10-Q: Horizon Space SPAC Terminates Merger, Extends Deadline

Horizon Space Acquisition I Corp. announced the termination of its business combination agreement with Squirrel HoldCo and extended its deadline to complete a new merger until April 2026, following significant shareholder redemptions.

Summary

• Horizon Space Acquisition I Corp. (HSPO), a blank check company, terminated its Business Combination Agreement with Squirrel Enlivened Technology Co., Ltd (Squirrel HoldCo) effective October 3, 2025, by mutual agreement with no termination fees.
• Shareholders approved amendments to extend the deadline to complete a business combination up to April 27, 2026, through six monthly extensions.
• Shareholders also approved eliminating the limitation that the company may not redeem public shares in an amount that would cause its net tangible assets to be less than US$5,000,001.
• Following the October 27, 2025 shareholder meeting, 1,764,505 Ordinary Shares were redeemed, resulting in approximately $22.0 million being released from the Trust Account.
• As of November 25, 2025, 2,404,234 Ordinary Shares are issued and outstanding.
• The company's cash balance as of September 30, 2025, was $7,679, with a working capital deficit of $3,448,729.
• Net income for the nine months ended September 30, 2025, was $296,369, a significant decrease from $1,659,067 for the same period in 2024.
• Interest and dividend income from the Trust Account also decreased to $691,094 for the nine months ended September 30, 2025, from $2,461,081 in the prior year.
• From January to September 2025, $1,080,000 in Monthly Extension Fees were deposited into the Trust Account by the Sponsor and Squirrel Group Companies.
• An amendment to the underwriting agreement on September 29, 2025, converts $2,415,000 in deferred underwriting commissions into 805,000 Ordinary Shares of the post-combination entity at $3.00 per share.

Sentiment

Score: 2

Explanation: The termination of the primary business combination agreement, coupled with substantial shareholder redemptions and an explicit "going concern" warning, indicates severe operational and financial distress for the SPAC. While an extension was secured, the path to a successful merger remains highly uncertain, and the company's financial health has significantly deteriorated.

Positives

• Successful approval of charter amendments to extend the business combination deadline up to April 27, 2026, providing more time to find a new target.
• Elimination of the $5,000,001 net tangible assets limitation for redemptions, offering greater flexibility for future business combinations.
• Operating costs for the nine months ended September 30, 2025, decreased to $394,725 from $802,014 in the prior year.

Negatives

• Termination of the Business Combination Agreement with Squirrel HoldCo, indicating a failure to complete the previously planned merger.
• Significant shareholder redemptions of 1,764,505 Ordinary Shares, leading to $22.0 million released from the Trust Account, reducing the capital available for a business combination.
• The company has a cash balance of only $7,679 and a working capital deficit of $3,448,729 as of September 30, 2025, raising substantial doubt about its ability to continue as a going concern.
• Net income for the nine months ended September 30, 2025, decreased substantially to $296,369 from $1,659,067 in the same period last year.
• Interest and dividend income on investments held in the Trust Account significantly declined to $691,094 for the nine months ended September 30, 2025, from $2,461,081 in the prior year.
• Increased liabilities from promissory notes ($1,970,000 vs $1,010,000) and related-party loans ($190,000 extension loan, $1,060,000 working capital loan).

Risks

• Substantial doubt about the company's ability to continue as a going concern due to insufficient cash and working capital to complete a business combination.
• Risk of voluntary liquidation and formal dissolution if a business combination is not completed by April 27, 2026 (if fully extended).
• No assurance that plans to consummate a business combination will be successful within the Combination Period.
• Proceeds deposited in the Trust Account could become subject to the claims of creditors, which could have priority over the claims of public shareholders.
• Warrants and rights will expire worthless if the company fails to complete a business combination by the deadline.
• Potential for insufficient funds to operate the business prior to an initial business combination if due diligence costs exceed estimates or interest income from the Trust Account is lower than expected.
• Need for additional financing to consummate an initial business combination or because the company becomes obligated to redeem a significant number of public shares upon consummation of an initial business combination.
• Dependence on the Sponsor, officers, directors, or their affiliates for working capital loans.
• Risk that the company may not be able to register shares underlying warrants, potentially forcing cashless exercise.

Future Outlook

The company aims to complete a business combination by November 27, 2025, with the possibility of extending this deadline up to April 27, 2026, through five additional monthly extensions. Management acknowledges substantial doubt about the company's ability to continue as a going concern without additional funding from its Sponsor or affiliates, and there is no assurance that a business combination will be successful within the extended period.

Management Comments

• "Management has determined that these conditions [insufficient cash and working capital] raise substantial doubt about the Company's ability to continue as a going concern."
• "Our management's plan in addressing this uncertainty is through the funds loaned from our Sponsor, officers, directors or their affiliates."
• "There is no assurance that our plans to consummate a business combination will be successful within the Combination Period."

Industry Context

The termination of the business combination agreement and significant redemptions highlight the ongoing challenges faced by many Special Purpose Acquisition Companies (SPACs) in the current market environment. SPACs often struggle to identify and successfully merge with suitable target companies within their specified timelines, leading to extensions, redemptions, and ultimately, liquidation if a deal cannot be secured. The high redemption rate is indicative of waning investor confidence in the SPAC's ability to execute a value-accretive transaction.

Comparison to Industry Standards

• The significant shareholder redemptions (1,764,505 shares, $22.0 million) are common in the SPAC market, especially when a proposed business combination is terminated or the deadline is extended without a new target. Other SPACs have experienced similar high redemption rates when facing challenges or when their proposed targets did not meet investor expectations.
• The conversion of deferred underwriting fees into equity at a discounted price ($3.00 per share compared to the IPO price of $10.00) is a mechanism sometimes used by SPACs to retain underwriter support and reduce cash outflows, reflecting the distressed nature of the situation.
• The reliance on related-party loans (Sponsor, affiliates) for working capital and extension fees is a standard practice for SPACs nearing their deadline, as external financing is often unavailable or too costly without a definitive business combination.

Corporate Governance

Legal Proceedings

• Not currently a party to any material litigation or other legal proceedings.
• Not aware of any legal proceeding, investigation or claim, or other legal exposure that has a more than remote possibility of having a material adverse effect on the business, financial condition or results of operations.

Related Party Transactions

• Sponsor (Horizon Space Acquisition I Sponsor Corp.) provided working capital loans totaling $1,060,000 as of September 30, 2025, which are convertible into units at $10.00 per unit.
• Sponsor provided $120,000 in Monthly Extension Fees from January to September 2025, evidenced by an unsecured promissory note.
• Squirrel Group Companies (Squirrel Enlivened (Hong Kong) Technology Limited and Shenzhen Squirrel Enlivened Media Group Co., Ltd) provided $960,000 in Monthly Extension Fees from January to September 2025, evidenced by unsecured promissory notes.
• The Sponsor transferred 18,000 Founder Shares to independent directors (Messrs. Angel Colon, Mark Singh, and Rodolfo Jose Gonzalez Caceres) on September 12, 2022, valued at approximately $93,780.

Stakeholder Impact

• Shareholders who redeemed shares received their pro-rata portion of the Trust Account. Remaining shareholders face continued uncertainty and dilution risk from potential future capital raises or conversion of related-party loans. The value of warrants and rights is at risk if no business combination is completed.
• Sponsor and its affiliates continue to provide financial support through loans and extension fees, indicating ongoing commitment but also increasing their exposure and potential for conversion into equity.
• Underwriters (Network 1 Financial Securities, Inc.) will have their deferred underwriting fees converted into equity (805,000 Ordinary Shares at $3.00 per share), aligning their interests with the post-combination entity but at a significantly reduced valuation compared to the IPO price.
• The termination of the Squirrel HoldCo agreement means the company is actively seeking a new target, potentially offering opportunities for other private companies looking to go public via SPAC.

Next Steps

• Identify and evaluate new prospective acquisition candidates for a business combination.
• Perform business due diligence on prospective target businesses.
• Travel to and from the offices, plants or similar locations of prospective target businesses.
• Review corporate documents and material agreements of prospective target businesses.
• Select a new target business to acquire.
• Structure, negotiate, and consummate a new business combination by the extended deadline of April 27, 2026.
• Seek additional financing if needed to consummate a business combination or cover redemptions.
• File a registration statement for the Deferred Underwriting Shares in connection with the initial business combination.

Key Dates

Recommendation

The termination of the business combination agreement, coupled with substantial shareholder redemptions and an explicit "going concern" warning, signals severe distress. The company has a very limited cash runway and relies heavily on related-party financing. While an extension was secured, the fundamental challenge of finding and executing a viable merger remains, with a high risk of liquidation. The significant reduction in Trust Account assets and the conversion of underwriting fees into equity at a low valuation further underscore the precarious situation, making the stock a strong sell for investors seeking capital preservation or growth.

Keywords

SPAC, blank check company, business combination, merger termination, shareholder redemptions, extension, going concern, financial results, 10-Q, Horizon Space Acquisition I Corp., HSPO, Squirrel HoldCo, Trust Account, warrants, promissory notes