10-Q: Metal Sky Star Faces Delisting, Liquidity Concerns Amid Q3 Loss

Metal Sky Star Acquisition Corporation reported a net loss for Q3 2025, faces substantial doubt about its going concern status, and was delisted from Nasdaq, now trading on OTCID Market.

Summary

• Reported a net loss of $(92,708) for the three months ended September 30, 2025, compared to a net income of $144,123 for the same period in 2024.
• Incurred a net loss of $(443,906) for the nine months ended September 30, 2025, a significant decline from net income of $833,308 in the prior year period.
• The company was delisted from Nasdaq on April 9, 2025, due to its failure to complete an initial business combination within 36 months of its IPO, and its securities now trade on the OTCID Market.
• The trust account balance significantly decreased to $920,985 as of September 30, 2025, from $6,677,519 as of December 31, 2024, primarily due to public share redemptions.
• Working capital deficit increased to $5,124,150 as of September 30, 2025, from $4,297,517 as of December 31, 2024.
• The deadline to consummate a business combination has been extended to January 5, 2026.
• Management has identified a significant deficiency in internal control over financial reporting related to journal entry processing and reviewing, leading to ineffective disclosure controls and procedures.

Sentiment

Score: 2

Explanation: The company faces severe operational and financial distress, including delisting, significant losses, a substantial working capital deficit, and a going concern warning. While efforts to find a business combination continue, the repeated extensions and reliance on related-party funding indicate a highly precarious situation.

Positives

• Remediation of prior material weaknesses in internal control over financial reporting identified as of December 31, 2024.
• Ongoing efforts to identify and pursue a business combination, including non-binding letters of intent with Okidoki O and Fedilco Group Limited.

Negatives

• Reported a net loss of $(92,708) for Q3 2025 and $(443,906) for the nine months ended September 30, 2025, a significant reversal from net income in the prior year periods.
• Delisted from Nasdaq on April 9, 2025, due to failure to complete a business combination within the required timeframe, now trading on the less liquid OTCID Market.
• Trust account balance has substantially decreased to $920,985 as of September 30, 2025, from $6,677,519 at year-end 2024, indicating significant redemptions.
• Accumulated deficit grew to $(8,027,355) and working capital deficit increased to $5,124,150 as of September 30, 2025.
• Management has raised substantial doubt about the company's ability to continue as a going concern.
• Disclosure controls and procedures were not effective as of September 30, 2025, due to a significant deficiency in internal control over financial reporting.
• Previous merger agreement with Future Dao Group Holding Limited was terminated.
• Significant reliance on Sponsor loans for operational costs and extension fees, with promissory notes totaling $3,122,403 and amounts due to related parties of $1,536,658 as of September 30, 2025.

Risks

• Substantial doubt about the company's ability to continue as a going concern if a business combination is not consummated by January 5, 2026, leading to mandatory liquidation.
• Delisting from Nasdaq limits investors' ability to trade securities, reduces demand and liquidity, and makes the company less attractive as a merger partner.
• Securities are no longer considered "covered securities" under the National Securities Markets Improvement Act of 1996, subjecting the company to state-level regulation for securities sales, increasing difficulty and cost for a business combination.
• Shareholders may be prohibited from trading securities in states where the company is not registered.
• Inability to obtain additional financing from the Sponsor or other parties to meet working capital needs or complete a business combination.
• Uncertainty regarding the successful negotiation and consummation of proposed business combinations (Okidoki O, Fedilco Group Limited).
• Potential liability of $245,000 for unbilled service fees from a terminated legal counsel related to a prior merger agreement.
• Ineffective disclosure controls and procedures due to a significant deficiency in internal control over financial reporting.
• The impact of the COVID-19 pandemic and the Russia-Ukraine conflict on the company's financial position and search for a target company remains uncertain.
• Potential for the 1% excise tax on share repurchases under the Inflation Reduction Act, although management currently believes it is not a covered corporation.

Future Outlook

The company is diligently working to complete a business combination by the extended deadline of January 5, 2026. It has entered into non-binding letters of intent with Okidoki O and Fedilco Group Limited, but there are no guarantees that definitive agreements will be reached or that the proposed transactions will be consummated. The company anticipates incurring significant costs in pursuit of its acquisition plans and may need to raise additional capital through loans or investments from its Sponsor, stockholders, officers, directors, or third parties to meet working capital needs or complete a business combination. If a business combination is not consummated by the deadline, the company faces mandatory liquidation and dissolution.

Management Comments

• "We are currently working diligently to complete a business combination as soon as practicable."
• "Management has determined that mandatory liquidation, should a Business Combination not occur, and potential subsequent dissolution raises substantial doubt about the Companys ability to continue as a going concern for a reasonable period of time."
• "We have incurred and expect to continue to incur significant costs in pursuit of our acquisition plans."
• "We will need to raise additional capital through loans or additional investments from our Sponsor, stockholders, officers, directors, or third parties."
• "Our officers, directors and Sponsor may, but are not obligated to, loan us funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet the Companys working capital needs."
• "Management does not believe it is more likely than not that we will be invoiced for additional services [related to the terminated legal counsel]."

Industry Context

Metal Sky Star Acquisition Corporation's situation reflects the increasing challenges faced by Special Purpose Acquisition Companies (SPACs) in the current market. Many SPACs have struggled to identify and complete suitable business combinations within their mandated timelines, leading to significant redemptions, trust account depletion, and delistings. The company's delisting from Nasdaq and reliance on repeated extensions and Sponsor funding are indicative of a broader trend where SPACs that fail to execute quickly face severe liquidity and operational pressures, often resulting in liquidation or trading on less liquid markets. The termination of a prior merger agreement and the non-binding nature of current LOIs highlight the difficulty in securing viable targets in a competitive and scrutinizing environment.

Comparison to Industry Standards

• Business Combination Completion: The company has failed to complete a business combination within the standard 36-month timeframe, leading to delisting from Nasdaq. This contrasts sharply with successful SPACs that identify and merge with target companies within 18-24 months, such as Lucid Group (merged with Churchill Capital Corp IV) or DraftKings (merged with Diamond Eagle Acquisition Corp).
• Trust Account Management: The significant reduction in the trust account from $6.68 million to $0.92 million within nine months, primarily due to redemptions, indicates a high level of shareholder dissatisfaction and a failure to retain capital, unlike SPACs that maintain substantial trust balances until a successful de-SPAC transaction.
• Liquidity and Going Concern: The company's substantial working capital deficit ($5.12 million) and accumulated deficit ($8.03 million), coupled with management's explicit "going concern" warning, place it far below the financial stability typically expected of a public company, even a SPAC. Successful SPACs usually maintain sufficient liquidity to cover operational expenses without constant reliance on related-party loans.
• Exchange Listing: Delisting from Nasdaq to the OTCID Market is a significant downgrade, impacting visibility, liquidity, and investor confidence. Leading SPACs aim for and maintain listings on major exchanges like Nasdaq or NYSE to attract institutional investors and ensure robust trading.
• Deal Flow and Execution: The termination of a definitive merger agreement (Future Dao) and the non-binding nature of subsequent letters of intent (Okidoki O, Fedilco) suggest challenges in deal sourcing, negotiation, and execution compared to industry peers that successfully navigate these processes to bring viable targets to market.

Corporate Governance

Related Party Transactions

• The Sponsor (M-Star Management Corporation) purchased 330,000 private units for $3,300,000 simultaneously with the IPO.
• The Company pays the Sponsor $10,000 per month for administrative services, totaling $30,000 for Q3 2025 and $90,000 for YTD Sep 2025. Unpaid fees to Sponsor were $418,333 as of September 30, 2025.
• The Company has a promissory note with M-Star Management Corp. (Sponsor) for up to $4,500,000, with a balance of $3,122,403 as of September 30, 2025. These loans are non-interest bearing and used for extension fees and transaction costs.
• Amounts due to the Sponsor for formation and operational costs paid on behalf of the Company totaled $1,536,658 as of September 30, 2025.
• Subsequent to September 30, 2025, the Sponsor paid an additional $54,905 in operating expenses on behalf of the Company, bringing the total due to Sponsor to $1,591,563.
• On November 7, 2025, the Sponsor deposited $50,000 into the Trust account for October and November 2025 extension fees, which was a drawdown of the promissory note.

Stakeholder Impact

• Shareholders: Significant dilution and loss of value due to delisting, substantial redemptions, and the company's precarious financial position. Those who redeemed received their pro-rata share of the trust account, while remaining shareholders face high risk of liquidation.
• Sponsor: Continues to bear significant financial burden by providing loans and covering operational expenses, indicating a strong commitment but also exposure to substantial risk.
• Potential Target Businesses: The company's delisted status, dwindling trust account, and going concern warning make it a less attractive merger partner, potentially limiting its ability to secure a favorable business combination.
• Creditors: Face increased risk due to the company's going concern doubt and reliance on a successful business combination for repayment.

Next Steps

• Complete a business combination by January 5, 2026, to avoid mandatory liquidation.
• Continue efforts to identify and evaluate target businesses.
• Negotiate and potentially finalize definitive agreements for proposed business combinations with Okidoki O and Fedilco Group Limited.
• Obtain necessary permissions and/or approvals from the Republic of Armenia's state authorities for the Fedilco transaction.
• Raise additional capital through loans or investments if needed to fund operations or a business combination.
• Enhance the system of evaluating and implementing complex accounting standards and improve communication among personnel and third-party professionals.
• Implement a dual-approval process for journal entries to ensure proper segregation of duties.

Key Dates

Recommendation

The company is in a highly distressed state, marked by delisting from Nasdaq, a significant net loss, a substantial working capital deficit, and an explicit "going concern" warning from management. The trust account has been severely depleted by redemptions, leaving minimal capital for a business combination. While there are non-binding letters of intent, the history of a terminated merger agreement and the company's current financial and operational challenges make a successful, value-creating business combination highly improbable within the remaining timeframe. The stock's trading on the illiquid OTCID Market further exacerbates risks. Investors face a very high likelihood of complete loss of capital if the company liquidates, making a strong sell recommendation appropriate.

Keywords

SPAC, blank check company, business combination, delisting, Nasdaq, OTCID Market, going concern, liquidity, financial results, Q3 2025, Metal Sky Star Acquisition Corporation, merger, acquisition, trust account, redemptions, related party loans, internal controls