10-K: FACT II Acquisition Corp. Files 10-K, Details PAD Merger

FACT II Acquisition Corp. (FACT) filed its annual 10-K report for the fiscal year ended December 31, 2025, detailing its proposed business combination with Precision Aerospace & Defense Group, Inc. (PAD) and reporting a net income of $5.02 million.

Summary

• FACT II Acquisition Corp. is a blank check company (SPAC) formed to effect a business combination, and has no operating history or revenues to date.
• The company entered into a Business Combination Agreement with Precision Aerospace & Defense Group, Inc. (PAD) on November 26, 2025.
• The proposed business combination involves FACT domesticating as a Delaware corporation and a merger with PAD, with PAD surviving as a wholly-owned subsidiary.
• The company reported a net income of $5,017,538 for the year ended December 31, 2025, a significant improvement from the net loss of $71,891 for the period from June 19, 2024 (inception) through December 31, 2024.
• Cash held in the Trust Account increased to $183,785,456 as of December 31, 2025, from $176,597,270 at December 31, 2024.
• A working capital deficiency of $613,884 was reported as of December 31, 2025.
• The deadline to complete an initial business combination is 24 months from the IPO closing, which is May 27, 2026, unless extended by shareholder approval.
• The business combination is subject to customary closing conditions, including shareholder approval and a minimum aggregate cash proceeds of $75,000,000 from the trust account and other sources after redemptions and transaction expenses.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a high-risk situation due to the explicit 'going concern' warning from the auditor and the reported working capital deficiency. While a business combination target has been identified, the significant financial uncertainties and inherent SPAC risks, coupled with potential conflicts of interest, suggest a challenging path forward.

Positives

• The company has successfully identified and entered into a definitive Business Combination Agreement with Precision Aerospace & Defense Group, Inc. (PAD).
• Reported a net income of $5,017,538 for the year ended December 31, 2025, a positive shift from the prior period's net loss.
• Generated substantial interest income of $7,188,186 on cash held in the Trust Account for the year ended December 31, 2025.
• The management team possesses extensive experience in financial services, M&A, and prior SPAC execution, including the successful Freedom Acquisition I Corp. merger with SunPower Inc.
• Established robust corporate governance structures, including independent audit, compensation, and nominating and corporate governance committees, along with a clawback policy and insider trading policy.

Negatives

• The independent auditor's report raises substantial doubt about the company's ability to continue as a going concern due to liquidity needs and the mandatory liquidation date if a business combination is not completed by May 27, 2026.
• The company reported a working capital deficiency of $613,884 as of December 31, 2025.
• Reliance on potential, non-obligatory loans from the Sponsor, Sponsor HoldCo, or affiliates to fund working capital and transaction costs presents a significant risk.
• Public shareholders face substantial dilution risk due to the nominal purchase price paid for founder shares and the vesting of restricted Class A shares upon the business combination.
• Potential conflicts of interest exist for management and the sponsor, whose financial incentives to complete a business combination may not align with the best interests of public shareholders.
• Warrants will expire worthless if the initial business combination is not completed within the prescribed timeframe.
• The 1% U.S. federal excise tax on stock buybacks could apply to redemptions if the company domesticates and becomes a publicly traded U.S. corporation, potentially reducing cash available for redemptions or the target business.

Risks

• Inability to complete the proposed Business Combination with PAD, leading to substantial withdrawal costs and potential liquidation.
• Difficulty in finding a new target business or arranging new financing if the PAD combination fails, potentially leading to liquidation.
• Public shareholders may not be afforded an opportunity to vote on the proposed business combination if not required by law or stock exchange rules.
• Sponsor, initial shareholders, directors, and officers have agreed to vote in favor of the business combination, regardless of how public shareholders vote.
• The ability of public shareholders to redeem their shares for cash may make the company's financial condition unattractive to potential business combination targets.
• The ability of public shareholders to exercise redemption rights with respect to a large number of shares and the amount of deferred underwriting commissions may not allow the company to complete the most desirable business combination or optimize its capital structure, and may substantially dilute investment.
• Failure to complete the initial business combination within the prescribed time frame (24 months from IPO closing or Extension Period) would result in liquidation, with public shareholders receiving approximately $10.05 per share, or less, and warrants expiring worthless.
• Directors, officers, security holders, and their respective affiliates may have competitive pecuniary interests that conflict with the company's interests.
• Holders of founder shares control the appointment of the board of directors until consummation of the initial business combination and hold a substantial interest, potentially influencing actions requiring shareholder vote.
• The nominal purchase price paid for founder shares and the vesting of restricted Class A shares may result in significant dilution to the implied value of public shares upon the consummation of the initial business combination.
• Increased competition among SPACs for attractive targets may increase the cost of the initial business combination or result in the inability to find or consummate a target.
• Insufficient funds outside the trust account to operate for the full 24 months or Extension Period, potentially leading to an inability to complete the initial business combination.
• Subsequent write-downs or write-offs, restructuring, and impairment or other charges post-business combination could have a significant negative effect on financial condition, results of operations, and stock price.
• Securities in which funds are invested in the trust account could bear a negative rate of interest, reducing the per-share redemption amount.
• If the company files for winding-up or bankruptcy after distributing trust account proceeds, a bankruptcy court may seek to recover such proceeds from shareholders.
• Adverse developments affecting the financial services industry, including liquidity or non-performance by financial institutions, could adversely affect the company's funds.
• Risk of being deemed an investment company under the Investment Company Act, which could impose burdensome compliance requirements and restrict activities.
• Uncertain U.S. federal income tax consequences for U.S. investors.
• Nasdaq may delist the company's securities from trading, limiting investor's ability to make transactions and subjecting the company to additional trading restrictions.
• Provisions in the amended and restated memorandum and articles of association may inhibit a takeover of the company.
• Shareholders holding in excess of 15% of Class A ordinary shares may lose the ability to redeem all such excess shares.
• Third parties bringing claims against the company could reduce the proceeds held in the trust account, potentially below $10.05 per share.
• Directors may decide not to enforce the indemnification obligations of Sponsor HoldCo, reducing funds available for public shareholders.
• Shareholders may be held liable for claims by third parties against the company to the extent of distributions received upon redemption of their shares.
• Class A ordinary shares issuable upon exercise of warrants are not registered, potentially precluding exercise or causing warrants to expire worthless.
• The grant of registration rights to the sponsor, initial shareholders, and affiliates may make it more difficult to complete the initial business combination and adversely affect the market price of Class A ordinary shares.
• The company may issue additional Class A ordinary shares or preference shares, or Class A ordinary shares upon conversion of Class B ordinary shares at a ratio greater than one-to-one, diluting existing shareholders.
• Warrants and founder shares may have an adverse effect on the market price of Class A ordinary shares and make it more difficult to effectuate the initial business combination.
• Units may be worth less than units of other blank check companies because each unit contains only one-half of one redeemable public warrant.
• Warrants may become exercisable for a security other than Class A ordinary shares, and investors will not have information regarding such other security at this time.
• A provision of the warrant agreement may make it more difficult to consummate an initial business combination if certain conditions regarding newly issued price and market value are met.
• Directors and officers allocating their time to other businesses, causing conflicts of interest in their determination as to how much time to devote to the company's affairs.
• Dependence on directors and officers; their departure could adversely affect the company's ability to operate.
• Key personnel may negotiate employment or consulting agreements with a target business, potentially creating conflicts of interest.
• Directors and officers may have conflicts of interest in determining to which entity a particular business opportunity should be presented due to affiliations with other entities.
• Engaging in a business combination with one or more target businesses that have relationships with affiliated entities may raise potential conflicts of interest.
• Insufficient funds to satisfy indemnification claims of directors and officers.
• Litigation, investigations, or other proceedings involving management team members could be time-consuming and divert attention.
• The letter agreement with Sponsor HoldCo, the sponsor, directors, and officers may be amended without shareholder approval.
• The sponsor may transfer founder shares and private placement units before identifying a business combination, potentially depriving the company of key personnel.
• Management may not be able to maintain control of a target business after the initial business combination.
• The initial business combination requires approval of a majority of the board of directors and a majority of the independent directors.
• Risks associated with acquiring and operating a business in foreign countries, including legal, economic, and political factors.
• Reincorporation or transfer by way of continuation to another jurisdiction may result in taxes imposed on shareholders or warrant holders.
• Laws of a new jurisdiction may govern future material agreements, potentially affecting the ability to enforce legal rights.
• Subject to changing laws and regulations regarding regulatory matters, corporate governance, and public disclosure, increasing costs and risk of non-compliance.
• Cyber incidents or attacks directed at the company or its third-party providers could result in information theft, data corruption, operational disruption, and/or financial loss.
• The company may not hold an annual general meeting until after the consummation of its initial business combination, limiting shareholder interaction with management.
• The company may be a passive foreign investment company (PFIC), which could result in adverse U.S. federal income tax consequences to U.S. investors.
• The company's status as an emerging growth company and smaller reporting company may make its securities less attractive to investors and comparisons with other public companies more difficult.
• Nasdaq may consider the company a controlled company due to founder shares voting rights, potentially allowing exemptions from certain corporate governance requirements.

Future Outlook

The company intends to complete its initial business combination with Precision Aerospace & Defense Group, Inc. (PAD) by May 27, 2026. It expects to incur significant costs in pursuit of its acquisition plans and may need additional financing. The success of the combined entity will be dependent upon the future performance of the acquired business and its ability to generate profitable, long-term growth and operating free cash flow.

Management Comments

• Our business strategy is to identify opportunities where a combination of capital, talent and network will improve the customer experience and drive value for all stakeholders.
• Our management team has substantial experience in managing change and leveraging technology to drive improved business performance across a broad range of sectors, including insurance, banking, logistics, wealth/asset management and real estate.
• We believe that the networks and experience of our management team and independent board members provide us with specific competitive advantages over other blank check companies in sourcing attractive targets.
• We believe that the collective experience of the team members of our sponsor, in combination with their deep and broad global network of relationships across public and private sectors in both mature as well as emerging markets, provides us with a competitive advantage to identify, structure, finance and acquire the operations of a compelling target business.

Industry Context

StockSavvy.ai notes that the SPAC market has experienced increased competition and, at times, negative public perception, making it more challenging to find attractive targets and consummate business combinations. The company's focus on the aerospace and defense sector, through its proposed merger with PAD, positions it in an industry with specific regulatory and geopolitical risks, as highlighted by the mention of CFIUS review and global conflicts. The company's strategy to leverage its management's M&A and operational expertise is a common approach for SPACs aiming to differentiate themselves in a crowded market.

Comparison to Industry Standards

• The company's management team has prior SPAC experience, including the founding of Freedom Acquisition I Corp., which successfully completed its business combination with Complete Solaria, Inc. (subsequently renamed SunPower Inc., Nasdaq: SPWR) in July 2023. This prior success provides a benchmark for their ability to execute SPAC transactions.
• The target business criteria, such as seeking companies with 'large addressable market,' 'significant revenue and earnings growth potential,' 'scalable operations,' and 'distinct business strengths,' are standard for growth-oriented acquisitions and align with typical SPAC investment theses.
• The requirement for a minimum of $75,000,000 in aggregate cash proceeds for the business combination is a specific financial benchmark for this transaction, which will be evaluated against industry norms for similar-sized SPAC mergers.

Corporate Governance

Legal Proceedings

• There is no material litigation, arbitration, or governmental proceeding currently pending against the company or any members of its management team in their capacity as such, and they have not been subject to any such proceeding in the 12 months preceding the date of this Annual Report.

Related Party Transactions

• On July 12, 2024, Sponsor HoldCo paid $25,000 for 6,708,333 founder shares (Class B ordinary shares).
• On August 6, 2024, Sponsor HoldCo transferred 220,000 founder shares to independent directors and the Executive Chairman at their original purchase price.
• Sponsor, Sponsor HoldCo, Cohen & Company Capital Markets (CCM), and Seaport Global Securities LLC (Seaport) purchased an aggregate of 663,125 private placement units and 325,000 restricted Class A shares for a total of $6,631,250 simultaneously with the IPO closing.
• On October 14, 2024, a member of the sponsor (the Borrower) issued a promissory note of up to $200,000 to Robert Rackind (Executive Chairman and father-in-law of the Borrower), bearing 8% interest, repayable in cash or by transferring 25% of the Borrower's membership interests in the sponsor upon business combination. The note is not repayable if no business combination is consummated.
• Sponsor HoldCo issued membership interests at a nominal purchase price to non-managing HoldCo investors, reflecting interests in 5,593,333 founder shares and 325,000 restricted Class A shares.
• Sponsor HoldCo has agreed to reserve 20,000 founder shares to sell and transfer to a senior advisor of the company following the consummation of an initial business combination.
• Sponsor HoldCo, the sponsor, directors, and officers, or their affiliates, will be reimbursed for out-of-pocket expenses incurred on the company's behalf.
• Sponsor HoldCo, the sponsor, any of their affiliates, or certain directors and officers may loan funds (Working Capital Loans) to the company, with up to $2,000,000 of such loans for each person convertible into Class A ordinary shares or units at $10.00 per share/unit.
• On November 26, 2025, the company entered into an Advisory Agreement with its sponsor, providing for a fee of up to $240,000 for services related to the Business Combination.

Stakeholder Impact

• Shareholders face potential significant dilution from founder shares and restricted Class A shares, which were acquired at a nominal price. Their investment is at risk if the business combination fails, potentially leading to liquidation.
• Public shareholders have redemption rights, but these are subject to limitations (e.g., a 15% cap on redemptions without prior consent), which could reduce their influence over the business combination.
• Warrant holders risk their warrants expiring worthless if the initial business combination is not completed within the specified timeframe. Cashless exercise of warrants may result in fewer Class A ordinary shares.
• Management and the sponsor have strong financial incentives to complete a business combination due to their low-cost basis in founder shares and the vesting of restricted shares, which may create conflicts of interest with public shareholders.
• Creditors face a risk that claims against the company could reduce the funds in the trust account, potentially impacting the per-share redemption amount for public shareholders, despite Sponsor HoldCo's indemnification agreement (whose ability to satisfy is not independently verified).
• Employees of the target business (PAD) may experience changes in management or operational structure post-merger, though the filing does not detail specific impacts on employees.

Next Steps

• Complete the domestication of the company as a Delaware corporation.
• Complete the merger of Merger Sub with and into PAD, with PAD surviving as a wholly-owned subsidiary.
• File a registration statement on Form S-4 relating to the Business Combination, which will contain a proxy statement for a shareholder meeting.
• Hold the FACT Shareholders Meeting to consider and approve the Domestication, the Business Combination, and other related proposals.
• Satisfy all customary closing conditions for the Business Combination, including regulatory approvals and achieving a minimum aggregate cash proceeds of $75,000,000.
• Within two business days after the Closing Date, PAD is to deposit cash with an exchange agent for holders of PAD Preferred Stock.
• The company will use commercially reasonable efforts to file a registration statement covering the issuance of Class A ordinary shares upon exercise of warrants within 15 business days after the closing of the Business Combination.

Key Dates

Recommendation

The filing explicitly highlights "substantial doubt about the Company's ability to continue as a going concern" and a working capital deficiency. While a business combination with PAD has been agreed upon, the inherent risks of SPACs, coupled with the auditor's warning and potential for significant dilution and conflicts of interest, present a highly unfavorable risk-reward profile. A seasoned investor would prioritize capital preservation and likely divest given the severe financial uncertainties.

Keywords

SPAC, Blank Check Company, Business Combination, Precision Aerospace & Defense Group, PAD, Merger, 10-K, SEC Filing, Financial Report, Corporate Governance, Risk Factors, Trust Account, Warrants, Founder Shares, Liquidation, Going Concern, Nasdaq, Aerospace, Defense