10-Q: Oak Woods Faces Going Concern Doubt Amidst Merger Delays

Oak Woods Acquisition Corporation reports a significant working capital deficit and multiple Nasdaq non-compliance issues as it struggles to finalize its business combination with Huajin (China) Holdings Limited.

Summary

• Oak Woods Acquisition Corporation, a blank check company, reported a net loss of $134,546 for the nine months ended September 30, 2025, a significant decline from a net income of $287,416 in the same period of 2024.
• The company's cash balance outside the Trust Account decreased to $1,930 as of September 30, 2025, from $4,637 at December 31, 2024.
• Investments held in the Trust Account decreased to $43,319,176 from $48,084,367 over the same period, primarily due to significant shareholder redemptions.
• Total liabilities increased substantially to $9,327,366 as of September 30, 2025, from $6,422,251 at December 31, 2024, driven by increased related party promissory notes and accrued expenses.
• The company has a working capital deficit of $7,276,924 as of September 30, 2025.
• The proposed merger with Huajin (China) Holdings Limited, initially agreed upon in August 2023, has been repeatedly extended, with the current deadline set for March 28, 2026.
• Shareholders have approved multiple extensions, each accompanied by significant redemptions of Class A ordinary shares: 1,492,646 shares ($16,514,342) in September 2024, 679,929 shares ($7,859,455) in March 2025, and 2,274,444 shares ($27,588,639) in October 2025.
• The company faces multiple Nasdaq non-compliance notifications, including failure to hold an annual meeting, not meeting the minimum $35 million market value of listed securities, and not meeting the minimum 300 public holders requirement.
• Management identified a material weakness in internal control over financial reporting related to delays and errors in Trust Account investment activities.

Sentiment

Score: 2

Explanation: The company faces severe liquidity issues, a substantial working capital deficit, repeated delays in its business combination, significant shareholder redemptions, and multiple Nasdaq non-compliance notices, all indicating a highly precarious financial and operational position. The identified material weakness in internal controls further compounds the negative sentiment.

Positives

• Net cash used in operating activities decreased to $422,932 for the nine months ended September 30, 2025, from $1,134,653 in the prior year.
• The company successfully secured multiple extensions for its business combination deadline through shareholder approvals and sponsor deposits, extending the period until March 28, 2026.
• The net loss per ordinary share for non-redeemable Class A and Class B shares slightly improved to $(0.52) for the nine months ended September 30, 2025, from $(0.61) in the prior year.

Negatives

• The company shifted from a net income of $287,416 for the nine months ended September 30, 2024, to a net loss of $134,546 for the same period in 2025.
• Cash held outside the Trust Account is critically low at $1,930 as of September 30, 2025.
• The company has a significant working capital deficit of $7,276,924 as of September 30, 2025.
• Promissory notes due to a related party (Sponsor) increased substantially to $4,045,375 as of September 30, 2025, from $2,245,150 at December 31, 2024, indicating heavy reliance on sponsor funding.
• Accrued expenses and other payables increased to $2,626,522 as of September 30, 2025, from $1,606,632 at December 31, 2024.
• The Backstop Agreement with Future Woods Investment Holding Limited for $5,000,000 was terminated on December 18, 2024, removing a potential source of funding for the business combination.
• Significant shareholder redemptions have reduced the Trust Account balance and the number of public shares outstanding, making the completion of the business combination more challenging.
• The company is facing multiple Nasdaq non-compliance issues, including failure to hold an annual meeting, not meeting the minimum $35 million market value of listed securities, and not meeting the minimum 300 public holders requirement, which could lead to delisting.
• Management identified a material weakness in internal control over financial reporting related to trust investment activity.

Risks

• Inability to complete the Business Combination with Huajin (China) Holdings Limited within the extended period (March 28, 2026), which would lead to liquidation and potential loss for public shareholders.
• Substantial doubt about the company's ability to continue as a going concern due to low cash, significant working capital deficit, and reliance on sponsor loans.
• Geopolitical risks (Russia-Ukraine war, Israel-Hamas conflict) could materially and adversely affect the ability to consummate a Business Combination or the operations of a target business, and impact the ability to raise equity and debt financing.
• Failure to regain compliance with Nasdaq listing rules (annual meeting, minimum market value, minimum public holders) could result in delisting of the company's securities.
• The deferred underwriting commission of $2,012,500 will not be paid if the Business Combination is not completed, potentially impacting the underwriters.
• The Sponsor's liability to protect the Trust Account from third-party claims has limitations, potentially exposing public shareholders to losses below $10.175 per share.
• Public warrants and rights may expire worthless if the Business Combination is not completed within the required time period.
• Material weakness in internal control over financial reporting could lead to financial misstatements or operational inefficiencies.

Future Outlook

The company's future outlook is highly uncertain, with management expressing substantial doubt about its ability to continue as a going concern. The primary objective remains the completion of a business combination with Huajin (China) Holdings Limited by the extended deadline of March 28, 2026. The company also intends to submit a plan to Nasdaq to regain compliance with listing rules, including holding an annual meeting and addressing minimum market value and public holder requirements. The ability to secure additional financing from the Sponsor or other parties is critical for meeting working capital needs and transaction costs.

Management Comments

• Management has determined that such additional conditions also raise substantial doubt about the Company's ability to continue as a going concern.
• The Company intends to submit a compliance plan within the required timeframe and expects that such plan will include holding an annual meeting of shareholders within the period permitted by Nasdaq, subject to Nasdaq's acceptance of the plan.
• The Company will ensure that the Trust Account statements with the associated monthly investment statements are reconciled at the time of each extension payment in order to immediately detect any delays or errors in processing the investment of the extension proceeds.

Industry Context

Oak Woods Acquisition Corporation operates within the highly competitive and increasingly scrutinized Special Purpose Acquisition Company (SPAC) sector. The repeated extensions of its business combination deadline, coupled with significant shareholder redemptions and the termination of a backstop agreement, reflect broader challenges faced by SPACs in a less favorable market environment. The multiple Nasdaq non-compliance notices highlight the regulatory pressures and increased scrutiny on SPACs that fail to complete mergers or maintain listing standards, contrasting with the SPAC boom of prior years where such issues were less prevalent. The reliance on sponsor funding for operational expenses and extension deposits is a common, yet risky, characteristic of SPACs nearing their liquidation deadline.

Comparison to Industry Standards

• The repeated extensions and high redemption rates are indicative of a challenging SPAC market, where many SPACs struggle to find suitable targets or retain investor capital. For example, other SPACs like Digital World Acquisition Corp. (DWAC) also faced multiple extensions and redemptions, though it eventually moved forward with its merger.
• The termination of the $5 million Backstop Agreement with Future Woods Investment Holding Limited is a negative signal, as backstop agreements are often crucial for SPACs to meet minimum cash conditions for a de-SPAC transaction, similar to how other SPACs like Gores Guggenheim (now Polestar) relied on PIPE investments.
• The Nasdaq non-compliance issues (annual meeting, minimum market value, minimum public holders) are severe and reflect a failure to meet basic public company obligations, a situation that has led to delistings for other struggling SPACs or small-cap companies. For instance, some smaller biotech or tech companies have faced similar delisting threats due to low market capitalization or insufficient public float.
• The material weakness in internal controls related to Trust Account management is a significant governance concern, contrasting with the robust financial controls expected of publicly traded entities, even blank check companies.

Management Changes

Corporate Governance

Related Party Transactions

• Sponsor (Whale Bay International Company Limited) acquired 1,437,500 Class B ordinary shares for $25,000.
• Sponsor assigned Class B shares to Space Frontier Investment Holding Limited, Fen Zhang (former CEO/Chairman), and independent directors.
• Sponsor or affiliates may loan funds for working capital, with up to $1,151,000 of such loans convertible into up to 115,100 Private Units.
• Sponsor provided promissory notes for extension loans totaling $2,645,000 as of September 30, 2025.
• Sponsor provided promissory notes for operation loans totaling $1,400,375 as of September 30, 2025, with an additional $1,500,000 note issued on September 28, 2025, not yet drawn down.
• Company is obligated to pay the Sponsor a monthly fee of $10,000 for general and administrative services, with $300,000 accrued as of September 30, 2025.

Stakeholder Impact

• Shareholders: Significant redemptions have reduced the number of public shares and the Trust Account balance, potentially diminishing the value of remaining shares and increasing the risk of liquidation if the business combination fails. Non-redeeming shareholders bear the risk of the company's going concern issues and potential delisting.
• Sponsor: Continues to provide substantial loans for extensions and operations, indicating a significant financial commitment and risk exposure. Their Class B shares and private warrants are at risk if the business combination is not completed.
• Target Company (Huajin): The repeated delays and redemptions create uncertainty for Huajin regarding the completion of the merger and the capital it expects to receive. The termination of the backstop agreement also impacts the certainty of funding.
• Underwriters: The deferred underwriting commission of $2,012,500 is contingent on the closing of the business combination, placing their fee at risk due to ongoing delays and uncertainties.
• Creditors: The company's going concern issues and increasing liabilities, particularly to related parties, raise concerns about the company's ability to meet its obligations.

Next Steps

• Complete the business combination with Huajin (China) Holdings Limited by March 28, 2026.
• Submit a plan to Nasdaq by March 2, 2026, to regain compliance with the annual meeting requirement.
• Regain compliance with Nasdaq's minimum $35 million market value of listed securities requirement by May 18, 2026.
• Implement the comprehensive strategy submitted to Nasdaq on September 26, 2025, to regain compliance with the minimum 300 public holders requirement, including engaging advisors, brokers, and a marketing company, and arranging a PIPE.
• Remediate the identified material weakness in internal control over financial reporting by ensuring timely reconciliation of Trust Account statements and investment activities.
• Potentially raise additional capital through loans or investments from the Sponsor, stockholders, officers, directors, or third parties.

Key Dates

Recommendation

The company faces a confluence of severe negative factors: a substantial working capital deficit, critically low cash, a shift from net income to net loss, and heavy reliance on related-party loans. The repeated extensions of the business combination deadline, coupled with significant shareholder redemptions, indicate a lack of investor confidence and a challenging path to closing the merger. The termination of the backstop agreement further weakens its financial position. Most critically, the multiple Nasdaq non-compliance notices, including failure to meet minimum market value and public holder requirements, pose an imminent threat of delisting. The identified material weakness in internal controls adds to governance concerns. Given these compounding issues and the high probability of liquidation or delisting, the stock carries extreme risk and is highly unlikely to deliver positive returns for investors.

Keywords

SPAC, blank check company, business combination, Huajin (China) Holdings Limited, merger agreement, SEC filing, 10-Q, financial report, Nasdaq compliance, going concern, shareholder redemptions, trust account, related party loans, corporate governance, risk factors, financial advisory, underwriting fees