UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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 or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
437 Madison Avenue | ||
(Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, 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: | ||
Securities registered pursuant to Section 12(g) of the Act: None
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, a 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
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
As of July 31, 2023,
TABLE OF CONTENTS
Part I – FINANCIAL INFORMATION | 1 | |
Item 1. | Financial Statements | 1 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 30 |
Item 4. | Controls and Procedures | 30 |
Part II – OTHER INFORMATION | 31 | |
Item 1. | Legal Proceedings | 31 |
Item 1A. | Risk Factors | 31 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 31 |
Item 3. | Defaults Upon Senior Securities | 31 |
Item 4. | Mine Safety Disclosures | 31 |
Item 5. | Other Information | 31 |
Item 6. | Exhibits | 32 |
SIGNATURES | 33 |
i
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s final prospectus for its initial public offering filed with the U.S. Securities and Exchange Commission (the “SEC”), the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (under heading “Risk Factors” and in other parts of that report) and in the Company’s final prospectus for its business combination filed on July 11, 2023. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
ii
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRADEUP ACQUISITION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 2023 | December 31, 2022 | |||||||
(Audited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | $ | ||||||
Prepaid expenses | ||||||||
Total current assets | ||||||||
Investments held in Trust Account | ||||||||
Total Assets | $ | $ | ||||||
Liabilities, Temporary Equity, and Stockholders’ Deficit | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | $ | ||||||
Promissory notes | - | |||||||
Working capital loans - related parties | ||||||||
Due to a related party | ||||||||
Income tax payable | ||||||||
Franchise tax payable | ||||||||
Total current liabilities | ||||||||
Deferred tax liability | ||||||||
Deferred underwriters’ marketing fees | ||||||||
Total Liabilities | ||||||||
Commitments and Contingencies | ||||||||
Common stock subject to possible redemption, | ||||||||
Stockholders’ Deficit: | ||||||||
Preferred stock, $ | ||||||||
Common stock, $ | ||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
Total Liabilities, Temporary Equity, and Stockholders’ Deficit | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
TRADEUP ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the | For the | For the | For the | |||||||||||||
Three Months Ended | Three Months Ended | Six Months Ended | Six Months Ended | |||||||||||||
June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||
Formation and operating costs | $ | $ | $ | $ | ||||||||||||
Franchise tax expenses | ||||||||||||||||
Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Other income: | ||||||||||||||||
Dividend earned on investment held in Trust Account | ||||||||||||||||
Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Income taxes provision | ( | ) | ( | ) | ||||||||||||
Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
$ | $ | ( | ) | $ | $ | ( | ) | |||||||||
$ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
TRADEUP ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(Unaudited)
For the Six Months Ended June 30, 2023 | ||||||||||||||||||||||||||||
Additional | Total | |||||||||||||||||||||||||||
Preferred stock | Common stock | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares Amount | Capital | Deficit | Deficit | |||||||||||||||||||||||
Balance as of December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
Accretion of carrying value to redemption value | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
Balance as of March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||
Accretion of carrying value to redemption value | ( | ) | ( | ) | ||||||||||||||||||||||||
Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||
Balance as of June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) |
For the Six Months Ended June 30, 2022 | ||||||||||||||||||||||||||||
Additional | Total | |||||||||||||||||||||||||||
Preferred stock | Common stock | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares Amount | Capital | Deficit | Deficit | |||||||||||||||||||||||
Balance as of December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
Balance as of March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
Balance as of June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
TRADEUP ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the | For the | |||||||
Six Months Ended | Six Months Ended | |||||||
June 30, 2023 | June 30, 2022 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Dividend earned on investment held in Trust Account | ( | ) | ( | ) | ||||
Deferred tax expense | ( | ) | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses | ( | ) | ||||||
Accounts payable and accrued expenses | ||||||||
Income tax payable | ||||||||
Franchise tax payable | ( | ) | ( | ) | ||||
Net cash used in operating activities | ( | ) | ( | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Purchase of investment held in trust account | ( | ) | ||||||
Withdraw of investment held in trust account | ||||||||
Net cash provided by investing activities | ||||||||
Cash Flows from Financing Activities: | ||||||||
Proceeds from issuance of promissory notes | ||||||||
Proceeds from issuance of working capital loans to a related party | ||||||||
Net cash provided by financing activities | ||||||||
Net Change in Cash | ( | ) | ( | ) | ||||
Cash at beginning of period | ||||||||
Cash at end of period | $ | $ | ||||||
Supplemental Disclosure of Non-cash Financing Activities | ||||||||
Accretion of carrying value to redemption value | $ | $ | ||||||
Conversion of due to a related party into a promissory note | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Note 1 — Organization and Business Operation
TradeUP Acquisition Corp. (the “Company”)
is a blank check company incorporated as a Delaware corporation on January 6, 2021. The Company was formed for the purpose of effecting
a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with
As of June 30, 2023 and December 31, 2022, the Company had not commenced any operations. For the period from January 6, 2021 (inception) through June 30, 2023, the Company’s efforts have been limited to organizational activities as well as activities related to the Initial Public Offering (as defined below) and the Business Combination. The Company will not generate any operating revenues until after the completion of a Business Combination, at the earliest. The Company had and will continue to generate non-operating income in the form of dividend income from the proceeds derived from the Initial Public Offering (as defined below).
The registration statement for the Company’s
initial public offering (the “Initial Public Offering”) became effective on July 14, 2021. On July 19, 2021, the Company consummated
the Initial Public Offering of
Simultaneously with the closing of the Initial
Public Offering, the Company consummated the sale of
Following the closing of the Initial Public Offering
on July 19, 2021, the issuance and sale of Option Units on July 21, 2021 and the issuance and sale of Private Placement Shares, $
5
In order to mitigate the potential risks of being deemed to have been operating as an unregistered investment company for purposes of the Investment Company Act, the Company instructed Wilmington Trust, National Association, as a trustee to the Trust Account, to liquidate the U.S. government treasury obligations and money market funds held in the Trust Account on July 14, 2023 and to hold all funds in the Trust Account in cash until the earlier of consummation of the Company’s initial business combination or liquidation. Following such liquidation, the Company will likely continue to receive, minimal interest, if any, on the funds held in the Trust Account, which would reduce the dollar amount its public stockholders would receive upon any redemption or liquidation of the Company.
The Company’s initial Business Combination
must occur with one or more target businesses that together have an aggregate fair market value of at least
The shares of Common Stock subject to redemption
was recorded at a redemption value and classified as temporary equity upon the completion of the Initial Public Offering, in accordance
with Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” In such case,
the Company will proceed with a Business Combination if the Company has net tangible assets of at least $
6
The Sponsor has agreed that it will be liable
to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or by a prospective
target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account
to below (i) $
On December 22, 2022, at the 2022 Special Meeting,
the stockholders approved amending the Investment Management Trust Agreement dated July 14, 2021 (the “Trust Agreement”),
by and between the Company and Wilmington Trust, National Association (the “Trustee”) to extend the liquidation date from
January 19, 2023 to July 19, 2023. In connection with the votes to approve the extension proposal,
On July 17, 2023, at the 2023 Special Meeting,
the stockholders approved amending the Trust Agreement to extend the liquidation date from July 19, 2023 to July 14, 2024. In connection
with the votes to approve the extension proposal,
Liquidity and Going Concern
As of June 30, 2023, the Company had cash
of $
In connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that these conditions raise substantial doubt about the Company’s ability to continue as a going concern. The management’s plan in addressing this uncertainty is through the Promissory Notes – related parties and the Working Capital Loans, as defined below (see Note 7). In addition, if the Company is unable to complete a Business Combination by the Combination Deadline, the Company’s board of directors would proceed to commence a voluntary liquidation and thereby a formal dissolution of the Company. There is no assurance that the Company’s plans to consummate a Business Combination will be successful by the Combination Deadline. As a result, management has determined that such additional condition also raise substantial doubt about the Company’s ability to continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
7
Merger Agreement
On September 30, 2022, the Company, Tradeup Merger
Sub Inc., a Delaware corporation and direct, wholly owned subsidiary of the Company (“Merger Sub”), and Estrella Biopharma,
Inc., a Delaware corporation (the “Estrella”), entered into an Agreement and Plan of Merger (as it may be amended, supplemented
or otherwise modified from time to time, the “Merger Agreement”). The number of merger consideration shares
to be issued by the Company to the shareholder of Estrella is expected to be
Estrella is a preclinical-stage biopharmaceutical company developing CD19 and CD22-targeted ARTEMIS®️ T-cell therapies with the capacity to address treatment and safety challenges for patients with blood cancers and solid tumors. Estrella’s mission is to harness the evolutionary power of the human immune system to transform the lives of patients fighting cancer.
Pursuant to the Merger Agreement, among other things, in accordance with the General Corporation Law of the State of Delaware, as amended (the “DGCL”), Merger Sub will merge with and into Estrella (the “Merger”), with Estrella surviving the Merger as a wholly owned subsidiary of the Company (“Surviving Company”). The Merger will become effective at such time on the date of the closing of the Merger (the “Closing”) as the certificate of merger is duly filed with the Delaware Secretary of State or at such other time specified in the certificates of merger (the “Effective Time”). Effective as of the Closing, the Company will change its name to “Estrella Immunopharma, Inc.” (“New Estrella”).
Inflation Reduction Act of 2022
On August 16, 2022, the Inflation Reduction Act
of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal
Note 2 — Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC, and include all normal and recurring adjustments that management of the Company considers necessary for a fair presentation of its financial position and operation results. Interim results are not necessarily indicative of results to be expected for any other interim period or for the full year. The information included in this Form 10-Q should be read in conjunction with information included in the Company’s annual report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on March 14, 2023.
8
Emerging Growth Company Status
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”), As an emerging growth company, the Company may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such 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 these unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. The accompanying unaudited condensed consolidated financial statements include all adjustments management considers necessary for a fair presentation.
Cash
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents.
Investments held in Trust Account
As of June 30, 2023 and December 31, 2022, the assets held in the Trust Account were held in money market funds, which are invested in U.S. Treasury securities.
Gains and losses resulting from the change in
fair value of investments held in Trust Account are accounted as dividend income in the accompanying unaudited condensed statement of
operations. Dividend income for the three months ended June 30, 2023 and 2022 amounted to $
Offering Costs
The Company complies with the requirements of
FASB ASC Topic 340-10-S99-1, “Other Assets and Deferred Costs – SEC Materials” (“ASC 340-10-S99”)
and SEC Staff Accounting Bulletin Topic 5A, “Expenses of Offering”. Offering costs were $
9
Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) ASC 480 “Distinguishing Liabilities from Equity” (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether they meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own Common Stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations.
The Company accounted for the
Common Stock Subject to Possible Redemption
The Company accounts for its Common Stock subject
to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Common Stock
subject to mandatory redemption (if any) are classified as a liability instrument and are measured at fair value. Conditionally redeemable
Common Stock (including Common Stock that feature redemption rights that are either within the control of the holder or subject to redemption
upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other
times, Common Stock are classified as stockholders’ equity. The Company’s public shares feature certain redemption rights
that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, as
of June 30, 2023 and December 31, 2022, Common Stock subject to possible redemption are presented at redemption value of $
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution. The Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account. As of June 30, 2023 and December 31, 2022,
balance was over the Federal Deposit Insurance Corporation (FDIC) limit.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature.
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
● | Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active market. | |
● | Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. |
● | Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value. |
10
Income Taxes
The Company accounts for income taxes under ASC 740 Income Taxes (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were
unrecognized tax benefits and amounts accrued for interest and penalties as of June 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 has identified the United States as its only “major” tax jurisdiction.
The Company may be subject to potential examination by federal and state taxing authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
Net Income (Loss) per Share
The Company complies with accounting and disclosure
requirements of FASB ASC 260, Earnings Per Share. In order to determine the net income (loss) attributable to both the redeemable shares
and non-redeemable shares, the Company first considered the undistributed income (loss) allocable to both the redeemable Common Stock
and non-redeemable Common Stock and the undistributed income (loss) is calculated using the total net loss less any dividends paid. The
Company then allocated the undistributed income (loss) ratably based on the weighted average number of shares outstanding between the
redeemable and non-redeemable Common Stock. Any remeasurement of the accretion to redemption value of the Common Stock subject to possible
redemption was considered to be dividends paid to the public stockholders. For the three and six months ended June 30, 2023 and 2022,
the Company has not considered the effect of the Warrants sold in the Initial Public Offering to purchase an aggregate of
11
For the Three Months Ended | For the Three Months Ended | |||||||||||||||
June 30, 2023 | June 30, 2022 | |||||||||||||||
Non- | Non- | |||||||||||||||
Redeemable | Redeemable | Redeemable | Redeemable | |||||||||||||
Common | Common | Common | Common | |||||||||||||
Stock | Stock | Stock | Stock | |||||||||||||
Basic and diluted net income/(loss) per share: | ||||||||||||||||
Numerators: | ||||||||||||||||
Allocation of net loss including carrying value to redemption value | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Accretion of carrying value to redemption value | ||||||||||||||||
Allocation of net income/(loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
Denominators: | ||||||||||||||||
Weighted-average shares outstanding | ||||||||||||||||
$ | $ | ( | ) | $ | ( | ) | $ | ( | ) |
For the Six Months Ended | For the Six Months Ended | |||||||||||||||
June 30, 2023 | June 30, 2022 | |||||||||||||||
Non- | Non- | |||||||||||||||
Redeemable | Redeemable | Redeemable | Redeemable | |||||||||||||
Common | Common | Common | Common | |||||||||||||
Stock | Stock | Stock | Stock | |||||||||||||
Basic and diluted net income/(loss) per share: | ||||||||||||||||
Numerators: | ||||||||||||||||
Allocation of net loss including carrying value to redemption value | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Accretion of carrying value to redemption value | ||||||||||||||||
Allocation of net income/(loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
Denominators: | ||||||||||||||||
Weighted-average shares outstanding | ||||||||||||||||
$ | $ | ( | ) | $ | ( | ) | $ | ( | ) |
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, “Debt – Debt Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)”. This ASU addresses issues identified as a result of the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. For convertible instruments, FASB decided to reduce the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The amendments in this Update are effective for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. FASB specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The Company has not early adopted this update and it will become effective on January 1, 2024 as the Company is qualified as an emerging growth company. The Company believes the adoption of this ASU would not have a material effect on the Company’s unaudited condensed consolidated financial statements.
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Note 3 — Investments Held in Trust Account
As of June 30, 2023 and December 31, 2022, assets
held in the Trust Account were comprised of $
Description | Level | June 30, 2023 | December 31, 2022 | |||||||||
Assets: | ||||||||||||
Trust Account - U.S. Treasury Securities Money Market Fund | 1 | $ | $ |
Note 4 — Initial Public Offering
Pursuant to the Initial Public Offering on July
19, 2021, the Company sold
The remaining
Each Unit has an offering price of $
All of the
The Company’s redeemable Common Stock is subject to SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99. If it is probable that the equity instrument will become redeemable, the Company has the option to either accrete changes in the redemption value over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of the instrument or to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The Company has elected to recognize the changes immediately. The accretion or remeasurement is treated as a deemed dividend (i.e., a reduction to retained earnings, or in absence of retained earnings, additional paid-in capital).
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As of June 30, 2023 and December 31, 2022,
Common stock subject to possible redemption, December 31, 2021 | $ | |||
Less: | ||||
Redemptions | ( | ) | ||
Plus: | ||||
Accretion of carrying value to redemption value | ||||
Common stock subject to possible redemption, December 31, 2022 | ||||
Plus: | ||||
Accretion of carrying value to redemption value | ||||
Common stock subject to possible redemption, June 30, 2023 | $ |
Note 5 — Private Placement
Simultaneously with the closing of the Initial
Public Offering, the Sponsor and Tradeup INC. purchased an aggregate of
Note 6 — Promissory Notes
As provided in an Agreement and Plan of Merger
(as it may be amended, supplemented or otherwise modified from time to time, the “Merger Agreement”) dated September
30, 2022 by and among the “Company and Estrella and Tradeup Merger Sub Inc., a Delaware corporation and wholly-owned
subsidiary of UPTD (“Merger Sub”), Estrella has agreed to, upon request by the Sponsors, deposit the agreed reasonable amount
to the Company’s trust in order to effectuate extension of the Company’s deadline to consummate a Business Combination.
Pursuant to the Merger Agreement, Estrella has deposited a total of six monthly extension payments of $
As of June 30, 2023 and December 31, 2022, the
Company had borrowings of $
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Note 7 — Related Party Transactions
Founder and Private Placement Shares
On January 20, 2021, the Sponsor acquired
As of June 30, 2023 and December 31, 2022, there
were
The number of Founder Shares issued was determined
based on the expectation that such Founder Shares would represent
The founders have agreed not to transfer, assign
or sell
On July 19, 2021, the Company consummated the
sale of
Working Capital Loans (Promissory Notes) — Related Parties
In order to finance transaction costs in connection
with an intended initial Business Combination, the founders or an affiliate of the founders or certain of the Company’s officers
and directors may, but are not obligated to, loan the Company funds as may be required. If the Company completes the initial Business
Combination, it would repay such loaned amounts. In the event that the initial Business Combination does not close, the Company may use
a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from the Trust Account would
be used for such repayment. Up to approximately $
On July 25, 2022, the Company issued (i) Note
A in the amount of $
In December 2022, the Sponsor loaned the
Company $
15
On March 3, 2023, the Company issued an unsecured
promissory note in the amount of $
On June 6, 2023, the Company issued an unsecured
promissory note in the amount of $
The Notes (as defined below) bear no interest and are payable in full upon the earlier to occur of (i) the consummation of the Company’s Business Combination or (ii) the date of expiry of the term of the Company (“Maturity Date”). The following shall constitute an event of default: (i) a failure to pay the principal within five business days of the Maturity Date; (ii) the commencement of a voluntary or involuntary bankruptcy action, (iii) the breach of the Company’s obligations thereunder; (iv) any cross defaults; (v) an enforcement proceedings against the Company; and (vi) any unlawfulness and invalidity in connection with the performance of the obligations thereunder, in which case the Notes may be accelerated.
The Payees respectively have the right, but not
the obligation, to convert their Notes, in whole or in part, respectively, into Conversion Shares, as described in the prospectus of the
Company (File Number 333-253322), by providing the Company with written notice of the intention to convert at least two business days
prior to the closing of the Business Combination. The number of Conversion Shares to be received by the Payees in connection with such
conversion shall be an amount determined by dividing (x) the sum of the outstanding principal amount payable to such Payee by (y) $
As of June 30, 2023 and December 31, 2022, the
Company had borrowings of $
Note 8 — Commitments & Contingencies
Risks and Uncertainties
Management is currently evaluating 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 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 unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Registration Rights
The holders of the Founder Shares, Private Placement Shares and Common Stock that may be issued upon conversion of working capital loans will be entitled to registration rights pursuant to a registration rights agreement to be signed prior to or on the effective date of the Initial Public Offering, requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion to the Common Stock). The holders of the majority of these securities are entitled to make up to three demands, excluding short form demands, that the Company registers such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of the initial Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriters Agreement
The Company granted the underwriters a
Business Combination Marketing Agreement
The Company has engaged US Tiger Securities, Inc.,
EF Hutton, division of Benchmark Investments, LLC (“EF Hutton”) and R.F. Lafferty & Co., Inc. the representatives (the
“Representatives”) of the underwriters of the Initial Public Offering in connection with a Business Combination to assist
the Company in holding meetings with its stockholders to discuss the potential Business Combination and the target business’ attributes,
introduce the Company to potential investors that are interested in purchasing the Company’s securities in connection with a Business
Combination, assist the Company in obtaining stockholder approval for the Business Combination and assist the Company with its press releases
and public filings in connection with the Business Combination. The Company is obligated to pay the Representatives a cash fee (the “Business
Combination Fee”) pursuant to a Business Combination Marketing Agreement for such services upon the consummation of the Company’s
initial Business Combination, equal to
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Common Stock Purchase Agreement
On April 20, 2023, the Company entered into a
common stock purchase agreement (the “Common Stock Purchase Agreement”) and a related registration rights agreement (the “RRA”)
with White Lion Capital, LLC, a Nevada limited liability company (“White Lion”). Pursuant to the Common Stock Purchase Agreement,
the Company has the right, but not the obligation to require White Lion to purchase, from time to time following consummation of the business
combination contemplated by the Merger Agreement, up to $
On April 26, 2023, the Company and White Lion
entered into an amendment to the Common Stock Purchase Agreement (the “Amendment”). Pursuant to the Amendment, the Company
agrees that it will, immediately prior to the closing of the proposed business combination with Estrella, cause Estrella to issue to White
Lion an aggregate of
The Company is obligated under the Common Stock Purchase Agreement and the RRA to file a registration statement with the SEC to register the New Estrella Common Stock under the Securities Act of 1933, as amended, for the resale by White Lion of shares of New Estrella Common Stock that the Company may issue to White Lion under the Common Stock Purchase Agreement.
Note 9 — Deferred Underwriters’ Business Combination Fees
The Company
is obligated to pay the Representatives a deferred Business Combination Fee equal to
Note 10 — Stockholders’ Deficit
Preferred stock—The Company
is authorized to issue
Common stock— The Company
is authorized to issue up to
Common stockholders of record are entitled to
Warrants— In July 2021, the
Company issued
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The Company has agreed that as soon as practicable, but in no event later than 30 business days, after the closing of the initial Business Combination, it will use its reasonable commercially reasonable efforts to file, and within 60 business days following its initial Business Combination to have declared effective, a registration statement for the registration, under the Securities Act, of the shares of Common Stock issuable upon exercise of the Warrants. The Company will use its commercially reasonable efforts to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the Warrants in accordance with the provisions of the warrant agreement. No Warrants will be exercisable for cash unless the Company has an effective and current registration statement covering the Common Stock issuable upon exercise of the Warrants and a current prospectus relating to such shares of Common Stock. Notwithstanding the above, if the Company’s Common Stock is at the time of any exercise of a Warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of 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 it so elect, it will not be required to file or maintain in effect a registration statement, but it will be required to use its commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Once the Warrants become exercisable, the Company may call the Warrants for redemption:
● | in whole and not in part; |
● | at a price of $ |
● | upon not less than 30 days’ prior written notice of redemption (the “30-day redemption period”) to each warrant holder; and |
● | if, and only if, the reported last sale price of the Common Stock equals or exceeds $ |
The Company accounted for the
Note 11 — Income Taxes
For the | For the | For the | For the | |||||||||||||
Three Months Ended | Three Months Ended | Six Months Ended | Six Months Ended | |||||||||||||
June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||
Current | ||||||||||||||||
Federal | $ | $ | $ | $ | ||||||||||||
State | ||||||||||||||||
Deferred | ||||||||||||||||
Federal | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
State | ||||||||||||||||
Valuation allowance | ||||||||||||||||
Income tax provision | $ | $ | $ | $ |
For the | For the | For the | For the | |||||||||||||
Three Months Ended | Three Months Ended | Six Months Ended | Six Months Ended | |||||||||||||
June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||
Current | % | % | % | % | ||||||||||||
Permanent difference on facilitated acquisition costs | ( | )% | % | ( | )% | % | ||||||||||
Change in valuation allowance | ( | )% | ( | )% | ( | )% | ( | )% | ||||||||
Effective tax rate | $ | ( | )% | $ | % | $ | ( | )% | $ | % |
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June 30, 2023 | December 31, 2022 | |||||||
Deferred tax assets: | ||||||||
Start-up/organization costs | $ | $ | ||||||
Deferred tax liability: | ||||||||
Accrued dividend income | ( | ) | ( | ) | ||||
Total deferred tax assets | ||||||||
Valuation allowance | ( | ) | ( | ) | ||||
Deferred tax liability, net | $ | ( | ) | $ | ( | ) |
In assessing the realization of deferred tax assets,
management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary
differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax
assets, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information
available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets. The
valuation allowance increased $
Note 12 — Subsequent Events
In accordance with ASC 855, Subsequent Events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued, the Company has evaluated all events or transactions that occurred after the balance sheet date, up through the date when the Company issued the unaudited condensed consolidated financial statements.
Promissory Note
As a result of the 2023 Special Meeting and the
amendment to the Company’s amended and restated certificate of incorporation to extend the Combination Deadline, on or about July
19, 2023, Estrella deposited $
On
July 20,
2023, the Company issued an unsecured promissory note in the amount of $
2023 Special Meeting and Redemption
On July 17, 2023, the Company held the 2023 Special Meeting where the Company was approved by its stockholders to adopt the amended and restated certificate of incorporation to extend the date of the Combination Deadline from July 19, 2023 to July 14, 2024 or such earlier date as determined by the board of directors of the Company. Upon the stockholders’ approval, on July 17, 2023, the Company filed a certificate of amendment to the amended and restated certificate of incorporation which became effective upon filing. As a result of the 2023 Special Meeting, upon the stockholders’ approval, on July 17, 2023, UPTD and Wilmington entered into the amendment to the Trust Agreement.
As a result of the 2023 Special Meeting,
Binding PIPE Investment Term Sheet
On July 25, 2023, the Company entered into a binding term sheet (the “Binding Term Sheet”) with Suma Ventures, LLC (the “Investor”), Estrella, and Eureka Therapeutics, Inc., a Delaware corporation (“Eureka”), in connection with the proposed business combination with Estrella.
Pursuant to the Binding Term Sheet, immediately
prior to the Closing, the Investor will acquire certain payables of Estrella owed to Eureka in an amount equal to $
Business Combination Meeting
On July 31, 2023, the Company held a special meeting
of stockholders in connection with the proposed business combination with Estrella (the “Business Combination Meeting”), where
the Company was approved by its stockholders, among the others, to adopt the Merger Agreement, consummate the Business Combination and
other relevant matters. In connection with the votes to approve the proposals at the Business Combination Meeting,
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this report (the “Quarterly Report”) to “UPTD”, “we,” “us” or the “Company” refer to TradeUP Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors, and references to the “sponsor” refer to TradeUP Acquisition Sponsor LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements. See “Cautionary Note Concerning Forward-Looking Statements.”
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and variations thereof and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s final prospectus for its initial public offering filed with the SEC on April 30, 2021, the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (under heading “Risk Factors” and in other parts of that report) and in the Company’s final prospectus for its business combination filed on July 11, 2023. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a blank check company formed as a Delaware corporation for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses, which we refer to throughout this report as our initial business combination.
On July 19, 2021, we consummated our initial public offering (the “IPO”) of 4,000,000 units (the “Units”). Each Unit consists of one share of common stock, $0.0001 par value per share (the “Common Stock”), and one-half of one redeemable warrant (the “Warrant”), each whole Warrant entitling the holder thereof to purchase one share of Common Stock at an exercise price of $11.50 per share. The Units were sold at an offering price of $10.00 per Unit, generating gross proceeds of $40,000,000. Simultaneously with the closing of the IPO, we completed the private sale (the “Private Placement”) of 295,000 shares of Common Stock (the “Private Shares”) to the Company’s founders, TradeUP Acquisition Sponsor LLC (the “Sponsor”) and Tradeup INC., among which, the Sponsor purchased 236,000 Private Shares and Tradeup INC. purchased 59,000 Private Shares at a purchase price of $10.00 per Private Share, generating gross proceeds to the Company of $2,950,000 (the “Private Placement Proceeds”). The Private Shares are identical to the shares of Common Stock sold as part of the Units in the IPO, except that the Private Shares are not transferable, assignable or salable (except to our officers and directors and other persons or entities affiliated with or related to our founders, each of whom will be subject to the same transfer restrictions) until 30 days after the completion of our initial business combination. The proceeds of $ $40,800,000 ($10.20 per Unit) in the aggregate from the IPO and the Private Placement (the “IPO Proceeds”), were placed in a trust account (the “Trust Account”) established for the benefit of the Company’s public stockholders and the underwriters of the IPO with Wilmington Trust, National Association acting as trustee.
20
In connection with the IPO, the underwriters were granted an option to purchase up to 600,000 additional Units to cover over-allotments, if any (the “Over-allotment Option”). On July 19, 2021, the underwriters partially exercised the Over-allotment Option, and July 21, 2021, the underwriters purchased 430,000 Units (the “Option Units”) generating gross proceeds of $4,300,000, and net proceeds to the Company of approximately $4,214,000 in the aggregate after deducting the underwriter discount (the “Option Unit Proceeds”). Simultaneously with the issuance and sale of the Option Units, the Company completed the Private Placement sale of 17,200 additional Private Shares at a purchase price of $10.00 per share, among which, the Sponsor purchased 13,760 additional Private Shares and Tradeup INC. purchased 3,440 additional Private Shares, generating total proceeds of $172,000 (the “Private Placement Proceeds” and, together with the Option Unit Proceeds, the “Over-allotment Proceeds”). A total of $4,386,000 of the Over-allotment Proceeds were placed in the Trust Account. The IPO Proceeds and the Over-allotment Proceeds include $1,550,500 payable to the underwriters (the “Business Combination Fee”) pursuant to a certain business combination marketing agreement among us, US Tiger Securities, Inc. (“US Tiger”), EF Hutton, division of Benchmark Investments, LLC (“EF Hutton”) and R.F. Lafferty & Co., Inc., the representatives (the “Representatives”) of the underwriters of the IPO (the “Business Combination Marketing Agreement”).
Our management has broad discretion with respect to the specific application of the proceeds of the IPO and the Private Placement that are held out of the Trust Account, although substantially all the net proceeds are intended to be applied generally towards consummating a business combination and working capital.
Proposed Business Combination with Estrella
Merger Agreement
On September 30, 2022, we entered into an Agreement and Plan of Merger (as it may be amended, supplemented or otherwise modified from time to time, the “Merger Agreement”) among Tradeup Merger Sub Inc., a Delaware corporation and direct, wholly owned subsidiary of UPTD (“Merger Sub”), and Estrella Biopharma, Inc., a Delaware corporation (“Estrella”).
Estrella is a preclinical-stage biopharmaceutical company developing CD19 and CD22-targeted ARTEMIS®️ T-cell therapies with the capacity to address treatment and safety challenges for patients with blood cancers and solid tumors. Estrella’s mission is to harness the evolutionary power of the human immune system to transform the lives of patients fighting cancer.
Pursuant to the Merger Agreement, among other things, in accordance with the General Corporation Law of the State of Delaware, as amended (the “DGCL”), Merger Sub will merge with and into the Estrella (the “Merger”), with Estrella surviving the Merger as a wholly owned subsidiary of UPTD (“Surviving Company”). The Merger will become effective at such time on the date of the closing of the Merger (the “Closing”) as the certificate of merger is duly filed with the Delaware Secretary of State or at such other time specified in the certificates of merger (the “Effective Time”). Effective as of the Closing, UPTD will change its name to “Estrella Immunopharma, Inc.” (“New Estrella”). The transactions contemplated by the Merger Agreement is herein referred to as the “Business Combination.”
Pursuant to the Merger Agreement, stockholders of Estrella immediately prior to the Effective Time collectively will receive from us, in the aggregate, a number of newly issued shares of Common Stock equal to: (i) $325,000,000 (the “Merger Consideration”), divided by (ii) $10.00 per share in consideration of converting their shares of common stock of Estrella, par value $0.0001 per share (the “Estrella Common Stock”). Each share of preferred stock of Estrella that is issued and outstanding immediately prior to the Effective Time will automatically convert into a number of shares of Estrella Common Stock in accordance with the certificate of incorporation of Estrella immediately prior to the Effective Time.
The Merger also calls for additional agreements, including, among others, the Lock-Up Agreement and the Support Agreement, as described elsewhere in the Proxy Statement/Prospectus.
21
Common Stock Purchase Agreement
On April 20, 2023, the Company entered into a common stock purchase agreement (the “Common Stock Purchase Agreement”) and a related registration rights agreement (the “RRA”) with White Lion Capital, LLC, a Nevada limited liability company (“White Lion”). Pursuant to the Common Stock Purchase Agreement, the Company has the right, but not the obligation to require White Lion to purchase, from time to time following consummation of the business combination contemplated by the Merger Agreement, up to $50,000,000 in aggregate gross purchase price of newly issued shares of the common stock, par value $0.0001 per share, of New Estrella after the Business Combination (the “New Estrella Common Stock”), subject to certain limitations and conditions set forth in the Common Stock Purchase Agreement.
On April 26, 2023, the Company and White Lion entered into an amendment to the Common Stock Purchase Agreement (the “Amendment”). Pursuant to the Amendment, the Company agrees that it will, immediately prior to the Closing with Estrella, cause Estrella to issue to White Lion an aggregate of 250,000 shares of Estrella’s Series A preferred stock, par value $0.0001 per share, which the parties have acknowledged has a value of $250,000.
The Company is obligated under the Common Stock Purchase Agreement and the RRA to file a registration statement with the SEC to register the New Estrella Common Stock under the Securities Act of 1933, as amended, for the resale by White Lion of shares of New Estrella Common Stock that the Company may issue to White Lion under the Common Stock Purchase Agreement.
For more information regarding the business of Estrella and the proposed Business Combination and relevant transactions, see the Registration Statement on Form S-4 (File No.: 333-267918) which was declared effective on July 11, 2023 (the “Form S-4”), and the final prospectus filed with the SEC on July 11, 2023 (“Proxy Statement/Prospectus”). The Company held a special meeting of its stockholders on Monday, July 31, 2023 at 9:00 a.m. Eastern Time (the “Special Meeting”) to vote on, among others, the proposed Business Combination with Estrella.
Binding PIPE Investment Term Sheet
On July 25, 2023, the Company entered into a binding term sheet (the “Binding Term Sheet”) with Suma Ventures, LLC (the “Investor”), Estrella, and Eureka Therapeutics, Inc., a Delaware corporation (“Eureka”), in connection with the Business Combination.
Pursuant to the Binding Term Sheet, immediately prior to the Closing, the Investor will acquire certain payables of Estrella owed to Eureka in an amount equal to $6.8 million (the “Indebtedness”) in exchange for securities of Eureka owned by the Investor. At the Closing, the Company will issue to the Investor 680,000 Class B units (the “New Units”), each consisting of one share of Common Stock and one share of preferred stock of the Company, and the Investor, in exchange, will agree to irrevocably waive the Indebtedness, and release Estrella and New Estrella from all obligations under the Indebtedness.
The Binding Term Sheet constitutes a binding agreement between the Company and the Investor with respect to the subject matter thereof and supersedes all prior oral or written agreements or understandings relating thereto. The Binding Term Sheet is subject to the execution and delivery by all parties of mutually satisfactory documentation, the completion of all due diligence and the consummation of the Business Combination.
Business Combination Meeting
On July 31, 2023, the Company held a special meeting of stockholders in connection with the proposed business combination with Estrella (the “Business Combination Meeting”), where the Company was approved by its stockholders, among the others, to adopt the Merger Agreement, consummate the Business Combination and other relevant matters. In connection with the votes to approve the proposals at the Business Combination Meeting, 650,580 public shares were rendered for redemption with 98,074 public shares remained outstanding.
December 2022 Extension, Related Redemption and Extension Notes
On December 22, 2022, the Company held a special meeting of stockholders (the “2022 Special Meeting”) where the Company was approved by its stockholders to adopt the amended and restated certificate of incorporation to extend the date before which the Company must complete a business combination (the “Combination Deadline”) from January 19, 2023, by one month up to six times, to July 19, 2023 or such earlier date as determined by the board of directors of the Company. Upon the stockholders’ approval, on December 29, 2022, the Company filed a certificate of amendment to the amended and restated certificate of incorporation which became effective upon filing. Additionally, as a result of the 2022 Special Meeting, upon the stockholders’ approval, on December 29, 2022, UPTD and Wilmington Trust, National Association (“Wilmington”), as the trustee of the Trust Account, entered into the amendment to the Investment Management Trust Agreement dated July 14, 2021 (as amended, the “Trust Agreement”).
As a result of the 2022 Special Meeting, 3,519,780 shares of Common Stock were rendered for redemption and approximately $36.1 million was released from the Trust Account to pay such redeeming stockholders.
Under the then existing amended and restated certificate of incorporation, the Company may extend the Combination Deadline until July 19, 2023 by depositing $45,511 (or $0.05 per public share) into the Trust Account (the “Original Monthly Extension Payment”) for each monthly extension. Pursuant to the Merger Agreement, Estrella made six Original Monthly Extension Payments to the Trust Account to extend the Combination Deadline to July 19, 2023. The six Original Monthly Extension Payments were evidenced by six promissory notes (collectively, the “Original Extension Notes”) issued by the Company to Estrella, each in the principal amount of $45,511.
22
July 2023 Extension, Related Redemption and Extension Note
On July 17, 2023, the Company held a special meeting of stockholders (the “2023 Special Meeting”) where the Company was approved by its stockholders to adopt the amended and restated certificate of incorporation to extend the date of the Combination Deadline from July 19, 2023 to July 14, 2024 or such earlier date as determined by the board of directors of the Company. Upon the stockholders’ approval, on July 17, 2023, the Company filed a certificate of amendment to the amended and restated certificate of incorporation (the “Current Charter”) which became effective upon filing. Additionally, as a result of the 2023 Special Meeting, upon the stockholders’ approval, on July 17, 2023, UPTD and Wilmington entered into the amendment to the Trust Agreement.
As a result of the 2023 Special Meeting, 161,566 shares of Common Stock were rendered for redemption and approximately $1.73 million was released from the Trust Account to pay such redeeming stockholders.
Under the Current Charter, the Company may extend the Combination Deadline until July 14, 2024, by depositing $37,432.70 (or $0.05 per public share) into the Trust Account (the “Current Monthly Extension Payment”) for each monthly extension. Pursuant to the Merger Agreement, Estrella made one Current Monthly Extension Payments to the Trust Account to extend the Combination Deadline to August 19, 2023. The Current Monthly Extension Payment was evidenced by a promissory notes (the “Current Extension Note,” together with the Original Extension Notes, collectively, the “Extension Notes”) issued by the Company to Estrella, in the principal amount of $37,432.70.
Outstanding Promissory Notes and Loans
As of the date hereof, we have outstanding loans from various parties in the aggregated amount of $708,600, which include (i) an unsecured promissory note dated July 25, 2022 (the “Running Lion Note”) in the amount of $204,000 to Running Lion Holdings Limited (“Running Lion”), a company limited by shares incorporated under the laws of British Virgin Islands, which is wholly owned and controlled by Mr. Weiguang Yang, the Co-Executive Officer and director of the Company, (ii) an unsecured promissory note dated July 25, 2022 (the “July 2022 Sponsor Note”) in the amount of $294,600 to Tradeup INC., (iii) an unsecured promissory note dated January 19, 2023 (the “January 2023 Sponsor Note”) in the amount of $50,000 to the Sponsor, to evidence a deposit that the Sponsor provided to the Company to pay its certain operating expenses, (iv) an unsecured promissory note dated March 3, 2023 in the amount of $50,000 to Tradeup INC. (v) an unsecured promissory note dated June 3, 2023 in the amount of $60,000 to Tradeup INC. (the “June 2023 Sponsor Note”), and (vi) an unsecured promissory note dated July 20, 2023 in the amount of $50,000 to Tradeup INC. for working capital purpose (the “July 2023 Sponsor Note” , together with Running Lion Note, July 2022 Sponsor Note, January 2023 Sponsor, March 2023 Sponsor Note, and June 2023 Sponsor Notes, collectively the “Notes”).
In connection with the Extension, we issued the Extension Notes in the amount of $310,499 to Estrella to evidence the funds deposited into the Trust Account.
Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard
April 3 Notice
On April 3, 2023, the Company received a written notice (the “April 3 Notice”) from the listing qualifications department staff of The Nasdaq Stock Market (“Nasdaq”) notifying the Company that for the last 30 consecutive business days, the Company’s minimum Market Value of Listed Securities (“MVLS”) was below the minimum of $35 million required for continued listing on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(b)(2) (the “Market Value Standard”). The April 3 Notice 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 the Nasdaq Capital Market.
In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company will have 180 calendar days, or until October 2, 2023, to regain compliance with the Market Value Standard. To regain compliance with the Market Value Standard, the MVLS for the Company’s Common Stock must be at least $35 million for a minimum of 10 consecutive business days at any time during this 180-day period. If the Company regains compliance with the Market Value Standard, Nasdaq will provide the Company with written confirmation and will close the matter.
If the Company does not regain compliance with the rule by October 2, 2023, Nasdaq will provide notice that the Company’s securities will be delisted from the Nasdaq Capital Market. In the event of such notification, the Nasdaq rules permit the Company an opportunity to appeal Nasdaq’s determination.
The Company is monitoring the MLVS of its common stock and is evaluating options to regain compliance with the Market Value Standard. However, there can be no assurance that the Company will be able to regain or maintain compliance with Nasdaq listing standards.
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April 19 Notice
On April 19, 2023, the Company received a written notice (the “April 19 Notice”) from Nasdaq notifying the Company that the Company was not in compliance with Listing Rule 5550(a)(3) (the “Minimum Public Holders Rule”), which requires the Company to have at least 300 public holders for continued listing on the Nasdaq Capital Market. The April 19 Notice 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 the Nasdaq Capital Market.
The April 19 Notice states that the Company has 45 calendar days to submit a plan to regain compliance with the Minimum Public Holders Rule. The Company submitted its plan of compliance on June 5, 2023 accordingly. On June 22, 2023, the Company received a notification letter from Nasdaq states that Nasdaq determined to grant the Company an extension until October 16, 2023 to regain compliance with the Minimum Public Holder Rule.
Investment Company Act and Liquidation of Investments in the Trust Account into Cash Held in the Trust Account
Since the consummation of the IPO, the Company has deposited the proceeds of the IPO and partial proceeds of the concurrent private placements into the Trust Account to invest 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. As a result, it is possible that a claim could be made that the Company has been operating as an unregistered investment company. If the Company was deemed to be an investment company for purposes of the Investment Company Act, compliance with these additional regulatory burdens would require additional expenses for which the Company has not allotted funds and may hinder the Company’s ability to complete a business combination. The Company might be forced to abandon its efforts to complete an initial business combination and instead be required to liquidate. If the Company is required to liquidate, its investors would not be able to realize the benefits of owning stock in a successor operating business, such as any appreciation in the value of the Company’s securities following such a transaction, its warrants would expire worthless and shares of common stock would have no value apart from their pro rata entitlement to the funds then-remaining in the Trust Account.
The longer that the funds in the Trust Account are held in short-term U.S. government treasury obligations or in money market funds invested exclusively in such securities there is a greater risk that the Company may be considered an unregistered investment company, in which case the Company may be required to liquidate. In order to mitigate the potential risks of being deemed to have been operating as an unregistered investment company for purposes of the Investment Company Act of 1940, as amended (the “Investment Company Act”), the Company has instructed Wilmington to liquidate the U.S. government treasury obligations and money market funds held in the Trust Account on July 14, 2023 and to hold all funds in the Trust Account in cash until the earlier of consummation of the Company’s initial business combination or liquidation. Following such liquidation, the Company will likely continue to receive, minimal interest, if any, on the funds held in the Trust Account, which would reduce the dollar amount its public stockholders would receive upon any redemption or liquidation of the Company.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues to date. Our only activities from inception through June 30, 2023 were organizational activities and those necessary to prepare for the IPO, search for a target company, and effectuate the business combination with Estrella. We do not expect to generate any operating revenues until after the completion of our business combination with Estrella. We generate non-operating income in the form of dividend. We are incurring expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses in connection with searching for and completion of the business combination.
For the three months ended June 30, 2023, we had a net loss of $76,004, which consisted of formation and operating costs of $155,295, franchise tax expenses of $13,942, and income taxes provision of $21,077, offset by dividend earned on investment held in Trust Account of $114,310.
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For the three months ended June 30, 2022, we had a net loss of $359,586, which consisted of formation and operating costs $399,765 and franchise tax expenses of $24,000, offset by dividend earned on investment held in Trust Account of $64,179.
For the six months ended June 30, 2023, we had a net loss of $139,329, which consisted of formation and operating costs of $291,845, franchise tax expenses of $27,042, and income taxes provision of $40,542, offset by dividend earned on investment held in Trust Account of $220,100.
For the six months ended June 30, 2022, we had a net loss of $500,838, which consisted of formation and operating costs $520,505 and franchise tax expenses of $48,200, offset by dividend earned on investment held in Trust Account of $67,867.
Liquidity and Capital Resources
As of June 30, 2023, we had cash outside the Trust Account of $34,688 available for working capital needs. All remaining cash is held in the Trust Account and is generally unavailable for our use, prior to an initial business combination, and is restricted for use either in a business combination or to redeem the shares of Common Stock. As of June 30, 2023, none of the amount on deposit in the Trust Account was available to be withdrawn as described above.
For the six months ended June 30, 2023, there was $488,384 of cash used in operating activities. Net loss of $139,329 was affected by dividend earned on investment held in Trust Account amounting to $220,100, deferred tax expense of $21,102, increase in prepaid expenses of $83,050, decrease in franchise tax payable of $143,927 and offset by increase in accounts payable and accrued expenses of $108,656 and increase in income tax payable of $10,468.
For the six months ended June 30, 2022, there was $390,587 of cash used in operating activities. Net loss of $500,838 was affected by dividend earned on an investment held in Trust Account amounting to $67,867 and decrease in franchise tax payable of $21,954 and offset by decrease in prepaid expenses of $96,625 and increase in accounts payable and accrued expenses of $103,447.
For the six months ended June 30, 2023, there was $99,204 of cash provided by investing activities resulting from withdrawal of an investment held in the Trust Account amounting to $372,270 and offset by the purchase of an investment held in Trust Account amounting to $273,066.
For the six months ended June 30, 2022, there were no cash investing activities.
For the six months ended June 30, 2023, there was $383,066 of cash provided by financing activities resulting from proceeds from the issuance of promissory notes amounting to $273,066 and the issuance of working loans to a related party amounting to $110,000.
For the six months ended June 30, 2022, there were no cash financing activities.
Until consummation of the business combination, we will be using the funds not held in the Trust Account, and any additional funding that may be loaned to us by our Sponsor, for identifying and evaluating prospective acquisition candidates, performing business due diligence on prospective target businesses, traveling to and from the offices, plants or similar locations of prospective target businesses, reviewing corporate documents and material agreements of prospective target businesses, selecting the target business to acquire and structuring, negotiating and consummating the business combination.
If our estimates of the costs of undertaking in-depth due diligence and negotiating business combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate its business prior to the business combination and will need to raise additional capital. In this event, our officers, directors or their affiliates may, but are not obligated to, loan us funds as may be required. If we consummate an initial business combination, we would repay such loaned amounts out of the proceeds of the Trust Account released to us upon consummation of the business combination, or, at the lender’s discretion, up to $1,200,000 of such loans may be convertible into units of the post business combination entity at a price of $10.00 per share. In the event that the initial business combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts, but no proceeds from our Trust Account would be used for such repayment. The terms of such loans by our initial stockholders, officers and directors, if any, have not been determined and no written agreements exist with respect to such loans.
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Moreover, we may need to obtain additional financing either to consummate our initial business combination or because we become obligated to redeem a significant number of our public shares upon consummation of our initial business combination, in which case we may issue additional securities or incur debt in connection with such business combination. Subject to compliance with applicable securities laws, we would only consummate such financing simultaneously with the consummation of our initial business combination. Following our initial business combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
As of June 30, 2023, we had cash of $34,688 and a working deficit of $1,301,969. We have incurred and expect to continue to incur significant professional costs to remain as a publicly traded company and to incur significant transaction costs in pursuit of the consummation of a business combination. In connection with our assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that these conditions raise substantial doubt about our ability to continue as a going concern. The management’s plan in addressing this uncertainty is through the Promissory Notes – related parties and the working capital loans, as discussed above. In addition, if we are unable to complete a business combination by July 14, 2024, our board of directors would proceed to commence a voluntary liquidation and thereby a formal dissolution of us. There is no assurance that our plans to consummate a business combination will be successful by July 14, 2024. As a result, management has determined that such additional condition also raise substantial doubt about our ability to continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities that would be considered off-balance sheet arrangements as of June 30, 2023. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Contractual Obligations
As of June 30, 2023, we do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities.
The holders of the founder shares, the Private Shares, and any Conversion Shares will be entitled to registration rights pursuant to a registration and shareholder rights agreement entered into in connection with the IPO. The holders of these securities are entitled to make up to three demands, excluding short form demands, that we register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to our completion of our initial business combination. We will bear the expenses incurred in connection with the filing of any such registration statements.
We are obligated to pay the Representatives the Business Combination Fee equal to 3.5% of the gross proceeds of the IPO and the sale of over-allotment Option Units. The Business Combination Fee of $1,550,500 will become payable to the Representatives from the amounts held in the Trust Account solely in the event that we complete a Business Combination.
As of the date hereof, we have outstanding loans from various related parties in the aggregated amount of $708,600, which include (i) the Running Lion Note in the amount of $204,000 to Running Lion, (ii) the July 2022 Sponsor Note in the amount of $294,600 to Tradeup INC., (iii) the January 2023 Sponsor Note in the amount of $50,000 to the Sponsor, to evidence a deposit that the Sponsor provided to the Company to pay its certain operating expenses, (iv) the March 2023 Sponsor Note in the amount of $50,000 to Tradeup INC. (v) the June 2023 Sponsor Note in the amount of $60,000 to Tradeup INC., and (vi) the July 2023 Sponsor Note in the amount of $50,000 to Tradeup INC. In connection with the Extension, we issued the Extension Notes in the amount of $310,498.70 to Estrella to evidence the funds deposited into the Trust Account.
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Critical Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC, and include all normal and recurring adjustments that management of the Company considers necessary for a fair presentation of its financial position and operation results. Interim results are not necessarily indicative of results to be expected for any other interim period or for the full year. The information included in this Form 10-Q should be read in conjunction with information included in the Company’s annual report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on March 14, 2023.
Emerging Growth Company Status
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”), As an emerging growth company, the Company may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such 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 these unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. The accompanying unaudited condensed consolidated financial statements include all adjustments management considers necessary for a fair presentation.
Cash
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents.
Investments Held in Trust Account
As of June 30, 2023 and December 31, 2022, the assets held in the Trust Account were held in money market funds, which are invested in U.S. Treasury securities.
Gains and losses resulting from the change in fair value of investments held in Trust Account are accounted as dividend income in the accompanying unaudited condensed statement of operations. Dividend income for the three months ended June 30, 2023 and 2022 amounted to $114,310 and $64,179, respectively. Dividend income for the six months ended June 30, 2023 and 2022 amounted to $220,100 and $67,867, respectively.
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Offering Costs
The Company complies with the requirements of FASB ASC Topic 340-10-S99-1, “Other Assets and Deferred Costs – SEC Materials” (“ASC 340-10-S99”) and SEC Staff Accounting Bulletin Topic 5A, “Expenses of Offering”. Offering costs were $3,019,474 consisting principally of underwriting, legal, accounting and other expenses that are directly related to the Initial Public Offering and charged to stockholders’ equity upon the completion of the Initial Public Offering.
Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) ASC 480 “Distinguishing Liabilities from Equity” (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether they meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations.
Common Stock Subject to Possible Redemption
The Company accounts for its Common Stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Common Stock subject to mandatory redemption (if any) are classified as a liability instrument and are measured at fair value. Conditionally redeemable Common Stock (including Common Stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, Common Stock are classified as stockholders’ equity. The Company’s public shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, as of June 30, 2023 and December 31, 2022, Common Stock subject to possible redemption are presented at redemption value of $10.71 and $10.25 per share, respectively, as temporary equity, outside of the stockholders’ equity section of the Company’s balance sheet. The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable Common Stock to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable Common Stock are affected by charges against additional paid in capital or accumulated deficit if additional paid in capital equals to zero.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution. The Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account. As of June 30, 2023 and December 31, 2022, no balance was over the Federal Deposit Insurance Corporation (FDIC) limit.
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Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature.
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
● | Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
● | Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. |
● | Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value. |
Income Taxes
The Company accounts for income taxes under ASC 740 Income Taxes (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s unaudited condensed consolidated financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of June 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 has identified the United States as its only “major” tax jurisdiction.
The Company may be subject to potential examination by federal and state taxing authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
Net Income (Loss) per Share
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on our unaudited condensed consolidated financial statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Report, is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our current chief executive officer and chief financial officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of June 30, 2023, pursuant to Rule 13a 15(b) under the Exchange Act. Based upon that evaluation, our Co-Chief Executive Officers and Chief Financial Officer concluded that, as of June 30, 2023, our disclosure controls and procedures were not effective due to the restatement related to the classification of redeemable common stock as of July 19, 2021 and management has identified a material weakness in internal controls related to the accounting for complex equity instruments in connection with our initial public offering. In light of this material weakness, we performed additional analyses as deemed necessary to ensure that our financial statements were prepared in accordance with the US GAAP. Accordingly, management believes that the financial statements included in this Amendment present fairly in all material respects our financial position, results of operations and cash flows for the period presented.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
(b) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter covered by this report that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. In light of the correction of the material weakness as discussed above, we are enhancing our processes to appropriately apply applicable accounting requirements to our financial statements. Our plans include providing training to our accounting personnel and increased communication among our accounting personnel and third-party professionals with whom it consults regarding complex accounting applications. We believe our efforts will enhance our controls relating to complex and technical accounting matters, but we can offer no assurance that our controls will not require additional review and modification in the future as industry accounting practices based on the SEC Statement may evolve over time.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings and no material legal proceedings have been threatened by us or, to the best of our knowledge, against us.
ITEM 1A. RISK FACTORS
Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in our final prospectus dated July 19, 2021 and in the Registration Statement in Proxy Statement/Prospectus dated July 11, 2023 filed with the SEC. 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. As of the date of this Quarterly Report, there have been no material changes to the risk factors disclosed in our final prospectus dated July 19, 2021 or in our Proxy Statement/Prospectus dated July 11, 2023, filed with the SEC, except we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The information of the Notes and the Extension Notes contained under Item 2 of Part I above is incorporated herein by reference in response to this item. The issuance of the Notes and the Extension Notes was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
* | Filed herewith. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TradeUP Acquisition Corp. | ||
Date: July 31, 2023 |
By: | /s/ Weiguang Yang |
Weiguang Yang | ||
Co-Chief Executive Officer | ||
(Principal Executive Officer) | ||
By: | /s/ Luqi “Lulu” Wen | |
Luqi “Lulu” Wen | ||
Chief Financial Officer | ||
(Principal Financial and Accounting Officer) |
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