UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from ____ to ____
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State of other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code
Not Applicable
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Units, each consisting of one share of Class A Common Stock, $0.0001 par value, and one- fourth of one redeemable warrant | ||||
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 14, 2023,
SOCIAL LEVERAGE ACQUISITION CORP I
Form 10-Q
For the Quarter Ended September 30, 2023
Table of Contents
i
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
SOCIAL LEVERAGE ACQUISITION CORP I
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| Assets: | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Due from related parties | ||||||||
| Investments held in Trust Account | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities, Class A Common Stock Subject to Possible Redemption and Stockholders’ Deficit: | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Income tax payable | ||||||||
| Excise tax payable | ||||||||
| Total current liabilities | ||||||||
| Deferred legal fees | ||||||||
| Derivative warrant liabilities | ||||||||
| Working capital loan | ||||||||
| Deferred underwriting commissions | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Class A Common Stock subject to possible redemption, $ | ||||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock, $ | ||||||||
| Class A Common Stock, $ | ||||||||
| Class B Common Stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total Liabilities, Class A Common Stock Subject to Possible Redemption and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
SOCIAL LEVERAGE ACQUISITION CORP I
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| General and administrative expenses | $ | $ | $ | $ | ||||||||||||
| Franchise tax expense | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Change in fair value of derivative warrant liabilities | ( | ) | ||||||||||||||
| Reduction in deferred underwriter commissions | ||||||||||||||||
| Interest on working capital loan - related party | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income from investments held in Trust Account | ||||||||||||||||
| Total Other income, net | ||||||||||||||||
| Net income (loss) before income taxes | ( | ) | ( | ) | ||||||||||||
| Income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| $ | $ | ( | ) | $ | ( | ) | $ | |||||||||
| $ | $ | ( | ) | $ | ( | ) | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
SOCIAL LEVERAGE ACQUISITION CORP I
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’ DEFICIT
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
| Common Stock | Additional | Total | ||||||||||||||||||||||||||
| Class A | Class B | Paid-In | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance - December 31, 2022 | $ | $ | | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| Remeasurement of Class A Common Stock subject to possible redemption value | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Reduction in deferred underwriter commissions | — | — | ||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance - March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Remeasurement of Class A Common Stock subject to possible redemption value | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Excise taxes related to redemptions | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance – June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Remeasurement of Class A Common Stock subject to possible redemption value | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance - September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
| Common Stock | Additional | Total | ||||||||||||||||||||||||||
| Class A | Class B | Paid-In | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance - December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance - March 31, 2022 (Unaudited) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Remeasurement of Class A Common Stock subject to possible redemption value | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | — | — | ||||||||||||||||||||||||||
| Balance - June 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Remeasurement of Class A common stock subject to possible redemption value | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance - September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
SOCIAL LEVERAGE ACQUISITION CORP I
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For The Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||||
| Change in fair value of derivative warrant liabilities | ( | ) | ( | ) | ||||
| Reduction in deferred underwriting commissions | ( | ) | ||||||
| Income from investments held in Trust Account | ( | ) | ( | ) | ||||
| Interest on working capital loan - related party | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ||||||||
| Due from related parties | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Income tax payable | ( | ) | ||||||
| Franchise tax payable | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Investment income released from Trust Account to pay for taxes | ||||||||
| Cash withdrawn from Trust Account in connection with redemption | ||||||||
| Net cash provided by investing activities | ||||||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from working capital loan - related party | ||||||||
| Redemption of common stock | ( | ) | ||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net decrease in cash | ( | ) | ||||||
| Cash - beginning of the period | ||||||||
| Cash - end of the period | $ | |||||||
| Supplemental disclosure of noncash activities: | ||||||||
| Remeasurement of Class A Common Stock subject to possible redemption amount | $ | $ | ||||||
| Reduction of deferred underwriting commissions | $ | $ | ||||||
| Excise taxes related to redemptions | $ | $ | ||||||
| Supplemental Cash Flow Information | ||||||||
| Income taxes paid | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
SOCIAL LEVERAGE ACQUISITION CORP I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Social Leverage Acquisition Corp I (the “Company”) is a blank check company incorporated in Delaware on December 1, 2020. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). 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.
As of September 30, 2023, the Company had not commenced any operations. All activity for the period from December 1, 2020 (inception) through September 30, 2023, relates to the Company’s formation and the initial public offering (the “Initial Public Offering”) and identifying a target company for a 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 and other income on investments of the proceeds derived from the Initial Public Offering.
The Company’s sponsor is Social Leverage
Acquisition Sponsor I LLC, a Delaware limited liability company (the “Sponsor”). The registration statement for the Company’s
Initial Public Offering was declared effective on February 11, 2021. On February 17, 2021, the Company consummated its Initial Public
Offering of
Simultaneously with the closing of the Initial
Public Offering, the Company consummated the private placement (“Private Placement”) of
Upon the closing of the Initial Public Offering
and the Private Placement, $
The Company’s management has broad discretion
with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of Private Placement Warrants,
although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There
is no assurance that the Company will be able to complete a Business Combination successfully. The Company must complete its initial Business
Combination with one or more operating businesses or assets having an aggregate fair market value of at least
The Company will provide the holders (the “Public
Stockholders”) of the Public Shares with the opportunity to redeem all or a portion of their Public Shares upon the completion of
a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means
of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender
offer will be made by the Company, solely in its discretion, subject to applicable law and stock exchange listing requirements. The Public
Stockholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then held in the Trust Account (initially
anticipated to be $
5
The Company’s Amended and Restated Certificate
of Incorporation provides that a Public Stockholder, together with any affiliate of such stockholder or any other person with whom such
stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)), will be restricted from redeeming its Public Shares with respect to more than an aggregate of
If the Company is unable to complete a Business
Combination by February 17, 2024 (the “Combination Period”), the Company will (1) cease all operations except for the purpose
of winding up; (2) as promptly as reasonably possible but not more than ten business days thereafter, subject to lawfully available funds
therefor, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust
Account, including interest earned on the funds in the Trust Account (net of taxes payable and less up to $
The initial stockholders agreed to waive their
rights to liquidating distributions from the Trust Account with respect to the Founder Shares if the Company fails to complete a Business
Combination within the Combination Period. However, if the initial stockholders acquire Public Shares in or after the Initial Public Offering,
they will be entitled to liquidating distributions from the Trust Account with respect to such Public Shares if the Company fails to complete
a Business Combination within the Combination Period. The underwriters agreed to waive their rights to the deferred underwriting commission
(see Note 5) held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period
and, in such event, such amounts will be included with the other funds held in the Trust Account that will be available to fund the redemption
of the Public Shares. In the event of such distribution, it is possible that the per share value in the Trust Account will be only $
Liquidity and Going Concern
As of September 30, 2023, the Company had approximately $
In connection with the Company’s assessment of going concern considerations in accordance with FASB Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that the liquidity, the mandatory liquidation and the subsequent dissolution raise substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after February 17, 2024. The condensed consolidated financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern. Management plans to consummate a Business Combination prior to the mandatory liquidation date.
Risks and Uncertainties
Management is currently evaluating the impact of the COVID-19 global pandemic 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 consolidated financial statement. The condensed consolidated 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. Recently in October 2023, the military conflict between Israel and militant groups led by Hamas has also caused uncertainty in the global markets. The impact of these actions and related sanctions on the world economy are not determinable as of the date of these condensed consolidated 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 consolidated financial statements.
6
On August 16, 2022, the Inflation Reduction Act
of 2022 was signed into federal law. The Inflation Reduction Act provides for, among other things, a new U.S. federal
Proposed W3BCLOUD Business Combination
On July 31, 2022, the Company entered into a business combination agreement, by and among the Company, SLAC Merger Sub, Inc., a wholly owned subsidiary of the Company (“Merger Sub”), and W3BCLOUD Holdings Inc. (“W3BCLOUD”) (the “Original BCA”). The Original BCA and the business combination were unanimously approved by the Company’s board of directors on July 8, 2022. On April 21, 2023, the Company, Merger Sub and W3BCLOUD executed an amendment to the Original BCA (the “BCA Amendment” and together with the Original BCA, the “Business Combination Agreement”) relating to the contemplated business combination among the parties thereto.
On September 22, 2023, the parties to the Business Combination Agreement entered into a Termination Agreement (the “Termination Agreement”), pursuant to which, among other things, the parties agreed to mutually terminate the Business Combination Agreement, effective as of September 22, 2023 (the “Termination”). As a result of the Termination, the Business Combination Agreement will be of no further force and effect, and the Ancillary Agreements (as defined in the Business Combination Agreement) will either be terminated in accordance with their terms or be of no further force and effect. Neither party will be required to pay the other any fees or expenses as a result of the Termination. The Company and W3BCLOUD have also agreed, on behalf of themselves and their respective related parties, to a release of claims relating to the transactions contemplated under the Business Combination Agreement.
The foregoing description of the Business Combination Agreement, the Termination and the Termination Agreement does not purport to be complete and is qualified in its entirety by the terms and conditions and the full text of the Original BCA, a copy of which was previously filed with the SEC as Exhibit 2.1 to our Current Report on Form 8-K on August 1, 2022, as amended by the BCA Amendment, a copy of which was previously filed with the SEC as Exhibit 2.1 to our Current Report on Form 8-K on April 21, 2023, and to the full text of the Termination Agreement, a copy of which was previously filed with the SEC as Exhibit 10.1 to our Current Report on Form 8-K on September 22, 2023.
First Amendment to Sponsor Letter Agreement
On April 21, 2023, the Company, W3BCLOUD, the Sponsor and certain other persons named therein (the “Insiders”) entered into an amendment (the “First Amendment to Sponsor Letter Agreement”) to that certain Sponsor Letter Agreement, dated as of July 31, 2022 (the “Sponsor Letter Agreement”), by and among the Company, W3BCLOUD, the Sponsor and the Insiders. Pursuant to the Termination and Termination Agreement, the Sponsor Letter Agreement and First Amendment to Sponsor Letter Agreement has been terminated.
7
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected through December 31, 2023.
The accompanying unaudited condensed consolidated 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 29, 2023, which contains the audited financial statements and notes thereto. The financial information as of December 31, 2022 is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 29, 2023.
Principles of Consolidation
The consolidated financial statements of the Company include its wholly owned subsidiary in connection with the proposed Business Combination. All intercompany accounts and transactions are eliminated in consolidation.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of 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 independent registered public accounting firm 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 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 an 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 that is neither an emerging growth company nor an emerging growth company that 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 condensed consolidated financial statements in conformity with 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 financial statements and the reported amounts of revenues and 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 condensed consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Actual results could differ from those estimates.
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
Deposit Insurance Corporation (“FDIC”) coverage limit of $
8
On March 12, 2023, the Company and the Sponsor
entered into a Custody Agreement, where the Company transferred $
As of September 30, 2023 and December 31, 2022, the Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
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 had no cash equivalents as of September 30, 2023 and December 31, 2022.
Investments Held in the Trust Account
The Company’s portfolio of investments is comprised of cash and U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less, or investments in money market funds that invest in U.S. government securities and generally have a readily determinable fair value, or a combination thereof. When the Company’s investments held in the Trust Account are comprised of U.S. government securities, the investments are classified as trading securities. When the Company’s investments held in the Trust Account are comprised of money market funds, the investments are recognized at fair value. Trading securities and investments in money market funds are presented on the balance sheets at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of these securities is included in income on investments held in the Trust Account in the accompanying consolidated statements of operations. The estimated fair values of investments held in the Trust Account are determined using available market information.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities which qualify as financial instruments under the FASB ASC Topic 820, Fair Value Measurements equals or approximate the carrying amounts represented in the consolidated balance sheets.
Fair Value Measurements
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, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; |
| ● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| ● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
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.
9
Offering Costs Associated with the Initial Public Offering
Offering costs consisted of legal, accounting, underwriting fees and other costs incurred through the Initial Public Offering that were directly related to the Initial Public Offering. Offering costs were allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared to total proceeds received. Offering costs associated with derivative warrant liabilities were expensed as incurred and presented as non-operating expenses in the consolidated statements of operations. Offering costs associated with the Class A Common Stock issued were charged against the carrying value of the Class A Common Stock subject to possible redemption upon the completion of the Initial Public Offering and exercise of the over-allotment option. The Company classifies deferred underwriting commissions as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.
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 480 and FASB ASC Topic 815, Derivatives and Hedging (“ASC 815”). 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
Class A Common Stock Subject to Possible Redemption
The Company accounts for its Class A Common Stock
subject to possible redemption in accordance with the guidance in ASC Topic 480 Distinguishing Liabilities from Equity. Class A
Common Stock subject to mandatory redemption (if any) is classified as liability instruments and are measured at fair value. Conditionally
redeemable Class A Common Stock (including Class A Common Stock that features 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. At all other times, Class A Common Stock is classified as stockholders’ equity. The Company’s Class A
Common Stock 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,
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of the Class A Common Stock subject to possible redemption to equal the redemption value at the end of each reporting period. Effective with the closing of the Initial Public Offering (including exercise of the over-allotment option), the Company recognized the remeasurement from initial book value to redemption amount, which resulted in charges against additional paid-in capital (to the extent available) and accumulated deficit.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under FASB ASC Topic 740, Income Taxes (“ASC 740”). Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the condensed financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
10
ASC 740 prescribes a recognition threshold and a measurement attribute for the condensed financial statement recognition and measurement of tax positions 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. There were no unrecognized tax benefits as of September 30, 2023 and 2022. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties as of September 30, 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 is subject to income tax examinations by major taxing authorities since inception.
Net (Loss) Income Per Common Stock
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, Earnings Per Share. The Company has two classes of shares, which are referred to as Class A Common Stock and Class B Common Stock. Income and losses are shared pro rata between the two classes of shares. Net (loss) income per common stock is calculated by dividing the net (loss) income by the weighted average shares of common stock outstanding for the respective period.
The calculation of diluted net (loss) income does
not consider the effect of the warrants underlying the Units sold in the Initial Public Offering (including the consummation of the over-allotment)
and the private placement warrants to purchase an aggregate of
The Company has considered the effect of Class B Common Stock that were excluded from weighted average number as they were contingent on the exercise of over-allotment option by the underwriters. Since the contingency was satisfied, the Company included these shares in the weighted average number as of the beginning of the period to determine the dilutive impact of these shares.
| For the Three Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Class A | Class B | Class A | Class B | |||||||||||||
| Basic and diluted net income (loss) per common stock: | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Allocation of net income (loss) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Denominator: | ||||||||||||||||
| $ | $ | $ | ( | ) | $ | ( | ) | |||||||||
| For the Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Class A | Class B | Class A | Class B | |||||||||||||
| Basic and diluted net (loss) income per common stock: | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Allocation of net (loss) income | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| Denominator: | ||||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | $ | |||||||||
11
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This update requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Since June 2016, the FASB issued clarifying updates to the new standard including changing the effective date for smaller reporting companies. The guidance is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early adoption permitted. The Company adopted ASU 2016-13 on January 1, 2023. The adoption of ASU 2016-13 did not have an impact on its financial statements.
In June 2022, the FASB issued ASU 2022-03, ASC Subtopic 820 Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The ASU amends ASC 820 to clarify that a contractual sales restriction is not considered in measuring an equity security at fair value and to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value. The ASU applies to both holders and issuers of equity and equity-linked securities measured at fair value. The amendments in this ASU are effective for the Company in fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted for both interim and annual consolidated financial statements that have not yet been issued or made available for issuance. The Company is still evaluating the impact of this pronouncement on the condensed consolidated financial statements.
The Company’s management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying condensed consolidated financial statements.
NOTE 3 - INITIAL PUBLIC OFFERING
On February 17, 2021, the Company consummated
its Initial Public Offering of
Each Unit consists of one share of Class A Common
Stock, and one-fourth of one redeemable warrant (each, a “Public Warrant”). Each whole Public Warrant entitles the holder
to purchase one share of Class A Common Stock at a price of $
NOTE 4 - RELATED PARTY TRANSACTIONS
Founder Shares
On December 11, 2020, the Sponsor paid $
The initial stockholders agreed, subject to limited
exceptions, not to transfer, assign or sell any of the Founder Shares until the earlier to occur of: (1) one year after the completion
of the initial Business Combination and (2) subsequent to the initial Business Combination (x) if the last reported sale price of the
Class A Common Stock equals or exceeds $
12
Private Placement Warrants
Simultaneously with the closing of the Initial
Public Offering, the Company consummated the Private Placement of
Each whole Private Placement Warrant is exercisable
for one whole share of Class A Common Stock at a price of $
The Sponsor and the Company’s officers and directors agreed, subject to limited exceptions, not to transfer, assign or sell any of their Private Placement Warrants until 30 days after the completion of the initial Business Combination.
Related Party Loans
On December 11, 2020, the Sponsor agreed to loan
the Company an aggregate of up to $
In addition, in order to fund working capital
deficiencies or finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain
of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working
Capital Loans”). If the Company completes a Business Combination, the Company may repay the Working Capital Loans out of the proceeds
of the Trust Account released to the Company. Otherwise, the Working Capital 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 proceeds held outside the Trust
Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans.
The Working Capital Loans would either be repaid upon consummation of a Business Combination or, at the lenders’ discretion, up
to $
In March 2022, the Company executed a Working
Capital Loan (the “March 2022 Working Capital Loan”), bearing interest of
In June 2022, the Sponsor and the Company executed
another Working Capital Loan (the “June 2022 Working Capital Loan”), bearing interest of
13
Administrative Support Agreement and Certain Other Payments
Commencing on the date that the Company’s
securities were first listed on a stock exchange through the earlier of consummation of the initial Business Combination and the Company’s
liquidation, the Company agreed to pay the Sponsor a total of $
The Sponsor, executive officers and directors, or any of their respective affiliates will be reimbursed for any out-of-pocket expenses incurred in connection with activities on the Company’s behalf such as identifying potential target businesses and performing due diligence on suitable Business Combinations. The Company’s audit committee will review on a quarterly basis all payments that were made to the Sponsor, executive officers or directors, or the Company’s or their affiliates.
Custody Agreement
On March 12, 2023, the Company and the Sponsor
entered into a Custody Agreement, where the Company transferred $
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Registration Rights
The holders of Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans, if any (and any shares of Class A Common Stock issuable upon the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans and upon conversion of the Founder Shares), were entitled to registration rights pursuant to a registration rights agreement. These holders were entitled to certain demand and “piggyback” registration rights. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The Company granted the underwriters a 45-day
option from the date of the final prospectus relating to the Initial Public Offering to purchase up to
The underwriters were entitled to an underwriting
discount of $
On January 18, 2023, the Company received a formal
letter, from Barclays Capital Inc. (“Barclays”), one of the underwriters in the Company’s Initial Public Offering, advising
that it had, among other things, (i) resigned from and ceased or refused to act in, its roles as co-placement agent, co-capital markets
advisor and exclusive financial advisor to the Company in connection with the Merger and as underwriter in the Company’s Initial
Public Offering and (ii) waived its right to receive an aggregate of $
14
On January 26, 2023, the Company and BofA Securities,
Inc., one of the underwriters in the Company’s Initial Public Offering, entered into an agreement pursuant to which BofA Securities,
Inc. waived all rights to its pro rata share of the Deferred Discount (as defined in the Underwriting Agreement, dated February 11, 2021,
among the Company, and BofA Securities, Inc.). BofA Securities, Inc. pro rata share of the Deferred Discount was approximately $
Deferred Legal Fees
The Company engaged legal counsel for legal advisory
services, and the legal counsel agreed to defer their fees in excess of $
Commitments
On April 21, 2023, W3BCLOUD and the Company entered into a non-binding term sheet (the “Term Sheet”) with B. Riley Principal Capital II, LLC (“B. Riley”) with respect to a proposed committed equity facility (the “Facility”). In connection with the Termination Agreement, the Term Sheet has been terminated.
In addition, as previously reported, in July 2022,
W3BCLOUD Partners Limited and ConsenSys AG (“ConsenSys”) entered into a commitment letter (the “Commitment Letter”)
pursuant to which ConsenSys agreed to subscribe for an aggregate of $
Non-Redemption Agreements
On April 21, 2023, the Company entered into
certain Voting, Share Purchase and Non-Redemption Agreements (the “Initial Non-Redemption Agreements”)
with certain unaffiliated holders (the “Initial Holders”) of the Company’s Class A Common Stock. Pursuant to the Initial Non-Redemption Agreements,
the Initial Holders agreed, among other things, not to redeem an aggregate of
On May 26, 2023, the Company entered into Additional
Non-Redemption Agreements (as defined below) with three additional unaffiliated holders (the “Additional Holders”) with respect
to certain shares of the Company’s Class A Common Stock currently held by or recently purchased by such Additional Holders, or which
may be purchased by such Additional Holders prior to the date that is 30 days from the date of the Additional Redemption Agreements or
such later date agreed by the Company in its absolute discretion, up to an aggregate cap of
15
The Company entered into two separate forms of
non-redemption agreements with the Additional Holders. With respect to
Pursuant to the Non-Redemption and Voting Agreements, the Additional Holders agreed, among other things: (i) not to redeem the Voting Non-Redeemable Shares in connection with any vote of the stockholders of the Company where such Additional Holder would otherwise have been entitled to redeem such Voting Non-Redeemable Shares; (ii) to hold the Additional Non-Redeemed Shares until the business day following the meeting of the stockholders of the Company at which the stockholders vote on and approve the consummation of the Business Combination, except that the Additional Holders may transfer the Voting Non-Redeemable Shares to other holders of Class A Common Stock which are subject to a non-redemption agreement with the Company on materially the same terms as the Non-Redemption and Voting Agreements and (iii) to vote their Voting Non-Redeemable Shares in favor of certain matters to be put to a vote of the stockholders of the Company, including, among other things, the consummation of the Business Combination and related transactions.
Pursuant to the Non-Redemption Agreement, the
applicable Additional Holder agreed, among other things: (i) not to redeem the Non-Redeemable Shares in connection with any vote of the
stockholders of the Company where such Additional Holder would otherwise have been entitled to redeem such Non-Redeemable Shares; (ii)
to hold the Non-Redeemable Shares until the business day following the meeting of the stockholders of the Company at which the stockholders
vote on and approve the consummation of the Business Combination, except that the Additional Holder may transfer the Non-Redeemable Shares
to other holders of Class A Common Stock which are subject to a non-redemption agreement with the Company on materially the same terms
as the Non-Redemption Agreements; (iii) to cause the Non-Redeemable Shares to be counted as present for purposes of establishing a quorum
at certain meetings of the stockholders of the Company, and to abstain from voting their Non-Redeemable Shares in favor of certain matters
to be put to a vote of the stockholders of the Company, including, among other things, the consummation of the Business Combination and
related transactions and (iv) not to purchase any Additional Non-Redeemed Shares at a price exceeding $
In consideration of the agreements described above,
the Company agreed, subject to the respective Additional Holder’s compliance with their obligations under the Additional Non-Redemption
Agreements, to issue to the Additional Holders (or designees of such Holders) between
The Company anticipates that one of the Additional Holders may make purchases of shares of the Company’s Class A Common Stock following execution of the Additional Non-Redemption Agreements. The Additional Non-Redemption Agreements are expected to increase the amount of funds that remain in the Company’s Trust Account following the meeting of the Company’s stockholders to approve the Business Combination. The Company may enter into additional non-redemption agreements from time to time and will disclose the execution of any such further non-redemption agreements once they have been entered into.
As previously disclosed, pursuant to the Termination and Termination Agreement, the Sponsor Letter Agreement and First Amendment to Sponsor Letter Agreement have each been terminated.
The foregoing summary of the Initial Non-Redemption Agreements and the Additional Non-Redemption Agreements does not purport to be complete and is qualified in its entirety by reference to the Form of Non-Redemption and Voting Agreement, filed by the Company as Exhibit 10.1 to the Current Report on Form 8-K dated April 21, 2023, and incorporated by reference herein, and the Form of Non-Redemption Agreement, filed by the Company as Exhibit 10.2 to the Current Report on Form 8-K dated May 26, 2023, and incorporated by reference herein.
16
NOTE 6 - CLASS A COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION
The Company’s Class A Common Stock feature
certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of future events.
The Company is authorized to issue
| Class A Common Stock subject to possible redemption, December 31, 2021 | $ | |||
| Less: | ||||
| Redemption of Class A Common Stock subject to possible redemption | ( | ) | ||
| Plus: | ||||
| Remeasurement of Class A Common Stock subject to possible redemption amount | ||||
| Class A Common Stock subject to possible redemption, December 31, 2022 | ||||
| Less: | ||||
| Redemption of Class A Common Stock subject to possible redemption | ( | ) | ||
| Plus: | ||||
| Remeasurement of Class A Common Stock subject to possible redemption amount | ||||
| Class A Common Stock subject to possible redemption, September 30, 2023 | $ |
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NOTE 7 - STOCKHOLDERS’ DEFICIT
Preferred Stock - The Company is
authorized to issue
Class A Common Stock - The Company
is authorized to issue
Class B Common Stock - The Company
is authorized to issue
Holders of Class A Common Stock and holders of
Class B Common Stock will vote together as a single class, with each share entitling the holder to
The Class B Common Stock will automatically convert
into Class A Common Stock at the time of the initial Business Combination, or earlier at the option of the holder, on a one-for-one basis,
subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like, and subject to further adjustment
as provided herein. In the case that additional shares of Class A Common Stock or equity-linked securities are issued or deemed issued
in excess of the amounts issued in the Initial Public Offering and related to the closing of the initial Business Combination, the ratio
at which the shares of Class B Common Stock will convert into shares of Class A Common Stock will be adjusted (unless the holders of a
majority of the issued and outstanding shares of Class B Common Stock agree to waive such anti-dilution adjustment with respect to any
such issuance or deemed issuance) so that the number of shares of Class A Common Stock issuable upon conversion of all shares of Class
B Common Stock will equal, in the aggregate, on an as-converted basis,
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NOTE 8 - WARRANTS
As of September 30, 2023 and December 31, 2022,
the Company had
Public Warrants may only be exercised in whole
and only for a whole number of shares. No fractional Public Warrants will be issued upon separation of the Units and only whole Public
Warrants will trade. The Public Warrants will become exercisable on the later of (a) 30 days after the completion of a Business Combination
and (b) 12 months from the closing of the Initial Public Offering; provided in each case that the Company has an effective registration
statement under the Securities Act covering the issuance of the shares of Class A Common Stock issuable upon exercise of the Public Warrants
and a current prospectus relating to them is available (or the Company permits holders to exercise their Public Warrants on a cashless
basis and such cashless exercise is exempt from registration under the Securities Act). The Company agreed that as soon as practicable,
but in no event later than 15 business days after the closing of the initial Business Combination, the Company will use its commercially
reasonable efforts to file with the SEC and have an effective registration statement covering the shares of Class A Common Stock issuable
upon exercise of the warrants and to maintain a current prospectus relating to those shares of Class A Common Stock until the warrants
expire or are redeemed. If a registration statement covering the Class A Common Stock issuable upon exercise of the warrants is not effective
by the 60th business day after the closing of the initial Business Combination, warrant holders may, until such time as there is an effective
registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise
warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding
the above, if the Company’s shares of Class A Common Stock are at the time of any exercise of a warrant not listed on a national
securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities
Act, the Company may, at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis”
in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elect, it will not be required to file or maintain
in effect a registration statement, and in the event the Company does not so elect, it will use commercially reasonable efforts to register
or qualify the shares under applicable blue sky laws to the extent an exemption is not available. The Public Warrants will expire
The warrants have an exercise price of $
The Private Placement Warrants will be identical to the Public Warrants, except that the Private Placement Warrants and the shares of Class A Common Stock issuable upon exercise of the Private Placement Warrants will not be transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants will be non-redeemable so long as they are held by the Sponsor or its permitted transferees, except in certain limited circumstances. If the Private Placement Warrants are held by someone other than the Sponsor or its permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
19
Redemption of warrants when the price per share
of Class A Common Stock equals or exceeds $
Once the warrants become exercisable, the Company may redeem the outstanding warrants (except as described herein with respect to the Private Placement Warrants):
| ● | in whole and not in part; |
| ● | at a price of $ |
| ● | upon a minimum of |
| ● | if, and only if, the last reported sale price of Class A Common Stock for any |
The Company will not redeem the warrants as described above unless a registration statement under the Securities Act covering the issuance of the shares of Class A Common Stock issuable upon exercise of the warrants is then effective and a current prospectus relating to those shares of common stock is available throughout the 30-day redemption period.
Except as described below, none of the Private Placement Warrants will be redeemable by us so long as they are held by the Sponsor or its permitted transferees.
Redemption of warrants when the price per share
of Class A Common Stock equals or exceeds $
Once the warrants become exercisable, the Company may redeem the outstanding warrants:
| ● | in whole and not in part; |
| ● | at $ |
| ● | if, and only if, the Reference Value equals or exceeds $ |
| ● | if the Reference Value is less than $ |
The “fair market value” of Class A
Common Stock shall mean the volume-weighted average price of Class A Common Stock for the ten trading days immediately following the date
on which the notice of redemption is sent to the holders of warrants. In no event will the warrants be exercisable in connection with
this redemption feature for more than
If the Company is unable to complete a 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 the respect to such warrants. Accordingly, the warrants may expire worthless.
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NOTE 9 - FAIR VALUE MEASUREMENTS
September 30, 2023
| Description | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||
| Assets: | ||||||||||||
| Investments held in Trust Account - Money market funds | $ | $ | $ | |||||||||
| Liabilities: | ||||||||||||
| Derivative warrant liabilities - Public warrants | $ | $ | $ | |||||||||
| Derivative warrant liabilities - Private placement warrants | $ | $ | $ | |||||||||
December 31, 2022
| Description | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||
| Assets: | ||||||||||||
| Investments held in Trust Account - Money market funds | $ | $ | $ | |||||||||
| Liabilities: | ||||||||||||
| Derivative warrant liabilities - Public warrants | $ | $ | $ | |||||||||
| Derivative warrant liabilities - Private placement warrants | $ | $ | $ | |||||||||
Transfers to/from Levels 1, 2, and 3 are recognized at the beginning of the reporting period. The estimated fair value of the Public Warrants was transferred from a Level 3 measurement to a Level 1 measurement, when the Public Warrants were separately listed and traded in an active market in April 2021. The estimated fair value of the Private Placement Warrants was transferred from a Level 3 measurement to a Level 2 measurement in April 2021, as the transfer of Private Placement Warrants to anyone who is not a permitted transferee would result in the Private Placement Warrants having substantially the same terms as the Public Warrants, the Company determined that the fair value of each Private Placement Warrant is equivalent to that of each Public Warrant. There were no other transfers to/from Levels 1, 2, and 3 during the period ended September 30, 2023 and during the year ended December 31, 2022.
For periods where no observable traded price is available, the Company utilized a Monte-Carlo simulation to estimate the fair value of the Public Warrants and used the Black-Scholes option pricing model to estimate the fair value of the Private Placement Warrants. For periods subsequent to the detachment of the Public Warrants from the Units, the fair value of the Public Warrants is based on the observable listed price for such warrants. The estimated fair value of the Public Warrants and Private Placement Warrants, prior to the Public Warrants being traded in an active market, was determined using Level 3 inputs. Inherent in a binomial lattice model are assumptions related to the Unit price, expected volatility, risk-free interest rate, term to expiration, and dividend yield. The Unit price is based on the publicly traded price of the Units as of the measurement date. The Company estimated the volatility for the Public Warrants and Private Placement Warrants based on the implied volatility from the traded prices of warrants issued by other special purpose acquisition companies. The risk-free interest rate is based on interpolated U.S. Treasury rates, commensurate with a similar term to the Public Warrants and Private Placement Warrants. The term to expiration was calculated as the contractual term of the Public Warrants and Private Placement Warrants, assuming one year to a Business Combination from the Initial Public Offering date. Finally, the Company does not anticipate paying a dividend. Any changes in these assumptions can change the valuation significantly.
For the three and nine months ended September
30, 2023, the Company recognized a gain resulting from changes in the fair value of derivative warrant liabilities of approximately $
NOTE 10 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events and transactions that occurred up to the date the condensed consolidated financial statements were issued. Based upon this review, the Company did not identify any other subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements.
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
References to the “Company,” “Social Leverage Acquisition Corp I,” “Social Leverage,” “our,” “us” or “we” refer to Social Leverage Acquisition Corp I. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited interim condensed consolidated financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other SEC filings.
Overview
We are a blank check company incorporated in Delaware on December 1, 2020. We were formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). We are an emerging growth company and, as such, we are subject to all of the risks associated with emerging growth companies.
Our sponsor is Social Leverage Acquisition Sponsor I LLC, a Delaware limited liability company (the “Sponsor”). The registration statement for our Initial Public Offering was declared effective on February 11, 2021. On February 17, 2021, we consummated its Initial Public Offering of 34,500,000 units (the “Units” and, with respect to the Class A common stock included in the Units being offered, the “Public Shares”), including the exercise of the underwriters’ option to purchase 4,500,000 additional Units (the “Option Units”), at $10.00 per Unit, generating gross proceeds of $345.0 million, and incurring offering costs of approximately $19.7 million, of which approximately $12.1 million and approximately $152,000 was for deferred underwriting commissions and deferred legal fees, respectively.
Simultaneously with the closing of the Initial Public Offering, we consummated the private placement (“Private Placement”) of 6,000,000 warrants (each, a “Private Placement Warrant” and collectively, the “Private Placement Warrants”) at a price of $1.50 per Private Placement Warrant to the Sponsor, generating proceeds of $9.0 million.
Upon the closing of the Initial Public Offering and the Private Placement, $345.0 million ($10.00 per Unit) of the net proceeds of the Initial Public Offering and certain of the proceeds of the Private Placement was placed in a trust account (“Trust Account”) located in the United States with Continental Stock Transfer & Trust Company acting as trustee, and invested only in U.S. government securities with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended (the “Investment Company Act”), which invest only in direct U.S. government treasury obligations, as determined by the Company, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the Trust Account as described below.
Our management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There is no assurance that we will be able to complete a Business Combination successfully. We must complete its initial Business Combination with one or more operating businesses or assets having an aggregate fair market value of at least 80% of the net assets held in the Trust Account (excluding the deferred underwriting commissions and taxes payable on the income earned on the Trust Account) at the time of the agreement to enter into the initial Business Combination. However, we will only complete a 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 business sufficient for it not to be required to register as an investment company under the Investment Company Act.
If we are unable to complete a Business Combination by February 17, 2024, we will (1) cease all operations except for the purpose of winding up; (2) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds in the Trust Account (net of taxes payable and less up to $100,000 of interest to pay dissolution expenses), divided by the number of then issued and outstanding Public Shares, which redemption will completely extinguish Public Stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any) and (3) as promptly as reasonably possible following such redemption, subject to the approval of the remaining stockholders and our board of directors, liquidate and dissolve, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
22
Liquidity and Going Concern
As of September 30, 2023, we had approximately $265,000 in our operating bank account and working capital deficit of approximately $6.1 million.
In connection with the Company’s assessment of going concern considerations in accordance with FASB ASU 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that the liquidity, the mandatory liquidation and the subsequent dissolution raise substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after February 17, 2024. The financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern. Management plans to consummate a Business Combination prior to the mandatory liquidation date.
Management continues to evaluate the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on our financial position, results of our operations and/or search for a target company, the specific impact is not readily determinable as of the date of the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Results of Operations
Our entire activity since inception up to September 30, 2023 was in preparation for our formation and the Initial Public Offering and identifying a target company for a Business Combination. We will not be generating any operating revenues until the closing and completion of our initial Business Combination.
For the three months ended September 30, 2023, we had net income of approximately $1,760,000, which consisted of approximately $174,000 of income from investments held in the Trust Account and a non-operating gain of approximately $2 million resulting from the change in fair value of derivative warrant liabilities, offset by approximately $29,000 in income tax expenses, interest expense on working capital loan of approximately $18,000, and an operating loss of approximately $415,000. The loss from operations comprised of approximately $399,000 general and administrative expenses and approximately $16,000 in franchise tax expenses.
For the three months ended September 30, 2022, we had net loss of approximately $1,541,000, which consisted of approximately $382,000 in income tax expenses, interest expense on working capital loan of approximately $16,000, and an operating loss of approximately $1,541,000. The loss from operations comprised of approximately $1,491,000 general and administrative expenses and approximately $50,000 in franchise tax expenses, which was offset by a non-operating loss of $1,170,000 resulting from the change in fair value of derivative warrant liabilities, and approximately $1,567,000 of income from investments held in Trust Account.
For the nine months ended September 30, 2023, we had a net loss of approximately $1,741,000, which consisted of approximately $70,000 in income tax expenses, interest expense on working capital loan of approximately $52,000, and an operating loss of approximately $2,536,000, offset by approximately $436,000 of income from investments held in the Trust Account, non-operating income of approximately $336,000 resulting from reduction in deferred underwriter commissions and a non-operating gain of approximately $145,000 resulting from the change in fair value of derivative warrant liabilities. The loss from operations comprised of approximately $2,484,000 general and administrative expenses and approximately $52,000 in franchise tax expenses.
For the nine months ended September 30, 2022, we had net income of approximately $6,220,000, which consisted of a non-operating gain of $8,775,000 resulting from the change in fair value of derivative warrant liabilities, and approximately $2,057,000 of income from investments held in Trust Account, which was offset by approximately $426,000 in income tax expenses, interest expense on working capital loan of approximately $24,000, and an operating loss of approximately $4,161,000. The loss from operations comprised of approximately $4,006,000 general and administrative expenses and approximately $156,000 in franchise tax expenses.
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Contractual Obligations
Related Party Loans
On December 11, 2020, the Sponsor agreed to loan the Company an aggregate of up to $300,000 to cover expenses related to the Initial Public Offering pursuant to the Note. This loan was non-interest bearing and payable upon the completion of the Initial Public Offering. The Company borrowed approximately $178,000 under the Note and it was repaid in full on February 19, 2021. Subsequent to the repayment, the facility was no longer available to the Company.
In addition, in order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, loan the Company Working Capital Loans. If the Company completes a Business Combination, the Company may repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital 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 proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination or, at the lenders’ discretion, up to $1.5 million of such Working Capital Loans may be convertible into warrants of the post Business Combination entity at a price of $1.50 per warrant. The warrants would be identical to the Private Placement Warrants.
In March 2022, the Company executed the March 2022 Working Capital Loan, bearing interest of 10% annually, providing the Company the ability to borrow up to $1.5 million. As of September 30, 2023 and December 31, 2022, the Company had $300,000, respectively, in borrowings under the March 2022 Working Capital Loan. For the three and nine months ended September 30, 2023, the Company had approximately $8,000 and $22,000, respectively, in interest expense on the March 2022 Working Capital Loan. For the three and nine months ended September 30, 2022, the Company had approximately $7,000 and $16,000, respectively, in interest expense on the March 2022 Working Capital Loan. The March 2022 Working Capital Loan has a conversion feature that is considered an embedded derivative, but the value is de minimis, as such, the March 2022 Working Capital Loan is presented at fair value on the accompanying consolidated balance sheets.
In June 2022, the Sponsor and the Company executed the June 2022 Working Capital Loan, bearing interest of 10% annually, providing the Company the ability to borrow up to $400,000. As of September 30, 2023 and December 31, 2022, the Company had approximately $400,000, respectively, in borrowings under the June 2022 Working Capital Loan. For the three and nine months ended September 30, 2023, the Company had approximately $10,000 and $30,000, respectively, in interest expense on the June 2022 Working Capital Loan. For the three and nine months ended September 30, 2022, the Company had approximately $8,000 and $8,000, respectively, in interest expense on the June 2022 Working Capital Loan. The June 2022 Working Capital Loan has a conversion feature that is considered an embedded derivative, but the value is de minimis, as such, the June 2022 Working Capital Loan is presented at fair value on the accompanying consolidated balance sheets.
Administrative Support Agreement and Certain Other Payments
Commencing on the date that our securities were first listed on a stock exchange through the earlier of consummation of the initial Business Combination and our liquidation, we agreed to pay the Sponsor a total of $10,000 per month for office space, support and administrative services. In April 2022, the Sponsor terminated this agreement retroactive to January 1, 2022.
The Sponsor, executive officers and directors, or any of their respective affiliates will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable Business Combinations. Our audit committee will review on a quarterly basis all payments that were made to the Sponsor and our executive officers or directors, or their affiliates.
Registration Rights
The holders of Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans, if any (and any shares of Class A Common Stock issuable upon the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans and upon conversion of the Founder Shares), were entitled to registration rights pursuant to a registration rights agreement. These holders were entitled to certain demand and “piggyback” registration rights. We will bear the expenses incurred in connection with the filing of any such registration statements.
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Underwriting Agreement
We granted the underwriters a 45-day option from the date of the final prospectus relating to the Initial Public Offering to purchase up to 4,500,000 additional Units to cover over-allotments, if any, at the Initial Public Offering price, less underwriting discounts and commissions. On February 17, 2021, the underwriter fully exercised its option to purchase additional Units.
The underwriters were entitled to an underwriting discount of $0.20 per Unit, or $6.9 million in the aggregate, paid upon the closing of the Initial Public Offering. In addition, $0.35 per Unit, or approximately $12.1 million in the aggregate will be payable to the underwriters for deferred underwriting commissions. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that we complete a Business Combination, subject to the terms of the underwriting agreement.
On January 18, 2023, we received a formal letter, from Barclays, one of the underwriters in our Initial Public Offering, advising that it had, among other things, (i) resigned from and ceased or refused to act in, its roles as co-placement agent, co-capital markets advisor and exclusive financial advisor to us in connection with the Merger and as underwriter in our Initial Public Offering and (ii) waived its right to receive an aggregate of $13.1 million in fees, all of which were contingent upon and payable upon the closing of the Merger, consisting of 2% of gross proceeds for its role as co-placement agent, $3.5 million for its role as financial advisor, a discretionary fee of up to $3.0 million, and $6.6 million of deferred underwriting fees accrued from its participation in our Initial Public Offering, as well as any expense reimbursements owed to it under those arrangements. We intend to continue to pursue the consummation of an initial Business Combination.
On January 26, 2023, the Company and BofA Securities, Inc., one of the underwriters in the Company’s Initial Public Offering, entered into an agreement pursuant to which BofA Securities, Inc. waived all rights to its pro rata share of the Deferred Discount (as defined in the Underwriting Agreement, dated February 11, 2021, among the Company, and BofA Securities, Inc.). BofA Securities, Inc. pro rata share of the Deferred Discount was approximately $5.5 million and was payable by the Company upon consummation of an initial Business Combination. The Company intends to continue to pursue the consummation of an initial Business Combination.
Critical Accounting Policies
Derivative Warrant Liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. We evaluate 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 FASB’s ASC Topic 480 Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). 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 8,625,000 Public Warrants and the 6,000,000 Private Placement Warrants are recognized as derivative liabilities in accordance with ASC 815. Accordingly, we recognize 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. For periods where no observable traded price is available, the Company utilized a Monte-Carlo simulation to estimate the fair value of the Public Warrants and used the Black-Scholes option pricing model to estimate the fair value of the Private Placement Warrants. The determination of the fair value of the warrant liability may be subject to change as more current information becomes available and accordingly the actual results could differ significantly. Derivative warrant liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.
Class A Common Stock Subject to Possible Redemption
We account for our Class A Common Stock subject to possible redemption in accordance with the guidance in ASC Topic 480 Distinguishing Liabilities from Equity. Class A Common Stock subject to mandatory redemption (if any) is classified as liability instruments and are measured at fair value. Conditionally redeemable Class A Common Stock (including Class A Common Stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) are classified as temporary equity. At all other times, Class A Common Stock is classified as stockholders’ equity. Our Class A Common Stock feature certain redemption rights that are considered to be outside of our control and subject to the occurrence of uncertain future events. Accordingly, 1,557,134 and 1,652,286 shares of Class A Common Stock subject to possible redemption at redemption values of $10.52 and $10.30 per share as of September 30, 2023 and December 31, 2022, respectively, are presented at redemption value as temporary equity, outside of the stockholders’ deficit section of our unaudited condensed consolidated balance sheets. There was no non-redeemable Class A Common Stock issued or outstanding as of September 30, 2023 and December 31, 2022.
We recognize changes in redemption value immediately as they occur and adjust the carrying value of the Class A Common Stock subject to possible redemption to equal the redemption value at the end of each reporting period. Effective with the closing of the Initial Public Offering (including exercise of the over-allotment option), we recognized the accretion from initial book value to redemption amount, which resulted in charges against additional paid-in capital (to the extent available) and accumulated deficit.
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Net (Loss) Income Per Common Share
We comply with accounting and disclosure requirements of FASB ASC Topic 260, Earnings Per Share. We have two classes of shares, which are referred to as Class A Common Stock and Class B Common Stock. Income and losses are shared pro rata between the two classes of shares. Net (loss) income per common share is calculated by dividing the net (loss) income by the weighted average shares of common stock outstanding for the respective period.
The calculation of diluted net (loss) income does not consider the effect of the warrants underlying the Units sold in the Initial Public Offering (including the consummation of the over-allotment) and the private placement warrants to purchase an aggregate of 14,625,000 Class A Common Stock in the calculation of diluted (loss) income per share, because their exercise is contingent upon future events and their inclusion would be anti-dilutive under the treasury stock method. As a result, diluted net (loss) income per share is the same as basic net (loss) income per share for the three and nine months ended September 30, 2023 and 2022. Accretion associated with the redeemable Class A Common Stock is excluded from earnings per share as the redemption value approximates fair value.
We have considered the effect of Class B Common Stock that were excluded from weighted average number as they were contingent on the exercise of overallotment option by the underwriters. Since the contingency was satisfied, we included these shares in the weighted average number as of the beginning of the interim period to determine the dilutive impact of these shares.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13. This update requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Since June 2016, the FASB issued clarifying updates to the new standard including changing the effective date for smaller reporting companies. The guidance is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early adoption permitted. The Company adopted ASU 2016-13 on January 1, 2023. The adoption of ASU 2016-13 did not have an impact on its financial statements.
In June 2022, the FASB issued ASU 2022-03, ASC Subtopic 820 Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The ASU amends ASC 820 to clarify that a contractual sales restriction is not considered in measuring an equity security at fair value and to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value. The ASU applies to both holders and issuers of equity and equity-linked securities measured at fair value. The amendments in this ASU are effective for us in fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted for both interim and annual consolidated financial statements that have not yet been issued or made available for issuance. We are still evaluating the impact of this pronouncement on the condensed consolidated financial statements.
Our management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material impact on our unaudited condensed consolidated financial statements.
Off-Balance Sheet Arrangements
As of September 30, 2023, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
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Nasdaq Letter
On April 3, 2023, the Company received a letter (the “Letter”) from the staff at the Nasdaq Stock Market (“Nasdaq”) notifying the Company that, for the 30 consecutive business days prior to the date of the Letter, the Company’s common stock had traded at a value below the minimum $50 million “Market Value of Listed Securities” (“MVLS”) requirement set forth in Nasdaq Listing Rule 5450(b)(2)(A), which is required for continued listing of the Company’s common stock on The Nasdaq Global Market. The Letter is only a notification of deficiency, not of imminent delisting, and has no current effect on the listing or trading of the Company’s securities on Nasdaq. In accordance with Nasdaq listing rule 5810(c)(3)(C), the Company had 180 calendar days, or until October 2, 2023, to regain compliance. The Letter further noted that if the Company was unable to satisfy the MVLS requirement prior to such date, the Company may be eligible to transfer the listing of its securities to The Nasdaq Capital Market (provided that the Company then satisfies the requirements for continued listing on that market). As of the date of this Quarterly Report on Form 10-Q, the Company has not received any further contact from Nasdaq with respect to the Letter or the MVLS requirement, and the Company’s common stock continues to be listed on The Nasdaq Global Market. The Company actively monitors its MVLS and may, if appropriate, evaluate available options to maintain compliance with the MVLS requirement or transfer the listing of our securities to The Nasdaq Capital Market. While the Company is exercising diligent efforts to maintain the listing of our securities on Nasdaq, there can be no assurance that the Company will be able to maintain compliance with Nasdaq listing standards.
For more information about the Letter, see the Company’s Current Report on Form 8-K filed with the SEC on April 6, 2023.
JOBS Act
The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” and under the JOBS Act are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, the condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company,” we choose to rely on such exemptions we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the condensed consolidated financial statements (auditor discussion and analysis) and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our Initial Public Offering or until we are no longer an “emerging growth company,” whichever is earlier.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2023, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that as of September 30, 2023, our disclosure controls and procedures were not effective because of a material weakness in our internal control over financial reporting. Specifically, the Company’s management has concluded that our control around recording the expenses in the proper accounting period was not effectively designed or maintained.
Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Management assessed the effectiveness of our internal control over financial reporting as of September 30, 2023, based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, management concluded that our internal control over financial reporting was not effective as of September 30, 2023.
The Chief Executive Officer and Chief Financial Officer performed additional accounting and financial analyses and other post-closing procedures including consulting with subject matter experts related to the recording of expenses in the proper accounting period. The Company’s management has expended, and will continue to expend, a substantial amount of effort and resources for the remediation and improvement of our internal control over financial reporting. While we have processes to properly identify and evaluate the appropriate accounting technical pronouncements and other literature for all significant or unusual transactions, we have expanded and will continue to improve these processes to ensure that the nuances of such transactions are effectively evaluated in the context of the increasingly complex accounting standards.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting that occurred during our fiscal quarter ended September 30, 2023 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K filed with the SEC on March 29, 2023, except for the below risk factors and except with respect to the information described herein in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Nasdaq Letter,” which updates the risk factor “Nasdaq may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions” discussed in our most recent Annual Report on Form 10-K. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such factors or disclose additional factors from time to time in our future filings.
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 consummate an initial Business Combination and instead be required to liquidate the Company. To mitigate the risk of that result, prior to the 24 month anniversary of the closing of the Company’s Initial Public Offering, we liquidated securities held in the Trust Account and now instead hold all funds in the Trust Account in cash. As a result, all Trust Account funds are presently held in cash and following such liquidation, we will likely receive minimal interest, if any, on the funds held in the Trust Account, which would reduce the dollar amount that our public stockholders would receive upon any redemption or liquidation of the Company.
On March 30, 2022, the SEC issued proposed rules relating, among other things, to circumstances in which special purpose acquisition companies (“SPACs”) such as us could potentially be subject to the Investment Company Act and the regulations thereunder (the “SPAC Rule Proposals”). The SPAC Rule Proposals would provide a safe harbor for such 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 Business Combination transaction. Specifically, to comply with the safe harbor, the SPAC Rule Proposals would require a SPAC to file a 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 closing of the Company’s Initial Public Offering. Such SPAC would then be required to complete its initial business combination no later than 24 months after the closing of the Company’s Initial Public Offering.
There is currently uncertainty concerning the applicability of the Investment Company Act to a SPAC, including a company like ours, that has not consummated its initial Business Combination within 24 months after the closing of the Company’s Initial Public Offering. As we did not consummate our initial Business Combination within 24 months of such date, 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 might be forced to abandon our efforts to consummate 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 shares in a successor operating business, including the potential appreciation in the value of our shares and warrants following such a transaction, and our warrants would expire worthless.
To mitigate the risk of being viewed as operating an unregistered investment company (including pursuant to the subjective test of Section 3(a)(1)(A) of the Investment Company Act of 1940), in February 2023, we instructed Continental Stock Transfer & Trust Company, the trustee with respect to the Trust Account, to liquidate the U.S. government securities or money market funds held in the Trust Account and thereafter to hold all funds in the Trust Account in cash until the earlier of consummation of our initial business combination or liquidation. As a result, all Trust Account funds are presently held in cash and following such liquidation, we will likely receive minimal interest, if any, on the funds held in the Trust Account, which would reduce the dollar amount our public stockholders would receive upon any redemption or liquidation of the Company.
Global or regional conditions may adversely affect our business and our ability to find an attractive target business with which to consummate our initial Business Combination.
Adverse changes in global or regional economic conditions periodically occur, including recession or slowing growth, changes, or uncertainty in fiscal, monetary or trade policy, higher interest rates, tighter credit, inflation, lower capital expenditures by businesses, increases in unemployment and lower consumer confidence and spending. Adverse changes in economic conditions can harm global business and adversely affect our ability to find an attractive target business with which to consummate our initial Business Combination. Such adverse changes could result from geopolitical and security issues, such as armed conflict and civil or military unrest, political instability, human rights concerns and terrorist activity, catastrophic events such as natural disasters and public health issues (including the COVID-19 pandemic), supply chain interruptions, new or revised export, import or doing-business regulations, including trade sanctions and tariffs or other global or regional occurrences.
In particular, in response to Russia’s invasion of Ukraine, the United States, the European Union, and several other countries are imposing far-reaching sanctions and export control restrictions on Russian entities and individuals. This rising conflict as well as the recent Israel-Hamas conflict and the continued political unrest in the Middle East region, and the resulting market volatility could adversely affect global economic, political and market conditions. Additionally, tensions between the United States and China have led to increased tariffs and trade restrictions. The United States has imposed economic sanctions on certain Chinese individuals and entities and restrictions on the export of U.S.-regulated products and technology to certain Chinese technology companies. These and other global and regional conditions may adversely impact our business and our ability to find an attractive target business with which to consummate our initial Business Combination.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None. Without limiting the generality of the foregoing, the Company did not repurchase any shares of common stock of the Company during the three months ended September 30, 2023.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
(c) During the three months ended September 30, 2023, no director or Section 16 officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item 6. Exhibits.
| * | Filed herewith. |
| ** |
These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.
|
| (1) | Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on September 22, 2023. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: November 14, 2023
| SOCIAL LEVERAGE ACQUISITION CORP I | |||
| By: | /s/ Howard Lindzon | ||
| Name: | Howard Lindzon | ||
| Title: | Chief Executive Officer | ||
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