Cactus Acquisition Corp. 1 Ltd (NASDAQ:CCTS) is a special purpose acquisition company (SPAC) that has been actively searching for a target business to merge with since its initial public offering (IPO) in November 2021. The company's journey has been marked by a series of extensions, shareholder redemptions, and a recent sponsor change, all of which have added complexity to its path towards a successful business combination.

Business Overview

Cactus Acquisition Corp. 1 Ltd was incorporated in April 2021 as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization, or similar business combination with one or more businesses. The company completed its IPO in November 2021, raising $126.5 million by selling 12,650,000 units, with each unit consisting of one Class A ordinary share and one-half of one redeemable warrant.

Extension and Redemptions

Since its IPO, Cactus Acquisition Corp. 1 Ltd has been actively searching for a suitable target business to merge with. The company's initial 18-month combination period was set to expire in May 2023, but the company's shareholders voted to extend this deadline on two separate occasions. The first extension, approved in April 2023, pushed the deadline to November 2023, while the second extension, approved in November 2023, further extended the deadline to November 2024.

These extensions, however, have come at a cost. In connection with the first extension, the company's shareholders redeemed 10,185,471 Class A ordinary shares, resulting in a distribution of $106.7 million from the trust account. Similarly, in connection with the second extension, 347,980 Class A ordinary shares were redeemed, leading to a distribution of $3.8 million from the trust account. These redemptions have significantly reduced the company's available cash resources, making it more challenging to complete a successful business combination.

Compliance Issues

In addition to the extension-related redemptions, Cactus Acquisition Corp. 1 Ltd has also faced compliance issues with the Nasdaq Stock Market. In June 2023, the company received a notice from Nasdaq indicating that it was not in compliance with the market value of listed securities (MVLS) rule, which requires a minimum MVLS of $50 million for continued listing on the Nasdaq Global Market. The company was able to regain compliance with this rule in February 2024.

More recently, in September 2023, the company received another notice from Nasdaq, this time related to the minimum total holders rule, which requires a minimum of 400 total holders for continued listing on the Nasdaq Global Market. The company was able to submit a plan to regain compliance and was granted an extension until March 2024, at which point it was able to demonstrate compliance with the rule.

Recent Developments

Despite these challenges, Cactus Acquisition Corp. 1 Ltd has continued its search for a suitable target business. In April 2024, the company entered into a non-binding heads of agreement with Tembo e-LV B.V., a subsidiary of the Nasdaq-listed B Corp VivoPower International PLC, regarding a potential business combination transaction. The companies have since agreed to extend the exclusivity period for the heads of agreement to August 2024, providing additional time for Tembo to consummate a material transaction and update its disclosures before finalizing a definitive business combination agreement.

Financials

Financially, Cactus Acquisition Corp. 1 Ltd has reported limited operational activity since its IPO, as it has been focused on its search for a target business. For the three months ended March 31, 2024, the company reported interest income of $277,000 earned on marketable securities held in its trust account, and operating expenses of $240,000, resulting in net earnings of $37,000 for the quarter.

On an annual basis, the company reported net income of $1,564,000, with no revenue, annual operating cash flow of $2,247,000, and annual free cash flow of $2,247,000 for the year ended December 31, 2023. These financial results reflect the company's status as a SPAC, with its primary focus on identifying and completing a business combination rather than generating operational revenue.

Liquidity

Cactus Acquisition Corp. 1 Ltd's liquidity position has been a concern, as the company has had to rely on loans from its sponsors and third parties to fund its operations. As of March 31, 2024, the company had $19,000 in cash and cash equivalents, and a working capital deficit of $480,000. The company has obtained additional financing, including a $600,000 promissory note from Energi Holding Limited in March 2024, to help fund its ongoing operations and search for a target business.

Sponsor Change

The company's recent sponsor change has also added complexity to its situation. In February 2024, Cactus Acquisition Corp. 1 Ltd's original sponsor, Cactus Healthcare Management LP, transferred 80% of the company's securities to a new sponsor, EVGI Ltd. This sponsor change was accompanied by a change in the company's management and board of directors, with the new sponsor's designees now comprising the entire board and executive team.

Outlook

Looking ahead, Cactus Acquisition Corp. 1 Ltd's success will largely depend on its ability to complete a successful business combination with Tembo or another suitable target. The company's recent compliance issues with Nasdaq, the significant shareholder redemptions, and its ongoing liquidity challenges all add uncertainty to its path forward. Investors will need to closely monitor the company's progress as it navigates these complexities and works towards a potential merger.

Conclusion

Overall, Cactus Acquisition Corp. 1 Ltd's journey as a SPAC has been marked by a series of challenges, but the company's perseverance and its recent heads of agreement with Tembo suggest that it may still have a path forward to a successful business combination. Investors should continue to follow the company's developments closely as it works to create value for its shareholders.