10-Q: Oak Woods SPAC Faces Liquidity Crunch, Extends Merger Deadline

Oak Woods Acquisition Corporation reports a significant working capital deficit and further extends its business combination deadline to March 2026 amid ongoing shareholder redemptions.

Summary

• Oak Woods Acquisition Corporation, a blank check company (SPAC), has not commenced operations other than activities related to its prospective merger with Huajin (China) Holdings Limited.
• The company reported a net loss of $100,648 for the three months ended June 30, 2025, and a net loss of $148,435 for the six months ended June 30, 2025.
• Cash held outside the Trust Account was $25 as of June 30, 2025, a significant decrease from $4,637 at December 31, 2024.
• A working capital deficit of $6,506,884 was reported as of June 30, 2025.
• Investments held in the Trust Account decreased to $42,361,047 as of June 30, 2025, from $48,084,367 at December 31, 2024, primarily due to shareholder redemptions.
• The business combination deadline has been extended multiple times, most recently by shareholder approval on October 8, 2025, to March 28, 2026, with current deposits extending the time until January 28, 2026.
• Significant shareholder redemptions occurred: 1,492,646 Class A shares ($16,541,342) on September 26, 2024; 679,929 Class A shares ($7,859,455) on March 20, 2025; and 2,274,444 Class A shares ($27,588,639) on October 8, 2025.
• The company relies heavily on its Sponsor for liquidity, with promissory notes from a related party totaling $3,591,900 as of June 30, 2025, for extensions and operations.
• The Backstop Agreement with Future Woods Investment Holding Limited, which would have provided $5,000,000, was terminated on December 18, 2024.
• Management has identified a material weakness in internal control over financial reporting due to non-identification of delays and errors in Trust Account investment activity.

Sentiment

Score: 2

Explanation: The company faces severe liquidity issues with minimal cash outside the trust, a substantial working capital deficit, and heavy reliance on sponsor loans. Repeated extensions of the business combination deadline, coupled with high shareholder redemptions and the termination of a backstop agreement, indicate significant challenges in completing the merger. The identified material weakness in internal controls further adds to the negative sentiment.

Positives

• Interest income earned on investments held in the Trust Account was $430,564 for the three months ended June 30, 2025, and $928,635 for the six months ended June 30, 2025.
• The company has successfully secured multiple extensions for its business combination deadline, demonstrating continued efforts to complete the merger.
• A downward change in the fair value of warrant liabilities resulted in a non-cash gain of $1,700 for the three months ended June 30, 2025, and $6,700 for the six months ended June 30, 2025.

Negatives

• The company reported a net loss of $148,435 for the six months ended June 30, 2025, an increase from $48,301 for the same period in 2024.
• Cash outside the Trust Account has significantly decreased to $25 as of June 30, 2025, indicating severe liquidity constraints for operational expenses.
• A substantial working capital deficit of $6,506,884 was reported as of June 30, 2025.
• The company is increasingly reliant on loans from its Sponsor, with related party promissory notes totaling $3,591,900 as of June 30, 2025.
• High shareholder redemptions have significantly depleted the Trust Account balance and reduced the number of public shares outstanding.
• The termination of the $5,000,000 Backstop Agreement with Future Woods Investment Holding Limited removes a crucial potential funding source for the business combination.
• A material weakness in internal control over financial reporting was identified concerning delays and errors in Trust Account investment activity.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern due to its working capital deficit and reliance on external financing.
• There is no assurance that the company will complete its initial Business Combination with Huajin (China) Holdings Limited within the extended period, which currently runs until January 28, 2026, with a final potential extension to March 28, 2026.
• The company's ability to obtain additional financing from its Sponsor, stockholders, officers, directors, or third parties is uncertain, and new financing may not be available on commercially acceptable terms, if at all.
• Failure to complete a Business Combination within the Combination Period will lead to the company's liquidation, resulting in public warrants and rights expiring worthless.
• Geopolitical events, such as the Russia-Ukraine war and the Israel-Hamas conflict, could materially and adversely affect the company's ability to consummate a Business Combination or raise necessary equity and debt financing.
• The identified material weakness in internal control over financial reporting could adversely affect the company's ability to accurately record, process, summarize, and report financial information.
• In the event of liquidation, the per share value of assets remaining for distribution to public shareholders could be less than the initial $10.175 per share.

Future Outlook

The company expects to continue incurring significant formation, operating, and transaction costs in pursuit of its Business Combination. It may need to raise additional capital through loans or investments from its Sponsor, stockholders, officers, directors, or third parties, though there is no assurance such financing will be available on commercially acceptable terms. Management has determined that these conditions raise substantial doubt about the company's ability to continue as a going concern. If the Business Combination is not completed by the extended deadline of March 28, 2026, the company's board of directors would commence voluntary liquidation.

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 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

The company's situation, characterized by multiple extensions of its business combination deadline, significant shareholder redemptions, a dwindling cash balance outside the trust, and heavy reliance on sponsor funding, is indicative of the broader challenges faced by many Special Purpose Acquisition Companies (SPACs) in the current market environment. The termination of the backstop agreement further highlights the difficulties in securing additional capital, a common hurdle for SPACs struggling to complete de-SPAC transactions.

Comparison to Industry Standards

• The high redemption rates experienced by the company (e.g., 2,274,444 Class A shares redeemed on October 8, 2025) are consistent with trends in the broader SPAC market, where public shareholders frequently opt to redeem their shares rather than participate in a delayed or uncertain business combination.
• The company's reliance on its Sponsor for significant loans to cover extension payments and operational expenses is a common practice among SPACs that require additional time to complete a merger, as sponsors typically bear these costs to maintain the SPAC's viability.
• The termination of the $5,000,000 backstop agreement with Future Woods Investment Holding Limited reflects the challenging capital market conditions for SPACs, where securing Private Investment in Public Equity (PIPE) financing has become increasingly difficult.

Corporate Governance

Related Party Transactions

• The Sponsor (Whale Bay International Company Limited) purchased 343,125 Private Units for $3,431,250 in a private placement.
• The Sponsor acquired 2,156,250 Class B ordinary shares for $25,000 and later surrendered 718,750 shares.
• The Sponsor assigned Class B shares to Space Frontier Investment Holding Limited and certain directors (Fen Zhang, John ODonnell, Mitchell Cariaga, Lauren Simmons).
• The Sponsor or its affiliates may loan the company funds for working capital (Working Capital Loans), with up to $1,151,000 convertible into units.
• The Sponsor provided promissory notes for extension loans totaling $2,300,000 as of June 30, 2025.
• The Sponsor provided other promissory notes for operational support totaling $1,291,900 as of June 30, 2025.
• The company is obligated to pay the Sponsor a monthly fee of $10,000 for administrative services, with $270,000 accrued as of June 30, 2025.
• Asian Legend International Investment Holding Limited (advisor) is to receive a cash fee of $100,000 per month and Class A Ordinary Shares (5% of shares issued to Huajin shareholders) upon the consummation of a Business Combination, with $2,100,000 in consulting service expenses accrued as of June 30, 2025.

Stakeholder Impact

• **Shareholders (Public)**: Face significant dilution and reduced Trust Account value due to high redemptions. Warrants and rights are at risk of expiring worthless if the business combination fails. Ongoing uncertainty regarding the merger's completion.
• **Shareholders (Sponsor/Initial)**: Bear the financial burden of extension payments and operational loans, increasing their investment risk. Their shares are subject to lock-up restrictions.
• **Target Company (Huajin)**: The repeated delays and substantial redemptions create significant uncertainty for the completion of the merger. A deposit of $330,969 from Huajin is held by Oak Woods.
• **Creditors (Sponsor)**: Significant amounts are owed to the Sponsor through promissory notes and administrative fees, with repayment contingent on the successful completion of the Business Combination.
• **Underwriters**: Their deferred underwriting commission of $2,012,500 is contingent upon the closing of a Business Combination.
• **Financial Advisor (AsianLegend)**: Cash fees and share-based compensation are contingent on the closing of the Business Combination.

Next Steps

• Complete the Business Combination with Huajin (China) Holdings Limited by the current extended deadline of January 28, 2026, or the final potential deadline of March 28, 2026.
• Remediate the identified material weakness in internal control over financial reporting by ensuring timely reconciliation of Trust Account statements and investment activity.
• Potentially raise additional capital through loans or investments to meet working capital needs and transaction costs.
• If the Business Combination is not completed within the required timeframe, the company's board of directors will proceed with voluntary liquidation.

Key Dates

Recommendation

The company is a SPAC facing severe challenges, including a critical liquidity crunch with only $25 in cash outside the trust, a substantial working capital deficit, and heavy reliance on sponsor loans. Repeated extensions of the business combination deadline, coupled with massive shareholder redemptions, indicate a high probability of failure to complete the merger. The termination of the $5 million backstop agreement further weakens its financial position and prospects. The identified material weakness in internal controls adds to operational risk. Given the substantial doubt about its ability to continue as a going concern and the high risk of liquidation, an investor should consider selling to avoid further capital loss.

Keywords

SPAC, Huajin, Merger Agreement, Business Combination, Redemption, Trust Account, Extension, Liquidity, Going Concern, Financial Reporting, Warrants, Class A Shares, Cayman Islands