10-Q: Denali Capital Faces Going Concern Amidst Merger Push

Sentiment:

Quarterly Report 15 August 2025 7:50 AM

📋All filings for Denali Capital Acquisition CORP

Denali Capital Acquisition Corp. reports significant financial distress, including a going concern warning and Nasdaq delisting, as it pursues a merger with Semnur Pharmaceuticals.

Delay expectedThe company's business combination deadline has been extended multiple times, most recently to December 11, 2025, from an initial April 11, 2023, deadline, indicating significant delays in completing a merger.The 'Outside Date' for the Business Combination with Semnur was extended to September 30, 2025, subject to further extension.

Capital raiseThe company is relying on promissory notes from its Sponsor and Scilex to fund working capital deficiencies and transaction costs, with significant outstanding balances.The total principal amount of the Convertible Promissory Note 1 from the Sponsor was increased to $2,000,000.Amendment No. 2 to the Merger Agreement modifies the Exchange Ratio and Merger Consideration to facilitate the issuance of additional shares of common stock of Semnur prior to the closing of the Business Combination in connection with any potential private placement financing or for issuance to advisors and other service providers.

Worse than expectedThe company reported a net loss for the current periods, a significant deterioration from net income in the comparable prior year periods.Cash on hand and cash/investments in the trust account have drastically decreased due to high shareholder redemptions.Total liabilities and shareholders deficit have worsened, indicating a deteriorating financial position.The company was delisted from Nasdaq, moving to the less liquid OTC Markets, which is a negative operational and financial outcome.

Summary

Denali Capital Acquisition Corp. (DECAU) is a blank check company (SPAC) that has not commenced operations and is focused on completing a business combination.
The company reported a net loss of $385,122 for the three months ended June 30, 2025, and a net loss of $579,725 for the six months ended June 30, 2025, a significant decline from net income in the prior year periods.
Cash on hand decreased drastically to $126 as of June 30, 2025, from $16,868 at December 31, 2024.
Cash and investments held in the trust account plummeted to $548,318 as of June 30, 2025, from $9,021,005 at December 31, 2024, primarily due to substantial share redemptions.
Total liabilities increased to $11,156,451 as of June 30, 2025, from $10,434,584 at December 31, 2024.
The company's shareholders deficit worsened to $(11,142,307) as of June 30, 2025, from $(10,417,716) at December 31, 2024.
Denali was delisted from the Nasdaq Global Market on April 16, 2025, due to non-compliance with listing rules (MVLS, Total Assets, Public Float) and its securities now trade on the OTC Markets.
The company is pursuing a business combination with Semnur Pharmaceuticals, Inc., a wholly owned subsidiary of Scilex Holding Company, with Semnur's equity valued at $2.5 billion.
The deadline for the business combination has been extended multiple times, most recently to December 11, 2025, with potential for further monthly extensions.
The company relies heavily on promissory notes from its Sponsor and Scilex for working capital and extension deposits, with significant outstanding balances of $1,574,970 (Sponsor Note 1), $15,037 (Sponsor Note 2), $1,275,000 (FutureTech Note), and $123,107 (Scilex Extension Note) as of June 30, 2025.

Sentiment

Score: 2

Explanation: The sentiment is overwhelmingly negative due to the going concern warning, significant financial deterioration (net loss, low cash, increased deficit), Nasdaq delisting, and heavy reliance on related-party financing. While a merger target is identified, the company's precarious financial state and history of delays present substantial risks.

Positives

The company has secured multiple extensions for its business combination deadline, now set for December 11, 2025, providing more time to complete the merger with Semnur Pharmaceuticals.
The proposed business combination with Semnur Pharmaceuticals, Inc. values Semnur's equity at $2.5 billion, indicating a potentially significant transaction if completed.
The Sponsor and Scilex continue to provide financing through promissory notes to support the company's operations and extensions, demonstrating ongoing commitment to the business combination.

Negatives

The company reported a net loss of $385,122 for the three months ended June 30, 2025, and a net loss of $579,725 for the six months ended June 30, 2025, a reversal from net income in the prior year.
Cash on hand is extremely low at $126 as of June 30, 2025, down from $16,868 at December 31, 2024.
Cash and investments held in the trust account significantly decreased to $548,318 from $9,021,005, primarily due to substantial shareholder redemptions.
Total liabilities increased to $11,156,451, and the shareholders deficit deepened to $(11,142,307), indicating a deteriorating financial position.
The company was delisted from the Nasdaq Global Market on April 16, 2025, due to non-compliance with listing rules, resulting in its securities trading on the less liquid OTC Markets.
Management has expressed substantial doubt about the company's ability to continue as a going concern through December 11, 2025, without additional capital.

Risks

Inability to complete the initial business combination with Semnur Pharmaceuticals, Inc. within the extended timeframe.
Uncertainty regarding the performance of the prospective target business (Semnur) post-combination.
Challenges in retaining or recruiting officers, key employees, or directors following the initial business combination.
Potential conflicts of interest for officers and directors who allocate time to other businesses.
Difficulty in obtaining additional financing required to complete the initial business combination or to fund operations.
Adverse impacts from ongoing geopolitical events, such as the military action in Ukraine and hostilities in the Middle East, on general economic, industry, and competitive conditions.
Adverse changes in government regulation or prevailing market interest rates affecting the company's operations or the business combination.
Lack of liquidity and trading market for the company's securities following delisting from Nasdaq and quotation on OTC Markets.
Risk that funds in the trust account may not be sufficient or may be subject to claims of third parties, potentially reducing the amount available for the business combination or redemptions.
Warrants may expire worthless if the business combination is not completed within the prescribed period.
The company's current financial condition raises substantial doubt about its ability to continue as a going concern.

Future Outlook

Management believes the company will not have sufficient working capital and borrowing capacity to meet its needs through the consummation of the initial Business Combination, raising substantial doubt about its ability to continue as a going concern through December 11, 2025. The company is actively pursuing its proposed business combination with Semnur Pharmaceuticals, Inc., with the merger agreement having been amended to address Nasdaq delisting and extend the combination period. Future actions include potential private placement financing for Semnur and continued reliance on promissory notes from the Sponsor and Scilex for extensions.

Management Comments

Management believes that the company will not have sufficient working capital and borrowing capacity to meet its needs through the consummation of the initial Business Combination.

Industry Context

Denali Capital Acquisition Corp. operates as a Special Purpose Acquisition Company (SPAC), a vehicle designed to raise capital through an IPO to acquire an existing private company. The current environment for SPACs has become increasingly challenging, marked by higher redemption rates, increased regulatory scrutiny, and a general decline in investor appetite. Denali's delisting from Nasdaq and subsequent trading on OTC Markets is indicative of the difficulties many SPACs face in maintaining compliance and investor interest, especially as deadlines for business combinations approach. The reliance on related-party financing for extensions and the significant redemptions reflect a broader trend of public shareholders withdrawing funds from SPACs that struggle to complete mergers or maintain market value, putting immense pressure on sponsors to bridge funding gaps.

Comparison to Industry Standards

The company's delisting from Nasdaq due to non-compliance with MVLS, Total Assets, and Public Float rules is a severe deviation from standard listing requirements for publicly traded companies and reflects a significant loss of market confidence and liquidity compared to peers maintaining major exchange listings.
The high redemption rate of public shares (from 8,250,000 IPO units to 43,739 outstanding public shares) is significantly higher than the average redemption rates seen in successful SPACs, indicating a strong lack of investor conviction in the company's ability to complete a value-accretive business combination.
The substantial doubt about the company's ability to continue as a going concern is a critical red flag, placing it in a precarious financial position compared to healthy operating companies or even other SPACs with more robust trust account balances or clearer paths to merger completion.
The shift from investing trust account funds in U.S. government securities to holding cash in an interest-bearing bank deposit account (yielding ~3.5% per annum) reflects a defensive measure to mitigate investment company risk, but it also indicates a lower potential for trust account growth compared to periods of higher interest rates on securities, which could further strain the company's ability to meet its obligations or provide attractive redemption values.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Shareholder Voting Rights	During an extraordinary general meeting on October 11, 2023, a proposal was approved allowing Class A ordinary shares to be issued to holders of Class B ordinary shares upon conversion at the holder's election prior to business combination closing.	2023-10-11	Potentially alters the capital structure and voting dynamics prior to a business combination, giving Class B holders more flexibility.
Redemption Limitation Amendment	At the October 11, 2023 shareholders meeting, the limitation that the company may not redeem Public Shares in an amount that would cause its net tangible assets to be less than $5,000,001 was eliminated.	2023-10-11	Removes a safeguard for the company's minimum tangible assets, potentially allowing for greater redemptions and further reducing the capital available for a business combination.
Board Designation Rights	The Stockholder Agreement grants Scilex the right to designate all directors to the New Semnur Board and a representative to attend committee meetings, as long as Scilex beneficially owns any New Semnur Preferred Shares.	Upon Effective Time of Merger	Grants significant control over the post-merger company's board composition and strategic direction to Scilex, indicating a strong influence from the parent company of the target.
Actions Requiring Scilex Consent	The Stockholder Agreement prohibits New Semnur from taking certain actions without Scilex's consent, including amendments to preferred share designations, changes in board size, incurring certain indebtedness, and paying dividends on common shares.	Upon Effective Time of Merger	Restricts the operational and financial flexibility of New Semnur, ensuring Scilex maintains substantial control over key corporate decisions.
Actions Requiring Oramed Consent	The Stockholder Agreement also requires Oramed's consent for certain actions until the Oramed Note is fully paid, including amending key agreements (Stockholder Agreement, Merger Agreement, New Semnur's certificate/bylaws), issuing capital stock that dilutes Scilex below 55%, forming non-wholly owned subsidiaries, and certain compensation payments to Scilex Insiders.	Upon Effective Time of Merger	Introduces another layer of external control over New Semnur's operations and capital structure, potentially complicating future strategic moves until the Oramed Note is settled.

Related Party Transactions

The Sponsor (Denali Capital Global Investments LLC) has provided significant financing through promissory notes, with $1,574,970 outstanding under Convertible Promissory Note 1 and $15,037 under Convertible Promissory Note 2 as of June 30, 2025.
Scilex Holding Company, the parent of the target Semnur Pharmaceuticals, has provided financing through the Extension Scilex Convertible Promissory Note, with $123,107 deposited as of June 30, 2025, for extensions.
Scilex purchased 500,000 Class B ordinary shares from the Sponsor for $2,000,000 cash and 300,000 Scilex shares, as per the Sponsor Interest Purchase Agreement.
The Sponsor and company directors/executive officers have entered into a Sponsor Support Agreement with Semnur, agreeing to vote in favor of the merger and extensions, and against competing proposals.
Scilex, as the sole stockholder of Semnur, entered into a Stockholder Support Agreement, agreeing to vote its shares in favor of the merger and related amendments.

Stakeholder Impact

**Shareholders (Public)**: Face significant dilution risk from potential future capital raises and the conversion of promissory notes. Those who redeemed shares received their pro rata portion of the trust account, but remaining shareholders face uncertainty due to the going concern warning, Nasdaq delisting, and the ongoing challenges of completing the business combination.
**Shareholders (Sponsor/Insiders)**: Have provided substantial financing to keep the company afloat and extend the merger deadline, indicating a strong vested interest. Their Class B shares will convert into New Semnur Common Shares upon merger completion, aligning their interests with the success of the combination.
**Employees (Post-Merger)**: The success of the merger with Semnur will determine the stability and future prospects for employees of the combined entity. The current SPAC structure has no operating employees.
**Creditors (Promissory Note Holders)**: The Sponsor, Scilex, and FutureTech Capital LLC are significant creditors. Their ability to be repaid or convert their notes into equity is contingent on the successful completion of the business combination.
**Underwriters**: Are entitled to a deferred fee of $2,887,500, with a portion payable in shares of the combined company, contingent upon the completion of the business combination. Failure to close the merger would result in forfeiture of this fee.

Next Steps

Complete the proposed business combination with Semnur Pharmaceuticals, Inc. by the extended deadline of December 11, 2025.
Potentially secure additional private placement financing for Semnur prior to the closing of the Business Combination.
Continue to draw down funds from existing promissory notes from the Sponsor and Scilex to cover working capital needs and extension deposits.
Address the substantial doubt about the company's ability to continue as a going concern, likely through the successful completion of the business combination and subsequent financing.

Key Dates

Date	Description
2022-01-05	Company incorporated in the Cayman Islands (inception).
2022-02-03	Company issued 2,156,250 founder shares to the Sponsor.
2022-03-31	Sponsor transferred 20,000 founder shares to CFO and 110,000 to board members.
2022-04-06	Registration statement for IPO became effective.
2022-04-11	Consummation of IPO of 8,250,000 units and private placement of 510,000 units; $84,150,000 deposited in trust account.
2022-04-12	Sponsor's unsecured promissory note fully repaid.
2022-05-23	93,750 founder shares forfeited by Sponsor due to underwriters' partial exercise of over-allotment option.
2022-08-16	Inflation Reduction Act of 2022 signed into U.S. federal law.
2023-01-25	Company entered into Agreement and Plan of Merger with Longevity Biomedical, Inc.
2023-04-11	Company issued Convertible Promissory Note 1 of up to $825,000 to the Sponsor; initial principal balance of $412,500.
2023-04-12	Company deposited $825,000 into Trust Account to extend business combination period to July 11, 2023.
2023-07-11	Company issued FutureTech Convertible Promissory Note of $825,000 to FutureTech Capital LLC.
2023-07-13	Company deposited $825,000 into Trust Account to extend business combination period to October 11, 2023.
2023-07-18	Sponsor lent additional $430,000 under Convertible Promissory Note 1.
2023-10-11	Shareholders extended business combination deadline to July 11, 2024; Company issued another convertible promissory note of up to $450,000 to FutureTech.
2023-10-12	Sponsor lent additional $430,000 under Convertible Promissory Note 1.
2023-11-20	Underwriters agreed to receive 30% of deferred underwriting commission in shares of combined company.
2023-12-14	HoldCo filed notice of effectiveness for S-4 registration statement related to Longevity merger.
2023-12-29	Sponsor lent additional $430,000 under Convertible Promissory Note 1; Company and Sponsor agreed to raise total limit of Convertible Promissory Note 1 to $1,000,000.
2024-01-09	Shareholders voted in favor of approving the Longevity Business Combination.
2024-04-02	Company and Sponsor agreed to raise total limit of Convertible Promissory Note 1 to $1,200,000.
2024-06-04	Company instructed trustee to liquidate U.S. government securities in Trust Account and hold funds in cash.
2024-06-26	Longevity Merger Agreement terminated.
2024-07-02	Company announced letter of intent with Semnur Pharmaceuticals, Inc.
2024-07-10	Shareholders approved extension of business combination deadline to April 11, 2025; 3,785,992 public shares redeemed for $43.4 million; Company issued Convertible Promissory Note 2 of up to $180,000 to Sponsor.
2024-08-09	Holdco filed Registration Withdrawal Request for Form S-4 related to Longevity merger; Company issued Extension Scilex Convertible Promissory Note of up to $180,000 to Scilex.
2024-08-30	Company entered into Merger Agreement with Semnur and Denali Merger Sub Inc.; Sponsor and Scilex entered into Sponsor Interest Purchase Agreement.
2024-09-03	Sponsor transferred 500,000 Class B Ordinary Shares to Scilex.
2024-10-02	Company received Nasdaq notice of non-compliance with listing rules.
2025-01-24	Company and Sponsor agreed to raise total limit of Convertible Promissory Note 1 to $2,000,000.
2025-03-21	Sponsor lent additional $100,000 under Convertible Promissory Note 1.
2025-04-02	Company received Nasdaq letter stating non-compliance and delisting unless appealed.
2025-04-11	Shareholders approved extension of business combination deadline to December 11, 2025; 708,098 public shares redeemed for $8.6 million.
2025-04-16	Company's securities delisted from Nasdaq; Amendment No. 1 to Merger Agreement entered.
2025-04-17	Trading of company's securities commenced on OTC Markets.
2025-06-30	End of the quarterly period covered by this report.
2025-07-11	Current deadline for business combination, extended from April 11, 2025, by Scilex deposits.
2025-07-22	Amendment No. 2 to Merger Agreement entered.
2025-08-15	Date of issuance of consolidated financial statements.
2025-09-11	Extended period for business combination, with further deposits from Scilex.
2025-09-30	Extended Outside Date for the Business Combination, subject to further extension.
2025-12-11	Latest extended date by which the company must consummate a business combination or cease operations.

Recommendation

strong sell

The company faces severe financial distress, evidenced by a going concern warning, extremely low cash on hand, a deepening shareholders deficit, and a significant reduction in trust account assets due to high redemptions. The delisting from Nasdaq to the less liquid OTC Markets further diminishes investor confidence and accessibility. While a merger target (Semnur) has been identified, the history of delays, the need for continuous related-party financing, and the explicit 'substantial doubt' about the company's ability to continue as a going concern make the investment highly speculative and risky. The current situation suggests a high probability of further value erosion or even liquidation if the merger fails to materialize or if additional capital cannot be secured on favorable terms. A seasoned investor would likely view this as a distressed asset with significant downside risk.

Keywords

SPAC, Denali Capital, Semnur Pharmaceuticals, Scilex Holding Company, Business Combination, 10-Q, Quarterly Report, Going Concern, Nasdaq Delisting, OTC Markets, Trust Account, Share Redemptions, Promissory Notes, Merger Agreement, Financial Distress

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