SIGNIFICANT ACCOUNTING POLICIES |
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the GAAP for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 31, 2023. The interim results for the three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any future periods. Emerging Growth Company The Company is an “emerging growth company” as defined in Section 2(a) of the Securities Act, as modified by 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 of 2002, 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 stockholder 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 an emerging growth 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 financial statements in conformity with GAAP requires the Company’s 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 financial statements and the reported amounts of expenses during the reporting period. Making estimates requires management to exercise significant judgment. 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 differ from those estimates. NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. As of June 30, 2023 and December 31, 2022, the Company did not have any cash equivalents, outside of funds held in the Trust Account. As of June 30, 2023 and December 31, 2022, the Company had cash of approximately $0.01 million and $0.08 million, respectively, outside of funds held in the Trust Account. Cash Held in Trust Account At June 30, 2023 and December 31, 2022, the Company had approximately $53.33 million and $129.95 million, respectively, of assets held in the Trust Account in an interest-bearing demand deposit account and in Treasury Bills. respectively. On April 3, 2023, approximately $78.8 million was removed from the Trust Account in connection with the redemption of 7,744,085 shares of common stock previously held by public stockholders subsequent to the approval of the Extension Proposal. On April 11, 2023, the Company liquidated the funds held in the Trust Account and instead holds the funds in the Trust Account in an interest bearing demand deposit account until the earlier of the consummation of our Business Combination or the Company’s liquidation. On June 26, 2023, a Monthly Extension Fee of $200,000 was deposited into the Trust Account, which was comprised of a $100,000 payment from the Sponsor and a $100,000 payment from Infinite Reality. The monthly extension payment of $100,000 deposited into the Trust Account by Infinite Reality is non-reimbursable by the Company or the Sponsor. On July 21, 2023, pursuant to the Second Merger Amendment, Infinite Reality deposited a Monthly Extension Fee of $200,000 directly into the Trust Account on behalf of the Company, bringing the balance of the Contribution outstanding to $1.0 million. Any monthly extension payment deposited into the Trust Account by Infinite Reality is non-reimbursable by the Company or the Sponsor. Common Stock Subject to Possible Redemption All of the 12,843,937 shares of common stock sold as part of the Units in the Public Offering 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. In accordance with SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC Topic 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. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions of ASC Topic 480. The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable shares of common stock to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable shares of common stock are affected by charges against additional paid-in capital and accumulated deficit. NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued) Common Stock Subject to Possible Redemption (Continued) As of June 30, 2023 and December 31, 2022, the shares of common stock subject to possible redemption and included as temporary equity were as follows: | | | | | | | | | As of | | As of | | | June 30, 2023 | | December 31, 2022 | Gross proceeds | | $ | 129,951,121 | | $ | 128,439,370 | Plus: | | | | | | | Accretion of carrying value to redemption value | | | 1,558,248 | | | 1,511,751 | Stockholders redemptions | | | (78,770,623) | | | — | Contingently redeemable common stock | | $ | 52,738,744 | | $ | 129,951,121 |
Offering Costs The Company complies with the requirements of the ASC 340-10-S99-1. Offering costs are charged against the carrying value of common stock or stockholders’ deficit based on the relative value of the shares of common stock and the warrants, to the proceeds received from the Units sold upon the completion of the Public Offering. Offering costs consisted of legal, accounting, underwriting fees and other costs incurred through the Public Offering that were directly related to the Public Offering. The Company incurred offering costs amounting to $3.00 million as a result of the Public Offering, consisting of $2.57 million of cash underwriting discount and $0.43 million of other offering costs. As such, the Company recorded $2.90 million of offering costs as a reduction of temporary equity, $0.10 million of offering costs as a reduction of permanent equity and $454 of offering cost as reduction in the statement of operations. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentration of credit risk consist of cash accounts in a financial institution which, at times, may exceed the federal depository insurance coverage of $0.25 million. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts. NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued) Fair Value of Financial Instruments Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include: | ● | Level 1 - Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
| ● | Level 2 - Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. |
| ● | Level 3 - Unobservable inputs based on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability. |
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement. As of June 30, 2023 and December 31, 2022, the carrying values of cash, prepaid expenses, accrued expenses, franchise tax payable approximated their fair values due to the short-term nature of the instruments. Derivative Warrant Liabilities The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC Topic 480 and ASC Subtopic 815-15. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. The 203,440 Private Warrants are recognized as derivative liabilities in accordance with ASC Subtopic 815-40. Accordingly, the Company recognizes the warrant instruments as liabilities at fair value and adjust the instruments to fair value at each reporting period. The liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s statements of operations. The fair value of the Private Warrants was initially measured at fair value using a Monte Carlo simulation model and subsequently, the fair value of the Private Warrants have been estimated using a Monte Carlo simulation model each measurement date. NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued) Net (Loss) Profit Per Share of Common Stock The Company applies the two-class method in calculating earnings per share. The contractual formula utilized to calculate the redemption amount approximates fair value. The Class feature to redeem at fair value means that there is effectively only one class of stock. Changes in fair value are not considered a dividend of the purposes of the numerator in the earnings per share calculation. Net (loss) profit per share of common stock is computed by dividing the pro rata net (loss) profit between the shares of common stock subject to redemption and the shares of common stock not subject to redemption by the weighted average number of shares of common stock outstanding for each of the periods. The calculation of diluted (loss) profit per share of common stock does not consider the effect of the warrants issued in connection with the Public Offering since the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive. The warrants are exercisable for 6,625,409 shares of common stock in the aggregate. | | | | | | | | | | | | | | | Three Months Ended | | Three Months Ended | | Six Months Ended | | Six Months Ended | | | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 | Common stock subject to possible redemption | | | | | | | | | | | | | Numerator: | | | | | | | | | | | | | Net (loss) profit allocable to common stock subject to possible redemption | | $ | (44,219) | | $ | (55,584) | | $ | 219,413 | | $ | (242,585) | Denominator: | | | | | | | | | | | | | Weighted average shares outstanding, redeemable common stock | | | 5,099,852 | | | 12,843,937 | | | 8,541,668 | | | 12,843,937 | Basic and diluted net (loss) profit per share, redeemable common stock | | $ | (0.00) | | $ | (0.00) | | $ | 0.03 | | $ | (0.02) | | | | | | | | | | | | | | Non-redeemable common stock | | | | | | | | | | | | | Numerator: | | | | | | | | | | | | | Net (loss) profit allocable to common stock subject to possible redemption | | $ | (33,103) | | $ | (16,522) | | $ | 98,071 | | $ | (72,108) | Denominator: | | | | | | | | | | | | | Weighted average shares outstanding, non-redeemable common stock | | | 3,817,863 | | | 3,817,863 | | | 3,817,863 | | | 3,817,863 | Basic and diluted net (loss) profit per share, non-redeemable common stock | | $ | (0.00) | | $ | (0.00) | | $ | 0.03 | | $ | (0.02) |
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company recorded income tax expense of $0.49 million based on activities through June 30, 2023, primarily as a result of investment income, partially offset by deductible expenses. The Company's year to date effective tax rate for the second quarter ended June 30, 2023 was 60.61% compared to (1.31%) in the year to date second quarter ended June 30, 2022. The Company's effective rate for the standalone second quarter ended June 30, 2023 was 262% compared to 5.98% in the standalone second quarter ended June 30, 2022. The 2023 year to date effective rate of 60.61% differs from the statutory tax rate of 21% mainly due to permanent nondeductible GAAP expenses, state income taxes and change in the valuation allowance. The standalone second quarter ended June 30, 2023 effective rate of 262% differs from the statutory tax rate of 21% mainly due to permanent non-deductible GAAP expenses, state income taxes and change in the valuation allowance. The Company recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying statement of operations. As of June 30, 2023, the Company does not have uncertain tax positions or interest and penalties related to uncertain tax positions. On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was enacted into law. Among other changes to the tax code, the act imposes a 1% excise tax on certain repurchases of corporate stock by certain publicly traded corporations. The 1% stock buyback tax applies to redemptions by domestic corporations occurring in taxable years beginning after December 31, 2022. The stock buyback tax may be applicable to certain SPAC redemptions, including in connection with a SPAC’s business combination. 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, a number of exceptions to the stock buyback tax are available including exceptions to certain reorganizations; however, while these exceptions may be helpful in limiting the application of the stock buyback tax in situations in which it was not intended to apply, more guidance will be necessary for taxpayers to analyze the potential application of these exceptions and whether they will be able to rely upon them. NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes (Continued) Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension a vote by stockholders to extend the period of time to complete the Business Combination (the “extension vote”) or otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax in connection with a Business Combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business Combination but issued within the same taxable year of a Business Combination) and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business Combination and in the Company’s ability to complete a Business Combination. As of June 30, 2023, $0.79 million was incurred by the Company as excise tax expense in connection with the redemption of 7,744,085 shares of common stock previously held by public stockholders. The IRS issued Notice 2023-3 (Initial guidance regarding the application of the excise tax on repurchases of corporate stock). The notice defines stock redemptions per Internal Revenue Code (IRC) section 317(b) and also defines transactions considered to be economically similar to a repurchase including certain acquisitive reorganizations, split-offs and certain overlap complete liquidations. Further, the notice defines transaction that are not economically similar transactions including complete liquidations and certain divisive transactions. Recent Accounting Pronouncements In August 2020, FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2023, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 on its financial statements. Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.
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