Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References to the "Company," "our," "us" or "we" refer to Blue Water Acquisition Corp. III. The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the audited financial statements and the notes related thereto which are included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. Certain information contained in the discussion and analysis set forth below includes forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under "Cautionary Note Regarding Forward-Looking Statements and Risk Factor Summary," "Item 1A. Risk Factors" and elsewhere in this Annual Report on Form 10-K.

Overview

We are a blank check company incorporated on November 1, 2024, as a Cayman Islands exempted company with no material operations of our own. We were formed for the purpose of effecting a merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization or similar Business Combination with one or more businesses (the "Business Combination"). We may pursue an initial Business Combination in any business or industry but expect to focus on biotechnology, healthcare and technology companies. Our units include shares of a Cayman Islands blank check company, not shares of any operating entities with whom we may ultimately combine.

As of December 31, 2025, the Company has not commenced any operations. All activity for the period from November 1, 2024 (inception) through December 31, 2025, relates to the Company's formation, the initial public offering (the "Initial Public Offering"), as defined below, and activities associated with identifying and negotiating a potential Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company generates

non-operating income in the form of interest income on cash and cash equivalents and dividend income from marketable securities from the proceeds derived from the Initial Public Offering. The Company has selected December 31 as its fiscal year end.

On December 3, 2024, the Company issued an aggregate of 5,750,000 Class B ordinary shares, $0.0001 par value (each, a "Class B Ordinary Share," also referred to herein as a "Founder Share"), in exchange for a capital contribution of $25,000 (approximately $0.004 per share) from the Company's prior sponsor, Blue Water Acquisition III LLC (the "Prior Sponsor") to cover certain expenses on behalf of the Company. On June 9, 2025, through a share capitalization we issued an additional 575,000 Class B Ordinary Shares to our Prior Sponsor, resulting in our Prior Sponsor holding an aggregate of 6,325,000 Class B Ordinary Shares. The Class B Ordinary Shares will automatically convert into Class A Ordinary Shares concurrently with or immediately following the consummation of our initial Business Combination or earlier at the option of the holder on a one-for-one basis, subject to adjustment for share sub-divisions, share capitalizations, reorganizations, recapitalizations and the like, and subject to further adjustment.

On June 11, 2025, the Company consummated the Initial Public Offering of 25,300,000 units (the "Units" and, with respect to the Class A ordinary shares included in the Units, the "Public Shares"), which includes the full exercise by the underwriters of their over-allotment option in the amount of 3,300,000 Units, at $10.00 per Unit, generating gross proceeds of $253,000,000. Each Unit consists of one Class A ordinary share (each, a "Class A Ordinary Share" and together with the Class B Ordinary Shares, the "Ordinary Shares") and one-half of one redeemable warrant (each, a "Public Warrant").

Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 683,000 units (the "Private Placement Units" and, with respect to the Class A Ordinary Shares included in the Private Placement Units, the "Private Placement Shares") at a price of $10.00 per Private Placement Unit, in a private placement to the Prior Sponsor, and BTIG, LLC ("BTIG"), the representative of the underwriters in the Initial Public Offering, generating gross proceeds of $6,830,000. Each Private Placement Unit consists of one Class A Ordinary Share and one-half of one redeemable warrant (the "Private Placement Warrants" and together with the Public Warrants, the "Warrants"). Each whole Warrant entitles the holder to purchase one Class A Ordinary Share at a price of $11.50 per share, subject to adjustment, and will become exercisable beginning at the later of 12 months from the closing of the Initial Public Offering and 30 days after the completion of an initial Business Combination, and will expire at 5:00 p.m., New York City time, five years after the consummation of the initial Business Combination, or earlier upon redemption or liquidation, and with respect to Private Placement Warrants held by BTIG or its designees, will not be exercisable more than five years from the commencement of sales in the Initial Public Offering in accordance with Financial Industry Regulatory Authority ("FINRA") Rule 5110(g)(8). The Private Placement Warrants are identical to the Public Warrants sold in the Initial Public Offering except that, so long as they are held by the Sponsor, BTIG, or their permitted transferees, the Private Placement Warrants (i) may not (including the Class A Ordinary Shares issuable upon exercise of these Private Placement Warrants), subject to certain limited exceptions, be transferred, assigned or sold by the holders until 30 days after the completion of the initial Business Combination, (ii) will be entitled to registration rights and (iii) with respect to Private Placement Warrants held by BTIG, LLC and/or its designees, will not be exercisable more than five years from the commencement of sales in the Initial Public Offering in accordance with FINRA Rule 5110(g)(8).

Following the closing of the Initial Public Offering, on June 11, 2025, an amount of $253,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units and the sale of the Private Placement Units, was placed in the trust account (the "Trust Account"), with Continental Stock Transfer & Trust Company acting as trustee. Except with respect to interest earned on the funds held in the Trust Account that may be released to the Company to pay its taxes, if any, the proceeds from the Initial Public Offering and the sale of the Private Placement Units will not be released from the Trust Account until the earliest of (i) the completion of the Company's initial Business Combination, (ii) the redemption of the Company's Public Shares if the Company is unable to complete the initial Business Combination within 24 months from the closing of the Initial Public Offering or by such earlier liquidation date as the Company's board of directors may approve (the "Completion Window"), subject to applicable law, or (iii) the redemption of the Company's Public Shares properly submitted in connection with a shareholder vote to amend the Company's amended and restated memorandum and articles of association to (A) modify the substance or timing of the Company's obligation to allow redemption in connection with the initial Business Combination or to redeem 100% of the Company's Public Shares if the Company has not consummated an initial Business Combination within the Completion Window or (B) with respect to any other material provisions relating to shareholders' rights or pre-initial Business Combination activity. The proceeds deposited in the Trust Account could become subject to the claims of the Company's creditors, if any, which could have priority over the claims of the Company's public shareholders.

The Company has not selected any specific Business Combination target. We intend to effectuate our initial Business Combination using cash from the proceeds of the Initial Public Offering and the private placement of the Private Placement Units, the

proceeds of the sale of our shares in connection with our initial Business Combination, shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, other securities issuances, or a combination of the foregoing. The Company's management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Placement Units, although substantially all of the net proceeds are intended to be generally applied toward consummating a Business Combination (less deferred underwriting commissions).

On November 25, 2025, the Company, the Prior Sponsor and Yorkville BW Acquisition Sponsor, LLC (the "New Sponsor") entered into a Purchase Agreement (the "Purchase Agreement"). Pursuant to the Purchase Agreement, on November 25, 2025, the New Sponsor (i) purchased from the Prior Sponsor (a) 6,325,000 Class B Ordinary Shares and (b) 430,000 Private Placement Units (together with the 6,325,000 Class B Ordinary Shares, the "Acquired Securities"), for an aggregate purchase price of $7,200,000 and (ii) upon closing, became the sponsor of the Company (together, the "Purchase"). Pursuant to the Purchase Agreement, the non-managing sponsor investors of the Prior Sponsor have no further rights, claims or interests in or to any securities of the Company (other than any Public Units, Public Shares or Public Warrants they may hold).

As a condition to consummation of the Purchase, all of the then-existing members of the board of directors (the "Prior Board") and all then-existing officers of the Company resigned, and the New Sponsor designated (i) a new board of directors, which was elected immediately prior to the closing of the Purchase by the Prior Sponsor as the then-sole holder of the Class B Ordinary Shares in accordance with the terms of the Company's amended and restated memorandum and articles of association, and (ii) a new management team, which was appointed immediately prior to the closing of the Purchase by the Prior Board, effective as of the closing of the Purchase. Except as otherwise specified or where the context requires otherwise, references in this Annual Report to "the board of directors" (the "Board"), "our directors," "our officers," or "management" shall refer to the board of directors, officers, and management team designated by the New Sponsor and serving following the closing of the Purchase, and all references to the "Sponsor" refer to the "New Sponsor."

Pursuant to the terms of the Purchase Agreement, the New Sponsor (i) executed a joinder agreement to become a party to the Registration Rights Agreement, dated June 9, 2025 (the "Registration Rights Agreement"), among the Company, the Prior Sponsor, BTIG, and the other parties thereto and (ii) entered into a side letter agreement with the Company (the "New Insider Letter") providing for, among other things, voting obligations and certain transfer restrictions. All parties to the letter agreement dated June 9, 2025, by and among the Company, the Prior Sponsor and each of the then directors and officers of the Company (the "Prior Insider Letter"), executed a waiver to certain requirements of the Prior Insider Letter such that the New Sponsor need not execute a joinder or become a party to the Prior Insider Letter. Upon the closing of the Purchase, the Prior Insider Letter was terminated.

Results of Operations

We have neither engaged in any operations nor generated any revenues to date. Our only activities from November 1, 2024 (inception) through December 31, 2025 relate to organizational activities, our initial public offering, and, subsequent to the initial public offering, our pursuit of an initial business combination. We will not generate any operating revenues until after completion of our initial business combination. We have and will continue to generate non-operating income in the form of interest income on cash and cash equivalents and dividend income from marketable securities after the initial public offering. There has been no significant change in our financial or trading position and no material adverse change has occurred since the date of our audited financial statements. We have incurred, and expect to incur, increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses. Additionally, we expect our expenses to increase substantially after identifying a target for our initial business combination.

For the year ended December 31, 2025, we had net income of $4,667,721, which consisted of $5,796,563 of income earned on cash and marketable securities held in the Trust Account, offset by $502,754 of formation, general and administrative expenses, $474,966 of legal and accounting expenses, $54,583 of listing fees, $54,398 of administrative support fees, and $42,141 of insurance expense.

For the period from November 1, 2024 (inception) through December 31, 2024, we had net loss of $48,541 consisting of $48,541 of formation, general and administrative expenses.

Liquidity and Capital Resources

As of December 31, 2025 and 2024, we had no cash or cash equivalents in our operating account, respectively, and a working capital deficiency of $109,004 and $48,541, respectively.

For the year ended December 31, 2025, net cash used in by operating activities was $938,877. Net income of $4,667,721 was increased by $101,708 of formation, general and administrative costs paid by the Prior Sponsor under the promissory note and an $88,257 increase in operating assets and liabilities, offset by $5,796,563 of interest income on the trust account.

For the period from November 1, 2024 (inception) through December 31, 2024, net cash used in by operating activities was $0. Net loss of $48,541 was increased by $25,000 of formation, general and administrative costs paid by the Prior Sponsor in exchange for founder shares, $1,505 of formation, general and administrative costs paid by the Sponsor under the promissory note, and a $22,036 increase in operating assets and liabilities.

The Company has incurred and expects to continue to incur significant costs in pursuit of its financing and acquisition plans. The Company lacks the financial resources it needs to sustain operations for a reasonable period of time, which is considered to be one year from the issuance date of the financial statements. Although no formal agreement exists, the Sponsor is committed to extending Working Capital Loans (defined in Note 6) as needed. The Company cannot assure that its plans to consummate an initial Business Combination will be successful.

These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern one year from the date these financial statements are issued. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Our liquidity needs have been satisfied to date through the purchase of founder shares from our Prior Sponsor for $25,000, $300,000 in loans from our Prior Sponsor, and proceeds generated from our initial public offering and simultaneous private placement that generated gross proceeds of $259,830,000. $253,000,000 of the net proceeds are held in the trust account and are not available for the working capital needs of the Company.

Following the closing of the initial public offering, on June 11, 2025, an amount of $253,000,000 ($10.00 per unit) from the net proceeds of the sale of the Units and the Private Placement Units, was placed in the trust account, with Continental Stock Transfer & Trust Company acting as trustee. The funds are initially to be held in cash, including demand deposit accounts at a bank, or invested only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act, which invest only in direct U.S. government treasury obligations; the holding of these assets in this form is intended to be temporary and for the sole purpose of facilitating the intended business combination. To mitigate the risk that we might be deemed to be an investment company for purposes of the Investment Company Act, which risk increases the longer that we hold investments in the trust account, we may, at any time (based on management team's ongoing assessment of all factors related to the potential status under the Investment Company Act), instruct the trustee to liquidate the investments held in the trust account and instead to hold the funds in the trust account in cash or in an interest bearing demand deposit account at a bank. Except with respect to interest earned on the funds held in the trust account that may be released to us to pay our taxes, if any, the proceeds from the initial public offering and the sale of the private placement units will not be released from the trust account until the earliest of (i) the completion of our initial business combination, (ii) the redemption of our public shares if we are unable to complete the initial business combination within 24 months from the closing of the initial public offering or by such earlier liquidation date as the Company's board of directors may approve (the "Completion Window"), subject to applicable law, or (iii) the redemption of our public shares properly submitted in connection with a shareholder vote to amend our amended and restated memorandum and articles of association to (A) modify the substance or timing of our obligation to allow redemption in connection with the initial business combination or to redeem 100% of our public shares if we have not consummated an initial business combination within the Completion Window or (B) with respect to any other material provisions relating to shareholders' rights or pre-initial business combination activity. The proceeds deposited in the trust account could become subject to the claims of our creditors, if any, which could have priority over the claims of our public shareholders.

We intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on the trust account (excluding deferred underwriting commissions). We may withdraw interest to pay our taxes, if any (but without deduction for any excise or similar tax that may be due or payable). Our annual income tax obligations will depend on the amount of interest and other income earned on the amounts held in the trust account. We expect the interest earned on the amount in the trust

account will be sufficient to pay our income taxes, if any. To the extent that our equity or debt is used, in whole or in part, as consideration to complete our initial business combination, the remaining proceeds held in the trust account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.

We will provide our public shareholders with the opportunity to redeem all or a portion of their Class A Ordinary Shares upon the completion of our initial Business Combination either (i) in connection with a general meeting called to approve the Business Combination or (ii) without a shareholder vote by means of a tender offer. The decision as to whether we will seek shareholder approval of a proposed Business Combination or conduct a tender offer will be made by us, solely in our discretion. The requirement that we provide our public shareholders with the opportunity to redeem their Public Shares by one of the two methods listed above are contained in provisions of our amended and restated memorandum and articles of association and will apply whether or not we maintain our registration under the Exchange Act or our listing on Nasdaq. Such provisions may be amended if approved by a special resolution, which requires the affirmative vote of at least two-thirds of the votes cast by such shareholders as, being entitled to do so, vote in person or, where proxies are allowed, by proxy at the applicable general meeting of the company, so long as we offer redemption in connection with such amendment. Valid redemptions by our public shareholders would reduce the amounts of cash we have to effect an initial business combination and may result in a need to seek additional financing in order to effect an initial business combination.

As of December 31, 2025 and 2024, we have no cash held outside of the trust account generated from the proceeds of the initial public offering. We will seek funds to primarily identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a business combination.

On January 26, 2026, the Company issued a convertible unsecured promissory note (the "Working Capital Note") in the aggregate principal amount of $500,000 to the Sponsor in order to provide the Company with additional working capital. Pursuant to the terms of the Working Capital Note, the principal balance shall not accrue interest; shall be payable by the Company on the earlier of the date on which Company consummates its initial Business Combination or the date that the winding up of the Company is effective; and is convertible at the Sponsor's election upon the consummation of the Company's initial Business Combination. Should the Sponsor elect to convert all or a portion of the principal balance, the elected principal balance amount will convert, at a price of $10.00 per unit, into units identical to the Private Placement Units issued in connection with the Company's Initial Public Offering (each, a "Working Capital Units"), rounded down to the nearest whole number. The Company has relied upon Section 4(a)(2) of the Securities Act of 1933, as amended, in connection with the issuance of the Working Capital Note.

Off-Balance Sheet Arrangements

We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of December 31, 2025. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.

Contractual obligations

We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities as of December 31, 2025 or December 31, 2024.

Pursuant to the underwriting agreement for our initial public offering, the underwriters are entitled to a deferred underwriting discount of 3.50% of the gross proceeds of the initial public offering held in the trust account, or $8,855,000 in the aggregate, payable to BTIG to be deposited in the trust account and released to BTIG only upon the completion of an initial business combination. The deferred underwriting commissions will be payable as follows: (i) $0.30 per Unit sold in the initial public offering will be paid to BTIG in cash upon the closing of the initial business combination and (ii) $0.05 per Unit sold in the initial public offering will be payable to BTIG in cash, provided that the Company and the Sponsor have the right, in the Company's discretion, to reallocate any portion of the Allocable Amount to third parties not participating in the initial public offering (but who are members of FINRA) that assist the Company in consummating the initial business combination.

On June 9, 2025, the Company entered into an administrative services agreement with the prior Sponsor, to pay an aggregate of $10,000 per month for office space, utilities, and secretarial and administrative support, to commence on the date the securities of the Company are first listed on the Nasdaq (the "Administrative Services Agreement"). As of November 25, 2025, the Company had incurred and paid the Prior Sponsor $54,398 of administrative costs. Pursuant to the Purchase Agreement, the Administrative Services Agreement with the Prior Sponsor was terminated on November 25, 2025, and no further fees accrued thereafter.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have not identified any critical accounting estimates as of December 31, 2025.