The
accompanying notes are an integral part of these unaudited condensed financial statements.
The
accompanying notes are an integral part of these unaudited condensed financial statements.
The
accompanying notes are an integral part of these unaudited condensed financial statements.
The
accompanying notes are an integral part of these unaudited condensed financial statements.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1—Organization and Business Operations
Organization and General
Bannix
Acquisition Corp. (the “Company”) is a blank check company incorporated in the state of Delaware on January 21, 2021.
The Company was formed for the purpose of effecting mergers, capital stock exchange, asset acquisitions, stock purchases, reorganization
or similar business combinations with one or more businesses (“Business Combination”). The Company has not selected
any specific Business Combination target and the Company has not, nor has anyone on its behalf, initiated any substantive discussions,
directly or indirectly, with any Business Combination target with respect to the Business Combination.
As
of March 31, 2023, the Company had not commenced any operations. All activity for the period from January 21, 2021 (inception)
through March 31, 2023 relates to the Company’s formation and the initial public offering (the “IPO”) (as defined
below) and the Company’s search for a target for an initial business combination. The Company will not generate any operating
revenues until after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating
income in the form of interest income on cash and cash equivalents from the proceeds derived from the IPO and non-operating income
or expense from the changes in the fair value of warrant liabilities. The Company is an early stage and emerging growth company
and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
Financing
The
Company’s original sponsors were Subash Menon and Sudeesh Yezhuvath (through their investment entity Bannix Management LLP),
Suresh Yezhuvath (“Yezhuvath”) and Seema Rao (“Rao”).
On October 20, 2022, pursuant
to a Securities Purchase Agreement (“SPA”), Instant Fame LLC, a Nevada limited liability company controlled by a U.S.
person (“Instant Fame”) (the “new Sponsors”), acquired an aggregate of 385,000 shares of common stock of
the Company from Bannix Management LLP, Balaji Venugopal Bhat, Nicholos Hellyer, Subbanarasimhaiah Arun, Vishant Vora and Suresh
Yezhuvath and 90,000 private placement units from Suresh Yezhuvath (collectively, the “Sellers”) in a private transaction.
The Sellers immediately loaned the entire proceeds to the Company for the working capital requirements of the Company. This loan
will be forfeited by the Sellers upon liquidation or business combination. In connection with this transaction, all parties agreed
to certain changes to the Board of Directors.
As a result of the above, Subash
Menon resigned as Chief Executive Officer and Chairman of the Board of Directors of the Company and Nicholas Hellyer resigned as
Chief Financial Officer, Secretary and Head of Strategy. Douglas Davis was appointed as the Chief Executive Officer of the Company.
Further, Balaji Venugopal Bhat, Subbanarasimhaiah Arun and Vishant Vora resigned as Directors of the Company. Mr. Bhat, Mr. Arun
and Mr. Vora served on the Audit Committee with Mr. Bhat serving as the committee chair. Mr. Bhat, Mr. Arun and Mr. Vora served
on the Compensation Committee with Mr. Arun serving as the committee chair.
The Board was also increased
from two to seven and Craig Marshak and Douglas Davis were appointed as Co-Chairmans of the Board of Directors effective immediately.
Further, Jamal Khurshid, Eric T. Shuss and Ned L. Siegel were appointed to the Board of Directors of the Company. The resignations
referenced above were not the result of any disagreement with management or the Board.
On November 10, 2022, Sudeesh
Yezhuvath resigned as a director of the Company for personal reasons. The resignation was not the result of any disagreements with
management or the Board.
Due to vacancies as results
of board members departure, on November 11, 2022 the Board made the following decisions: (i) Jamie Khurshid, Ned Siegel and Eric
Shuss each have been identified as being financially literate and independent under the SEC and Nasdaq Rules have been appointed
to the Audit Committee to serve until their successors are qualified and appointed with such appointment subject to the mailing
of that certain Schedule 14F Information Statement. Mr. Khurshid chairs the audit committee. (ii) Mr. Siegel, Mr. Shuss and Craig
Marshak each have been identified as being independent under the SEC and Nasdaq Rules were appointed to the Compensation Committee
to serve until their successors are qualified and appointed with such appointment subject to the mailing of that certain Schedule
14F Information Statement. (iii) Messrs. Davis and Marshak have been appointed as Class III directors, Subash Menon has been appointed
as a Class I director and, subject to the mailing of the Schedule 14F Information Statement, Messrs. Khurshid, Siegel and Shuss
have been appointed as the Class II directors. The Schedule 14F Information Statement was mailed on or about November 15, 2022.
The registration statements
for the Company’s IPO were declared effective on September 9, 2021 and September 10, 2021 (the “Effective Date”).
On September 14, 2021, the Company consummated its IPO of 6,900,000 units at $10.00 per unit (the “Units”), which is
discussed in Note 2. Each Unit consists of one share of common stock (the “Public Shares”), one redeemable warrant
to purchase one share of common stock at a price of $11.50 per share and one right. Each right entitles the holder thereof to receive
one-tenth (1/10) of one share of common stock upon the consummation of the Business Combination.
Concurrent with the IPO, the
Company consummated the issuance of 406,000 private placement units (the “Private Placement Units”) as follows: the
Company sold 181,000 Private Placement Units to certain investors for aggregate cash proceeds of $2,460,000 and issued an additional
225,000 private placement units to the Sponsor in exchange for the cancellation of $1,105,000 in loans and a promissory note due
to them (see Note 5). Each Private Placement Unit consists of one share of common stock, one redeemable warrant to purchase one
share of common stock at a price of $11.50 per whole share and one right. Each right entitles the holder thereof to receive one-tenth
(1/10) of one share of common stock upon the consummation of the Business Combination. The Company’s management has broad
discretion with respect to the specific application of the net proceeds of the IPO and the Private Placement Units, although substantially
all of the net proceeds are intended to be generally applied toward consummating a Business Combination.
Trust
Account
Following the closing of the
IPO on September 14, 2021, an amount of $69,690,000 ($10.10 per Unit) from the net proceeds of the sale of the Units in the IPO
and Private Placement Units was placed in a trust account (the “Trust Account”) and invested in U.S. government securities,
within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 180 days or less or in any open-ended
investment company that holds itself out as a money market fund meeting the conditions of Rule 2a-7 of the Investment Company Act,
as determined by the Company. Except with respect to interest earned on the funds held in the Trust Account that may be released
to the Company to pay its franchise and income tax obligations (less up to $100,000 of interest to pay dissolution expenses), the
proceeds from this offering and the sale of the Private Placement Units will not be released from the Trust Account until the earliest
of (a) the completion of the Company’s initial Business Combination, (b) the redemption of any Public Shares properly submitted
in connection with a stockholder vote to amend the Company’s amended and restated certificate of incorporation, and (c) the
redemption of the Company’s Public Shares if the Company is unable to complete the initial Business Combination within 15
months from the closing of this offering, or within any period of extension, subject to applicable law. The proceeds deposited
in the Trust Account could become subject to the claims of the Company’s creditors, if any, which could have priority over
the claims of the Company’s public stockholders.
On December 13, 2022, the Company
issued an unsecured promissory note in favor of Instant Fame, in the principal amount of $690,000. The proceeds of the Note were
utilized by the Company to obtain the first three-month extension of the period for the Company to consummate a business combination.
The Company held a Special
Meeting of Stockholders on March 8, 2023 at 12:00 p.m. Eastern Time (the “Special Meeting”). At the Special Meeting,
the stockholder approved the filing of an amendment to its Amended and Restated Certificate of Incorporation with the Delaware
Secretary of State (the “Extension Amendment”), to extend the date (the “Extension”) by which the Company
must (1) complete a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business
combination involving the Company and one or more businesses (an “initial business combination”), (2) cease its operations
except for the purpose of winding up if it fails to complete such initial business combination, and (3) redeem 100% of the Company’s
common stock (“common stock”) included as part of the units sold in the Company’s initial public offering that
was consummated on September 14, 2021 (the “IPO”), from March 14, 2023, and to allow the Company, without another stockholder
vote, to further extend the date to consummate a business combination on a monthly basis up to twelve (12) times by an additional
one (1) month each time after March 14, 2023 or later extended deadline date, by resolution of the Company’s board of directors
(the “Board”), if requested by Instant Fame upon five days’ advance notice prior to the applicable deadline date,
until March 14, 2024, or a total of up to twelve (12) months after March 14, 2023 (such date as extended, the “Deadline Date”),
unless the closing of a business combination shall have occurred prior thereto.
Initial Business Combination
The Company had until December
13, 2022 to consummate the initial Business Combination. Pursuant to the terms of the bylaws and the trust agreement entered into
between the Company and Continental Stock Transfer & Trust Company, in order to extend the time available for the Company to
consummate the initial Business Combination, the new Sponsors, upon five days advance notice prior to the applicable deadline,
must deposit into the Trust Account for each three-month extension, $690,000 ($0.10 per share in either case) on or prior to the
date of the applicable deadline, up to an aggregate of $1,380,000, or approximately $0.20 per share. On December 13, 2022, the
Company issued an unsecured promissory note (the “December 2022 Note”) in favor of Instant Fame, in the principal amount
of $690,000. The proceeds of the December 2022 Note were utilized by the Company to obtain the first three-month extension of the
period for the Company to consummate a business combination. As a result, the Deadline Date was extended until March 14, 2023.
The Company, as approved at the stockholder meeting on March 8, 2023, without another stockholder vote, may further extend the
date to consummate a business combination on a monthly basis up to twelve (12) times by an additional one (1) month each time after
March 14, 2023 or later extended deadline date, by resolution of the Board, if requested by Instant Fame upon five days’
advance notice prior to the applicable deadline date, until March 14, 2024, or a total of up to twelve (12) months after March
14, 2023, unless the closing of a business combination shall have occurred prior thereto. If an Extension is implemented, Instant
Fame will deposit into the Trust Account, as a loan, the lesser of (x) $75,000 or (y) $0.07 per public share multiplied by the
number of public shares outstanding (the “Contribution”), in connection with each Extension. On March 13, 2023, the
Board, at the request of Instant Fame, determined to implement a first Extension and to extend the Deadline Date for an additional
month to April 14, 2023. In connection with Instant Fame’s contribution for the Extension, which was funded on March 10,
2023, on March 13, 2023, the Company issued an unsecured promissory note to Instant Fame with a principal amount equal to $75,000
(the “First Extension Note”). The December 2022 Note and the First Extension Note bear no interest and are repayable
in full upon the earlier of (a) the date of the consummation of Bannix’s initial business combination, or (b) the date of
Bannix’s liquidation. If Bannix does not consummate an initial business combination by the Deadline Date, the First Extension
Note will be repaid only from funds held outside of the trust account or will be forfeited, eliminated or otherwise forgiven.
In the event that the Company
receives notice from Instant Fame five days prior to the applicable deadline of its wish for the Company to effect an extension,
the Company intends to issue a press release announcing such intention at least three days prior to the applicable deadline. In
addition, the Company intends to issue a press release the day after the applicable deadline announcing whether or not the funds
had been timely deposited. Instant Fame and its affiliates or designees are not obligated to fund the Trust Account to extend the
time for the Company to complete the initial Business Combination. If the Company is unable to consummate the initial Business
Combination within the applicable time period, the Company will, promptly but not more than ten business days thereafter, redeem
the Public Shares for a pro rata portion of the funds held in the Trust Account and promptly following such redemption, subject
to the approval of the remaining stockholders and the board of directors, dissolve and liquidate, subject in each case to the obligations
under Delaware law to provide for claims of creditors and the requirements of other applicable law. In such event, the rights and
warrants will be worthless. Additionally, pursuant to Nasdaq rules, any initial Business Combination must be approved by a majority
of the independent directors.
The Company anticipates structuring
the initial Business Combination so that the post-transaction company in which the public stockholders’ own shares will own
or acquire substantially all of the equity interests or assets of the target business or businesses. The Company may, however,
structure the initial Business Combination such that the post-transaction company owns or acquires less than substantially all
of such interests or assets of the target business in order to meet certain objectives of the target management team or stockholders
or for other reasons, but the Company will only complete such Business Combination if the post-transaction company owns or acquires
50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient
for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment
Company Act”). Even if the post-transaction company owns or acquires 50% or more of the voting securities of the target,
the stockholders prior to the initial Business Combination may collectively own a minority interest in the post-transaction company,
depending on valuations ascribed to the target and the Company in the Business Combination transaction. For example, the Company
could pursue a transaction in which the Company issue a substantial number of new shares in exchange for all of the outstanding
capital stock of shares or other equity interests. In this case, the Company would acquire a 100% controlling interest in the target.
However, as a result of the issuance of a substantial number of new shares, the stockholders immediately prior to the initial Business
Combination could own less than a majority of the outstanding shares subsequent to the initial Business Combination. If less than
100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-transaction company,
the portion of such business or businesses that is owned or acquired is what will be valued for purposes of the 80% of net assets
test. If the initial Business Combination involves more than one target business, the 80% of net assets test will be based on the
aggregate value of all of the target businesses even if the acquisitions of the target businesses are not closed simultaneously.
Although the Company believes
that the net proceeds of the offering will be sufficient to allow the Company to consummate a Business Combination the Company
cannot ascertain the capital requirements for any particular transaction. If the net proceeds of this offering prove to be insufficient,
either because of the size of the Business Combination, the depletion of the available net proceeds in search of a target business,
or because the Company becomes obligated to redeem a significant number of the Public Shares upon consummation of the initial Business
Combination, the Company will be required to seek additional financing, in which case the Company may issue additional securities
or incur debt in connection with such Business Combination. Furthermore, the Company may issue a substantial number of additional
shares of common or preferred stock to complete the initial Business Combination or under an employee incentive plan upon or after
consummation of the initial Business Combination. The Company does not have a maximum debt leverage ratio or a policy with respect
to how much debt the Company may incur. The amount of debt the Company will be willing to incur will depend on the facts and circumstances
of the proposed Business Combination and market conditions at the time of the potential Business Combination. At this time, the
Company is not party to any arrangement or understanding with any third party with respect to raising additional funds through
the sale of the securities or the incurrence of debt. Subject to compliance with applicable securities laws, the Company would
only consummate such financing simultaneously with the consummation of the initial Business Combination.
Nasdaq rules require that the
initial Business Combination must occur with one or more target businesses that together have an aggregate fair market value of
at least 80% of the assets held in the Trust Account (excluding advisory fees and taxes payable on the income earned on the Trust
Account) at the time of the agreement to enter into the initial Business Combination. If the board is not able to independently
determine the fair market value of the target business or businesses, the Company will obtain an opinion from an independent investment
banking firm or an independent accounting firm with respect to the satisfaction of such criteria. The Company does not intend to
purchase multiple businesses in unrelated industries in connection with the initial Business Combination.
The Company will provide its
public stockholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of the initial Business
Combination either (i) in connection with a stockholder meeting called to approve the initial Business Combination or (ii) by means
of a tender offer. The decision as to whether the Company will seek stockholder approval of a proposed initial Business Combination
or conduct a tender offer will be made by the Company, solely at its discretion. The stockholders will be entitled to redeem their
shares for a pro rata portion of the amount then on deposit in the Trust Account (initially approximately $10.10 per share, plus
any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations
plus additional deposits to extend the Combination Period).
The initial carrying value
of the common stock subject to redemption is recorded at an amount equal to the proceeds of the public offering less (i) the fair
value of the public warrants and less (ii) offering costs allocable to the common stock sold as part of the units in the IPO. Such
initial carrying value is classified as temporary equity upon the completion of the IPO, in accordance with Accounting Standards
Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.”
The Company’s amended
and restated certificate of incorporation provides that in no event will it redeem the public shares in an amount that would cause
the Company’s net tangible assets to be less than $5,000,001 both immediately before and after the consummation of the Business
Combination (so that the Company is not subject to the SEC’s “penny stock” rules). Redemptions of the Company’s
public shares may also be subject to a higher net tangible asset test or cash requirement pursuant to an agreement relating to
the Business Combination. For example, the Business Combination may require: (i) cash consideration to be paid to the target or
its owners, (ii) cash to be transferred to the target for working capital or other general corporate purposes or (iii) the retention
of cash to satisfy other conditions in accordance with the terms of the Business Combination. In the event the aggregate cash consideration
the Company would be required to pay for all shares of common stock that are validly submitted for redemption plus any amount required
to satisfy cash conditions pursuant to the terms of the Business Combination exceed the aggregate amount of cash available to the
Company, it will not complete the Business Combination or redeem any shares, and all shares of common stock submitted for redemption
will be returned to the holders thereof.
The new Sponsors, officers
and directors and Representative (as defined in Note 6) have agreed to (i) waive their redemption rights with respect to their
Founder Shares and Public Shares in connection with the completion of the initial Business Combination, (ii) waive their redemption
rights with respect to their Founder Shares (as defined below) and Public Shares in connection with a stockholder vote to approve
an amendment to the Company’s amended and restated certificate of incorporation, and (iii) waive their rights to liquidating
distributions from the Trust Account with respect to their Founder Shares if the Company fails to complete the initial Business
Combination within the Combination Period.
The Company’s new Sponsors
have agreed that they will be liable to the Company if and to the extent any claims by a third party for services rendered or products
sold to the Company, or a prospective target business with which the Company has entered into a written letter of intent, confidentiality
or similar agreement or Business Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of
(i) $10.46 per Public Share (subject to increase of up to an additional $75,000 per month in the event that our sponsors elect
to extend the period of time to consummate a business combination as set forth in the Extension Amendment) and (ii) the actual
amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.46 per
share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any
claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust
Account (whether or not such waiver is enforceable) nor will it apply to any claims under the Company’s indemnity of the
underwriters of this offering against certain liabilities, including liabilities under the Securities Act. However, the Company
has not asked its new Sponsors to reserve for such indemnification obligations, nor has the Company independently verified whether
its new Sponsors have sufficient funds to satisfy its indemnity obligations and believe that the Company’s new Sponsors’
only assets are securities of the Company. Therefore, the Company cannot assure that its new Sponsors would be able to satisfy
those obligations.
On
March 8, 2023 the Company held the Special Meeting and approved the date by which the Company must consummate a business combination,
up to March 14, 2024 with approval of the board of directors and additional deposits of funds in the Trust Account. In connection
with the vote on the Extension Amendment (described below) at the Special Meeting, stockholders holding a total of 3,960,387 shares
of the Company’s common stock exercised their right to redeem such shares for a pro rata portion of the funds in the Company’s
Trust Account. As a result, $41,077,199 (approximately $10.37201 per share) was removed from the Company’s Trust Account
to pay such holders. Following redemptions, the Company has 5,463,613 shares outstanding.
As
disclosed by the Company in its additional materials to its proxy statement filed on March 6, 2023 with respect to the remaining
funds held in the Trust Account following the Special Meeting and the related redemptions, the Company stated it plans to maintain
the remaining amount in its Trust Account in an interest-bearing demand deposit account at a bank.
On
April 6, 2023, Continental Stock Transfer & Trust Company established and funded a bank account with Citibank for all remaining
funds from the Trust Account, post-redemption, including interest accrued in the amount of $30,744,828.
Liquidity,
Capital Resources, and Going Concern
As of March 31, 2023, the Company
had $5,163 in cash and a working capital deficit of $1,639,083.
The Company’s liquidity
needs through March 31, 2023 were satisfied through (1) a capital contribution from the Sponsors of $28,750 for common stock (“Founder
Shares”) and (2) loans from Sponsors and new Sponsors and related parties in order to pay offering costs and other working
capital needs. In addition, in order to fund transaction costs in connection with a possible Business Combination, the Company’s
new Sponsors, an affiliate of the new Sponsors, and/or certain of the Company’s officers and directors may, but are not obligated
to, provide the Company Working Capital Loans. As of March 31, 2023 and December 31, 2022, there were no loans associated with
the Working Capital Loans. As of March 31, 2023, the Company owed $1,110,740 to Sponsors, new Sponsors and related parties. See
Note 5 for further disclosure of Sponsor, new Sponsors and related party loans.
Based on the foregoing, management
believes that the Company may not have sufficient funds and borrowing capacity to meet its operating needs through the consummation
of a Business Combination through the extended term of the Company which expires on June 14, 2023 (as extended). Over this time
period, the Company will be utilizing the funds in the operating bank account to pay existing accounts payable, identifying and
evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying
for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating
the Business Combination. As of the date of the filing of this report, management has indicated that it does intend to extend the
term of the Company after its initial term expires.
The Company is within 12 months
of its mandatory liquidation date as of the date of the filing of this report. In connection with the Company’s assessment
of going concern considerations, the Company has until June 14, 2023 (as extended) to consummate a Business Combination. It is
uncertain that the Company will be able to consummate a Business Combination by that time. If a Business Combination is not consummated
by this date, there will be a mandatory liquidation and subsequent dissolution of the Company. The Company has determined that
the insufficient funds to meet the operating needs of the Company through the liquidation date as well as the mandatory liquidation,
should a business combination not occur, and potential subsequent dissolution raise substantial doubt about our ability to continue
as a going concern.
These condensed financial statements
do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might
be necessary should the Company be unable to continue as a going concern.
Risks and Uncertainties
Management is currently evaluating
the impact of the COVID-19 pandemic on the Company and has concluded that while it is reasonably possible that the virus could
have a negative effect on the Company’s financial position, results of its operations, and/or search for a target company,
the specific impact is not readily determinable as of the date of these condensed financial statements. The condensed financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
In February 2022, the Russian
Federation and Belarus commenced a military action with the country of Ukraine. As a result of this action, various nations, including
the United States, have instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action
and related sanctions on the world economy are not determinable as of the date of these financial statements. The specific impact
on the Company’s financial condition, results of operations, and cash flows is also not determinable as of the date of these
condensed financial statements.
Consideration of Inflation
Reduction Act Excise Tax
On August 16, 2022, the Inflation Reduction Act
of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal
1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries
of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation
itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market
value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing
corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases
during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the
“Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or
avoidance of the excise tax.
On December 27, 2022, the Treasury published Notice
2023-2, which provided clarification on some aspects of the application of the excise tax. The notice generally provides that if
a publicly traded U.S. corporation completely liquidates and dissolves, distributions in such complete liquidation and other distributions
by such corporation in the same taxable year in which the final distribution in complete liquidation and dissolution is made are
not subject to the excise tax. Although such notice clarifies certain aspects of the excise tax, the interpretation and operation
of aspects of the excise tax (including its application and operation with respect to SPACs) remain unclear and such interim operating
rules are subject to change.
Because the application of this excise tax is not
entirely clear, any redemption or other repurchase effected by the Company, in connection with a Business Combination, extension
vote or otherwise, may be subject to this excise tax. Because any such excise tax would be payable by the Company and not by the
redeeming holders, it could cause a reduction in the value of the Company’s Class A common stock, cash available with which
to effectuate a Business Combination or cash available for distribution in a subsequent liquidation. Whether and to what extent
the Company would be subject to the excise tax in connection with a Business Combination will depend on a number of factors, including
(i) the structure of the Business Combination, (ii) the fair market value of the redemptions and repurchases in connection with
the Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with the
Business Combination (or any other equity issuances within the same taxable year of the Business Combination) and (iv) the content
of any subsequent regulations, clarifications, and other guidance issued by the Treasury. Further, the application of the excise
tax in respect of distributions pursuant to a liquidation of a publicly traded U.S. corporation is uncertain and has not been addressed
by the Treasury in regulations, and it is possible that the proceeds held in the Trust Account could be used to pay any excise
tax owed by the Company in the event the Company is unable to complete a Business Combination in the required time and redeem 100%
of the remaining Class A common stock in accordance with the Company’s amended and restated certificate of incorporation,
in which case the amount that would otherwise be received by the public stockholders in connection with the Company’s liquidation
would be reduced.
Investment Company Act
1940
Under the current rules and
regulations of the SEC we are not deemed an investment company for purposes of the Investment Company Act; however, on March 30,
2022, the SEC proposed new rules (the “Proposed Rules”) relating, among other matters, to the circumstances in which
SPACs such as us could potentially be subject to the Investment Company Act and the regulations thereunder. The Proposed Rules
provide a safe harbor for companies from the definition of “investment company” under Section 3(a)(1)(A) of the Investment
Company Act, provided that a SPAC satisfies certain criteria. To comply with the duration limitation of the proposed safe harbor,
a SPAC would have a limited time period to announce and complete a de-SPAC transaction. Specifically, to comply with the safe harbor,
the Proposed Rules would require a company to file a Current Report on Form 8-K announcing that it has entered into an agreement
with a target company for an initial business combination no later than 18 months after the effective date of the SPAC’s
registration statement for its initial public offering. The company would then be required to complete its initial business combination
no later than 24 months after the effective date of such registration statement. There is currently uncertainty concerning the
applicability of the Investment Company Act to a SPAC, including a company like ours. Although we entered into a definitive business
combination agreement within 18 months after the effective date of our registration statement relating to our initial public offering,
there is a risk that we may not complete our initial business combination within 24 months of such date. As a result, it is possible
that a claim could be made that we have been operating as an unregistered investment company. If we were deemed to be an investment
company for purposes of the Investment Company Act, we may be forced to abandon our efforts to complete an initial business combination
and instead be required to liquidate. If we are required to liquidate, our investors would not be able to realize the benefits
of owning stock in a successor operating business, including the potential appreciation in the value of our stock and warrants
following such a transaction. Currently, the funds in our trust account are held only in money market funds investing solely in
U.S. government treasury obligations and meeting certain conditions under Rule 2a-7 under the Investment Company Act. The Investment
Company Act defines an investment company as any issuer which (i) is or holds itself out as being engaged primarily, or proposes
to engage primarily, in the business of investing, reinvesting, or trading in securities; (ii) is engaged or proposes to engage
in the business of issuing face-amount certificates of the installment type, or has been engaged in such business and has any such
certificate outstanding; or (iii) is engaged or proposes to engage in the business of investing, reinvesting, owning, holding,
or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40% of the value of its
total assets (exclusive of Government securities and cash items) on an unconsolidated basis. On or immediately prior to the 24-month
anniversary of the effective date of our registration statement relating to our initial public offering, we intend to review and
assess our primary line of business and the value of our investment securities as compared to the value of our total assets to
determine whether we may be deemed an investment company. The longer that the funds in the trust account are held in money market
funds, there is a greater risk that we may be considered an unregistered investment company. In the event we are deemed an investment
company under the Investment Company Act, whether based upon our activities, the investment of our funds, or as a result of the
Proposed Rules being adopted by the SEC, we may determine that we are required to liquidate the money market funds held in our
trust account and may thereafter hold all funds in our trust account in cash until the earlier of consummation of our business
combination or liquidation. As a result, if we were to switch all funds to cash, we will likely receive minimal interest, if any,
on the funds held in our trust account after such time, which would reduce the dollar amount our public stockholders would receive
upon any redemption or liquidation of our Company.
Note 2—Significant
Accounting Policies
Basis
of Presentation
The accompanying financial
statements of the Company are presented in U.S. dollars in conformity with accounting principles generally accepted in the United
States of America for interim financial information (“US GAAP”) and pursuant to Rule 8-03 of Regulation S-X promulgated
by the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and
footnotes required by US GAAP. In the opinion of management, the unaudited condensed financial statements reflect all adjustments,
which include only normal recurring adjustments necessary for the fair statement of the balances and results for the period presented.
Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected
through December 31, 2023.
Certain information and footnote
disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed
or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s
audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the
period through December 31, 2022 filed with the SEC on April 11, 2023. The balance sheet as of March 31, 2023 contained herein
has been derived from the audited financial statements as of December 31, 2022, but does not include all disclosures required by
U.S. GAAP.
Emerging
Growth Company Status
The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended,
(the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”),
and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies
that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in
its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive
compensation and shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1)
of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards
until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not
have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting
standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements
that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt
out of such extended transition period which means that when a standard is issued or revised and it has different application dates
for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time
private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with
another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using
the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of these
unaudited condensed financial statements in conformity with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
unaudited condensed financial statements and the reported amounts of expenses during the reporting period.
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.
Cash and Cash Equivalents
The Company considers all short-term
investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any
cash equivalents as of March 31, 2023 and December 31, 2022.
Concentration
of Credit Risk
Financial instruments that
potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at
times may exceed the Federal Depository Insurance Coverage of $250,000. The Company has not experienced losses on these accounts.
Offering Costs related to the Initial Public
Offering
The
Company complies with the requirements of ASC Subtopic 340-10-S99-1, “Expenses of Offering.” Offering costs consist
of legal, accounting, underwriting fees and other costs incurred through March 31, 2023 that were directly related to the IPO.
Upon consummation of the IPO, offering costs were allocated to the separable financial instruments issued in the IPO on a relative
fair value basis compared to total proceeds received. Offering costs associated with the Private Warrant liability were expensed
as incurred and presented as non-operating expenses in the statement of operations. Offering costs associated with the shares of
common stock were charged to temporary equity (common stock subject to possible redemption) upon the completion of the IPO.
Anchor
Investors and Other Investors
The Company complies with SAB
Topic 5A to account for the valuation of the Founder Shares acquired by the Anchor Investors and Other Investors. The Founder Shares
acquired by the Anchor Investors and Other Investors represent a capital contribution for the benefit of the Company and are recorded
as offering costs and reflected as a reduction in the proceeds from the offering and offering expenses in accordance with ASC 470
and Staff Accounting Bulletin Topic 5A. As such, upon sale of the Founder Shares to the Anchor Investors and the granting of the
Founder Shares to the Other Investors the valuation of these shares was recognized as a deferred offering cost and charged to temporary
equity and the statement of operations based on the relative fair value basis.
Fair Value of Financial
Instruments
The
fair value of the Company’s cash and current liabilities approximates the carrying amounts represented in the accompanying
balance sheets, due to their short-term nature.
Fair
value is defined as the price which would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. A three-tier fair value hierarchy which prioritizes the inputs used in the
valuation methodologies is as follows:
Level
1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability
to access at the measurement date.
Level
2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly
or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical
or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset
or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally
from or corroborated by market data by correlation or other means.
Level
3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions
about the assumptions that market participants would use in pricing the assets or liabilities.
Fair
Value of Trust Account
As
of March 31, 2023 and December 31, 2022, the assets in the Trust Account were held in a money market fund with a broker. These
financial assets were accounted for at fair value on a recurring basis within Level 1 of the fair value hierarchy.
Fair
Value of Warrant Liability
The Company accounted for the
7,306,000 warrants issued in connection with the IPO and private placement in accordance with the guidance contained in ASC Topic
815, “Derivatives and Hedging” whereby under that provision, the Private Warrants did not meet the criteria for equity
treatment and were recorded as a liability and the Public Warrants met the criteria for equity treatment. Accordingly, the Company
classified the Private Warrants as a liability at fair value upon issuance and adjusts them to fair value at each reporting period.
This liability is re-measured at each balance sheet date until the Private Warrants are exercised or expire, and any change in
fair value will be recognized in the Company’s statements of operations.
Fair Value of Shares and
Private Placement Units acquired by Instant Fame
On October 20, 2022, pursuant
to a Securities Purchase Agreement between IF and the Sellers, Management of the Company determined the fair value of the shares
and private placement units acquired to be $1,453,900. The excess value of the shares and private placement units acquired of $1,253,900
is reported as a component of stockholders’ equity.
Common Stock Subject to Redemption
The Company accounts for its
common stock subject to possible redemption in accordance with the guidance in ASC Topic 480, “Distinguishing Liabilities
from Equity.” Common stock subject to mandatory redemption (if any) are classified as a liability instrument and measured
at fair value. Conditionally redeemable common stock (including common stock that feature redemption rights that are either within
the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s
control) are classified as temporary equity and subsequently measured at redemption value. At all other times, shares of common
stock are classified as stockholders’ equity. The Company’s shares of common stock sold as part of the IPO feature
certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain
future events. Accordingly, shares of common stock subject to possible redemption are presented at their net carrying value and
classified as temporary equity, outside of the stockholders’ equity section of the Company’s balance sheet. The initial
carrying value of the common stock subject to redemption is recorded at an amount equal to the proceeds of the public offering
($69,000,000) less (i) the fair value of the public warrants ($5,796,000) and less (ii) offering costs allocable to the common
stock sold as part of the units in the public offering ($8,712,864). In accordance with the alternative methods described in ASC
Subtopic 480-10-S99-3A(15), “Classification and Measurement of Redeemable Securities.” The Company has made an accounting
policy election to accrete changes in the difference between the initial carrying amount and the redemption amount ($10.10 per
share) over the period form the IPO date to the expected redemption date. For purposes of accretion, the Company has estimated
that it will take 15 months for a Business Combination to occur and accordingly will accrete the carrying amount to the redemption
value using the effective interest method over that period. Such changes are reflected in additional paid in capital, or in the
absence of additional paid-in capital, in accumulated deficit.
In December 2022 the Company
changed the methodology on a go-forward basis to recognize changes in redemption value immediately as they occur and adjusts the
carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. Increases or decreases
in the carrying amount of redeemable common stock are affected by charges against additional paid-in-capital (to the extent available)
and accumulated deficit. During the three months ended March 31, 2023, the Company recorded an increase in the redemption value
of $484,899 because of earnings on the Trust Account and additional deposits that exceed amounts payable for taxes. While the Company
may use earnings on the Trust Account to pay its tax obligations, as of March 31, 2023, $406,020 has been withdrawn by the Company
from the Trust Account to pay its tax obligations.
In March 2023 in connection
with the Special Meeting, stockholders holding a total of 3,960,387 shares of the Company’s common stock exercised their
right to redeem such shares for a pro rata portion of the funds in the Company’s Trust Account. As a result, $41,077,199
(approximately $10.37201 per share) was removed from the Company’s Trust Account to pay such holders. Following redemptions,
the Company has 5,463,613 shares outstanding.
On March 31, 2023 and December
31, 2022, the common stock reflected in the balance sheet is reconciled in the following table:
Schedule of common stock reflected on the balance sheet | |
| | |
Common stock subject to possible redemption on December 31, 2021 | |
$ | 58,071,313 | |
Plus: | |
| | |
Remeasurement of shares subject to redemption | |
| 12,902,071 | |
Common stock subject to possible redemption on December 31, 2022 | |
$ | 70,973,384 | |
Less: | |
| | |
Redemptions from Trust Account | |
| (41,077,199 | ) |
Plus: | |
| | |
Remeasurement of shares subject to redemption | |
| 497,072 | |
Common stock subject to possible redemption on March 31, 2023 | |
$ | 30,393,257 | |
Net Income (Loss) Per Share
Basic net income (loss) per
share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the
period.
For purposes of calculating
diluted income per common stock, the denominator includes both the weighted-average number of shares of common stock outstanding
during the period and the number of common stock equivalents if the inclusion of such common stock equivalents is dilutive. Dilutive
common stock equivalents potentially include shares and warrants using the treasury stock method.
As of March 31, 2023 and December
31, 2022, 7,306,000 warrants were excluded from the diluted income per share calculation since the exercise price of the warrants
is greater than the average market price of the common stock. As a result, diluted net income (loss) per share is the same as basic
loss per share for the period presented.
Reconciliation of Income
(loss) per Share of Common Stock
Basic and diluted loss per
share for common stock is calculated as follows:
Schedule of reconciliation of income per share of common stock | |
| | | |
| | |
| |
Three months ended March 31, |
| |
2023 | |
2022 |
Income (loss) per share of common stock: | |
| | | |
| | |
Net Income (Loss) | |
$ | 188,713 | | |
$ | (89,744 | ) |
| |
| | | |
| | |
Weighted Average Shares of common stock | |
| 8,411,901 | | |
| 9,424,000 | |
Basic and diluted income (loss) per share | |
$ | 0.02 | | |
$ | (0.01 | ) |
Income Taxes
The
Company accounts for income taxes under ASC 740, “Income Taxes.” ASC 740, Income Taxes, requires the recognition of
deferred tax assets and liabilities for both the expected impact of differences between the unaudited condensed financial statements
and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry
forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion
of deferred tax assets will not be realized. As of March 31, 2023 and December 31, 2022, the Company’s deferred tax asset
had a full valuation allowance recorded against it. The Company’s effective tax rate was 48.9% and 0.0% for the three months
ended March 31, 2023 and 2022, respectively. The effective tax rate differs from the statutory tax rate of 21% for the three months
ended March 31, 2023 and 2022, due to state taxes and changes in the valuation allowance on the deferred
tax assets.
ASC 740 also clarifies the
accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition
threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination
by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim
period, disclosure and transition.
The Company recognizes accrued
interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and
no amounts accrued for interest and penalties as of March 31, 2023 and December 31, 2022. The Company is currently not aware of
any issues under review that could result in significant payments, accruals or material deviation from its position.
The Company has identified
the United States and the State of California as its only “major” tax jurisdiction. The Company is subject to income
taxation by major taxing authorities since inception. These examinations may include questioning the timing and amount of deductions,
the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management
does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
Recent
Accounting Pronouncements
Management
does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would
have a material effect on the Company’s financial statements.
Stock Based Compensation
The Company complies with ASC
718 Compensation — Stock Compensation regarding Founder Shares granted to directors and an officer of the Company. The acquired
shares shall vest upon the Company consummating an initial Business Combination (the “Vesting Date”). The Founder Shares
owned by the directors or officer (1) may not be sold or transferred, until one year after the consummation of a Business Combination,
(2) not be entitled to redemption from the funds held in the Trust Account, or any liquidating distributions. The Company
has until June 14, 2023 to consummate a Business Combination, and if a Business Combination is not consummated, the Company will
liquidate and the shares will become worthless.
The Founder Shares were issued
on September 8, 2021, and the Founder Shares vest, not upon a fixed date, but upon consummation of an initial Business Combination.
Since the approach in ASC 718 is to determine the fair value without regard to the vesting date, the Company has determined the
valuation of the Founder Shares as of September 8, 2021. The valuation resulted in a fair value of $7.48 per share as of September
8, 2021, or an aggregate of $972,400 for the 130,000 Founder Shares. The Founder Shares were granted at no cost to the recipients.
The excess fair value over the amount paid is $972,400, which is the amount of share-based compensation expense which the Company
will recognize upon consummation of an initial business combination.
Note 3— Initial
Public Offering
On September 14, 2021, the
Company consummated its IPO and sold 6,900,000 Units at a purchase price of $10.00 per Unit, which was inclusive of the underwriters’
full exercise of their over-allotment option, generating gross proceeds of $69,000,000. Each Unit that the Company sold had a price
of $10.00 and consisted of one share of common stock, one warrant to purchase one share of common stock and one right. Each warrant
will entitle the holder to purchase one share of common stock at a price of $11.50 per share, subject to adjustment. Each warrant
will become exercisable on the completion of the initial Business Combination and will expire five years after the completion of
the initial Business Combination, or earlier upon redemption or liquidation. Each right entitles the holder to buy one tenth of
one share of common stock. The common stock, warrants and rights comprising the Units have begun separate trading. At the time
that the common stock, warrants and rights comprising the Units began separate trading, holders will hold the separate securities
and no longer hold Units (without any action needing to be taken by the holders), and the Units will no longer trade.
All of the 6,900,000 shares
of common stock sold as part of the Units in the IPO contain a redemption feature which allows for the redemption of such public
shares in connection with the Company’s liquidation, if there is a stockholder vote or tender offer in connection with the
Business Combination and in connection with certain amendments to the Company’s certificate of incorporation. In accordance
with SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption
provisions not solely within the control of the Company require common stock subject to redemption to be classified outside of
permanent equity.
Note 4—Private
Placement
Simultaneously with the closing
of the IPO and the sale of the Units, the Company sold 181,000 Private Placement Units to certain investors for aggregate cash
proceeds of $2,460,000 and issued an additional 225,000 Private Placement Units to a Sponsor in exchange for the cancellation of
approximately $1,105,000 in loans and a promissory note due to them. Each Private Placement Unit consisted of one share of common
stock, one redeemable warrant to purchase one share of common stock at a price of $11.50 per whole share and one right.
On October 20, 2022, pursuant
to the SPA, the new Sponsors acquired an aggregate of 385,000 shares of common stock and 90,000 private placement units of the
Company from the Sellers in a private transaction. Management of the Company determined the fair value of the shares and private
placement units acquired to be $1,453,900. The excess value of the shares and private placement units acquired of $1,253,900 is
reported as a component of stockholders’ equity.
Note 5—Related Party Transactions
Founder
Shares
In February 2021, the Sponsors
subscribed for 2,875,000 shares of the Company’s common stock (the “Founder Shares”) for $28,750, or $0.01 per
share, in connection with formation. In June 2021, 1,437,500 shares of the Founder Shares were re-purchased by the Company for
a total of $14,375. In connection with the upsize of the IPO, on June 10, 2021, an additional 287,500 Founder Shares were issued
via a 20% stock dividend, resulting in total Founder Shares outstanding of 1,725,000. All share amounts and related figures were
retroactively adjusted.
In March 2021, Suresh Yezhuvath
granted an aggregate of 16,668 Founder Shares to other investors (“Other Investors”) at no costs.
The Sponsors, new Sponsors,
Other Investors, Anchor Investors, directors and officer have agreed not to transfer, assign or sell the Founder Shares until the
earlier to occur of: (A) one year after the completion of the initial Business Combination or (B) the date on which the Company
completes a liquidation, merger, stock exchange or other similar transaction after the initial Business Combination that results
in all of the public stockholders having the right to exchange their shares of common stock for cash, securities or other property.
The Company refers to such transfer restrictions as the “lock-up”. Notwithstanding the foregoing, if the last sale
price of the common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations
and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the initial Business
Combination, the Founder Shares will be released from the lock-up.
Working Capital Loans –
Sponsors and New Sponsors
In order to finance transaction
costs in connection with a Business Combination, the new Sponsors or an affiliate of the new Sponsors or certain of the Company’s
officers and directors may, but are not obligated to, loan the Company funds as may be required. If the Company completes a Business
Combination, the Company would repay the loans out of the proceeds of the Trust Account released to the Company. Otherwise, the
loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination does not close,
the Company may use a portion of the working capital held outside the Trust Account to repay the loans but no proceeds from the
Trust Account would be used to repay the loans. On March 31, 2023 and December 31, 2022, there were no loans outstanding under
the working capital loan program.
Pre-IPO
Loans – Sponsors
Prior to the completion of
the IPO, the Company entered into an additional loan agreement with Yezhuvath to finance the expenses associated with preparing
for the IPO as follows:
The Company entered into a
loan agreement with Yezhuvath with the following terms:
1. |
The Company borrowed approximately $805,000 under the loan agreement as follows: |
a. |
Deferred offering costs of $50,000 were directly paid by the Sponsor. |
b. |
The Company repurchased treasury stock of $7,375 from the Sponsor. |
c. |
Proceeds of approximately $747,625 was received directly into the Company from the Sponsor. |
2. |
Advances under the loan agreement are unsecured and do not bear interest. |
|
|
3. |
Following the consummation of the IPO, the loan was repaid/forfeited as follows: |
a. |
Against the first approximate $1,030,000 of the note and loan agreement (inclusive of the $300,000 note discussed above), 210,000 Private Placement Units were issued. |
b. |
Against the next $75,000 of loan, 15,000 Private Placement Units were issued. |
Yezhuvath agreed to make an
additional loan to the Company of $225,000 pursuant to the exercise of the over-allotment which would only be drawn down at the
time of the Business Combination. The proceeds would be used to pay a portion of the incremental underwriting discount on the over-allotment
shares which the underwriter has agreed to defer the receipt of until a Business Combination is consummated. Yezhuvath has agreed
to forgive this amount without any additional securities being issued against it.
Due to Related Parties
The
balance on March 31, 2023 and December 31, 2022 in Due to Related Parties totaled $1,110,740 and $1,002,850, respectively, consists
of the following transactions:
1. |
Suresh Yezhuvath loaned the Company $23,960. |
|
|
2 |
Subash Menon paid expenses on behalf of the Company. As of March 31, 2023 and December 31, 2022, the Company owed him $3,557 and $3,557 for such expenses, respectively. |
|
|
3. |
As a result of a change in the size of the offering, the Company agreed to repurchase 700,000 shares of common stock from Bannix Management LLP for total consideration of $7,000. |
|
|
4. |
Pursuant to the Administrative Support Agreement, the Company has accrued $93,333 for rent since September 2021 for which it was a publicly listed company. |
|
|
5. |
Pursuant to a Securities Purchase Agreement, related parties loaned the Company $200,000 of which is expected to be forfeited by the lender. |
|
|
6 |
Pursuant to unsecured promissory Notes with Instant Fame the Company owes $765,000. |
|
|
7 |
Related parties paid $17,890 of expenses on behalf of the Company as of March 31, 2023. |
The Notes are non-interest
bearing and repayable on the consummation of a Business Combination. If a Business Combination is not consummated the Notes will
not be repaid and all amounts owed hereunder will be forgiven except to the extent that the Company has funds available to it outside
of the Trust Account.
Administrative
Support Agreement
The
Company has agreed to pay an affiliate of the Sponsor for office space, secretarial and administrative services provided to members
of the management team, in the amount of $5,000 per month. Upon completion of the initial Business Combination or the Company’s
liquidation, it will cease paying these monthly fees. For the three-months period ended March 31, 2023 and 2022, the Company had
incurred $15,000 and $15,000 pursuant to the agreement.
Note 6—Commitments
Registration
Rights
The holders of the Founder
Shares, Private Placement Units and warrants that may be issued upon conversion of related party loans will have registration rights
to require the Company to register a sale of any of its securities held by them pursuant to a registration rights agreement to
be signed prior to or on the effective date of this offering. These holders will be entitled to make up to three demands, excluding
short form registration demands, that the Company registers such securities for sale under the Securities Act. In addition, these
holders will have “piggy-back” registration rights to include their securities in other registration statements filed
by the Company.
Underwriters Agreement
The underwriters are entitled
to a deferred underwriting discount of $225,000 payable to the underwriters by a Sponsor solely in the event that the Company completes
a Business Combination, subject to the terms of the underwriting agreement. Additionally, the underwriters are entitled to a Business
Combination marketing fee of 3.5% of the gross proceeds of the sale of Units in the IPO upon the completion of the Company’s
initial Business Combination subject to the terms of the underwriting agreement.
The Company issued the underwriter
(and/or its designees) (the “Representative”) 393,000 shares of common stock for $0.01 per share (the “Representative
Shares”) upon the consummation of the IPO. The Company accounted for the estimated fair value ($2,861,000) of the Representative
Shares as an offering cost of the IPO and allocated such cost against temporary equity for the amount allocated to the redeemable
shares and to expense for the allocable portion relating to the warrant liability. These shares of common stock issued to the underwriter
are subject to an agreement in which the underwriter has agreed (i) not to transfer, assign or sell any such shares until the completion
of the Business Combination. In addition, the underwriter (and/or its designees) has agreed (i) to waives its redemption rights
with respect to such shares in connection with the completion of the Business Combination and (ii) to waive its rights to liquidating
distributions from the trust account with respect to such shares if it fails to complete the Business Combination by June 14, 2023.
Accordingly, the fair value of such shares is included in stockholders’ equity. As of March 31, 2023 and December 31, 2022,
the Representative has not yet paid for these shares, and the amount owed of $3,930 and $3,930, respectively, are included in prepaid
expenses on the condensed balance sheets.
Excise Tax
In connection with the vote
to approve the Charter Amendment Proposal, holders of 3,960,387 shares of Class A Common Stock properly exercised their right to
redeem their shares of Class A Common Stock for an aggregate redemption amount of $41,077,199. As such the Company has recorded
a 1% excise tax liability in the amount of $410,772 on the condensed balance sheet as of March 31, 2023. The liability does not
impact the condensed statements of operations and is offset against additional paid-in capital or accumulated deficit if additional
paid-in capital is not available.
This excise tax liability can
be offset by future share issuances within the same fiscal year which will be evaluated and adjusted in the period in which the
issuances occur. Should the Company liquidate prior to December 31, 2023, the excise tax liability will not be due.
Other
Investors
Other Investors were granted
an aggregate of 16,668 Founder Shares at no costs from Suresh Yezhuvath in March 2021. The Company valued the Founder Shares at
approximately $0.65 per share or $10,834 in the aggregate at the date of the grant.
The Other Investors have not
been granted any stockholder or other rights that are in addition to those granted to the Company’s other public stockholders.
The Other Investors will have no rights to the funds held in the Trust Account with respect to the Founder Shares held by them.
The Other Investors will have the same rights to the funds held in the Trust Account with respect to the common stock underlying
the Units they purchase at the IPO as the rights afforded to the Company’s other public stockholders.
Anchor Investors
The Anchor Investors entered
into separate letter agreements with the Company and the Sponsors pursuant to which, subject to the conditions set forth therein,
the Anchor Investors purchased, upon the closing of the IPO on September 14, 2021, 181,000 Private Placement Units and 762,500
Founder Shares on September 9, 2021 (“Anchor Shares” in the total). The Company valued the Founder Shares at $7.48
per share at the date of the purchase.
The Anchor Investors have not
been granted any stockholder or other rights that are in addition to those granted to the Company’s other public stockholders
and purchased the Founder Shares for nominal consideration with an excess of the fair value of $3,244,453. Each Anchor Investor
has agreed in its individually negotiated letter agreement entered into with the Company to vote its Anchor Shares to approve the
Company’s initial Business Combination. The Anchor Investors will have no rights to the funds held in the Trust Account with
respect to the Anchor Shares held by them. The Anchor Investors will have the same rights to the funds held in the Trust Account
with respect to the common stock underlying the Units they purchase at the IPO (excluding the common stock included in the Private
Placement Units purchased) as the rights afforded to the Company’s other public stockholders.
Note 7 — Stockholders’
(Deficit) Equity
Preferred Stock—
The Company is authorized to issue 1,000,000 shares of preferred stock, par value $0.01 per share, with such designations, voting
and other rights and preferences as may be determined from time to time by the Company’s board of directors. As of March
31, 2023 and December 31, 2022, there were no shares of preferred stock issued or outstanding.
Common Stock—
The Company is authorized to issue 100,000,000 shares of common stock with par value of $0.01 each. As of March 31, 2023 and December
31, 2022, there were 3,961,500 shares of common stock issued and 2,524,000 shares of common stock outstanding, excluding 2,939,613
and 6,900,000 shares subject to possible redemption, respectively. Each share of common stock entitles the holder to one vote.
Treasury Stock
— On June 21, 2021 the Sponsors agreed to deliver the Company 1,437,500 shares of common stock beneficially owned by the
Sponsors. The amount payable to Yezhuvath of $7,735 was repaid as part of the Private Placement Units issued to him (see Note 5)
and the amount of $7,000 payable to Bannix Management LLP is included in Due to Related Parties as of March 31, 2023 and December
31, 2022.
Rights —
Except in cases where the Company is not the surviving company in the Business Combination, each holder of a right will automatically
receive one-tenth (1/10) of a share of common stock upon consummation of the Business Combination, even if the holder of a right
converted all shares held by him, her or it in connection with the Business Combination or an amendment to the Company’s
Certificate of Incorporation with respect to its pre-Business Combination activities. In the event that the Company will not be
the surviving company upon completion of the Business Combination, each holder of a right will be required to affirmatively convert
his, her or its rights in order to receive the one-tenth (1/10) of a share of common stock underlying each right upon consummation
of the Business Combination. No additional consideration will be required to be paid by a holder of rights in order to receive
his, her or its additional share of common stock upon consummation of Business Combination. The shares issuable upon exchange of
the rights will be freely tradable (except to the extent held by affiliates of the Company). If the Company enters into a definitive
agreement for a Business Combination in which the Company will not be the surviving entity, the definitive agreement will provide
for the holders of the rights to receive the same per share consideration the holders of shares of common stock will receive in
the transaction on an as-converted into common stock basis.
Note 8 — Warrant Liability
The Company accounted for the
7,306,000 warrants issued in connection with the IPO and private placement in accordance with the guidance contained in ASC Topic
815 “Derivatives and Hedging” whereby under that provision, the Private Warrants did not meet the criteria for equity
treatment and were recorded as a liability. Accordingly, the Company classified the Private Warrants as a liability at fair value
and adjusts them to fair value at each reporting period. This liability is re-measured at each balance sheet date until the Private
Warrants are exercised or expire, and any change in fair value will be recognized in the Company’s statement of operations.
The fair value of the Private Warrants was estimated using a modified Black-Scholes model. The valuation models utilize inputs
such as assumed share prices, volatility, discount factors and other assumptions and may not be reflective of the price at which
they can be settled. Such Private Warrant classification is also subject to re-evaluation at each reporting period. The Public
Warrants met the classification for equity treatment.
Each warrant entitles the holder
to purchase one share of the Company’s common stock at a price of $11.50 per share, subject to adjustment as discussed herein.
In addition, if (x) the Company issues additional shares or equity-linked securities for capital raising purposes in
connection with the closing of its initial Business Combination at an issue price or effective issue price of less than $9.20 per
share of common stock (with such issue price or effective issue price to be determined in good faith by the Company’s board
of directors and, in the case of any such issuance to the Company’s Sponsors or its affiliates, without taking into account
any Founder Shares held by the Company’s Sponsors or its affiliates, prior to such issuance) (the “Newly Issued Price”),
(y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon,
available for the funding of the initial Business Combination on the date of the consummation of the initial Business Combination
(net of redemptions), and (z) the volume weighted average trading price of the Company’s common stock during the 20
trading day period starting on the trading day prior to the day on which the Company consummates the initial Business Combination
(such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to
the nearest cent) to be equal to 115% of the Market Value, and the $18.00 per share redemption trigger price described below under
“Redemption of warrants” will be adjusted (to the nearest cent) to be equal to 180% of the Market Value.
The warrants will become exercisable
on the later of 12 months from the closing of this offering or upon completion of its initial Business Combination and will
expire five years after the completion of the Company’s initial Business Combination, at 5:00 p.m., Eastern Time, or earlier
upon redemption or liquidation.
Redemption of warrants
The Company may call the warrants
for redemption (excluding the private warrants, and any warrants underlying Units issued to the Sponsors, initial stockholders,
officers, directors or their affiliates in payment of related party loans made to the Company), in whole and not in part, at a
price of $0.01 per warrant:
● |
at any time while the warrants are exercisable, |
|
|
● |
upon not less than 30 days prior written notice of redemption to each warrant holder, |
|
|
● |
if, and only if, the reported last sale price of the common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations), for any 20 trading days within a 30-trading day period ending on the third trading business day prior to the notice of redemption to warrant holders, and |
|
|
● |
if, and only if, there is a current registration statement in effect with respect to the issuance of the shares underlying such warrants at the time of redemption and for the entire 30-day trading period referred to above and continuing each day until the date of redemption. |
If the Company calls the warrants
for redemption as described above, the management will have the option to require any holder that wishes to exercise its warrant
to do so on a “cashless basis.” If management takes advantage of this option, all holders of warrants would pay the
exercise price by surrendering their warrants for that number of shares of common stock equal to the quotient obtained by dividing
(x) the product of the number of shares of common stock underlying the warrants, multiplied by the excess of the “fair
market value” (defined below) over the exercise price of the warrants by (y) the fair market value. The “fair
market value” shall mean the average reported last sale price of the common stock for the 10 trading days ending on the third
trading day prior to the date on which the notice of redemption is sent to the holders of warrants.
If the Company is unable to
complete an initial Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account,
holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from
the Company’s assets held outside of the Trust Account with respect to such warrants. Accordingly, the warrants may expire
worthless.
The
following presents the Company’s fair value hierarchy for the 406,000 Private Warrants issued which are classified as liabilities
measured at fair value as of March 31, 2023:
Schedule of changes in fair value of liabilities | |
| |
| |
|
| |
Level 1 | |
Level 2 | |
Level 3 |
| |
| |
| |
|
Private Warrants | |
$ | — | | |
$ | — | | |
$ | 12,180 | |
Total | |
$ | — | | |
$ | — | | |
$ | 12,180 | |
The following presents the
Company’s fair value hierarchy for the 406,000 Private Warrants issued which are classified as liabilities measured at fair
value as of the December 31, 2022:
| |
| |
| |
|
| |
Level 1 | |
Level 2 | |
Level 3 |
| |
| |
| |
|
Private Warrants | |
$ | — | | |
$ | — | | |
$ | 12,180 | |
Total | |
$ | — | | |
$ | — | | |
$ | 12,180 | |
The following table summarizes
key inputs and the models used in the valuation of the Company’s Private Warrants as of March 31, 2023:
Schedule of private warrants |
|
|
|
|
Private Warrants |
|
|
|
Valuation Method Utilized |
|
|
Modified Black Scholes |
|
Stock Price |
|
$ |
10.36 |
|
Exercise Price |
|
$ |
11.50 |
|
Expected Term |
|
|
2.5 |
|
Volatility |
|
|
1.4 |
% |
Risk-free rate |
|
|
3.60 |
% |
The following table summarizes
key inputs and the models used in the valuation of the Company’s Private Warrants as of December 31, 2022:
|
|
Private Warrants |
|
|
|
Valuation Method Utilized |
|
|
Modified Black Scholes |
|
Stock Price |
|
$ |
10.17 |
|
Exercise Price |
|
$ |
11.50 |
|
Expected Term |
|
|
2.7 |
|
Volatility |
|
|
1.3 |
% |
Risk-free rate |
|
|
3.99 |
% |
The following table presents
the changes in Level 3 liability for the three months ended March 31, 2023:
Schedule of fair value of warrant liability |
|
|
|
|
Level 3 |
Fair value of Private Warrants at December 31, 2022 |
|
$ |
12,180 |
|
Change in fair value of Private Warrants |
|
|
— |
|
Fair value of Private Warrants at March 31, 2023 |
|
$ |
12,180 |
|
The following table presents
the changes in Level 3 liabilities for the three months ended March 31, 2022:
| |
Level 3 |
Fair value of Private Warrants at December 31, 2021 | |
$ | 194,880 | |
Change in fair value of Private Warrants | |
| (93,380 | ) |
Fair value of Private Warrants at March 31, 2022 | |
$ | 101,500 | |
Note 9—Subsequent
Events
The
Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date of the filing of
this report. The Company did not identify any subsequent events, other than noted below, that would have required adjustment or
disclosure in these unaudited condensed financial statements.
On
April 13, 2023, the Company issued an unsecured promissory note to the new Sponsor with a principal amount of $75,000 (the “Extension
Note”). The Extension Note bear no interest and is repayable in full upon the earlier of (a) the date of the consummation
of the Company’s initial Business Combination, or (b) the date of the Company’s liquidation. If the Company does not
consummate an initial Business Combination by the Deadline Date, the Extension Note will be repaid only from funds held outside
of the Trust Account or will be forfeited, eliminated or otherwise forgiven.
On
April 19, 2023, the Company issued an unsecured promissory note to EVIE with a principal amount of $161,000 (the “EVIE Extension
Note”). The EVIE Extension Note bear no interest and is repayable in full upon the earlier of (a) the date of the consummation
of the Company’s initial Business Combination, or (b) the date of the Company’s liquidation. If the Company does not
consummate an initial Business Combination by the Deadline Date, the EVIE Extension Note will be repaid only from funds held outside
of the Trust Account or will be forfeited, eliminated or otherwise forgiven.
With
the draw down of the funds from the Extension Note and EVIE Extension Note and subsequent deposits of $150,000 into the Trust Account,
the Company has extended the date by which the Company must consummate a Business Combination to June 14, 2023.
On
April 17, 2023, the Company entered into a binding letter of intent (the “Letter of Intent”) with EVIE Autonomous Ltd.
(“EVIE”), a company formed in England and Wales which has developed a universally controllable electric vehicle platform
for first-mile and last mile deliver, people transportation, cargo transport and machine operations (“EVIE”) pursuant
to which the Company will acquire 100% of the outstanding equity interests of EVIE (the “Transaction”). Consummation
of the Transaction shall be subject to the execution of a mutually satisfactory definitive agreement by the Company and EVIE (the
“Definitive Agreement”). Pursuant to the Letter of Intent, the parties have agreed to work exclusively with each other,
and not to entertain other proposals and opportunities. EVIE and the Company agree that during the period from the date of execution
through the six month anniversary, EVIE will not enter any binding definitive agreement with any other potential new opportunity.
For the avoidance of doubt, EVIE is not permitted to enter into any other alternative sale, or merger, or acquisition agreement
with another potential suitor.
GBT
Technologies Inc. is also a party to the Letter of Intent pursuant to which the Company agreed to acquire the Apollo System which
is intellectual property covered by patent application (publication number 2022/0405966) filed with the US Patent and Trademark
Office. This patent application describes a machine learning driven technology that controls radio wave transmissions, analyzes
their reflections data, and constructs 2D/3D images of stationary and moving objects. The Apollo system is based on radio waves
and can detect an entity’s moving and stationary positions, enabling imaging technology to show these movements and positions
on a screen in real time. This includes an AI technology that controls the radio waves transmission and analyzes the reflections.
The goal is to integrate the Apollo System as an efficient driver monitoring system, detecting impaired or distracted drivers,
providing audible and visual alerts.
On
May 10, 2023, the Company engaged a law firm to assist with the proposed Business Combination with EVIE. The Company has agreed
to pay $30,000 upon entering into the agreement, $70,000 upon EVIE signing a definitive business combination agreement and the
remaining $500,000 is contingent upon the closing of the Business Combination with EVIE.
On
May 12, 2023, the Company issued an unsecured promissory note to EVIE with a principal amount of $87,325 (the “May EVIE Extension
Note”). The May EVIE Extension Note bear no interest and is repayable in full upon the earlier of (a) the date of the consummation
of the Company’s initial Business Combination, or (b) the date of the Company’s liquidation. If the Company does not
consummate an initial Business Combination by the Deadline Date, the May EVIE Extension Note will be repaid only from funds held
outside of the Trust Account or will be forfeited, eliminated or otherwise forgiven.
On
May 19, 2023, the Company entered into an Executive Retention Agreement with Mr. Davis, Chief Executive Officer and Co-Chairman
of the Board of Directors, providing for an at-will employment arrangement that may be terminated by either party at any time,
which provides for the payment of an annual salary of $240,000 to Mr. Davis.
Additionally, the Company entered into a letter agreement with
Subash Menon, a director of the Company, for services in connection with the review and advice pertaining to the proposed acquisition
of EVIE providing for a payment in the amount of $200,000 upon the closing of a Business Combination.