and disclosed in the condensed consolidated financial statements. The guidance requires the Company to determine whether a tax position is “more-likely-than-not” to be sustained upon examination, including resolution of any related appeals or litigation process, based on the technical merits of the position. For tax positions meeting the “more-likely-than-not-threshold”, the tax benefit recognized in the condensed consolidated financial statements is the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the relevant taxing authorities.
The Company’s policy is to accrue interest and penalties associated with unrecognized tax benefits, if applicable, as a component of the income tax benefit on the Condensed Consolidated Statements of Operations, and the corresponding asset netted within deferred tax liability, on the Condensed Consolidated Balance Sheets.
Recent Accounting Pronouncements
In November 2024, the Financial Accounting Standards Board issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures. The amendments require the disclosure of specified information about certain costs and expenses including purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depreciation, depletion, and amortization recognized as part of oil and gas producing activities. It also requires the disclosure of a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively as well as the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. The standard will be effective for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. The Company is currently evaluating the impact that the adoption of the provisions of the ASU will have on the Company’s condensed consolidated financial statements.
Note 3. Revenue
The Company participates in mining pools operated by a third party, as well as pools operated by a related party. As a participant in the mining pools, the Company provides a service to perform hash calculations for the mining pools, and the Company is entitled to non-cash consideration based on the pool operator’s payout model. The payout methodologies differ depending on the type of operated mining pool. Full-Pay-Per-Share (“FPPS”), Pay-Per-Share+ (“PPS+”) and Pay Per Last N Shares (“PPLNS”) pools pay block rewards and transaction fees, less mining pool fees. For FPPS and PPS+ pools, the Company is entitled to non-cash consideration even if a block is not successfully validated by the mining pool operators.
The contracts are terminable at any time by either party with no substantive termination penalty. The Company’s enforceable right to compensation begins when, and lasts for as long as, the Company provides computing power to the mining pool operator. The Company’s performance obligation extends over the contract term given the Company’s continuous provision of hashrate. This period of time corresponds with the period of service for which the mining pool operator determines compensation due to the Company. Given cancellation terms of the contract, and the Company’s customary business practice, the contract effectively provides the Company with the option to renew for successive contract terms of 24 hours. The options to renew are not material rights because they are offered at the standalone selling price of computing power. The Company elected the optional exemption to not disclose the transaction price allocated to remaining performance obligations that are part of a contract that has an original expected duration of one year or less.
9
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands, except share, per share, and digital asset amounts)
FPPS Mining Pools
The Company participates in mining pools that use the FPPS payout method. The Company is entitled to compensation once it begins to perform hash calculations for the pool operator in accordance with the operator’s specifications over a 24-hour period beginning midnight UTC and ending 23:59:59 UTC on a daily basis. The non-cash consideration that the Company is entitled to for providing hash calculations to the pool operator under the FPPS payout method is made up of block rewards and transaction fees less pool operator expenses determined as follows:
| ● | The non-cash consideration in the form of a block reward is based on the total blocks expected to be generated on the Bitcoin network for the daily 24-hour period beginning midnight UTC and ending 23:59:59 UTC in accordance with the following formula: the daily hash calculations that the Company provided to the pool operator as a percent of the Bitcoin network’s implied hash calculations as determined by the network difficulty, multiplied by the total Bitcoin network block rewards expected to be generated for the same daily period. |
| ● | The non-cash consideration in the form of transaction fees paid by transaction requestors is based on the share of total actual fees paid over the daily 24-hour period beginning midnight UTC and ending 23:59:59 UTC in accordance with the following formula: total actual transaction fees generated on the Bitcoin network during the 24-hour period as a percent of total block rewards the Bitcoin network actually generated during the same 24-hour period, multiplied by the block rewards the Company earned for the same 24-hour period noted above. |
| ● | The block reward and transaction fees earned by the Company is reduced by mining pool fees charged by the operator for operating the pool based on a rate schedule per the mining pool contract. The mining pool fee is only incurred to the extent the Company performs hash calculations and generates revenue in accordance with the pool operator’s payout formula during the same 24-hour period beginning midnight UTC daily. |
Since the amount of block rewards earned depends on the amount of hash calculations the Company performs, the amount of transaction fees the Company is entitled to depends on the actual Bitcoin network transaction fees over the same 24-hour period. The operator fees for the same 24-hour period are variable since they are determined based on the total block rewards and transaction fees in accordance with the pool operator’s agreement, and therefore the above non-cash consideration is variable. While the non-cash consideration is variable, the Company has the ability to estimate the variable consideration at contract inception with reasonable certainty without the risk of significant revenue reversal. The Company does not constrain this variable consideration because it is probable that a significant reversal in the amount of revenue recognized from the contract will not occur when the uncertainty is subsequently resolved and recognizes the non-cash consideration on the same day that control of the contracted service of providing hashrate is transferred, which is the same day as contract inception.
The Company measures the non-cash consideration at contract inception based on the daily spot rate of Bitcoin determined using the Company’s principal market for Bitcoin.
10
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands, except share, per share, and digital asset amounts)
PPS+ Mining Pools
The Company participates in PPS+ pools that provide non-cash consideration similar to the FPPS pools except the PPS+ amount of transaction fees is determined based on the share of actual transaction fees paid to the specific blocks the mining pool successfully mined in the Litecoin and Dogecoin blockchains in a daily 24-hour period in accordance with the operator’s specifications. Within the PPS+ pools, the non-cash consideration received by the Company is made up of block rewards and transaction fees less mining pool fees. While the non-cash consideration is variable, the Company has the ability to estimate the variable consideration at contract inception with reasonable certainty. The Company does not constrain this variable consideration because it is probable that a significant reversal in the amount of revenue recognized from the contract will not occur when the uncertainty is subsequently resolved and recognizes the non-cash consideration on the same day that control of the contracted service of providing hashrate is transferred, which is the same day as contract inception.
The Company measures the non-cash consideration at contract inception based on the daily spot rate of Litecoin and Dogecoin determined using the Company’s principal market for Litecoin and Dogecoin.
PPLNS Mining Pools
The Company also participates in PPLNS pools that pay rewards only when the pool successfully validates a block. For these pools, the Company only earns a reward when the pool successfully mines a block and its reward is the fractional share of the successfully mined block and transaction fees, reduced by pool operator expenses, based on the proportion of hash calculations the Company performed for the mining pool operator to the total hash calculations performed by all mining pool participants in validating the block during the 24-hour period beginning at midnight UTC and ending 23:59:59 UTC daily.
Contract inception and the enforceable right to consideration begins when the Company commences the performance of hash calculations for the mining pool operator. The non-cash consideration is variable as it depends on whether the mining pool successfully validates a block during each 24-hour period. In addition, other inputs such as the amount of hash calculations and the Company’s fractional share of consideration earned by the pool operator also cause variability. The Company does not have the ability to estimate whether a block will be successfully validated with reasonable certainty at contract inception. The Company constrains the variable consideration at contract inception because it is not probable that a significant reversal in the amount of revenue recognized from the contract will not occur when the uncertainty is subsequently resolved. Once a block is successfully validated, the constraint is lifted. The Company recognizes the non-cash consideration on the same day that control of the contracted service of providing hashrate is transferred, which is the same day as contract inception.
The Company measures the non-cash consideration at contract inception based on the daily spot rate of Zcash determined using the Company’s principal market for Zcash.
The following table presents disaggregation of the Company’s mining revenues:
| Three Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Revenues from contracts with customers: | ||||||||
| Mining pool participant – related party | ||||||||
| Bitcoin | $ | 6,913 | $ | 17,290 | ||||
| Zcash | 1,212 | — | ||||||
| Other | — | 20 | ||||||
| Total mining pool participant – related party | 8,125 | 17,310 | ||||||
| Mining pool participant – third party | ||||||||
| Zcash | 10,583 | 2,444 | ||||||
| Other | 503 | 2,207 | ||||||
| Total mining pool participant – third party | 11,086 | 4,651 | ||||||
| Total mining revenues | $ | 19,211 | $ | 21,961 | ||||
11
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands, except share, per share, and digital asset amounts)
The following table presents information about the Company’s concentration of mining revenues by digital asset:
| Three Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Bitcoin | 36 | % | 79 | % | ||||
| Zcash | 61 | % | 11 | % | ||||
| Other(1) | 3 | % | 10 | % | ||||
| (1) | Includes various other digital assets, none of which individually exceeded 10% of mining revenue for the period. |
Note 4. Property and Equipment, Net
Property and equipment, net consists of the following:
| March 31, 2026 | December 31, 2025 | |||||||
| Mining and other computer equipment | $ | 124,438 | $ | 126,514 | ||||
| Leasehold improvements | 3,819 | 3,982 | ||||||
| Construction in progress | 2,219 | — | ||||||
| Buildings | 1,547 | 1,547 | ||||||
| Furniture and fixtures | 348 | 348 | ||||||
| Land | 377 | 377 | ||||||
| Total | 132,748 | 132,768 | ||||||
| Less: accumulated depreciation | (97,262 | ) | (93,122 | ) | ||||
| Property and equipment, net | $ | 35,486 | $ | 39,646 | ||||
Depreciation expense was $5,663 and $9,342 for the three months ended March 31, 2026 and 2025, respectively. No impairment charge of property and equipment were recognized during the three months ended March 31, 2026 and 2025.
Construction in progress relates to the build out of a mining facility which is expected to be operational in July 2026.
Note 5. Intangible Asset, Net
Intangible asset, net consists of the following as of March 31, 2026:
| Gross Book Value | Accumulated Amortization | Net Book Value | Weighted- Average Remaining Amortization (Years) | |||||||||||||
| Strategic contracts | $ | 4,473 | $ | (493 | ) | $ | 3,980 | 3.5 | ||||||||
12
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands, except share, per share, and digital asset amounts)
Intangible asset, net consists of the following as of December 31, 2025:
| Gross Book Value | Accumulated Amortization | Net Book Value | Weighted- Average Remaining Amortization (Years) | |||||||||||||
| Strategic contracts | $ | 4,473 | $ | (214 | ) | $ | 4,259 | 3.75 | ||||||||
During the three months ended March 31, 2026 and 2025, amortization expense related to the Company’s intangible asset was $279 and $0, respectively. No impairment charge of the intangible asset were recognized during the three months ended March 31, 2026 and 2025.
The following table presents the estimated future amortization of the Company’s intangible asset as of March 31, 2026:
| Rest of 2026 | $ | 839 | ||
| 2027 | 1,118 | |||
| 2028 | 1,118 | |||
| 2029 | 905 | |||
| Total | $ | 3,980 |
Note 6. Deposits
The Company contracts with mining equipment manufacturers to procure equipment necessary for the operation of its mining operations. These agreements typically require a certain percentage of the value of the total order to be paid in advance at specific intervals, usually within several days of execution of a contract and periodically thereafter with final payments due prior to each shipment date. Deposits on mining equipment are included within deposits, net of current portion on the Condensed Consolidated Balance Sheets which totaled $7,170 and $5,420 as of March 31, 2026 and December 31, 2025, respectively.
In addition, the Company contracts with various service providers for hosting of its equipment, operational support in data centers where the Company’s equipment is deployed and construction of data centers on leased sites. These contracts typically require advance payments to service providers in conjunction with the contractual obligations associated with these services. The Company includes these deposits within deposits which totaled $728 and $903 and deposits, net of current portion which totaled $4,483 and $5,347 on the Condensed Consolidated Balance Sheets as of March 31, 2026 and December 31, 2025, respectively.
Note 7. Digital Assets
The following table presents the digital assets held by the Company:
| March 31, 2026 | ||||||||||||||||
| Quantity | Cost Basis | Fair Value | Concentration | |||||||||||||
| Zcash | 7,098 | 1,875 | 1,805 | 94 | % | |||||||||||
| Other | $ | 458 | $ | 107 | 6 | % | ||||||||||
| $ | 2,333 | $ | 1,912 | 100 | % | |||||||||||
13
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands, except share, per share, and digital asset amounts)
| December 31, 2025 | ||||||||||||||||
| Quantity | Cost Basis | Fair Value | Concentration | |||||||||||||
| Zcash | 6,273 | $ | 3,528 | $ | 3,195 | 94 | % | |||||||||
| Other | 397 | 218 | 6 | % | ||||||||||||
| $ | 3,925 | $ | 3,413 | 100 | % | |||||||||||
Note 8. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
| March 31, 2026 | December 31, 2025 | |||||||
| Accounts payable | $ | 1,266 | $ | 1,458 | ||||
| Accrued hosting expenses | 406 | 187 | ||||||
| Accrued bonus expense | 638 | 1,207 | ||||||
| Accrued professional fees | 875 | - | ||||||
| Other | 177 | 137 | ||||||
| Total | $ | 3,362 | $ | 2,989 | ||||
Note 9. Income Taxes
For the three months ended March 31, 2026, and 2025, the Company’s income tax benefit and effective tax rate were $1,354 and 22.8%, respectively, and $0 and 0%, respectively. This rate differed from the statutory federal income tax rate of 21.0% primarily due to the impact of state and local income taxes from jurisdictions in which the Company operates.
The Company is subject to U.S. federal income tax and state and local income tax in multiple jurisdictions. As of March 31, 2026, the earliest year the Company remains subject to examination by the Internal Revenue Service and state and local tax authorities is for the tax year ended December 31, 2024. The Company is not currently under examination for any open tax periods.
Note 10. Stockholder’s Equity / Member’s Equity
Fortitude Mining, LLC Member’s Equity
Prior to the Reorganization and pursuant to the terms of the Limited Liability Company Agreement, the business and affairs of the Company were managed and operated by the management of the Company, however, as a single member, LLC membership interests were ultimately controlled by DCG.
Fortitude Mining Holdings, Inc. Stockholder’s Equity
On August 12, 2025, in connection with the Reorganization, the Company’s Board of Directors approved the certificate of incorporation. The certificate of incorporation authorizes the issuance of 10,000,000 shares of common stock, par value $0.0001 per share. Holders of common stock are entitled to one vote per share on all matters submitted to a vote of stockholders, including the election of directors. As of March 31, 2026 and December 31, 2025, 5,000,000 shares of common stock were issued and outstanding, all of which are ultimately held by Parent as a result of the Reorganization.
14
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands, except share, per share, and digital asset amounts)
Note 11. Stock-based Compensation
Digital Currency Group, Inc. Stock Appreciation Rights Plan
The Stock Appreciation Rights Plan (the “SARs Plan”) provides for the grant of SARs to employees, directors, and key persons of DCG and any subsidiary. The awards reference the shares of DCG and not the Company. The SARs are recorded as a liability on the books and records of DCG. Compensation cost is recognized within general and administrative expenses on the Condensed Consolidated Statements of Operations using a straight-line method over the requisite period of the award, which is generally the vesting term. The impact of remeasuring SARs each reporting period and the recognition of stock-based compensation cost is reflected in the Company’s condensed consolidated financial statements as a capital contribution (or investment from Parent) (i.e., compensation cost with an offsetting entry to stockholder’s / member’s equity). The SARs Plan provides the employees with the right to receive, at the date the rights are exercised, cash settlements in the amount equal to the fair value of the market appreciation of the common stock since the grant date of the rights. The SARs typically vest 25% on the one-year anniversary from the grant date with the remaining 75% vesting in equal quarterly installments over the following three years. DCG’s Board of Directors is responsible for administration of the SARs Plan and has the sole discretion to determine which grantees will be granted awards and the terms and conditions of the awards granted.
As of March 31, 2026 and December 31, 2025, there were 12,777 SARs outstanding having a weighted average exercise price of $65.50 with no new grants, exercises, or forfeitures occurring during the three months ended March 31, 2026. As of March 31, 2026, 8,839 SARs were exercisable having a weighted average exercise price of $70.09 and weighted average remaining contractual term of 7.0 years.
During the three months ended March 31, 2026, and 2025, the Company recorded stock-based compensation expense of $3 and $12, respectively. As of March 31, 2026, $27 of unrecognized compensation expense related to non-vested SARs awards is expected to be recognized over the weighted average remaining vesting period of 2.0 years, which is dependent on the subsequent intrinsic value of the awards.
Note 12. Risk and Uncertainties
The Company’s operating activities expose it to various types of risk that are associated with the mining, liquidation, and holding of digital assets. The significant types of risks to which the Company is exposed include, but are not limited to, market risk, industry risk, regulatory risk, liquidity risk, concentration risk, credit risk, counterparty risk, and digital asset risk. Certain aspects of those risks include, but are not limited to, the risk of loss related to value of digital assets mined but not yet liquidated, the risk that the type of digital assets that the Company mines will decrease in value, the risk of reliance on mining revenues which are highly concentrated, and the risk of reliance on vendors such as mining pool operators, equipment vendors and hosting and energy providers. The Company depends on a single supplier of Zcash miners, any disruption, could adversely affect the Company's business.
The digital asset industry is currently largely unregulated, highly speculative, and volatile. The price of digital assets has a limited history. During such history, digital asset prices have been volatile and subject to influence by many factors including the levels of liquidity. If digital asset markets continue to experience significant price fluctuations, the Company may experience substantial losses. Several factors may affect the price of digital assets, including, but not limited to, global supply and demand, and competition from other forms of digital asset or payment services.
15
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands, except share, per share, and digital asset amounts)
Note 13. Related Party Transactions
Foundry Digital, LLC (“Foundry”) is a mining pool operator in which the Company is a mining participant. For the three months ended March 31, 2026 and 2025 related party mining participant revenue was $8,125 and $17,310, respectively.
The Company recognizes stock-based compensation expense for awards that reference the shares of DCG and not the Company. Awards that reference the shares of DCG and are expected to be settled in cash are recorded as a liability on the books and records of DCG (see Note 11 for further details).
The Company has a tax-sharing agreement with DCG whereby any tax liabilities or benefits attributable to the Company will be settled between the Company and DCG when such tax liabilities or benefits are used in the consolidated tax returns of DCG. As of March 31, 2026 and December 31, 2025, the Company recognized $567 and $618, respectively, within prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets in relation to these tax attributes.
During the three months ended March 31, 2026 and 2025, capital contributions from DCG were $0 and $200, respectively.
The Company has a shared services agreement (the “SSA”) and a managed services agreement (the “MSA”) with Foundry, under which Foundry agreed to provide certain services to the Company. Both agreements include fixed monthly fees and variable components based on usage of certain services which are due and payable on a monthly basis. The SSA includes automatic one-year renewals unless terminated by either party. As of December 31, 2025, the MSA agreement was terminated. During the three months ended March 31, 2026, and 2025, the Company incurred costs of $128 and $440 pursuant to the SSA and MSA, which are included within cost of revenues and general and administrative expenses on the Condensed Consolidated Statements of Operations based on the nature of the costs.
The Company has a transition services agreement (the “TSA”) with DCG, under which DCG agreed to provide various services to the Company. The TSA includes fixed monthly fees and also requires payment for any additional services performed. During the three months ended March 31, 2026, the Company incurred costs of $62 pursuant to the TSA, which are included within general and administrative expenses on the Condensed Consolidated Statements of Operations.
The Company leased a portion of its building site to Foundry which is included in rental income - related party on the Condensed Consolidated Statements of Operations. On November 1, 2025, the lease was terminated by both parties.
As of March 31, 2026 and December 31, 2025, amounts due from related party resulting from the aforementioned agreements totaled $4 and $13, respectively, and are included within prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets. These amounts are expected to be settled in the short term and are non-interest bearing.
Note 14. Commitments and Contingencies
Leases
The Company, as lessee, leases building and mining site operational space under various operating lease arrangements. Certain lease arrangements include renewal options, and certain of the Company’s lease agreements require compliance with certain customary covenants throughout the term of the leases.
Operating lease costs totaled $125 and $90 for the three months ended March 31, 2026 and 2025, respectively, and are included in general and administrative expenses on the Condensed Consolidated Statements of Operations. The weighted-average remaining lease term for operating leases was 7.8 years, and the weighted-average discount rate was 4.92% as of March 31, 2026.
16
Fortitude Mining Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands, except share, per share, and digital asset amounts)
The following table presents the Company’s future minimum operating lease payments as of March 31, 2026:
| Rest of 2026 | $ | 355 | ||
| 2027 | 461 | |||
| 2028 | 458 | |||
| 2029 | 461 | |||
| 2030 | 463 | |||
| Thereafter | 1,126 | |||
| Total minimum lease payments | 3,324 | |||
| Less effects of discounting | (611 | ) | ||
| Total lease liabilities | $ | 2,713 |
Other Commitments and Contingencies
The Company is subject at times to various claims, lawsuits and governmental proceedings that arise in the ordinary course of business. The Company reviews its legal proceedings on an ongoing basis and provides disclosure and records loss contingencies pursuant to the loss contingencies accounting guidance. The Company establishes accruals for such matters when potential losses become probable and can be reasonably estimated. If the Company determines that a loss is reasonably possible and the loss or range of loss can be estimated, the Company discloses the possible loss in the condensed consolidated financial statements.
On December 12, 2025, Malikie Innovations Ltd. (“Malikie”) and Key Patent Innovations Ltd. (collectively, the “Malikie Plaintiffs”) filed suit against the Company and other parties in the United States District Court for the Western District of Texas, alleging that certain of the Company's technologies infringe on certain of Malikie Plaintiffs patents. The Company cannot reasonably predict the outcome of such ongoing litigation, or the magnitude of such outcome, at this time.
Note 15. Subsequent Events
The Company evaluated subsequent events through the date of issuance of the condensed consolidated financial statements.
On May 21, 2026, the Company entered into an equipment purchase agreement to support its ongoing infrastructure expansion and hashrate growth initiatives. The aggregate total contractual commitment under these agreements is approximately $31,500, of which approximately $12,600 has been paid through the issuance of these condensed consolidated financial statements. The Company expects to satisfy the remaining commitments over the remainder of 2026.
On June 1, 2026, the Company entered into a credit facility with DCG providing for initial term loan commitments of $26,000 to be drawn at request of the Company. Draws on the facility generally bear interest at 11.0% per annum. The credit facility requires interest only payments, unless paid-in-kind, until maturity on June 1, 2028, including a mandatory prepayment of amounts outstanding upon a subsequent equity raise. Proceeds from the credit facility are to be used to acquire digital asset mining equipment. Through the issuance of these condensed financial statements, the Company has principal of $8,398 outstanding under the credit facility.
On June 23, 2026, the Company and HeartSciences Inc. (“HeartSciences”), a publicly traded company that develops artificial intelligence-enhanced electrocardiography solutions, announced that they have entered into a definitive merger agreement to combine in an all-stock transaction. The definitive merger agreement contemplates that the operating subsidiaries of the Company will become consolidated subsidiaries of HeartSciences in exchange for a number of newly created vote-only non-economic shares of HeartSciences. It is expected that DCG will own approximately 95% of the voting interests of the combined company at closing on a fully diluted bases. The merger is expected to close during the second half of 2026, subject to the satisfaction of the closing conditions.
On July 7, 2026, the Company entered into a purchase agreement with a third party, pursuant to which the Company acquired certain mining related assets, including power contracts, land, a building, and other mining equipment in Juniata, Nebraska. As consideration for the acquired assets, the Company agreed to pay $6,250, of which $985 was satisfied through the application of previously funded deposits and $466 through sale of mining equipment, with the remainder paid in cash at closing.
17
Exhibit 99.3
HEARTSCIENCES INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information gives effect to the Transactions (as defined below) but does not give effect to the proposed reverse stock split to be effected, if at all, at the discretion of the HeartSciences’ Inc. Board of Directors (the “HeartSciences”) because the proposed reverse split is a range and is not final.
The following unaudited pro forma condensed combined financial information is presented to illustrate the estimated effects of the transactions described below (the “Transactions”). The unaudited pro forma condensed combined financial information is provided for illustrative purposes only and is not necessarily indicative of what the actual results of operations and financial position would have been had the Transactions taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of HeartSciences Inc. (“HeartSciences”) following the consummation of the Transactions (“Combined Company”).
On June 23, 2026, HeartSciences entered into the Agreement and Plan of Merger (as it may be amended from time to time, the “Merger Agreement”) with Fortitude Mining Holdings, Inc. (“Fortitude Seller”), Fortitude Mining HoldCo, LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of Fortitude Seller (“Fortitude HoldCo”), and Cordis Acquisition, LLC, a Delaware limited liability company and a direct, wholly-owned subsidiary of HeartSciences (“Merger Sub”). The Merger Agreement provides that, in connection with the closing (the “Closing”) of the Transactions, including the merger of Merger Sub with and into Fortitude HoldCo (the “Merger”), and subject to the satisfaction and waiver of specified conditions:
| ● | HeartSciences will (i) form a new Delaware limited liability company (“HeartSciences Sub”) as a direct wholly-owned subsidiary of HeartSciences, (ii) contribute substantially all of its assets and liabilities to HeartSciences Sub; and (iii) contribute 100% of the limited liability company interests in HeartSciences Sub to Merger Sub; |
| ● | Fortitude Seller will contribute all of its assets and liabilities to Fortitude HoldCo, including 100% of the limited liability company interests in each of its direct subsidiaries; |
| ● | Fortitude Seller will contribute all of its voting interests in Fortitude HoldCo and $2,000,000 of cash or Zcash cryptocurrency to HeartSciences in exchange for a number of shares a newly established class of common stock of HeartSciences, designated as Class V common stock, par value $0.0001 (“Class V Common Stock”) and a number of shares of Class A common stock, par value $0.0001 ((“Class A Common Stock”) and together with the Class V Common Stock, the “Combined Company Common Stock”)), respectively; |
| ● | All shares of Series C Convertible Preferred Stock, par value $0.001 per share, of HeartSciences (“Series C Preferred Stock”) and Series D Convertible Preferred Stock, par value $0.001 per share, of HeartSciences (“Series D Preferred Stock”) that are issued and outstanding immediately prior to the effective time of the Merger (the “Effective Time”) will be converted into shares of Class A Common Stock in accordance with the applicable certificate of designations; and |
| ● | Merger Sub will merge with and into Fortitude HoldCo, with Fortitude HoldCo surviving the Merger and with HeartSciences thereby becoming the sole managing member of the surviving company (the “Surviving Company”). |
The Merger Agreement provides that, prior to the Effective Time, the certificate of formation of HeartSciences will be amended and restated to, among other things, establish a new class of common stock of HeartSciences, designated as Class V Common Stock, which will entitle the holder to one vote per share, and will have no economic rights. At the Closing, the HeartSciences Common Stock (as defined below) will then be designated as Class A Common Stock.
At the Effective Time, (i) each non-voting unit of Fortitude HoldCo (“Fortitude HoldCo Non-Voting Unit”) issued and outstanding immediately prior to the Effective Time will be converted into the right to receive a number of non-voting units of the Surviving Company (“Surviving Company Non-Voting Units”) equal to (A) the number of shares of Closing HeartSciences Common Stock (as defined below), multiplied by (B) 19.00 (or 21.22 if the volume weighted average price of a share of common stock, par value $0.001, of HeartSciences (“HeartSciences Common Stock”) for the 20 business day period ending two (2) business days prior to the Closing (the “Closing HeartSciences Common Stock VWAP”) is equal to or greater than $7.50) (the “Exchange Ratio”), and (ii) each unit of Merger Sub issued and outstanding immediately prior to the Effective Time will be converted into a number of Surviving Company Non-Voting Units equal to the number of shares of HeartSciences Common Stock outstanding as of immediately prior to the Effective Time.
Following the Closing, and subject to any permitted equity issuances by HeartSciences and Fortitude HoldCo prior to the Closing, (i) the aggregate number of shares of Class V Common Stock and Class A Common Stock issued to Fortitude Seller pursuant to the Merger Agreement are expected to represent approximately 95.0% of the outstanding equity interests of the Combined Company, (ii) equityholders of HeartSciences as of immediately prior to Closing are expected to own approximately 5.0% of the outstanding equity interests of the Combined Company, in the aggregate, in the form of Class A Common Stock, (iii) Fortitude Seller will hold a number of Surviving Company Non-Voting Units equal to the number of shares of Class V Common Stock it holds, and (iv) HeartSciences will be the sole managing member of the Surviving Company and will hold all of the voting units of the Surviving Company and a number of Surviving Company Non-Voting Units equal to the number of shares of Class A Common Stock outstanding. Following the Closing, HeartSciences will remain a publicly traded company, however, in connection with the Transactions, we expect the Combined Company will be renamed “Fortitude Mining Group, Inc.” and shares of the Class A Common Stock will trade on Nasdaq under the symbol “TUDE.”
The following unaudited pro forma condensed combined financial information and related notes are based on and should be read in conjunction with:
| ● | the audited financial statements of HeartSciences for the years ended April 30, 2026 and 2025 and the related notes included within the Annual Report on Form 10-K for the year ended April 30, 2026, which was filed with the SEC on July 23, 2026 and incorporated by reference herein; and |
| ● | the audited consolidated financial statements of Fortitude Seller for the years ended December 31, 2025 and 2024 and related notes, and the unaudited interim condensed consolidated financial statements and related notes of Fortitude Seller for the three months ended March 31, 2026 and 2025 and related notes. |
Since the fiscal year end of Fortitude Seller differs from HeartSciences’ most recent fiscal year end by more than one fiscal quarter, Fortitude Seller’s statement of operations must be brought up to within one fiscal quarter of the registrant’s most recent fiscal year end in accordance with Rule 11-02 of Regulation S-X. For the purposes of preparation of the following unaudited pro forma condensed combined financial information for the fiscal year ended April 30, 2026, the historical operational results of Fortitude Seller have been derived from Fortitude Seller’s audited financial statements for the year ended December 31, 2025, adjusted to include Fortitude Seller’s unaudited interim results of operations for the three months ended March 31, 2026 and to exclude Fortitude Seller’s unaudited interim results of operations for the three months ended March 31, 2025. The presented unaudited pro forma condensed combined statement of financial condition includes the historical unaudited interim balance sheet of Fortitude Seller as of March 31, 2026.
The unaudited pro forma condensed combined statement of financial condition gives pro forma effect to the Transactions as if they had been consummated on April 30, 2026. The unaudited pro forma condensed combined statement of operations gives pro forma effect to the Transactions as if they had occurred on May 1, 2025, the beginning of the earliest period presented.
The following unaudited pro forma condensed combined financial information has been adjusted to give effect to the following:
| ● | the acquisition of Merger Sub, including the preliminary allocation of the estimated purchase price to the acquired assets and assumed liabilities, as well as the estimated impact to expenses (i.e., depreciation and amortization expense); |
| ● | the contribution by Fortitude Seller of $2.0 million of cash or Zcash cryptocurrency to the Combined Company in exchange for shares of Class A Common Stock, followed by the Combined Company’s contribution of such cash or Zcash cryptocurrency to the Surviving Company; |
| ● | the related effects on HeartSciences’ corporate structure post-Closing, including the recognition of the noncontrolling interest; |
| ● | estimated transaction costs expected to be incurred in connection with the Transactions by each of Fortitude Seller and HeartSciences; |
| ● | the anticipated repayment of certain existing HeartSciences notes payable; |
| ● | the impact of certain equity awards that commence vesting upon the Closing; and |
| ● | the related income tax effects of the pro forma adjustments. |
Accounting Treatment of the Transactions
The Combined Company will account for the acquisition contemplated by the Merger Agreement as a reverse acquisition using the acquisition method of accounting and ASU 2025-03, Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity in accordance with generally accepted accounting principles in the United States (“GAAP”). HeartSciences was and remains a business with inputs, processes, and outputs through its business process of developing medical technology focused on artificial intelligence for enhanced electrocardiography solutions. Further, management determined that the fair value of the gross assets acquired was not concentrated in a single identifiable asset or group of similar identifiable assets. Therefore, management determined that HeartSciences constitutes a business under GAAP. GAAP requires that one of the combining entities be designated as the acquirer for accounting purposes. Based on the information available, Fortitude Seller will be treated as the acquiring entity for accounting purposes. In identifying Fortitude Seller as the acquiring entity, management took into account the structure of the Transactions contemplated by the Merger Agreement, including the relative voting rights and the intended corporate governance structure of the Combined Company upon completion of the Transactions, the composition of the Combined Company’s Board and the designation of certain executive officers of the Combined Company. Accordingly, the historical consolidated financial statements of Fortitude Seller will become the historical consolidated financial statements of the Combined Company upon consummation of the Transactions.
ASC 805 requires the allocation of purchase consideration to the fair value of the identified assets acquired and liabilities assumed upon consummation of a business combination. For this purpose, fair value shall be determined in accordance with the fair value concepts defined in ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). Fair value is defined in ASC 820 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The fair value of the purchase consideration, or the purchase price, in the unaudited pro forma condensed combined financial information is estimated to be approximately $18.2 million. The estimated preliminary purchase consideration primarily consists of an estimated 5,741,531 shares of the Class A Common Stock based on a per share price of $2.46, which represents the closing price of HeartSciences Common Stock on July 21, 2026. The estimated fair value of HeartSciences Common Stock, the accounting acquiree, is used to measure the consideration transferred in this reverse acquisition, as HeartSciences’ stock price is more reliably measurable than the value of the equity interests of Fortitude Seller, which are not publicly traded. The fair value of the purchase consideration is preliminary, estimated, subject to change and will ultimately be based on the share price and number of outstanding shares as of the Closing.
2
The Combined Company will measure HeartSciences’ assets acquired and liabilities assumed at their fair values, including net tangible and identifiable intangible assets acquired and liabilities assumed, as of the Closing. Any excess of the purchase price over those fair values will be recorded as goodwill.
Definite lived intangible assets will be amortized over their estimated useful lives. Intangible assets with indefinite useful lives and goodwill will not be amortized but will be tested for impairment at least annually.
The allocation of purchase price reflected in the unaudited pro forma condensed combined financial information is based on preliminary estimates using assumptions management believes are reasonable based on currently available information. The final purchase price and fair value assessment of assets and liabilities will be based in part on a detailed valuation that has not yet been completed and could be materially different from the preliminary estimates used to prepare the accompanying unaudited pro forma condensed combined financial information which could have a material impact on the Combined Company’s future results of operations and financial position.
The unaudited pro forma condensed combined financial information reflects the assumption that, upon the completion of the Transactions, the Combined Company will be the reporting entity and, as the sole managing member of the Surviving Company, will consolidate the operating results of the combined businesses of Fortitude and HeartSciences. The Surviving Company Non-Voting Units to be held directly by Fortitude Seller will be presented as a noncontrolling interest in the Combined Company’s consolidated financial statements, which has been presented as a component of permanent equity for purposes of the unaudited pro forma condensed combined financial information.
The Amended and Restated Limited Liability Company Agreement of the Surviving Company (the “Surviving Company A&R LLC Agreement”) will provide, among other things, Fortitude Seller with a redemption right pursuant to which Fortitude Seller may cause the Surviving Company to redeem all or a portion of its Surviving Company Non-Voting Units, together with an equivalent number of shares of Class V Common Stock, in exchange for an equivalent number of shares of Class A Common Stock or, at the Combined Company’s option, cash proceeds from issuances of Class A Common Stock, subject to the Combined Company’s right to elect to effect, in lieu of such a redemption, a direct exchange between the Combined Company and Fortitude Seller of cash or an equivalent number of shares of Class A Common Stock for such Surviving Company Non-Voting Units and shares of Class V Common Stock (provided that, in each case, Fortitude Seller may retract the exercise of its redemption or exchange right upon notice that the Combined Company intends to settle such redemption or exchange in cash). The Combined Company expects to account for the noncontrolling interest as a component of permanent equity. The carrying amount of the noncontrolling interest will be adjusted each reporting period for the noncontrolling interest holder’s proportionate share of the subsidiary’s net income or loss and other changes in equity, in accordance with applicable GAAP.
The pro forma adjustments are based upon currently available information and certain assumptions that management believes are reasonable. Actual results and valuations may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined financial information. Assumptions and estimates underlying the unaudited pro forma adjustments set forth in the unaudited pro forma condensed combined financial information are described in the accompanying notes.
The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not necessarily reflect the operating results or financial position that would have occurred if the Transactions had been consummated on the dates indicated, nor are they necessarily indicative of the results of operations or financial condition that may be expected for any future period or date. Accordingly, such information should not be relied upon as an indicator of future performance, financial condition or liquidity.
The unaudited pro forma condensed combined financial information does not reflect any revenue enhancements, anticipated synergies, operating efficiencies, or cost savings that may be achieved related to the Transactions, nor do they reflect any costs or expenditures that may be required to achieve any possible synergies.
Tax Receivable Agreement
In connection with the completion of the Transactions, the Combined Company will enter into a tax receivable agreement with Fortitude Seller (the “Tax Receivable Agreement”) that will provide for payments by the Combined Company to Fortitude Seller related to certain tax benefits, if any, that the Combined Company actually realizes, or in some circumstances is deemed to realize for purposes of tax reporting, as a result of: (i) Basis Adjustments and (ii) Imputed Interest (each as defined in the Tax Receivable Agreement).
Due to the uncertainty in the amount or timing of future redemptions or exchanges of Surviving Company Non-Voting Units, the unaudited pro forma condensed combined financial information assumes that no redemptions or exchanges of Surviving Company Non-Voting Units have occurred and, therefore, no increases in tax basis in the Combined Company’s assets or other tax benefits that may be realized as a result of future redemptions or exchanges of Surviving Company Non-Voting Units thereunder have been assumed in the unaudited pro forma condensed combined financial information. As such, the unaudited pro forma condensed combined balance sheet assumes no estimated Tax Receivable Agreement liabilities. See below for additional information.
3
HEARTSCIENCES INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
(in thousands)
| April 30, 2026 | March 31, 2026 | Transaction | ||||||||||||||||
| HeartSciences (Historical) | Fortitude Seller (Historical) | Accounting Adjustments | Pro Forma Combined | |||||||||||||||
| Assets: | ||||||||||||||||||
| Current assets: | ||||||||||||||||||
| Cash and cash equivalents | $ | 1,657 | $ | 8,899 | $ | (3,200 | ) | A | $ | 6,821 | ||||||||
| (535 | ) | D | ||||||||||||||||
| Digital assets | — | 1,912 | 2,000 | E | 3,912 | |||||||||||||
| Deposits | — | 728 | — | 728 | ||||||||||||||
| Inventory, net | 656 | — | — | 656 | ||||||||||||||
| Prepaid expenses and other current assets | 123 | 1,643 | — | 1,766 | ||||||||||||||
| Deferred offering costs | 147 | — | — | 147 | ||||||||||||||
| Total current assets | 2,583 | 13,182 | (1,735 | ) | 14,030 | |||||||||||||
| Property and equipment, net | 39 | 35,486 | — | 35,525 | ||||||||||||||
| Deposits, net of current portion | — | 11,653 | — | 11,653 | ||||||||||||||
| Right-of-use assets | 268 | 2,721 | — | 2,989 | ||||||||||||||
| Intangible asset, net | 1,657 | 3,980 | 2,806 | B | 8,443 | |||||||||||||
| Capitalized software | 715 | — | (715 | ) | B | — | ||||||||||||
| Deferred tax asset | — | — | 1,978 | C | — | |||||||||||||
| — | — | (1,978 | ) | G | ||||||||||||||
| Goodwill | — | — | 13,931 | C | 13,931 | |||||||||||||
| Total assets | $ | 5,262 | $ | 67,022 | $ | 14,287 | $ | 86,571 | ||||||||||
| Liabilities and stockholders’ equity: | ||||||||||||||||||
| Liabilities: | ||||||||||||||||||
| Current liabilities: | ||||||||||||||||||
| Accounts payable and accrued expenses | $ | 750 | $ | 3,362 | $ | 6,023 | A | $ | 10,135 | |||||||||
| Accrued interest expense | 328 | — | (35 | ) | D | 293 | ||||||||||||
| Lease liabilities, current portion | 139 | 341 | — | 480 | ||||||||||||||
| Notes payable | 3,622 | — | (500 | ) | D | 3,122 | ||||||||||||
| Other current liabilities | 21 | — | — | 21 | ||||||||||||||
| Total current liabilities | 4,860 | 3,703 | 5,488 | 14,051 | ||||||||||||||
| Deferred tax liability | — | 2,766 | (2,766 | ) | G | — | ||||||||||||
| Lease liabilities, net of current portion | 176 | 2,372 | — | 2,548 | ||||||||||||||
| Total liabilities | 5,036 | 8,841 | 2,722 | 16,599 | ||||||||||||||
| Stockholders’ equity: | ||||||||||||||||||
| Series C Preferred Stock | — | — | — | — | ||||||||||||||
| Series D Preferred Stock | 1 | — | (1 | ) | F | — | ||||||||||||
| Common Stock | 3 | 1 | (4 | ) | F | — | ||||||||||||
| Class A Common Stock | — | — | — | E | 1 | |||||||||||||
| 1 | F | |||||||||||||||||
| Class V Common Stock | — | — | 11 | F | 11 | |||||||||||||
| Additional paid-in capital | 85,491 | 59,510 | 2,091 | B | 14,508 | |||||||||||||
| 15,909 | C | |||||||||||||||||
| 2,000 | E | |||||||||||||||||
| (85,276 | ) | F | ||||||||||||||||
| 788 | G | |||||||||||||||||
| (66,005 | ) | H | ||||||||||||||||
| Accumulated deficit | (85,269 | ) | (1,330 | ) | (9,223 | ) | A | (10,553 | ) | |||||||||
| 85,269 | F | |||||||||||||||||
| Total equity attributable to Fortitude Mining Holdings, Inc. | 226 | 58,181 | (54,440 | ) | 3,967 | |||||||||||||
| Noncontrolling interest | — | — | 66,005 | H | 66,005 | |||||||||||||
| Total stockholders’ equity | 226 | 58,181 | 11,565 | 69,972 | ||||||||||||||
| Total liabilities and stockholders’ equity | $ | 5,262 | $ | 67,022 | $ | 14,287 | $ | 86,571 | ||||||||||
See accompanying notes to the unaudited pro forma condensed combined financial information.
4
HEARTSCIENCES INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(in thousands, except share and per share amounts)
| For the Fiscal Year Ended | ||||||||||||||||||
| April 30, 2026 | March 31, 2026 | |||||||||||||||||
| HeartSciences (Historical) | Fortitude Seller (Historical) | Transaction Adjustments | Pro Forma Combined | |||||||||||||||
| Revenues: | ||||||||||||||||||
| Mining revenues, net | $ | — | $ | 86,732 | $ | — | $ | 86,732 | ||||||||||
| Other revenue | 4 | 29 | — | 33 | ||||||||||||||
| Total revenues | 4 | 86,761 | — | 86,765 | ||||||||||||||
| Costs and expenses: | ||||||||||||||||||
| Cost of revenues (exclusive of depreciation shown below) | 2 | 53,753 | — | 53,755 | ||||||||||||||
| Depreciation and amortization | 28 | 29,170 | 446 | AA | 29,644 | |||||||||||||
| General and administrative expenses | 5,548 | 13,766 | 9,223 | BB | 29,644 | |||||||||||||
| 1,107 | DD | |||||||||||||||||
| Research and development | 2,839 | — | — | 2,839 | ||||||||||||||
| Loss on disposal of equipment, net | — | 2,611 | — | 2,611 | ||||||||||||||
| Change in fair value of digital assets, net | — | 3,053 | — | 3,053 | ||||||||||||||
| Total operating expenses | 8,417 | 102,353 | 10,776 | 121,546 | ||||||||||||||
| Other income (expense): | ||||||||||||||||||
| Rental income - related party | — | 58 | — | 58 | ||||||||||||||
| Interest expense | (753 | ) | — | — | (753 | ) | ||||||||||||
| Other income | 24 | — | — | 24 | ||||||||||||||
| Total other income (expense) | (729 | ) | 58 | — | (671 | ) | ||||||||||||
| Loss before income taxes | (9,142 | ) | (15,534 | ) | (10,776 | ) | (35,452 | ) | ||||||||||
| Income tax benefit | — | 5,037 | (5,037 | ) | CC | — | ||||||||||||
| Net loss | (9,142 | ) | (10,497 | ) | (15,813 | ) | (35,452 | ) | ||||||||||
| Less: Net loss attributable to noncontrolling interest | — | — | 33,442 | EE | 33,442 | |||||||||||||
| Net loss attributable to Class A common shareholders | $ | (9,142 | ) | $ | (10,497 | ) | $ | 17,629 | $ | (2,010 | ) | |||||||
| Net loss per share, basic and diluted | $ | (0.31 | ) | |||||||||||||||
| Weighted-average shares of Class A Common Stock outstanding, basic and diluted | 6,468,531 | |||||||||||||||||
See accompanying notes to the unaudited pro forma condensed combined financial information.
5
HEARTSCIENCES INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Note 1 - Basis of Presentation
The unaudited pro forma condensed combined financial information has been prepared in accordance with accounting principles generally accepted in GAAP and Article 11 of Regulation S-X. The accompanying unaudited pro forma condensed combined financial information is based on the historical financial statements of Fortitude Seller and HeartSciences after giving effect to the Transactions.
The foregoing historical financial statements have been prepared in accordance with GAAP. The unaudited pro forma condensed combined financial information has been prepared based on the aforementioned historical financial information and the assumptions and adjustments as described in the notes to the unaudited pro forma condensed combined financial information. Management has made significant estimates and assumptions in its determination of the pro forma adjustments. As the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the information presented.
The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not necessarily reflect the operating results or financial position that would have occurred if the Transactions had been consummated on the dates indicated, nor are they necessarily indicative of the results of operations or financial condition that may be expected for any future period or date. Accordingly, such information should not be relied upon as an indicator of future performance, financial condition or liquidity.
The unaudited pro forma condensed combined financial information does not reflect any revenue enhancements, anticipated synergies, operating efficiencies, or cost savings that may be achieved related to the Transactions, nor do they reflect any costs or expenditures that may be required to achieve any possible synergies.
Note 2 - Accounting Policies
Management performed an initial review of the two entities’ accounting policies. As a result of the review, management did not identify any material differences related to the application of the accounting policies applied by HeartSciences and Fortitude Seller that would require adjustments in the unaudited pro forma condensed combined financial information. As a result, the unaudited pro forma condensed combined financial information does not assume any differences in accounting policies.
Note 3 - Preliminary Purchase Price Calculation and Fair Value Estimate of Assets Acquired and Liabilities Assumed
The total preliminary estimated purchase price for the acquisition has been calculated as follows (in thousands):
| Estimated fair value of total equity consideration(i) | $ | 14,124 | ||
| Estimated fair value attributed to precombination services for HeartSciences equity awards(ii) | 4,102 | |||
| Estimated fair value of consideration transferred | $ | 18,226 |
| (i) | The fair value of total equity consideration of $14,124 included in the total fair value of consideration transferred is based on HeartSciences’ closing share price of $2.46 as of July 21, 2026. The estimated fair value of HeartSciences Common Stock, the accounting acquiree, is used to measure the consideration transferred in this reverse acquisition, as HeartSciences’ stock price is more reliably measurable than the value of the equity interests of Fortitude Seller, which is not publicly traded prior to the Transactions. The equity portion of the purchase price will be based on the market price and number of HeartSciences Common Stock outstanding upon the Closing and may change materially from the amounts shown herein, which difference could materially impact the amount of intangibles and goodwill recognized. |
| (ii) | The Merger Agreement stipulates that as of the Closing, each outstanding HeartSciences equity award, including HeartSciences options, warrants and units, will remain outstanding and continue under substantially the same terms and conditions in effect immediately prior to Closing. Based on the expected treatment of the Transaction as a reverse acquisition, the HeartSciences options and warrants are treated as exchanged for replacement awards of the Combined Company for accounting purposes. The portion of the fair value-based measure of the replacement awards that is attributable to precombination vesting is purchase consideration and estimated to be $4,102, which consists of $1,708 related to options and $2,394 related to warrants and units. The fair value of the instruments was estimated using a Black-Scholes option pricing model. |
6
HEARTSCIENCES INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
A 20% fluctuation in the market price of HeartSciences Common Stock, which management believes to be reasonably possible based on historical volatility and the anticipated Transactions, would have a potential effect on purchase price as follows (in thousands, except for stock price):
| HeartSciences Common Stock Price | Estimated Fair Value of Consideration Transferred | |||||||
| As presented | $ | 2.46 | $ | 18,226 | ||||
| 20% increase | $ | 2.95 | $ | 21,051 | ||||
| 20% decrease | $ | 1.97 | $ | 15,401 | ||||
Under the acquisition method of accounting in accordance with ASC 805, the preliminary estimated purchase price is generally allocated to HeartSciences’ underlying assets acquired and liabilities assumed based on their respective fair values, with any excess purchase price allocated to goodwill. The pro forma purchase price allocation is preliminary and the estimated fair value of the assets acquired and liabilities assumed are based upon currently available information and certain assumptions, which management believes are reasonable to illustrate the estimated effects of the Transactions. The final determination of the purchase price allocation will be completed as soon as practicable after the completion of the Transactions and will be based on the fair value of the assets acquired and liabilities assumed as of the Closing. Accordingly, the pro forma purchase price allocation is subject to further adjustment as additional information becomes available and as additional analyses and final valuations are completed. The estimated preliminary purchase price was allocated as follows (in thousands):
| Estimated fair value of consideration transferred | $ | 18,226 | ||
| Estimated fair value of assets acquired and liabilities assumed: | ||||
| Cash and cash equivalents | 1,657 | |||
| Inventory | 656 | |||
| Prepaid expenses and other current assets | 123 | |||
| Deferred offering costs | 147 | |||
| Property and equipment | 39 | |||
| Intangible asset | 4,463 | |||
| Right-of-use assets | 268 | |||
| Deferred tax assets | 1,978 | |||
| Accounts payable | (318 | ) | ||
| Accrued expenses | (432 | ) | ||
| Accrued interest expense | (328 | ) | ||
| Notes payable | (3,622 | ) | ||
| Other current liabilities | (21 | ) | ||
| Lease liabilities | (315 | ) | ||
| Total estimated fair value of net assets acquired | 4,295 | |||
| Estimated goodwill | $ | 13,931 |
Preliminary goodwill is calculated as the excess of the estimated merger consideration over the estimated fair value of the underlying net assets to be acquired. The final calculation of goodwill could differ materially from the preliminary amounts presented in the unaudited pro forma condensed combined financial information due to several factors including, but not limited to, fluctuations in the price of HeartSciences Common Stock, changes in the estimated fair value of assets acquired and liabilities assumed, and differences in the actual assets acquired and liabilities assumed at the Closing. Each of these potential adjustments would have a corresponding impact to the preliminary calculation of goodwill. For purposes of the unaudited pro forma condensed combined financial information, the purchase price allocated to goodwill is assumed to be nondeductible or amortizable for income tax purposes. An increase or decrease in the fair value of HeartSciences’ net assets or the estimated fair value of consideration transferred from preliminary estimates would result in a corresponding dollar-for-dollar increase in the estimated amount of goodwill.
7
HEARTSCIENCES INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Note 4 - Transaction Accounting Adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet
The following summarizes and provides explanations for the pro forma adjustments included in the unaudited pro forma condensed combined balance sheet presented as of April 30, 2026 (in thousands except for share and per share data):
Transaction Accounting Adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet Related to the Transactions
| A. | Adjustment represents transaction expenses of approximately $2,300 and $7,700 of fees estimated to be incurred by HeartSciences and Fortitude Seller, respectively, consisting primarily of legal and other professional fees, proxy solicitation and printing costs, transaction bonuses payable upon Closing, and other legal, consulting and transaction-related expenses. Of the estimated $7,700 of Fortitude Seller transaction expenses, $777 had been incurred and paid as of March 31, 2026 and are therefore included in Fortitude Seller’s historical consolidated financial statements. No HeartSciences transaction expenses were incurred as of April 30, 2026. Certain of such costs not yet incurred require payment at Closing which have been reflected as a reduction to cash with the remainder being paid in the normal course of business and therefore are included within accounts payable and accrued expenses. |
| B. | Adjustment recorded to reflect the acquired identifiable intangible asset of HeartSciences, consisting of developed technology, at its estimated fair value in connection with the application of acquisition accounting, partially offset by the elimination of HeartSciences historical intangible asset and capitalized software balances. Management has performed a preliminary valuation analysis to determine the estimated fair value of the developed technology using acceptable valuation techniques, including the cost approach (replacement cost method), which estimates fair value based on the cost to recreate the underlying technology, adjusted for developer’s profit, entrepreneurial incentive, and functional obsolescence. Estimated useful life has been assigned to the intangible asset based on the underlying cash flows expected. The preliminary estimate of fair value and estimated useful life could differ from the amounts ultimately determined upon completion of the valuation analysis, and the difference could have a material effect on the accompanying unaudited pro forma condensed combined financial information. A change in the valuation of the acquired identifiable intangible asset would result in an offsetting change of the same amount to goodwill recorded in connection with the Transactions. |
The following table summarizes the net adjustment to recognize the estimated fair value of the identifiable intangible asset expected to be acquired and its estimated useful life:
| Estimated Fair Value | Estimated Useful Life (Years) | |||||||
| Developed technology | $ | 4,463 | 10.0 | |||||
| Total estimated fair value of intangible assets acquired | 4,463 | |||||||
| HeartSciences historical carrying value of intangible assets | (1,657 | ) | ||||||
| Net adjustment to intangible assets | $ | 2,806 | ||||||
| C. | Adjustment recorded to reflect the preliminary amount of goodwill resulting from the excess of estimated purchase consideration paid over the estimated fair value of HeartSciences’ net assets acquired, as if the acquisition occurred as of April 30, 2026. The amount of goodwill ultimately recognized in acquisition accounting at the Closing will differ from the amount shown in the unaudited pro forma condensed combined financial information due to, among other things, changes to certain of HeartSciences’ reported asset and liability balances and changes in the value of the equity consideration subsequent to the date of the unaudited pro forma condensed combined balance sheet. Goodwill resulting from the acquisition will not be amortized and will be assessed for impairment at least annually. |
| D. | Adjustment recorded to reflect the repayment of $535 in certain HeartSciences promissory notes and accrued interest, which are expected to be repaid at the Closing. The holder of the promissory notes agreed to waive its redemption rights until the earlier of the Closing or October 31, 2026. |
| E. | Adjustment recorded to reflect the cash or Zcash contribution (assumed to be Zcash for purposes of this unaudited pro forma condensed combined financial information) by Fortitude Seller of $2,000 to the Combined Company in connection with the Transactions. In exchange for such contribution, the Combined Company estimates it will issue 727,000 shares of Class A Common Stock to Fortitude Seller, which is calculated based on the VWAP of HeartSciences Common Stock for the twenty (20) Business Day period ending two (2) Business Days prior to Closing. |
8
HEARTSCIENCES INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
| F. | Adjustments to common stock, preferred stock, accumulated deficit, and additional paid-in-capital (“APIC”) to reflect the capital structure of the Combined Company as a result of the Transactions, comprised of the following: |
| ● | Recapitalization of HeartSciences to reflect the accounting for the reverse acquisition under the acquisition method, which results in the elimination of HeartSciences’ legacy equity including common stock, additional paid-in-capital and accumulated deficit. |
| ● | Conversion of all outstanding shares of Series C Preferred Stock into an estimated 1,628,847 shares of Class A Common Stock and all outstanding shares of Series D Preferred Stock into 425,836 shares of Class A Common Stock. |
| ● | Issuance of 107,605,132 shares of Class V Common Stock to Fortitude Seller in connection with the Transactions. |
| G. | Subsequent to the Transactions, the Combined Company does not expect to have any material assets other than its interest in the Surviving Company. The Surviving Company will be treated as a partnership for U.S. federal income tax purposes and will not be subject to U.S. federal income tax, but may be subject to certain U.S. state and local taxes. The Combined Company is a domestic corporation that will be subject to U.S. corporate income tax on its earnings, including its allocable share of the income from Surviving Company. |
In connection with the acquisition method of accounting for the Transactions, the Combined Company will record a deferred tax asset of $2,766, resulting in an adjustment of $1,978 to goodwill through the preliminary purchase price allocation of HeartSciences’ net assets acquired, and $788 to APIC, resulting in zero net deferred tax liabilities as of the Closing. The Combined Company will have a valuation allowance against its remaining deferred tax assets. Also, the Combined Company expects to enter into the Tax Receivable Agreement with Fortitude Seller at Closing which provides for the payment to Fortitude Seller by the Combined Company of 85% of the applicable realized cash savings on certain tax basis adjustments created with the redemption or exchange of Surviving Company Non-Voting Units from Fortitude Seller. Although the Tax Receivable Agreement will be entered into in connection with the consummation of the Transactions, no liability has been recorded related to the Tax Receivable Agreement in the unaudited pro forma condensed combined balance sheet as the Combined Company did not purchase Surviving Company Non-Voting Units as part of the Transactions and no payment obligation under the Tax Receivable Agreement has been triggered as the Transactions, in and of themselves, do not give rise to an obligation to make payments under the Tax Receivable Agreement.
With future exchanges, the Combined Company will record a deferred tax asset, subject to realizability, with a corresponding adjustment to APIC, based on the Combined Company’s estimate of the aggregate amount that it will pay to Fortitude Seller under the Tax Receivable Agreement. Due to the uncertainty in the amount and timing of future exchanges of Surviving Company Non-Voting Units by Fortitude Seller, the unaudited pro forma condensed combined financial information assumes that no future exchanges have occurred. The Combined Company expects that, as a result of the increases in the tax basis of the tangible and intangible assets of the Surviving Company attributable to the redeemed or exchanged Surviving Company Non-Voting Units, the payments that it may make to Fortitude Seller could be substantial and will depend on a number of factors, including the market value of the Combined Company’s Class A Common Stock at the time of redemption or exchange, the prevailing federal income tax rates applicable to the Combined Company over the life of the Tax Receivable Agreement (as well as the assumed combined state and local income tax rate), the amount and timing of the taxable income that the Combined Company generates in the future and the extent to which future redemptions or exchanges of Surviving Company Non-Voting Units are taxable transactions.
9
HEARTSCIENCES INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
| H. | Adjustment to recognize the noncontrolling interest representing Fortitude Seller’s approximate 94% economic interest in the Surviving Company upon completion of the Transactions (which differs from the approximate 95% voting interest of Fortitude Seller in the Combined Company due to a portion of such voting interest consisting of shares of Class A Common Stock), with a corresponding reduction to APIC, measured based on the following: |
| Total Combined Company Stockholders’ Equity 100% | Combined Company’s interest in Surviving Company 6% | Noncontrolling interest in Surviving Company 94% | ||||||||||
| Net assets arising from acquisition of HeartSciences | $ | 11,791 | $ | 669 | $ | 11,122 | ||||||
| Historical net assets of Fortitude Seller | $ | 58,181 | $ | 3,299 | $ | 54,882 | ||||||
| Net adjustment to recognize noncontrolling interest in Surviving Company | $ | 66,004 | ||||||||||
Note 5 - Transaction Accounting Adjustments to Unaudited Pro Forma Condensed Combined Statement of Operations
The unaudited pro forma condensed combined statement of operations for the fiscal year ended April 30, 2026 includes the following adjustments (in thousands):
Transaction Accounting Adjustments Related to Transactions to Unaudited Pro Forma Condensed Combined Statements of Operations
| AA. | Adjustment to reflect the incremental intangible asset amortization of $446 related to the identifiable intangible assets. Pro forma amortization expense is based upon the preliminary fair values and estimated useful lives, assuming a straight-line method of amortization. |
| BB. | Adjustment to reflect estimated non-recurring transaction expenses of $9,223 expected to be incurred prior to Closing, consisting primarily of legal and other professional fees, proxy solicitation and printing costs, transaction bonuses payable at Closing, and other legal, consulting and transaction-related expenses incurred by HeartSciences and Fortitude Seller. |
| CC. | Following the Transactions, the Combined Company will be subject to U.S. federal, state and local income taxes with respect to its allocable share of taxable income generated by the Surviving Company. As a result, the unaudited pro forma condensed consolidated statement of operations reflects an adjustment to record the Combined Company income tax benefit attributable to its allocable share of loss, at a blended U.S federal and state statutory tax rate of 22.8%, which is further assessed for realizability, for the year ended April 30, 2026. For the purposes of the pro forma, during the twelve months ended March 31, 2026, Fortitude Seller was a regarded U.S. federal corporation and recorded an income tax benefit of $5,037. The Combined Company will have a valuation allowance against its deferred tax assets, which resulted in a pro forma adjustment of $5,037 to remove the historical tax benefit following the Transactions. |
| DD. | Adjustment to recognize estimated share-based compensation expense of $1,107 in connection with 450,000 restricted stock awards (“ Restricted Stock and Restricted Stock Units”) issued to certain HeartSciences executives that vest over a one-year period following the Closing (and contingent on the Closing). |
| EE. | Adjustment to recognize net loss attributable to noncontrolling interest in the Surviving Company that will be owned by Fortitude Seller following the completion of the Transactions, calculated as approximately 94% of the pro forma net loss for the year ended April 30, 2026 (excluding any potential change in the Tax Receivable Agreement liability and the income tax benefit which are recognized at the Combined Company as a result of the corporate structure). |
| For the Year Ended April 30, 2026 | ||||
| Pro forma net loss | $ | (35,452 | ) | |
| Less: pro forma change in Tax Receivable Agreement liability and deferred income taxes of the Combined Company | - | |||
| Pro forma net loss of Surviving Company | (35,452 | ) | ||
| Economic interest held by noncontrolling interest holders in Surviving Company | 94 | % | ||
| Pro forma net loss attributable to noncontrolling interests | $ | (33,442 | ) | |
10
HEARTSCIENCES INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Note 6 - Loss Per Share
The pro forma net loss per share is computed by dividing the pro forma net loss available to Class A Common Stock shareholders by the estimated weighted average number of shares of Class A Common Stock outstanding during the period, assuming the shares of the Combined Company’s Class A Common Stock expected to be issued in connection with the Transactions were outstanding since May 1, 2025, the beginning of the earliest period presented. As the Transactions are being reflected as if they had occurred at the beginning of the period presented, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that the shares issued relating to the Transactions have been outstanding since May 1, 2025. Pro forma basic and diluted net loss per share has been adjusted to reflect the pro forma adjustments herein to the unaudited pro forma condensed combined statements of operations.
The following table sets forth the computation of pro forma combined basic and diluted net loss per share (in thousands, except share and per share amounts):
| For the Year Ended April 30, 2026 | ||||
| Pro forma net loss | $ | (35,452 | ) | |
| Less: pro forma net loss attributable to noncontrolling interest | (33,442 | ) | ||
| Pro forma net loss attributable to Class A Common Stock shareholders | $ | (2,010 | ) | |
| Pro forma weighted average Class A Common Stock outstanding: | ||||
| Deemed issuance of shares of Class A Common Stock to existing HeartSciences equityholders(1) | 5,741,531 | |||
| Shares of Class A Common Stock issued to Fortitude Seller(2) | 727,000 | |||
| Pro forma weighted-average shares of Class A Common Stock outstanding - basic and diluted | 6,468,531 | |||
| Pro forma net loss per share of Class A Common Stock - basic and diluted | $ | (0.31 | ) | |
| (1) | Issuance to existing HeartSciences equityholders who hold 3,474,491 shares of HeartSciences Common Stock, 1,628,847 shares of Series C Preferred Stock, 425,836 shares of Series D Preferred Stock, 203,750 restricted stock units, and warrants to purchase 8,607 shares of HeartSciences Common Stock. |
| (2) | Issuance to Fortitude Seller of shares of Class A Common Stock based on an estimated VWAP of $2.75 for a contribution of $2,000. |
| Potentially dilutive securities: | ||||
| Class V Common Stock | 107,605,132 | |||
| Combined Company options | 779,156 | |||
| Warrants | 2,036,587 | |||
| Restricted Stock and Restricted Stock Units | 450,000 | |||
| Units | 57,353 | |||
The potentially dilutive outstanding securities were excluded from the computation of pro forma net loss per share, basic and diluted, because their effect would have been anti-dilutive and/or issuance or vesting of such shares is contingent upon the satisfaction of certain conditions which were not satisfied by the end of the period presented. For purposes of the unaudited pro forma condensed combined financial information, all potentially issuable shares Class A Common Stock resulting from the exchange of noncontrolling interests together with corresponding Class V Common Stock are assumed to be anti-dilutive.
Note 7 - Reverse Stock Split Adjustments
HeartSciences is seeking approval from HeartSciences stockholders to enact a reverse stock split to be effected, if at all, at the discretion of the HeartSciences’ Board. The proposed reverse stock split, at a ratio of at a minimum of 1-for-2 and a maximum of 1-for-5, if effected, will reduce the number of shares of HeartSciences Common Stock outstanding in proportion to the reverse split ratio to be determined.
11
HEARTSCIENCES INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following table shows the effects on the unaudited pro forma condensed combined balance sheet as of April 30, 2026 of a 1-for-2 and 1-for-5 reverse stock split (the low and high points of the reverse split ratio range).
| Reverse Split Ratio | ||||||||||||
| Pre-Split | 1-for-2 | 1-for-5 | ||||||||||
| Pro Forma Condensed Combined Balance Sheet: | ||||||||||||
| Stockholders’ equity: | ||||||||||||
| Class A Common stock | $ | 1 | $ | - | $ | 0 | ||||||
| Class V Common stock | 11 | 6 | 2 | |||||||||
| Additional paid-in capital | 14,508 | 14,514 | 14,518 | |||||||||
| Accumulated deficit | (10,553 | ) | (10,553 | ) | (10,553 | ) | ||||||
| Noncontrolling interest | 66,005 | 66,005 | 66,005 | |||||||||
| Total stockholders’ equity | $ | 69,972 | $ | 69,972 | $ | 69,972 | ||||||
The reverse stock split will have no effect on the total assets and total liabilities included in the unaudited pro forma condensed combined balance sheet as of April 30, 2026.
The following table shows the effects on the unaudited pro forma condensed combined statements of operations for the year ended April 30, 2026.
| Reverse Split Ratio | ||||||||||||
| Pre-Split | 1-for-2 | 1-for-5 | ||||||||||
| Pro Forma Statement of Operations: | ||||||||||||
| For the Year Ended April 30, 2026 | ||||||||||||
| Net loss | $ | (35,452 | ) | $ | (35,452 | ) | $ | (35,452 | ) | |||
| Less: pro forma net loss attributable to noncontrolling interest | (33,442 | ) | $ | (33,442 | ) | $ | (33,442 | ) | ||||
| Pro forma net loss attributable to Class A Common Stock shareholders | $ | (2,010 | ) | $ | (2,010 | ) | $ | (2,010 | ) | |||
| Pro forma weighted average Class A Common Stock outstanding: | ||||||||||||
| Deemed issuance of shares of Class A Common Stock to existing HeartSciences equityholders | 5,741,531 | 2,870,766 | 1,148,306 | |||||||||
| Shares of Class A Common Stock issued to Fortitude Seller | 727,000 | 363,500 | 145,400 | |||||||||
| Pro forma weighted-average shares of Class A Common Stock outstanding - basic and diluted | 6,468,531 | 3,234,266 | 1,293,706 | |||||||||
| Pro forma net loss per share of Class A Common Stock - basic and diluted | $ | (0.31 | ) | $ | (0.62 | ) | $ | (1.55 | ) | |||
| Potentially dilutive securities: | ||||||||||||
| Class V Common Stock | 107,605,132 | 53,802,566 | 21,521,026 | |||||||||
| Combined Company options | 779,156 | 389,578 | 155,831 | |||||||||
| Warrants | 2,036,587 | 1,018,294 | 407,317 | |||||||||
| Restricted Stock and Restricted Stock Units | 450,000 | 225,000 | 90,000 | |||||||||
| Units | 57,353 | 28,677 | 11,471 | |||||||||
12