Cal Redwood Acquisition Corp. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with our audited financial statements and the notes related thereto which are included in “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Certain information contained in the discussion and analysis set forth below includes forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “Special Note Regarding Forward-Looking Statements,” “Item 1A. Risk Factors” and elsewhere in this Annual Report on Form 10-K. Overview We are a blank check company incorporated in the Cayman Islands on January 7, 2025 formed for the purpose of effecting a merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization or other similar business combination with one or more businesses. We intend to effectuate our business combination using cash derived from the proceeds of the initial public offering and the sale of the private placement units, our shares, debt or a combination of cash, shares and debt. We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a business combination will be successful. Results of Operations We have neither engaged in any operations nor generated any revenues to date. Our only activities from January 7, 2025 (inception) through December 31, 2025 were organizational activities, those necessary to prepare for the initial public offering, described below, and, after our initial public offering, identifying a target company for a business combination. We do not expect to generate any operating revenues until after the completion of our business combination. Subsequent to the initial public offering, we generate non-operating income in the form of interest income on marketable securities held in the trust account. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses. For the period from January 7, 2025 (inception) through December 31, 2025, we had a net income $5,054,949, which consisted of earnings on investments held in Trust Account of $5,633,565 and interest income from bank operating account of $26,678 offset by compensation expense of $132,300, bank service fees of $5,000, and general and administrative costs of $467,994. Liquidity and Capital Resources Until the consummation of the initial public offering, our only source of liquidity was an initial purchase of Class B ordinary shares, par value $0.0001 per share, by the Sponsor and loans from the Sponsor. On May 27, 2025, we consummated the initial public offering of 23,000,000 units, at $10.00 per unit, which includes the full exercise by the underwriters of their over-allotment option in the amount of 3,000,000 units, generating gross proceeds of $230,000,000. Simultaneously with the closing of the initial public offering, we consummated the sale of an aggregate of 660,000 private placement units at a price of $10.00 per private placement unit, generating gross proceeds of $6,600,000. 60 Following the initial public offering, the full exercise of the over-allotment option, and the sale of the units, a total of $230,000,000 was placed in the trust account. We incurred transaction costs of $14,320,654, consisting of $4,600,000 of cash underwriting fee, $9,200,000 of deferred underwriting fee, and $520,654 of other offering costs. For the period from January 7, 2025 (inception) through December 31, 2025, net cash used in operating activities was $446,485. Net income of $5,054,949 was affected by payment of expense through promissory note – related party of $36,220, earnings on investments held in Trust Account of $5,633,565 and compensation expense of $132,300. Changes in operating assets and liabilities used $36,389 of cash from operating activities. As of December 31, 2025, we had cash and investments held in the trust account of $235,633,565 consisting primarily of U.S. Treasury Bills. We may withdraw earnings from the trust account to pay taxes, if any. We intend to use substantially all of the funds held in the trust account, including any amounts representing earnings on the Trust Account (less taxes payable, if any), to complete our business combination. To the extent that our share capital or debt is used, in whole or in part, as consideration to complete our business combination, the remaining proceeds held in the trust account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies. As of December 31, 2025, we had cash of $1,096,942. We intend to use the funds held outside the trust account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a business combination. In order to fund working capital deficiencies or finance transaction costs in connection with a business combination, the Sponsor, or certain of our officers and directors or their affiliates may, but are not obligated to, loan us funds as may be required. If we complete a business combination, we would repay such loaned amounts. In the event that a business combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from our trust account would be used for such repayment. Up to $2,500,000 of such working capital loans may be convertible into private placement units of the post business combination entity at a price of $10.00 per unit at the option of the lender. The units would be identical to the private placement units. From time to time, our officers and directors may pay expenses on behalf of the Company which may be in the form of non-interest bearing loans that are due on demand. At December 31, 2025, we owed $29,694 to affiliates of the Company. We report this amount as due to affiliates on the Company’s balance sheet. We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a business combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our business combination. Moreover, we may need to obtain additional financing either to complete our business combination or because we become obligated to redeem a significant number of our public shares upon consummation of our business combination, in which case we may issue additional securities or incur debt in connection with such business combination. 61 Off-Balance Sheet Financing Arrangements We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of December 31, 2025. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets. Contractual Obligations We do not have any long-term debt, capital lease obligations. The underwriters were entitled to an underwriting discount of $0.20 per unit, or $4,600,000 in the aggregate, of which (i) $0.10 per unit, or $2,300,000 was paid to the underwriters in cash upon the closing of the initial public offering and (ii) $0.10 per unit, or $2,300,000 was used by the underwriters to purchase private placement units. In addition, the underwriters are entitled to a deferred fee of (i) $0.40 per unit sold in the initial public offering, or up to $9,200,000 in the aggregate, payable based on the percentage of funds remaining in the trust account after redemptions of public shares, solely in the event that the Company completes a business combination, subject to the terms of the underwriting agreement. Critical Accounting Estimates The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Making estimates requires management to exercise significant judgement. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could materially differ from those estimates. As of December 31, 2025, we did not have any critical accounting estimates to be disclosed other than discussed below. At the date of the initial public offering, May 27, 2025, the fair value of the public rights was determined based on the market value of the associated public units, with a market adjustment which takes into account low market volatility, the likelihood of closing on a business combination and the possibility of a post-acquisition decline in the stock price. The public rights have been classified within shareholders’ deficit and will not require remeasurement after issuance. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required for smaller reporting companies. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This information appears following Item 15 of this Report and is included herein by reference. 62 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.