10-Q: Cactus Acquisition Q1 Loss Amid Tembo Merger Push

Cactus Acquisition Corp. 1 Ltd. reported a net loss in Q1 2025 as it continues efforts to finalize its business combination with Tembo e-LV B.V. despite Nasdaq delisting and ongoing liquidity concerns.

Summary

• Reported a net loss of $78,000 for the three months ended March 31, 2025, a decline from net earnings of $37,000 for the same period in 2024.
• Cash and cash equivalents were $21,000 as of March 31, 2025, with $9,075,000 held in the trust account.
• Working capital deficiency increased to $2,242,000 as of March 31, 2025, from $2,069,000 at December 31, 2024.
• The company is advancing activities to consummate a Business Combination Agreement (BCA) with Tembo e-LV B.V., signed on August 29, 2024, with a consideration of $838 million in newly issued ordinary shares valued at $10.00 per share.
• The mandatory liquidation date for the company has been extended to November 2, 2025.
• The company was delisted from Nasdaq on November 5, 2024, and now trades on the OTC market under the symbol CCTSF, but intends to re-apply for Nasdaq listing post-business combination.
• A total of 1,148,799 Class A ordinary shares were redeemed in connection with the Third Extension, resulting in a distribution of $13,389,826 from the Trust Account.
• The company has issued several promissory notes, including $780,000 to ARWM Inc Pte. Ltd. (third sponsor) and $646,000 to Energi Holding Limited (unrelated party) as of March 31, 2025, with a new $200,000 note issued to Hali International Limited on July 17, 2025.

Sentiment

Score: 3

Explanation: The company faces significant financial challenges, including a net loss, increasing working capital deficiency, and substantial doubt about its ability to continue as a going concern. The Nasdaq delisting and identified material weakness in internal controls further compound these issues. While a business combination agreement with Tembo is in place, its completion is uncertain, and a recent lower valuation proposal for Tembo adds complexity.

Positives

• Operating expenses decreased to $143,000 for the three months ended March 31, 2025, from $240,000 in the prior year period.
• Secured shareholder approval to extend the mandatory liquidation date to November 2, 2025, providing more time for the business combination.
• Signed a definitive Business Combination Agreement with Tembo e-LV B.V. for $838 million, indicating progress towards a target acquisition.
• Received a waiver from underwriters for deferred underwriting commissions, reducing a potential future liability.

Negatives

• Reported a net loss of $78,000 for Q1 2025, a decline from net earnings of $37,000 in Q1 2024.
• Interest earned on marketable securities held in the trust account significantly decreased to $95,000 in Q1 2025 from $277,000 in Q1 2024.
• Working capital deficiency increased to $2,242,000 as of March 31, 2025, from $2,069,000 at December 31, 2024.
• Incurred new financial expenses of $30,000 in Q1 2025, compared to none in Q1 2024.
• Delisted from Nasdaq on November 5, 2024, and now trades on the OTC market, which may impact liquidity and investor perception.
• Significant redemptions of 1,148,799 Class A ordinary shares, leading to a distribution of $13,389,826 from the Trust Account, reducing available cash for the business combination.
• Substantial doubt exists about the company's ability to continue as a going concern due to insufficient funds and the need to complete a business combination by November 2, 2025.

Risks

• Inability to consummate the business combination with Tembo e-LV B.V. by the mandatory liquidation date of November 2, 2025, which would lead to mandatory liquidation and dissolution.
• Inability to raise sufficient additional financing to support transaction expenses or post-closing operations, given the current working capital deficiency and reliance on loans.
• Potential significant dilution of equity interest for initial public offering investors if additional ordinary shares are issued in a business combination, especially if Class B ordinary shares convert on a greater than one-to-one basis.
• Subordination of rights of Class A ordinary shareholders if preference shares are issued with senior rights.
• Risk of a change of control if a substantial number of ordinary shares are issued, potentially affecting net operating loss carryforwards and leading to management changes.
• Adverse effects on prevailing market prices for Class A ordinary shares and/or warrants due to share issuance or significant indebtedness.
• Risks associated with incurring significant indebtedness, including default, acceleration of obligations, inability to obtain additional financing, inability to pay dividends, and reduced flexibility.
• Material weakness in internal control over financial reporting as of December 31, 2024, due to insufficient qualified finance and accounting personnel, leading to inadequate segregation of duties and increased risk of errors or misstatements.
• Reliance on third-party digital technologies for operations, exposing the company to cybersecurity threats without significant internal investments in data security protection.
• The non-redemption agreement with an unaffiliated third party obligates the sponsor to transfer additional founder shares if the business combination does not close by May 2, 2025, and subsequently by October 2, 2025.
• The non-binding proposal from Energi Holdings Limited to acquire 51% of Tembo at a $200 million enterprise value could impact the existing business combination agreement with Cactus Acquisition Corp. 1 Ltd.

Future Outlook

The company intends to complete an initial business combination with Tembo e-LV B.V. before the mandatory liquidation date of November 2, 2025. The combined company plans to apply for up-listing on the Nasdaq Stock Market upon completion of the business combination. The company anticipates needing additional loans to fund operations and the business combination, and there is no assurance these will be obtained or sufficient.

Management Comments

• We are advancing activities towards consummating a Business Combination with Tembo.
• The delisting and commencement of trading on OTC does not affect our business combination agreement with Tembo, as both parties continue to work to effectuate the completion of the transaction.
• The combined company intends to apply for up-listing on the Nasdaq Stock Market in connection with the completion of the business combination.
• We intend to use substantially all of the funds held in our trust account, including any amounts representing interest earned on our trust account (which interest shall be net of taxes payable), minus amounts paid out to redeeming shareholders, as consideration to complete our initial business combination.
• We cannot assure you that our plans to raise capital or to complete our initial business combination will be successful.
• Management is committed to strengthening the Company’s internal controls and maintaining the integrity of its financial reporting processes.

Industry Context

The company operates as a Special Purpose Acquisition Company (SPAC), a vehicle designed to merge with a private company to take it public. The shift in focus from technology-based healthcare in Israel to emerging technology companies globally, particularly in the energy renewables sector, reflects a strategic pivot, possibly in response to market opportunities or challenges in the initial target sector. The proposed business combination with Tembo e-LV B.V., an electric light vehicle company, aligns with the growing global trend towards electrification and sustainable energy solutions. The involvement of Energi Holdings Limited, a global energy solutions company, in a potential acquisition of Tembo highlights the increasing consolidation and strategic investments within the renewable energy and EV ecosystem. The Nasdaq delisting and subsequent trading on the OTC market is a common challenge for SPACs that fail to complete a business combination within their initial timeframe, often impacting investor confidence and liquidity.

Comparison to Industry Standards

• The company's delisting from Nasdaq due to failure to complete a business combination within 36 months is a common occurrence for SPACs that face challenges in identifying or closing a suitable target.
• The significant redemptions of Class A ordinary shares (1,148,799 shares, or $13,389,826) are typical for SPACs nearing their liquidation deadline or facing extensions, as public shareholders often choose to redeem their shares rather than remain invested in an uncertain business combination, thereby reducing the cash available for the de-SPAC transaction.
• The proposed $838 million valuation for Tembo e-LV B.V. in the business combination agreement, with shares valued at $10.00, is a standard structure for SPAC mergers. However, the subsequent non-binding proposal from Energi Holdings Limited to acquire 51% of Tembo at a $200 million enterprise value is significantly lower than the implied BCA valuation, indicating a potential disconnect or a change in market perception of Tembo's value.
• The identified material weakness in internal control over financial reporting due to insufficient finance personnel is a critical governance issue that can be more prevalent in smaller or early-stage companies, including SPACs, compared to larger, more established public companies with robust internal control frameworks.

Management Changes

Corporate Governance

Related Party Transactions

• Promissory notes issued to the first Sponsor (Cactus Healthcare Management, L.P.) totaling $860,000 were waived on February 23, 2024, as part of the Second Sponsor Alliance.
• On February 23, 2024, Cactus Healthcare Management, L.P. transferred 80% of its Founders Shares (2,530,000 shares) and Private Warrants (3,893,334 warrants) to EVGI Limited.
• On May 16, 2024, EVGI Limited transferred 100% of its Founders Shares (2,360,000 shares) and Private Warrants (3,893,334 warrants) to ARWM Pte Limited.
• The company issued an unsecured promissory note to ARWM Inc Pte. Ltd. (third sponsor) for up to $500,000, with a balance of $780,000 due as of March 31, 2025.
• The Sponsor (ARWM Inc Pte. Ltd.) entered into a non-redemption agreement on October 29, 2024, agreeing to transfer up to 275,000 founder shares to an unaffiliated third party if the business combination does not close by certain dates.

Stakeholder Impact

• Shareholders face potential significant dilution from new share issuance in the business combination and risk of loss if the company liquidates.
• Share value may be negatively impacted by the Nasdaq delisting and move to the OTC market, potentially reducing liquidity and investor interest.
• Promissory note holders (creditors) face risk of forfeiture if the business combination is not consummated by maturity dates and funds outside the trust account are insufficient.

Next Steps

• Advance activities towards consummating the Business Combination with Tembo e-LV B.V.
• Obtain required shareholder and regulatory approvals (e.g., SEC clearance of Form F-4 registration statement) for the business combination.
• Complete financial audits under PCAOB standards for the business combination.
• Satisfy other customary closing conditions under the Business Combination Agreement.
• Apply for up-listing on the Nasdaq Stock Market in connection with the completion of the Business Combination.
• Remediate the material weakness in internal control over financial reporting by implementing enhanced review procedures, reallocating responsibilities, and evaluating the need for additional qualified finance personnel.
• Negotiate a final structure and binding transaction documents for Energi Holdings Limited's non-binding proposal to acquire 51% of Tembo.

Key Dates

Recommendation

The company faces severe financial distress, evidenced by a net loss, increasing working capital deficiency, and explicit 'substantial doubt about its ability to continue as a going concern.' Its delisting from Nasdaq to the OTC market significantly reduces liquidity and investor visibility. While a business combination with Tembo is planned, a recent, much lower valuation proposal for Tembo by another entity introduces significant uncertainty and potential complications for the existing deal. Furthermore, the identified material weakness in internal controls indicates fundamental operational deficiencies. These factors collectively present a high-risk profile with limited clear upside, making it an unfavorable investment.

Keywords

SPAC, blank check company, Tembo e-LV B.V., business combination, SEC filing, 10-Q, financial report, Nasdaq delisting, OTC market, special purpose acquisition company, electric light vehicles, corporate governance, financial health, risk factors, capital raise, promissory notes, going concern