FACT II Acquisition Corp. Annual Report - A Deep Dive for Investors

This summary provides a clear, accessible overview of FACT II Acquisition Corp.'s latest annual report (10-K). Whether you are an existing investor or considering an investment, this guide aims to demystify the company's operations and financial position without requiring specialized financial knowledge.

FACT II Acquisition Corp. operates as a Special Purpose Acquisition Company (SPAC), also known as a "blank check company." Its core purpose is to raise capital from investors, then identify and merge with a private operating company, effectively bringing that private company public.

This report highlights a major development: FACT II has identified its acquisition target. The company entered into a definitive Business Combination Agreement with Precision Aerospace & Defense Group, Inc. (PAG) on November 26, 2025. This agreement represents a crucial step in FACT II's journey. The fiscal year concluded on December 31, 2025, and the company filed this 10-K on March 12, 2026.

FACT II's securities trade on the Nasdaq Global Market under the symbols FACTU (units), FACT (Class A shares), and FACTW (warrants). As a non-accelerated filer, smaller reporting company, and emerging growth company, FACT II qualifies for reduced reporting requirements, common for newer and smaller public companies.

1. Business Overview

As a SPAC, FACT II's primary business involves completing a merger or similar business combination with one or more operating companies. This year, FACT II achieved a significant milestone by entering into a Business Combination Agreement with Precision Aerospace & Defense Group, Inc. (PAG). PAG is a well-established private company specializing in advanced components, systems, and MRO (Maintenance, Repair, and Overhaul) services for the aerospace and defense sectors. This merger aims to introduce PAG's innovative technologies and strong market position to public investors, fulfilling FACT II's core mission.

2. Financial Performance

As a shell company, FACT II does not generate traditional operating revenue or profit from commercial operations. Its financial activities focus on managing capital and advancing the merger.

• Cash in Trust: As of December 31, 2025, FACT II held approximately $200 million in its trust account. This capital, raised from initial public offering (IPO) investors, is securely held and designated to fund the merger or redeem shares if the deal fails or shareholders opt out.
• Operating Expenses: For the fiscal year ended December 31, 2025, the company incurred approximately $2.5 million in operating expenses. These costs primarily covered administrative, legal, and accounting fees associated with identifying and evaluating merger targets.
• Net Loss: FACT II reported a net loss of approximately $2.5 million for the year, reflecting these operational costs without generating revenue.
• Shares Outstanding & Market Value: As of March 12, 2026, 18,488,125 Class A shares (public shares) and 5,833,333 Class B shares (sponsor shares) were outstanding. Public shares had a market value of approximately $185 million at that time.
• Year-over-Year Changes: A SPAC's financial performance primarily reflects its operational expenses in pursuit of a business combination, rather than traditional revenue-generating activities.

3. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)

This section provides a narrative explanation of FACT II's financial condition and results of operations for the fiscal year ended December 31, 2025.

Results of Operations: As a blank check company, FACT II's operations focused on organizational activities, identifying a business combination target, and advancing the proposed merger with Precision Aerospace & Defense Group, Inc. The company generated no operating revenues. The net loss of approximately $2.5 million for the year ended December 31, 2025, primarily stemmed from general and administrative expenses, legal and accounting fees, and other costs related to identifying and evaluating potential target businesses and negotiating the Business Combination Agreement. The most significant operational achievement was the signing of the Business Combination Agreement with Precision Aerospace & Defense Group, Inc. on November 26, 2025. This agreement validates the SPAC's purpose and represents the culmination of extensive search and due diligence.

Liquidity and Capital Resources: FACT II's liquidity primarily derives from the proceeds of its initial public offering (IPO) held in a trust account and funds held outside the trust account.

• Trust Account: The $200 million in the trust account as of December 31, 2025, is FACT II's most critical asset. These funds are invested in U.S. Treasury securities or money market funds and are specifically for the business combination or to redeem public shares.
• Cash Outside Trust: The company held approximately $1.5 million in cash outside the trust account as of December 31, 2025. These funds cover ongoing operating expenses, such as administrative, legal, accounting, and due diligence costs.
• Debt: FACT II currently has no significant debt. Its operations are funded by the sponsor's initial capital and interest earned on the trust account.
• Sufficiency of Liquidity: Management believes the cash outside the trust account will cover operational needs until the business combination closes. However, successfully completing the merger presents challenges, including securing shareholder approval, navigating regulatory processes, and managing potential shareholder redemptions. High redemption rates could reduce the cash available for the combined entity, and the company might seek additional financing (such as a Private Investment in Public Equity, or PIPE) to bolster funding or offset significant redemptions.

Off-Balance Sheet Arrangements: As of December 31, 2025, FACT II Acquisition Corp. did not have any off-balance sheet arrangements.

Critical Accounting Policies: The company's critical accounting policies cover its trust account, Class A common stock subject to possible redemption, and warrants. These policies align with those typically applied by special purpose acquisition companies.

Leadership and Strategy Changes: A key strategic change involves the "Domestication" of FACT II Acquisition Corp. from the Cayman Islands to the State of Delaware. This common and often necessary step for SPACs, typically occurring before or during a merger, simplifies the legal and regulatory framework for the combined U.S.-based operating company and is often required for continued NASDAQ listing. While the core SPAC management team will transition, the combined company's leadership will primarily come from Precision Aerospace & Defense Group, Inc.'s experienced executive team, augmented by strategic board appointments.

4. Key Risks That Could Hurt the Stock Price

Investors should be aware of several risks:

• Merger Completion Risk: The proposed business combination with Precision Aerospace & Defense Group, Inc. may not close. Delays, regulatory hurdles, or failure to obtain necessary approvals could terminate the agreement.
• Shareholder Redemptions: A significant number of public shareholders may redeem their shares for cash, reducing the capital available to the combined company and potentially impacting its future growth plans.
• Dilution: The merger, along with potential PIPE investments and the conversion of sponsor shares and warrants, could substantially dilute existing public shareholders.
• Financing Risk: While the trust account provides significant capital, the combined company may require additional financing to meet its strategic objectives or offset high redemptions.
• Risks Related to Precision Aerospace & Defense Group, Inc.: Investors will face the specific risks of the aerospace and defense industry, including reliance on government contracts, regulatory changes, technological obsolescence, and intense competition.
• Market for Securities: The trading price of FACT II's securities, and subsequently the combined company's stock, could be volatile. It is subject to broader market conditions, investor sentiment, and the performance of comparable companies.
• Global Events: Geopolitical instability, ongoing conflicts (e.g., Ukraine, Middle East), economic downturns, and supply chain disruptions could negatively impact the aerospace and defense sector and the combined company's operations.

5. Competitive Positioning

For a SPAC, competitive positioning is defined by its ability to identify and secure a high-quality target. FACT II's management team, with extensive experience in the aerospace, defense, and technology sectors, used their network and expertise to identify PAG. Post-merger, the combined entity will operate within the highly competitive aerospace and defense market. Precision Aerospace & Defense Group, Inc. differentiates itself with specialized product offerings, advanced manufacturing capabilities, and strong relationships with key customers in both military and commercial aviation.

6. Future Outlook

FACT II's future outlook hinges on the successful completion of its business combination with Precision Aerospace & Defense Group, Inc., anticipated in Q2 2026. Upon closing, the combined entity aims to be a leading publicly traded aerospace and defense company. The combined company will focus its strategy on:

• Organic Growth: Expanding PAG's existing product lines and service offerings, using its technological advantages.
• Strategic Acquisitions: Pursuing complementary acquisitions to broaden capabilities and market reach.
• Operational Efficiencies: Optimizing manufacturing processes and supply chains to enhance profitability.
• Market Expansion: Targeting new customer segments and international markets for its specialized components and services.

7. Industry Trends and Regulatory Environment

• SPAC Regulatory Environment: The SEC has increased scrutiny on SPACs, proposing new rules that could impact deal structures, disclosures, and investor protections. These changes could affect the timeline or terms of future SPAC transactions.
• Aerospace & Defense Industry Trends: Global defense spending, geopolitical tensions, commercial aviation recovery, and technological advancements (e.g., sustainable aviation, autonomous systems) influence the sector. Increased demand for advanced materials and MRO services, particularly in the defense sector, offers growth opportunities for the combined company.
• Global Geopolitical Conditions: Ongoing conflicts and economic instability can impact supply chains, raw material costs, and government budgets, directly affecting the aerospace and defense industry.