10-Q: Horizon Space II Reports Q3 2025 Results, SL Bio Merger Progress

Horizon Space Acquisition II Corp. reported a net income of $615,026 for Q3 2025, driven by trust account interest, but faces going concern doubts amid a pending merger with SL Bio Ltd.

Summary

• Reported net income of $615,026 for the three months ended September 30, 2025, and $1,308,900 for the nine months ended September 30, 2025.
• Interest and dividend income from the Trust Account was $739,550 for Q3 2025 and $2,196,069 for the nine months ended September 30, 2025.
• Formation and operating costs significantly increased to $124,524 for Q3 2025 and $887,169 for the nine months ended September 30, 2025, compared to $33,604 and $44,710 in the prior year periods, respectively.
• Cash balance decreased to $66,627 as of September 30, 2025, from $646,720 at December 31, 2024.
• A business combination agreement was entered into with SL Science Holding Limited and SL Bio Ltd. on May 9, 2025.
• The Company has a working capital deficit of $436,924 as of September 30, 2025.
• A $300,000 unsecured promissory note was issued to the Sponsor on July 5, 2025, for working capital, bearing no interest and convertible into private placement units.

Sentiment

Score: 3

Explanation: While the Company has identified a target and signed a business combination agreement, the significant working capital deficit, rapidly declining cash outside the trust, and explicit "going concern" warning indicate severe financial distress and high execution risk for the merger. The reliance on related-party loans further highlights the precarious financial position.

Positives

• Generated net income of $615,026 for the three months ended September 30, 2025, and $1,308,900 for the nine months ended September 30, 2025, primarily from interest income on the Trust Account.
• Investment held in the Trust Account increased to $71,540,599 as of September 30, 2025, from $69,344,530 at December 31, 2024.
• A definitive business combination agreement with SL Bio Ltd. was signed on May 9, 2025, indicating progress towards a merger.

Negatives

• Cash balance significantly decreased to $66,627 as of September 30, 2025, from $646,720 at December 31, 2024.
• Incurred a working capital deficit of $436,924 as of September 30, 2025.
• Formation and operating costs increased substantially to $887,169 for the nine months ended September 30, 2025, compared to $44,710 for the same period in 2024.
• Management has determined that conditions raise "substantial doubt" about the Company's ability to continue as a going concern.
• Net cash used in operating activities was $(880,093) for the nine months ended September 30, 2025.

Risks

• Substantial doubt about the Company's ability to continue as a going concern due to working capital deficit and reliance on future financing or business combination.
• Inability to obtain additional financing on commercially acceptable terms, if at all, which may lead to curtailing operations or suspending transaction pursuit.
• Failure to complete a Business Combination by November 18, 2025 (or up to May 18, 2026 if fully extended), leading to liquidation and dissolution.
• The proceeds deposited in the Trust Account could become subject to claims of creditors, which could have priority over public shareholders' claims.
• The rights will expire worthless if the Company fails to complete a Business Combination by November 18, 2025 (or up to May 18, 2026 if fully extended).
• Ongoing Russia/Ukraine, Hamas/Israel conflicts and/or other future global conflicts may materially and adversely affect the Company's ability to consummate a Business Combination or the operations of a target business.
• Ability to consummate a transaction may be dependent on the ability to raise equity and debt financing, which may be impacted by global events, including increased market volatility or decreased market liquidity.

Future Outlook

The Company expects to incur increased expenses as a public company and for the search for target opportunities. It may need to obtain additional financing to consummate its initial business combination or if a significant number of public shares are redeemed. Management's plan to address going concern uncertainty relies on potential working capital loans from the Sponsor or its affiliates.

Management Comments

• "Management has determined that these conditions [working capital deficit, reliance on future financing/business combination] raise substantial doubt about the Company’s ability to continue as a going concern."
• "Management’s plan in addressing this uncertainty is through the Working Capital Loans from our Sponsor or its affiliates."
• "We expect to continue to incur significant costs in the pursuit of our acquisition plans."

Industry Context

As a Special Purpose Acquisition Company (SPAC), Horizon Space Acquisition II Corp. operates within a highly specific segment of the financial market. The filing reflects the typical lifecycle of a SPAC post-IPO, focusing on identifying and merging with a target business. The mention of potential impacts from global conflicts (Russia/Ukraine, Hamas/Israel) highlights broader geopolitical risks that can affect capital markets and M&A activity, which are particularly relevant for SPACs reliant on market conditions for deal completion and financing. The proposed merger with SL Bio Ltd. indicates a move towards the life sciences or biotechnology sector, a common target for SPACs seeking growth opportunities.

Comparison to Industry Standards

• The Company's financial performance, characterized by net income derived solely from interest on its trust account and increasing operating costs, is typical for a pre-business combination SPAC.
• The "going concern" warning is a significant red flag, though not uncommon for SPACs nearing their deadline without a completed merger or sufficient non-trust capital. For example, many SPACs like Acamar Partners Acquisition Corp. or GigCapital series have faced similar liquidity challenges and relied on sponsor loans or extensions.
• The trust account balance of $71.5 million is within the range of many small to mid-cap SPACs, but the rapid depletion of cash outside the trust account ($646,720 to $66,627) and the growing working capital deficit ($436,924) are concerning compared to peers that manage to maintain a healthier operating cash balance.
• The $10.00 per unit conversion price for sponsor loans is standard for SPACs, aligning with the initial IPO price.
• The deadline of November 18, 2025 (or May 18, 2026 with extensions) is a critical benchmark, similar to the 18-24 month timeframe typically given to SPACs to complete a business combination.

Legal Proceedings

• The Company is not currently a party to any material litigation or other legal proceedings.
• No awareness of any legal proceeding, investigation, claim, or other legal exposure with a more than remote possibility of having a material adverse effect.

Related Party Transactions

• The Sponsor acquired 1,725,000 Founder Shares for $25,000 on July 26, 2024.
• The Sponsor transferred 60,000 Founder Shares to independent director nominees and 10,000 Founder Shares to the Chief Financial Officer on August 2, 2024.
• The Company entered into a promissory note agreement with the Sponsor on July 25, 2024, for up to $500,000.
• An unsecured promissory note of $300,000 was issued to the Sponsor on July 5, 2025, for working capital, convertible into private placement units at $10.00 per unit.
• Amount due to related party (Sponsor) is $254,484 for advances made for formation and IPO expenses.
• The Sponsor or its affiliates may provide Working Capital Loans up to $2,500,000, convertible into working capital units at $10.00 per unit.
• An affiliate of the Sponsor receives $10,000 per month for administrative support services, though full payment was waived on February 5, 2025.

Stakeholder Impact

• Shareholders: Public shareholders face significant risk due to the "going concern" warning and the possibility of liquidation if a business combination is not completed by the deadline. Their redemption rights are tied to the Trust Account, but the value of rights (1/10th of a share) could expire worthless.
• Sponsor: The Sponsor has provided significant financing through loans and private unit purchases, indicating continued commitment but also exposure to the Company's financial risks. Their Founder Shares are subject to lock-up and performance conditions.
• Underwriters: Received Representative Shares and underwriting commissions, but their lock-up period for Representative Shares is 180 days post-IPO.
• SL Bio Ltd.: The target company for the business combination, its merger is contingent on Horizon Space Acquisition II Corp. successfully completing the transaction and securing necessary financing.

Next Steps

• Complete the business combination with SL Bio Ltd.
• Address the working capital deficit and secure additional financing, potentially through working capital loans from the Sponsor or its affiliates.
• Manage increased expenses associated with being a public company and the business combination process.
• Potentially extend the Combination Period beyond November 18, 2025, by depositing $690,000 for each three-month extension, up to an aggregate of $1,380,000.

Key Dates

Recommendation

The explicit "going concern" warning, coupled with a rapidly deteriorating cash position outside the trust account and a significant working capital deficit, indicates severe financial instability. While a business combination agreement with SL Bio Ltd. is in place, the Company's ability to close the deal is highly uncertain given its liquidity issues and reliance on further related-party financing. The risk of liquidation if the merger is not completed by the deadline is substantial, making the stock a high-risk investment with a strong potential for capital loss. Investors should consider selling to avoid further downside given the fundamental financial challenges.

Keywords

SPAC, Horizon Space Acquisition II Corp., SL Bio Ltd., Business Combination, 10-Q, Quarterly Report, Trust Account, Going Concern, Merger, Financial Results, SEC Filing, HSPT