UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(MARK ONE)
For the quarter ended
For the transition period from ________ to ________
(Exact Name of Registrant as Specified in its Charter)
| (State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices and Zip Code)
Registrant’s telephone number, including area code:
(Former name or former address, if changed since last report)
Check whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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. Yes ☐
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 ☐ No
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The |
As of November 14, 2023
COLLECTIVE AUDIENCE, INC.
(F/K/A ABRI SPAC I, INC.)
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
TABLE OF CONTENTS
i
PART I – FINANCIAL INFORMATION
ITEM 1. Unaudited Financial Statements
COLLECTIVE AUDIENCE, INC.
(F/K/A ABRI SPAC I, INC.)
CONDENSED BALANCE SHEETS
| September 30, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Marketable securities held in Trust Account, at fair value | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued legal fees | ||||||||
| Total current liabilities | ||||||||
| Promissory notes, related party | ||||||||
| Convertible promissory notes, related party | ||||||||
| Warrant liabilities, at fair value | ||||||||
| Deferred underwriting commissions | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 5) | ||||||||
| Common stock subject to possible redemption, par value $ | ||||||||
| Stockholders’ deficit: | ||||||||
| Preferred stock, par value $ | ||||||||
| Common stock, par value $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities, redeemable common stock and stockholders’ deficit | $ | $ | ||||||
The accompanying footnotes are an integral part of these unaudited condensed financial statements.
1
COLLECTIVE AUDIENCE, INC.
(F/K/A ABRI SPAC I, INC.)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended | For the Three Months Ended | For the Nine Months Ended | For the Nine Months Ended | |||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Professional fees | $ | $ | $ | $ | ||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income: | ||||||||||||||||
| Interest earned on marketable securities held in Trust Account | ||||||||||||||||
| Change in fair value of warrant liabilities | ( | ) | ( | ) | ||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ( | ) | ( | ) | - | |||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| $ | ( | ) | $ | - | $ | ( | ) | $ | ( | ) | ||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
The accompanying footnotes are an integral part of these unaudited condensed financial statements.
2
COLLECTIVE AUDIENCE, INC.
(F/K/A ABRI SPAC I, INC.)
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY (DEFICIT)
AND REDEEMABLE COMMON STOCK
(Unaudited)
| Common Stock Subject to | Additional | Total | ||||||||||||||||||||||||||
| Possible Redemption | Common Stock | Paid-in | Accumulated | Stockholder’s | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity (Deficit) | ||||||||||||||||||||||
| Balance, January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Accretion of common stock to redemption value | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Accretion of common stock to redemption value | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at June 30, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Accretion of common stock to redemption value (net of tax withdrawal of
$ | - | ( | ) | - | ||||||||||||||||||||||||
| Redemption of common stock | ( | ) | ( | ) | - | |||||||||||||||||||||||
| Excise tax payable | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Common Stock Subject to | Additional | Total | ||||||||||||||||||||||||||
| Possible Redemption | Common Stock | Paid-in | Accumulated | Stockholder’s | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity (Deficit) | ||||||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Accretion of common stock to redemption value | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2022 | ( | ) | ||||||||||||||||||||||||||
| Accretion of common stock to redemption value | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at June 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Accretion of common stock to redemption value | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying footnotes are an integral part of these unaudited condensed financial statements.
3
COLLECTIVE AUDIENCE, INC.
(F/K/A ABRI SPAC I, INC.)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended | For the Nine Months Ended | |||||||
| September 30, 2023 | September 30, 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Change in fair value of warrant liabilities | ( | ) | ||||||
| Interest earned on marketable securities held in Trust Account | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Net cash used in operating activities | $ | ( | ) | $ | ( | ) | ||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Cash withdrawn from Trust Account for payment to redeeming stockholders | ||||||||
| Investments in marketable securities held in Trust Account | ( | ) | ( | ) | ||||
| Withdrawal from Trust Account to pay taxes | ||||||||
| Net cash provided by (used in) investing activities | $ | $ | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payment to redeeming stockholders | ( | ) | ||||||
| Proceeds from convertible promissory notes, related party | ||||||||
| Proceeds of notes payable - related party | ||||||||
| Net cash (used in) provided by financing activities | $ | ( | ) | $ | ||||
| NET CHANGE IN CASH | ||||||||
| Cash - Beginning of period | ||||||||
| Cash - End of period | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid for taxes | ||||||||
| Non-cash investing and financing activities: | ||||||||
Accretion of common stock to redemption value (net of tax withdrawal of
$ | $ | $ | ||||||
| Excise tax payable | $ | $ | ||||||
The accompanying footnotes are an integral part of these unaudited condensed financial statements.
4
COLLECTIVE AUDIENCE, INC.
(F/K/A ABRI SPAC I, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
(Unaudited)
NOTE 1 — NATURE OF THE ORGANIZATION AND BUSINESS
Collective Audience, Inc. (formerly known as Abri SPAC I, Inc) (“Abri” or the “Company”) was incorporated in the State of Delaware on March 18, 2021. The Company’s business purpose is to effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (our “Initial Business Combination”). Throughout this report, the terms “our,” “we,” “us,” and the “Company” refer to Collective Audience, Inc.
The Business Combination
As previously announced, on September 9, 2022, Abri, Abri Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Abri (“Merger Sub”), Logiq, Inc., a Delaware corporation (“Logiq or “DLQ Parent”) whose common stock is quoted on OTCQX Market under the ticker symbol “LGIQ” and, DLQ, Inc., a Nevada corporation and wholly owned subsidiary of DLQ Parent (“DLQ”) entered into a Merger Agreement (the “Merger Agreement”).
As previously reported on
Form 8-K filed by Abri with the Securities and Exchange Commission (“SEC”), on October 23, 2023, Abri held a special meeting
of its stockholders (the “Special Meeting”), at which holders of
At the Special Meeting, Abri’s stockholders voted to approve the proposals outlined in the final prospectus and definitive proxy statement filed by Abri with the SEC on September 29, 2023 (the “Proxy Statement/Prospectus”), including, among other things, the adoption of the Merger Agreement and approval of the transactions contemplated by the Merger Agreement, including the merger of Merger Sub with and into DLQ, with DLQ continuing as the surviving corporation and as a wholly-owned subsidiary of Collective Audience, and the issuance of Collective Audience securities as consideration thereunder, as described in the section titled “The Business Combination Proposal (Proposal 1)” beginning on page 90 of the Proxy Statement/Prospectus (the “Merger” and, together with the other transactions contemplated by the Merger Agreement, the “Business Combination”).
On November 2, 2023 (the “Closing Date”), the Business Combination, including the Merger, was completed (the “Closing”).
The Merger Consideration and Treatment of Securities
At Closing, pursuant to the terms of the Merger Agreement and after giving effect to the redemptions of shares of common stock by public stockholders of Company:
| ● | The total consideration paid at Closing (the “Merger Consideration”) by Abri to DLQ security holders was |
| ● | Each share of DLQ Common Stock, if any, that was owned by Abri, Merger Sub, DLQ or any other affiliate of Abri immediately prior to the effective time of the Merger (the “Effective Time”) was automatically cancelled and retired without any conversion or consideration; |
| ● | each share of Merger Sub common stock, par value $ |
5
Concurrently
with Closing, upon issuance of the Consideration Shares, DLQ Parent declared a Dividend Distribution of
Concurrent
with Closing, Abri and certain members of DLQ Management entered into a Management Earnout Agreement (as defined below) wherein certain
members of DLQ management have the opportunity to earn up to
Amended and Restated Registration Rights Agreement
On November 2, 2023 Abri, the Sponsor and Chardan Capital Markets, LLC as underwriter (the “Underwriter”) entered into an amended and restated registration rights agreement (the “Amended and Restated Registration Rights Agreement”), pursuant to which the Sponsor, the Underwriter and holders of the Lock-Up Shares and recipients of the Management Earnout Shares and Sponsor Earnout Shares, if any, will be provided certain rights relating to the registration of certain Abri securities.
The Amended and Restated Registration Rights Agreement provides that the Company shall, within 30 days receipt of the Company of a demand (the “Filing Deadline”), file with the SEC a registration statement registering the resale of the shares of all securities registrable pursuant to the Amended and Restated Registration Rights Agreement held by the signatories thereto (other than the Company). The Company is not obligated to effect more than two demands for registration per calendar year. The Company will use its commercially reasonable efforts to cause such registration statement to be declared effective as soon as practicable after the filing thereof, but the Company shall have the right to defer any demand for registration for 90 days, as described in the Amended and Restated Registration Rights Agreement. In addition, the holders of these securities will have certain “piggy-back” registration rights. The Company will bear the expenses incurred in connection with the filing of any registration statements filed pursuant to the terms of the Amended and Restated Registration Rights Agreement. The Company and the other signatories to the Amended and Restated Registration Rights Agreement will provide customary indemnification in connection with any offerings of Common Stock effected pursuant to the terms of such.
Management Earnout Agreement
On
November 2, 2023 Abri and certain members of DLQ Management entered into
a management earnout agreement (the “Management Earnout Agreement”), pursuant to which certain members of the management team
of DLQ specified on schedule A to the Management Earnout Agreement (the “Management”) have the contingent right to earn the
Management Earnout Shares (as defined in the Management Earnout Agreement). The Management Earnout Shares consist of
| ● |
| ● |
| ● |
The foregoing description of the Management Earnout Agreement does not purport to be complete and is qualified in its entirety by the terms and conditions of the Management Earnout Agreement is attached to the Current Report on Form 8-K filed on November 8, 2023.
6
Sponsor Earnout Agreement
On
November 2, 2023, in connection with the Closing, Abri and the Sponsor entered into a sponsor earnout agreement (the “Sponsor Earnout
Agreement”), pursuant to which the Sponsor will have the contingent right to earn the Sponsor Earnout Shares (as defined in the
Sponsor Earnout Agreement). The Sponsor Earnout Shares consist of
| ● |
| ● |
| ● |
The foregoing description of the Sponsor Earnout Agreement does not purport to be complete and is qualified in its entirety by the terms and conditions of the Sponsor Earnout Agreement is attached to the Current Report on Form 8-K filed on November 8, 2023.
Warrant Revenue Sharing Side Letter
On
November 2, 2023, in connection with the execution of the Merger Agreement, Abri, DLQ and the Sponsor entered into a letter agreement
(the “Warrant Revenue Sharing Side Letter”), pursuant to which Abri and DLQ will divide the proceeds from the Warrant Exercise
Price (as defined in the Warrant Revenue Sharing Side Letter), arising from the exercise of the warrants issued as part of the Abri Units sold
in its initial public offering whereby twenty percent (
Lock-Up Agreements
On November 2, 2023 in connection
with Closing, Abri, and DLQ Parent entered into a lock-up agreement (the “Lock-Up Agreement”), pursuant to which
each DLQ Parent agreed, subject to certain customary exceptions, not to (i) sell, offer to sell, contract or agree to sell, pledge
or otherwise dispose of, directly or indirectly, fifty three percent (
The material terms of the Lock-Up Agreements are described in the section of the Proxy Statement/Prospectus beginning on page 94 titled “Certain Related Agreements—Lock-Up Agreements” and is incorporated by reference herein. The foregoing description of the Sponsor Earnout Agreement does not purport to be complete and is qualified in its entirety by the terms and conditions of the Lock-Up Agreements is attached to the Current Report on Form 8-K filed on November 8, 2023.
7
Indemnification Agreement
The Company has entered, and expects to continue to enter into, indemnification agreements with its directors, executive officers and other key employees as determined by its board of directors (the “Board”). The indemnification agreements will provide that the Company will indemnify each of its directors, executive officers, and other key employees against any and all expenses incurred by such director, executive officer, or other key employee because of his or her status as one of the Company’s directors, executive officers, or other key employees, to the fullest extent permitted by law, including Delaware Law, the Second Amended and Restated Certificate of Incorporation (as defined below) and the Bylaws (as defined below). In addition, the indemnification agreements will provide that, to the fullest extent permitted by law, New Grove will advance all expenses incurred by its directors, executive officers, and other key employees in connection with the legal proceeding involving his or her status as a director, executive director, or key employee.
Business Prior to the Business Combination
As of September 30, 2023, the Company had not commenced core operations. All activity for the period from March 18, 2021 (inception) through September 30, 2023 related to organizational activities, those necessary to consummate the initial public offering (“IPO”) and identify a target company for a business combination. The Company will not generate any operating revenues until after the completion of the Initial Business Combination, at the earliest. The Company generates non-operating income in the form of interest earned on marketable securities held in Trust Account, and gains or losses from the change in fair value of the warrant liabilities.
The registration statement
pursuant to which the Company registered its securities offered in the IPO was declared effective on August 9, 2021. On August 12, 2021,
the Company consummated its IPO of
Simultaneously with the consummation
of the closing of the Initial Public Offering, the Company completed the private sale of
Following the closing of the
IPO on August 12, 2021, an amount of $
8
On August 19, 2021, the underwriters
notified the Company of their intent to exercise of the over-allotment option in part and, on August 23, 2021, the underwriters purchased
The stock exchange listing
rules provide that the Initial Business Combination must be with one or more target businesses that together have a fair market value
equal to at least
The payment to the Company’s
Sponsor of a monthly fee of $
The funds outside of the Trust Account are for working capital requirements in searching for an Initial Business Combination. The allocation of such funds represents the Company’s best estimate of the intended uses of these funds. If the estimate of the costs of undertaking due diligence and negotiating our Initial Business Combination is less than the actual amount necessary to do so, the Company may be required to raise additional capital, the amount, availability and cost of which is currently unascertainable. In this event, the Company could seek such additional capital through loans or additional investments from insiders, members of management team or third parties, but the insiders, members of the Company’s management team or third parties are not under any obligation to advance funds to, or invest in the Company.
The Company will likely use
substantially all of the net proceeds of this offering, including the funds held in the Trust Account, in connection with the Initial
Business Combination and to pay expenses relating thereto, including the deferred underwriting commissions payable to the underwriter
in an amount equal to
9
To the extent the Company is unable to consummate an Initial Business Combination, the Company will pay the costs of liquidation from the remaining assets outside of the Trust Account. If such funds are insufficient, the Company’s insiders have agreed to pay the funds necessary to complete such liquidation and have agreed not to seek repayment of such expenses.
The Company believes that
it will not have sufficient available funds to operate for up to the next 12 months, assuming that the Initial Business Combination is
not consummated during that time. However, if necessary, in order to meet the Company’s working capital needs following the consummation
of this offering, the insiders may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever amount
they deem reasonable in their sole discretion. Each loan would be evidenced by a promissory note. The notes would either be paid upon
consummation of the Initial Business Combination, without interest, or, at the lender’s discretion, up to $
The Company’s Sponsor, officers and directors have entered into a letter agreement with the Company, pursuant to which they have agreed to waive their redemption rights with respect to their insider shares and any public shares they may hold in connection with the completion of the Initial Business Combination. In addition, the Sponsor and its officers and directors have agreed to waive their rights to liquidating distributions from the Trust Account with respect to their insider shares if the Company fails to complete an Initial Business Combination within the prescribed time frame. However, if its Sponsor or any of its officers, directors or affiliates acquire public shares in or after this offering, they will be entitled to liquidating distributions from the Trust Account with respect to such public shares if the Company fails to complete an Initial Business Combination within the prescribed time frame.
The Company will provide its
public stockholders with the opportunity to redeem all or a portion of their shares of common stock upon the completion of the Initial
Business Combination either (i) in connection with a stockholder meeting called to approve the Initial Business Combination or (ii) by
means of a tender offer. The decision as to whether the Company will seek stockholder approval of a proposed Initial Business Combination
or conduct a tender offer will be made by the Company, solely in the Company’s discretion. The public stockholders will be entitled
to redeem their shares at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account as of
two business days prior to the consummation of the Initial Business Combination including interest earned on the funds held in the Trust
Account and not previously released to the Company to pay its franchise and income taxes, divided by the number of then outstanding public
shares, subject to the limitations. As of September 30, 2023, the amount in the Trust Account is approximately $
The shares of common stock
subject to redemption was classified as temporary equity upon the completion of the IPO and will subsequently be accreted to redemption
value, in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”)
480, Distinguishing Liabilities from Equity, (“ASC 480”). In such case, the Company will proceed with an Initial Business
Combination if the Company has net tangible assets of at least $
10
The Company had 12 months
from the closing of the IPO (the “Combination Period”) on August 9, 2021 to complete the Initial Business Combination. On
August 5, 2022, pursuant to the Company’s certificate of incorporation and investment trust agreement, the Company deposited $
Trust Account Redemptions
On December 9, 2022, the Company
held a special meeting of stockholders at which such stockholders voted to amend the Company’s amended and restated certificate
of incorporation and its investment trust agreement, giving the Company the right to extend the date by which the Company must complete
its Initial Business Combination up to six times for an additional one month each time, from February 12, 2023 to August 12, 2023, by
depositing $
Risks and Uncertainties
Management continues to evaluate the impact of the Russia-Ukraine war on the economy and the capital markets and has concluded that, while it is reasonably possible that such events could have negative effects on the Company’s financial position, results of its operations, and/or search for a target company, the specific impacts are not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Going Concern and Management Liquidity Plans
As of September 30, 2023,
the Company had cash of $
11
Accordingly, the accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplate continuation of the Company as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. Further, the Company has incurred and expects to continue to incur significant costs in pursuit of financing and acquisition plans. Management plans to address this uncertainty during the period leading up to the Initial Business Combination. The Company cannot provide any assurance that its plans to raise capital or to consummate an Initial Business Combination will be successful. Based on the foregoing, management believes that the Company will not have sufficient working capital and borrowing capacity to meet its needs through the earlier of the consummation of the Initial Business Combination or one year from this filing. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
NOTE 2 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying audited financial statements have been prepared in accordance with U.S. GAAP and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). The summary of significant accounting policies presented below is designed to assist in understanding the Company’s financial statements. Such condensed financial statements and accompanying notes are the representations of the Company’s management, who is responsible for their integrity and objectivity.
Unaudited Interim Financial Statements
In the opinion of the Company, the unaudited financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of September 30, 2023, and its results of operations for the three and nine months ended September 30, 2023.
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC on March 31, 2023, which contains the audited financial statements and notes thereto. The financial information as of December 31, 2022 is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. The interim results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any future interim periods.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
12
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of September 30, 2023 or December 31, 2022.
Marketable Securities Held in Trust Account
The Company has marketable securities held in the Trust Account consisting of securities held in a money market fund that invests in U.S. governmental securities with a maturity of 180 days or less which meet certain conditions under Rule 2a-7 under the Investment Company Act. Marketable securities held in the Trust Account are classified as trading securities. Trading securities are presented on the balance sheets at fair value at the end of each reporting period. Interest earned on marketable securities held in Trust Account is included in the condensed statements of operations. The estimated fair values of the investments held in the Trust Account are determined using available market information.
Warrant Liabilities
The Company accounts for the Private Warrants in accordance with the guidance contained in ASC 480 under which the Private Warrants do not meet the criteria for equity treatment and must be recorded as derivative liabilities. Accordingly, upon issuance, the Company classified the Private Warrants as liabilities at their fair value and will adjust the Private Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until the Private Warrants are exercised or expire, and any change in fair value is recognized in the Company’s statements of operations. The fair value of the Private Warrants will be initially and subsequently measured at the end of each reporting period using a Black-Scholes option pricing model.
The Company accounts for the Public Warrants in accordance with the guidance contained in ASC 815-40 under which the Public Warrants meet the criteria for equity treatment and are recorded as equity.
Common Stock Subject to Possible Redemption
The Company accounts for its common stock subject to possible redemption in accordance with the guidance in ASC 480. Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that feature redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, common stock subject to possible redemption will be presented at redemption value and as temporary equity, outside of the stockholders’ equity (deficit) section of the Company’s balance sheets.
The Company has made a policy
election in accordance with ASC 480 and will accrete changes in redemption value in additional paid-in capital (or accumulated deficit
in the absence of additional paid-in capital) through the time period to complete the Initial Business Combination. In connection with
a redemption of shares, any unrecognized accretion will be fully recognized for shares that are redeemed. As of September 30, 2023, the
Company had recorded accretion of $
13
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under ASC 740, Income Taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. 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 September 30, 2023 and December 31, 2022. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by taxing authorities since inception.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage. As of September 30, 2023 and December 31, 2022, the Company had not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC 820, Fair Value Measurement, approximates the carrying amounts represented in the accompanying balance sheets, primarily due to their short-term nature.
Fair Value Measurements
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
| ● | Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; | |
| ● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and | |
| ● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
14
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC 815, Derivatives and Hedging. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the issuance date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheets as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
Net Income (Loss) Per Share
Net income (loss) per share is computed by dividing net loss by the weighted average number of common shares outstanding during the reporting period. Diluted net income (loss) per share is computed similar to basic income (loss) per share, except the weighted average number of common shares outstanding are increased to include additional shares from the assumed exercise of share options, if dilutive. All outstanding convertible notes are considered common stock at the beginning of the period or at the time of issuance, if later, pursuant to the if-converted method. Since the effect of common stock equivalents is anti-dilutive with respect to losses, the shares issuable upon conversion have been excluded from the Company’s computation of net income (loss) per common share for the three and nine months ended September 30, 2023 and 2022.
| As of September 30, 2023 | ||||
| Potential shares from convertible debt | ||||
| Total | ||||
| As of September 30, 2022 | ||||
| Potential shares from convertible debt | ||||
| Total | ||||
The statements of operations include a presentation of loss per redeemable share and loss per non-redeemable share following the two-class method of loss per share. In order to determine the net loss attributable to both the redeemable shares and non-redeemable shares, the Company first considered the total loss allocable to both sets of shares. This is calculated using the total net loss less any dividends paid. For purposes of calculating net loss per share, any remeasurement of the ordinary shares subject to possible redemption was considered to be dividends paid to holders of redeemable common stock. For the three and nine months ended September 30, 2023 and 2022, this had an antidilutive effect on earnings per share for the non-redeemable shares. Therefore, the Company did not allocate any portion of the loss to the redeemable shares subject to redemption.
For the Three Months Ended September 30, 2023
| Net loss | $ | ( | ) | |
| Accretion of common stock to redemption value | ||||
| Net loss including accretion of common stock to redemption value | $ | ( | ) |
15
| Common Shares Subject to Redemption | Non- redeemable Common Shares | |||||||
| Basic and diluted net loss per share: | ||||||||
| Numerator: | ||||||||
| Allocation of net loss including accretion of common stock to redemption value | $ | ( | ) | $ | ( | ) | ||
| Accretion of common stock to redemption value | ( | ) | ||||||
| Allocation of net loss | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted-average shares outstanding | ||||||||
| $ | ( | ) | $ | ( | ) | |||
For the Three Months Ended September 30, 2022
| Net loss | $ | ( | ) | |
| Accretion of common stock to redemption value | ( | ) | ||
| Net loss including accretion of common stock to redemption value | $ | ( | ) |
| Common Shares Subject to Redemption | Non- redeemable Common Shares | |||||||
| Basic and diluted net loss per share: | ||||||||
| Numerator: | ||||||||
| Allocation of net loss including accretion of common stock to redemption value | $ | ( | ) | $ | ( | ) | ||
| Accretion of common stock to redemption value | ||||||||
| Allocation of net income (loss) | $ | $ | ( | ) | ||||
| Denominator: | ||||||||
| Weighted-average shares outstanding | ||||||||
| $ | ( | ) | $ | ( | ) | |||
For the Nine Months Ended September 30, 2023
| Net loss | $ | ( | ) | |
| Accretion of common stock to redemption value | ( | ) | ||
| Net loss including accretion of common stock to redemption value | $ | ( | ) |
| Common Shares Subject to Redemption | Non- redeemable Common Shares | |||||||
| Basic and diluted net loss per share: | ||||||||
| Numerator: | ||||||||
| Allocation of net loss including accretion of common stock to redemption value | $ | ( | ) | $ | ( | ) | ||
| Accretion of common stock to redemption value | ||||||||
| Allocation of net loss | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted-average shares outstanding | ||||||||
| $ | ( | ) | $ | ( | ) | |||
For the Nine Months Ended September 30, 2022
| Net loss | $ | ( | ) | |
| Accretion of common stock to redemption value | ( | ) | ||
| Net loss including accretion of common stock to redemption value | $ | ( | ) |
16
| Common Shares Subject to Redemption | Non- redeemable Common Shares | |||||||
| Basic and diluted net income (loss) per share: | ||||||||
| Numerator: | ||||||||
| Allocation of net loss including accretion of common stock to redemption value | $ | ( | ) | $ | ( | ) | ||
| Accretion of common stock to redemption value | ||||||||
| Allocation of net loss | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted-average shares outstanding | ||||||||
| $ | ( | ) | $ | ( | ) | |||
As of September 30, 2023 and 2022, any securities and other contracts that could, potentially, be exercised or converted into common stock would be antidilutive due to the Company’s loss position. As a result, diluted loss per share is the same as basic loss per share for the periods presented.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s unaudited financial statements.
NOTE 3 — RELATED PARTY TRANSACTIONS
Promissory Notes — Related Party
On August 5 and November
1 of 2022, the Company entered into a promissory note with its Sponsor of principal amounts received of $
On February 10, March 10,
April 10, May 12, June 9, and July 10 of 2023, the Company entered into six promissory notes with its Sponsor of principal amounts received
of $
In the event that an Initial
Business Combination does not close prior to February 12, 2024 (or later if the period of time to consummate an Initial Business Combination
is extended), the notes shall be deemed terminated and no amounts will be owed. As of September 30, 2023, there was $
Convertible Promissory Notes — Related Party
During 2022, the Company
entered into four convertible promissory notes with its Sponsor for aggregate principal amounts received of $
During 2023, the Company
entered into five convertible promissory notes with its Sponsor of aggregate principal amounts of $
17
Administrative and Support Services
The Company entered into an
administrative services agreement pursuant to which the Company will pay the Sponsor a total of $
NOTE 4 — COMMITMENTS AND CONTINGENCIES
Registration Rights
The holders of the Founder
Shares are entitled to registration rights pursuant to a registration rights agreement that was signed as of the effective date of the
IPO. The holders of the majority of these securities are entitled to make up to three demands that the Company register such securities.
The holders of the majority of the Founder Shares can elect to exercise these registration rights at any time commencing three months
prior to the date on which the Founder Shares are to be released from escrow. In addition, the holders have certain “piggy-back”
registration rights with respect to registration statements filed subsequent to our consummation of our Initial Business Combination.
The holders of the Founder Shares have agreed not to transfer, assign or sell any of the such shares (except to certain permitted transferees)
until, with respect to
Unit Purchase Option
We sold to the underwriters,
for $
On August 12, 2021, the Company
accounted for the unit purchase option, inclusive of the receipt of $
18
Excise Tax
The Inflation Reduction Act
(“IR Act”) of 2022 imposes a
As a result, subject to certain
rules, the Excise Tax will apply to any redemption by a U.S.-domiciled special purpose acquisition company (“SPAC”) taking
place after December 31, 2022, including redemptions (i) by shareholders in connection with the SPAC’s Initial Business Combination
or a proxy vote to extend the lifespan of the SPAC, (ii) by SPACs if the SPAC does not complete a de-SPAC transaction within the required
time set forth in its constituent documents, or (iii) in connection with the wind-up and liquidation of the SPAC. The financial responsibility
for such Excise Tax resides with the Company and the Sponsor. This amount of
At this time, it has been
determined that the IR Act tax provisions have an impact to the Company’s fiscal year 2023 income tax provision as there were redemptions
by the public stockholders in August 2023; as a result, the Company recorded $
NOTE 5 — STOCKHOLDERS’ DEFICIT
Common Stock
The Company has authorized
Public and Private Warrants
Each whole warrant entitles
the registered holder to purchase one common stock at a price of $
No public warrants will be exercisable for cash unless we have an effective and current registration statement covering the shares of common stock issuable upon exercise of the warrants and a current prospectus relating to such shares. It is our current intention to have an effective and current registration statement covering the shares of common stock issuable upon exercise of the warrants and a current prospectus relating to such shares in effect promptly following consummation of an Initial Business Combination. Notwithstanding the foregoing, if a registration statement covering the shares of common stock issuable upon exercise of the public warrants is not effective within 90 days following the consummation of our Initial Business Combination, public warrant holders may, until such time as there is an effective registration statement and during any period when we shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis.
We may redeem the outstanding warrants, in whole and not in part, at a price of $0.01 per warrant:
| ● | at any time while the warrants are exercisable; |
| ● | upon a minimum of 30 days’ prior written notice of redemption; |
| ● | if, and only if, the last sales price of our shares of common stock equals or exceeds $16.50 per share for any 20 trading days within a 30-trading day period ending three business days before we send the notice of redemption; and |
| ● | if, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying such warrants at the time of redemption and for the entire 30-day trading period referred to above and continuing each day thereafter until the date of redemption. |
19
If the foregoing conditions
are satisfied and we issue a notice of redemption, each warrant holder can exercise his, her or its warrant prior to the scheduled redemption
date. However, the price of the shares of common stock may fall below the $
The redemption criteria for our warrants have been established at a price which is intended to provide warrant holders a reasonable premium to the initial exercise price and provide a sufficient differential between the then-prevailing share price and the warrant exercise price so that if the share price declines as a result of our redemption call, the redemption will not cause the share price to drop below the exercise price of the warrants.
If we call the warrants for redemption as described above, our management will have the option to require all holders that wish to exercise warrants to do so on a “cashless basis.” In such event, each holder would pay the exercise price by surrendering the whole warrants for that number of shares of common stock equal to the quotient obtained by dividing (x) the product of the number of shares of common stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” shall mean the average reported last sale price of the shares of common stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants. Whether we will exercise our option to require all holders to exercise their warrants on a “cashless basis” will depend on a variety of factors including the price of our shares of common stock at the time the warrants are called for redemption, our cash needs at such time and concerns regarding dilutive share issuances.
Common Stock Subject to Redemption
The Company’s common
stock feature certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence
of future events. The Company is authorized to issue
| Common stock subject to possible redemption as of December 31, 2021 | $ | |||
| Plus: | ||||
Accretion of common stock to redemption value | ||||
| Less: | ||||
| Common stock redeemed on December 19, 2022 | ( | ) | ||
| Common stock subject to possible redemption as of December 31, 2022 | ||||
| Less: | ||||
| Common stock redeemed on August 7, 2023 | ( | ) | ||
| Plus: | ||||
Accretion of common stock to redemption value (net of tax withdrawal of
$ | ||||
| Common stock subject to possible redemption as of September 30, 2023 | $ |
NOTE 6 — WARRANTS
On August 12, 2021, the Company
consummated its IPO of
Simultaneously with the consummation
of the closing of the IPO, the Company completed the private sale of
20
Upon consummation of our
IPO, we sold to the underwriters, for $
On August 19, 2021, the underwriters
notified the Company of their intent to exercise of the over-allotment option in part and, on August 23, 2021, the underwriters purchased
On April 13, 2022, the Company and Continental Stock Transfer & Trust Company (the “Warrant Agent”), entered into a supplement (the “Supplement to Warrant Agreement”) to the Warrant Agreement, dated as of August 9, 2021 by and between the Company and the Warrant Agent in connection with the Company’s IPO. The Supplement to Warrant Agreement is being made pursuant to Section 9.8 of the Warrant Agreement which states the Warrant Agreement may be amended by the parties thereto by executing a supplemental warrant agreement without the consent of any of the warrant holders. The Supplement to Warrant Agreement is being executed solely to correct an ambiguity provision contained in Section 2.5 of the Warrant Agreement to clarify that the lock-up period for the Private Warrants extends to 30 days after the completion of the Company’s Initial Business Combination.
Each Private Unit, Additional Unit and Additional Private Unit are identical to the Unit from our IPO except as described below.
The Sponsor has agreed to
waive its redemption rights with respect to any shares underlying the Private Units (i) in connection with the consummation of a business
combination, (ii) in connection with a stockholder vote to amend our amended and restated certificate of incorporation to modify the
substance or timing of our obligation to allow redemption in connection with our Initial Business Combination or certain amendments to
our charter prior thereto, to redeem
The Private Units and their component securities will not be transferable, assignable or saleable until 30 days after the consummation of our Initial Business Combination except to permitted transferees.
The Company evaluated the Public and Private Warrants as either equity-classified or liability-classified instruments based on an assessment of the warrants’ specific terms and ASC 480 and ASC 815. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, 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, among other conditions for equity classification. Pursuant to such evaluation, the Company further evaluated the Public and Private Warrants under ASC 815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity and concluded that the Private Warrants do not meet the criteria to be classified in stockholders’ equity (deficit).
21
Certain adjustments to the settlement amount of the Private warrants are based on a variable that is not an input to the fair value of an option as defined under ASC 815 — 40, and thus the warrants are not considered indexed to the Company’s own stock and not eligible for an exception from derivative accounting. The accounting treatment of derivative financial instruments requires that the Company record a derivative liability upon issuance of the warrants at the closing of the IPO. Accordingly, the Company classified each Private Warrant as a liability at its fair value, with subsequent changes in their respective fair values recognized in the statements of operations and comprehensive income (loss) at each reporting date.
The Company accounted for
the Public Warrants as equity based on its initial evaluation that the Public Warrants are indexed to the Company’s own stock.
The fair value of the Public Warrants was approximately $
NOTE 7 — FAIR VALUE MEASUREMENTS
The Company carries cash equivalents, marketable investments, Private Warrants, at fair value. Fair value is based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement.
The Company determined the fair value of its Level 1 financial instruments, which are traded in active markets, using quoted market prices for identical instruments. The Company’s marketable securities held in Trust Account is classified within Level 1 of the fair value hierarchy.
The Company’s Private Warrants are valued as Level 2 instruments.
The estimated fair value of the Private Warrants is determined using Level 2 inputs for the period ended September 30, 2023. Inherent in a Black-Scholes pricing model are assumptions related to dividend yield, term, volatility and risk-free rate, which results in the call option value. The Company estimates the volatility of its common shares based on management’s understanding of the volatility associated with instruments of other similar entities. The risk-free interest rate is based on the U.S. Treasury rate matching the expected term of the warrants. The expected life of the warrants is simulated based on management assumptions regarding the timing and likelihood of completing our Initial Business Combination. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero.
The fair value and call option
value of the Private Warrants as of September 30, 2023 was $
22
| Warrant liabilities | ||||
| Level 2 financial instruments as of December 31, 2022 | $ | |||
| Change in fair value | ||||
| Level 2 financial instruments as of March 31, 2023 | ||||
| Change in fair value | ( | ) | ||
| Level 2 financial instruments as of June 30, 2023 | $ | |||
| Change in fair value | ||||
| Level 2 financial instruments as of September 30, 2023 | $ | |||
Transfers to/from Levels 1, 2, and 3 are recognized at the beginning of the reporting period. There were no transfers during the three and nine months ended September 30, 2023. The Company transferred the Private Warrants from Level 3 to Level 2 during the three months ended June 30, 2022, as the inputs significant to the valuation became observable as they are benchmarked to those used for the Public Warrants.
The following table presents the transfers and the change in fair value from December 31, 2021 to September 30, 2022:
| Warrant liabilities | ||||
| Level 3 financial instruments as of December 31, 2021 | $ | |||
| Change in fair value | ( | ) | ||
| Level 3 financial instruments as of March 31, 2022 | ||||
| Change in fair value | ( | ) | ||
| Transfer to Level 2 | ( | ) | ||
| Level 3 financial instruments as of June 30, 2022 | $ | |||
| Change in fair value | ||||
| Level 3 financial instruments as of September 30, 2022 | ||||
| Fair value measurements at reporting date using: | ||||||||||||||||
| Description | Fair Value | Quoted prices in active markets for identical liabilities (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||
| Assets: | ||||||||||||||||
| Marketable securities held in Trust Account | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant liabilities | $ | $ | $ | |||||||||||||
23
| Fair value measurements at reporting date using: | ||||||||||||||||
| Description | Fair Value | Quoted prices in active markets for identical liabilities (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||
| Assets: | ||||||||||||||||
| Marketable securities held in Trust Account | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant liabilities | $ | $ | $ | |||||||||||||
NOTE 8 — INCOME TAXES
The Company’s effective
tax rate for the three months ended September 30, 2023 and 2022 was
The Company has evaluated its income tax positions and has determined that it does not have any uncertain tax positions.
The Company files income tax returns in the U.S. and Delaware jurisdictions and is subject to examination by the various taxing authorities since inception.
NOTE 9 — SUBSEQUENT EVENTS
Management evaluated subsequent events and transactions that occurred after the balance sheet date, up to the date that the financial statements were issued. Based upon this review, other than as set forth below, management did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
On October 25, 2023, the
Nasdaq Listing Qualifications staff (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”), notified the Company
that trading in the Company’s common stock, units and warrants had been halted, as the Company no longer satisfies the continued
listing standard of maintaining
On
November 2, 2023,
On November 2, 2023, the Company completed its business combination with DLQ. As of the open of trading on November 3, 2023, the common stock, formerly of Abri, began trading on The Nasdaq Stock Market LLC - Global Market as “CAUD”.
24
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this report (this “Quarterly Report”) to “we,” “us” or the “Company” refer to Abri SPAC I, Inc. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Abri Ventures I, LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed 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.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” 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 Quarterly Report 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 (as defined below) filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s filings with the SEC 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 incorporated on March 18, 2021 as a Delaware corporation and formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar Business Combination with one or more businesses or IPO and the sale of the Private Placement Units, our capital stock, debt or a combination of cash, stock and debt.
Business Combination
As previously announced, on September 9, 2022, we entered into a Merger Agreement with Abri Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Abri (“Merger Sub”), Logiq, Inc., a Delaware corporation (“Logiq or “DLQ Parent”) whose common stock is quoted on OTCQX Market under the ticker symbol “LGIQ” and, DLQ, Inc., a Nevada corporation and wholly owned subsidiary of DLQ Parent (“DLQ”). On November 2, 2023, the Business Combination, including the Merger, was completed. In connection with the Closing, the registrant changed its name from Abri SPAC I, Inc. to Collective Audience, Inc.
Recent Developments
As of September 30, 2023, we had not commenced operations. All activity for the period from March 18, 2021 (inception) through September 30, 2023 related to organizational activities, activities necessary to consummate the initial public offering (“IPO”), and to identify a target company for a business combination. We will not generate any operating revenues until after the completion of our Initial Business Combination, at the earliest. We generate non-operating income in the form of interest income on marketable securities held in the Trust Account.
We continue to evaluate the impact of the Russia-Ukraine war on the industry and have concluded that, while it is reasonably possible that such could have negative effects on our financial position, results of operations, and/or search for a target company, the specific impacts are not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
25
On August 12, 2021, simultaneously with the consummation of the IPO, we sold to our Sponsor in a Private Placement 276,250 Private Units at a purchase price of $10.00 per Private Unit, generating gross proceeds to the Company of $2,762,500. The Private Units are identical to the Public Units.
On August 19, 2021, the underwriters notified us of their intent to exercise of the over-allotment option in part and, on August 23, 2021, the underwriters purchased 733,920 additional Units (the “Additional Units”) at $10.00 per Additional Unit upon the closing of the over-allotment option, generating additional gross proceeds of $7,339,200. On August 23, 2021, simultaneously with the sale of the Additional Units, we consummated the sale of an additional 18,348 Private Units at $10.00 per additional Private Unit (the “Additional Private Units”), generating additional gross proceeds of $183,480. A total of $7,339,200 of the net proceeds from the sale of the Additional Units and the Additional Private Units was deposited in the Trust Account, bringing the aggregate proceeds held in the Trust Account on that date to $57,339,200.
On December 9, 2022, we held a special meeting of stockholders at which such stockholders voted to amend our amended and restated certificate of incorporation and investment trust agreement, giving us the right to extend the date by which we must complete our Initial Business Combination up to six times for an additional one month each time, from February 12, 2023 to August 12, 2023, by depositing $87,500 into the Trust Account for each one-month extension. In connection with the special meeting, 4,481,548 shares of common stock were tendered for redemption, resulting in redemption payments of $45,952,279 out of the Trust Account. On August 7, 2023, we held a second special meeting of stockholders at which such stockholders voted to amend our amended and restated certificate of incorporation and investment trust agreement, giving us the right to extend the date by which we must complete our Initial Business Combination from August 12, 2023 to February 12, 2024 with no additional payment to the Trust Account. In connection with the special meeting, 570,224 shares were tendered for redemption. As a result, $6,055,325 ($10.62 per share), after deducting allowable taxes, was removed from our Trust Account to pay such holders. We have 682,148 shares of common stock subject to possible redemption outstanding as of September 30, 2023. As of the date of these financial statements were filed, we have made the necessary deposits to extend our Initial Business Combination date to February 12, 2024.
If we have not consummated an initial business combination by February 12, 2024, we will be required to dissolve and liquidate.
Results of Operations
Our only activities from March 18, 2021 (inception) through September 30, 2023 were organizational activities, those necessary to consummate the IPO and identify a target company for a Business Combination. We do not expect to generate any operating revenues until after the completion of our Initial Business Combination. We generate non-operating income in the form of interest income on marketable securities held in the Trust Account. 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.
For the three months ended September 30, 2023, we had a net loss of $416,031, which consisted of operating costs of $499,469, income tax expense of $22,000 and a change in fair value of warrant liabilities of $25,041, offset by interest income on marketable securities held in the Trust Account of $130,479.
For the three months ended September 30, 2022, we had a net loss of $398,274, which consisted of operating costs of $727,702, offset by interest income on cash held in the Trust Account of $297,022 and a change in fair value of warrant liability of $32,406.
For the nine months ended September 30, 2023, we had a net loss of $1,259,570, which consisted of operating costs of $1,605,374, income tax expense of $70,000 and a change in fair value of warrant liabilities of $17,676, offset by interest income on marketable securities held in the Trust Account of $433,480.
For the nine months ended September 30, 2022, we had a net loss of $2,107,613, which consisted of operating costs of $2,628,016, offset by interest income on cash held in the Trust Account of $378,995 and a change in fair value of warrant liability of $141,408.
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Liquidity and Capital Resources
As of September 30, 2023, we had cash of $699,307 and a working capital deficiency of $2,517,070. As of September 30, 2023, we had marketable securities held in the Trust Account of $7,285,885 consisting of securities held in a money market fund and government bonds that invests in United States government treasury bills, bonds or notes with a maturity of 180 days or less. Interest income on the balance in the Trust Account may be used by us to pay taxes. Through September 30, 2023, we have withdrawn a cumulative amount of $553,378 of interest earned on the Trust Account to pay our taxes, of which $516,365 has been withdrawn for future tax obligations and is restricted for estimated income tax and franchise tax payments due to the redemption of common stock as of September 30, 2023 in the accompanying condensed balance sheet. We intend to use substantially all of the funds held in the Trust Account to acquire a target business and to pay our expenses relating thereto. To the extent that our capital stock is used in whole or in part as consideration to effect a Business Combination, the remaining funds held in the Trust Account will be used as working capital to finance the operations of the target business. Such working capital funds could be used in a variety of ways including continuing or expanding the target business’ operations, for strategic acquisitions and for marketing, research and development of existing or new products. Such funds could also be used to repay any operating expenses or finders’ fees which we had incurred prior to the completion of our Business Combination if the funds available to us outside of the Trust Account were insufficient to cover such expenses.
Cash used in operating activities for the nine months ended September 30, 2023 was $388,424. Our operational liquidity needs were primarily satisfied through $681,250 of proceeds from convertible promissory notes from a related party. During the nine months ended September 30, 2023, proceeds of $525,000 from non-convertible promissory notes were deposited into the Trust Account, in addition to $433,480 of interest income. We expect that we will need additional capital to satisfy our liquidity needs if we do not consummate our Initial Business Combination prior to February 12, 2024. Although certain of our initial stockholders, officers and directors or their affiliates have committed to loan us funds from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, there is no guarantee that we will receive such funds.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of September 30, 2023 and December 31, 2022. 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
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities other than an agreement to pay our Sponsor a monthly fee of $10,000 for office space, utilities and secretarial and administrative support. We incurred $30,000 and $90,000 of administrative support fees for the three and nine months ended September 30, 2023, respectively. As of September 30, 2023 and December 31, 2022, we owed the Sponsor $100,000 and $10,000, respectively, under this agreement, which is included in accounts payable and accrued expenses in the accompanying condensed balance sheets. We began incurring these fees on August 9, 2021 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation.
In connection with our initial business combination, we are obligated to pay our expenses relating thereto, including the deferred underwriting commissions payable to our underwriter in an amount equal to 3.0% of the total gross proceeds raised in the offering, or $1,500,000, upon consummation of our initial business combination.
Upon consummation of our IPO, we sold to our underwriters, for $100, an option to purchase up to a total of 300,000 units (or up to 345,000 if the over-allotment is exercised in full) exercisable, in whole or in part, at $11.50 per unit, commencing on the consummation of our initial business combination. The purchase option may be exercised for cash or on a cashless basis, at the holder’s option, and expires five years from the commencement of sales in our IPO. The option and the 300,000 units, as well as the 300,000 shares of common stock, and the warrants to purchase 300,000 shares of common stock that may be issued upon exercise of the option have been deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following the effective date of our registration statement, or August 9, 2021.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have not identified any critical accounting estimates.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our financial statements.
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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to make disclosures under this Item.
ITEM 4. Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
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 September 30, 2023, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of September 30, 2023, our disclosure controls and procedures were not effective due to the material weakness identified as of December 31, 2022 and disclosed in our 2022 Form 10-K which continues to exist as of September 30, 2023.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework, management concluded that our internal control over financial reporting was not effective as of September 30, 2023 due to a material weakness in our financial close process, specifically the classification of reinvestment of interest earned on marketable securities held in our Trust Account in the statement of cash flows for the year ended December 31, 2022.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Remediation Plan
To address this material weakness, management plans to provide processes and controls over the internal communications within the Company and its financial advisors. We plan to include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding accounting. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
Changes in Internal Control Over Financial Reporting
Other than the remediation plan discussed above, 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) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 1A. Risk Factors
As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K filed with the SEC on March 30, 2023. Any of those risk factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
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:
| * | Filed herewith. |
| ** | Furnished herewith. This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. Section 1350 and is not being filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filings of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| COLLECTIVE AUDIENCE, INC. | ||
| Date: November 14, 2023 | By: | /s/ Brent Suen |
| Brent Suen | ||
| Chief Executive Officer (Principal Executive Officer) | ||
| Date: November 14, 2023 | By: | /s/ Robb Billy |
| Robb Billy | ||
| Chief Financial Officer (Principal Financial and Accounting Officer) |
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