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Share-Based Compensation

9 Months Ended

Sep. 30, 2023

Note 11—Share-Based Compensation

Under ASC 718, share-based compensation associated with equity-classified awards is measured at fair value upon the grant date and expensed when earned, unless there is a modification in the award. As described in Note 6, the former Chief Financial Officer and former Chief Operating Officer were transferred 50,000 Founder Shares (25,000 each) from the Prior Sponsor at the original purchase price in March 2021, $0.0035 per share. The Founder shares transferred to the former Chief Financial Officer and former Chief Operating Officer vested on the grant date of the Founder Shares. The Company did not record any share-based compensation related to the 50,000 Founder Shares held by the then-Chief Financial Officer and Chief Operating Officer at the grant date as the amount was deemed de minimis.

The 150,000 Founder Shares transferred from the Prior Sponsor to the former directors had no share-based compensation recorded at the original grant date because the Founder Share Purchase Agreement had a performance condition which required the former directors to continue as directors of the Company through the date a business combination is consummated. The Company determined that the performance condition was not probable of being met in March 2021, when the Founder Shares were granted.

On July 18, 2023, as part of the Sponsor Handover each of the former directors transferred 19,250 of Founder Shares to Chunyi (Charlie) Hao, President and Chairman of the Board of Directors, for a total of 115,500 Founder Shares and the former directors retained 5,750 Founder Shares each for a total of 34,500 Founder Shares. The 115,500 Founder Shares transferred to Chunyi (Charlie) Hao, President and Chairman of the Board of Directors, requires him to be a director at the time of the consummation of a Business Combination or the 115,500 Founder Shares will be transferred back to the former directors. Under ASC 718, the 115,500 Founder Shares transferred to Chunyi (Charlie) Hao, President and Chairman of the Board of Directors, has a performance condition that is not probable of occurring at the date he received the 115,500 Founder Shares, therefore no share based compensation has been recorded for the 115,500 Founder Shares as of September 30, 2023.

The former directors retained 34,500 Founder Shares (5,750 Founder shares each) as part of the Sponsor Handover. Effective July 18, 2023, the Prior Sponsor amended the Founder Share Purchase Agreement with the former directors to eliminate the performance condition. Under ASC 718, the amendment to remove the performance condition is considered a modification of the equity-classified award. In accordance with ASC 718, the modification to change the vesting in an equity-classified award from improbable to probable requires the Company to determine the fair value of the modified equity-classified award at the modification date and recognize share-based compensation over the remaining service period, if any. The 34,500 Founder Shares retained by the former directors, effective July 18, 2023 were considered fully vested and the Company recorded a share-based compensation expense in the amount of $35,535 which is included in general and administrative expenses in the statement of operations for the three and nine month periods ended September 30, 2023.

The Company estimated the Founder Shares fair value on July 18, 2023 by using the Finnerty Model with the following inputs:

	July 18, 2023
Class A Ordinary Share Price	$	10.46
Discount rate using Finnerty Model		1.10	%
Volatility		3.20	%
Term (in years)		2.3
Fair value	$	1.03

The Class A ordinary share price was derived from the public share price of the Class A ordinary share at July 18, 2023. The discount rate was derived using the Finnerty Model. The inputs used for the Finnerty Model included the volatility which was derived from the historical volatility of the Company and the term which was derived from management’s assumption that a business combination would consummate by October 18, 2024 plus one additional year due to the Founder Share Purchase Agreement including a lock-up transfer restriction clause whereby the holders of the Founder Shares cannot transfer any Founder Shares until at least one year after the completion of an initial Business Combination.