QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) |
(Zip Code) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
one-half of one redeemable warrant |
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Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer |
☒ | Smaller reporting company | ||||
Emerging growth company |
INTEGRATED RAIL AND RESOURCE ACQUISITION CORP.
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
Page | ||||||
Item 1. | 1 | |||||
Condensed Balance Sheets as of September 30, 2023 (Unaudited) and December 31, 2022 |
1 | |||||
2 | ||||||
3 | ||||||
Unaudited Condensed Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 |
4 | |||||
5 | ||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
40 | ||||
Item 3. | 45 | |||||
Item 4. | 45 | |||||
46 | ||||||
Item 1. | 46 | |||||
Item 1A. | 46 | |||||
Item 2. | 48 | |||||
Item 3. | 48 | |||||
Item 4. | 48 | |||||
Item 5. | 48 | |||||
Item 6. | 48 | |||||
50 |
i
September 30, 2023 |
December 31, 2022 |
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(Unaudited) |
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Assets |
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Current Assets: |
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Cash |
$ | $ | ||||||
Prepaid Expenses and Other Assets |
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Total Current Assets |
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Investments Held in Trust Account |
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Total Assets |
$ |
$ |
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Liabilities, Class A Common Stock Subject to Possible Redemption and Stockholders’ Deficit |
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Current Liabilities |
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Accounts Payable |
$ | |
$ | |||||
Accrued Expenses |
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Accrued Franchise Tax |
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Accrued Excise Tax |
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Income taxes payable |
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Note Payable—Sponsor |
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Note Payable—Related Party |
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Working Capital Loan—Related Party |
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Total Current Liabilities |
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Deferred Income Taxes |
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Warrant Liabilities |
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Deferred Underwriting Fee Payable |
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Total Liabilities |
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Commitments and Contingencies |
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Class A Common Stock Subject to Possible Redemption. |
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Stockholders’ Deficit: |
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Class A Common Stock, $ |
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Class B Common Stock, $ |
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Preference Shares, $ |
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Accumulated Deficit |
( |
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Total Stockholders’ Deficit |
( |
) |
( |
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Total Liabilities, Class A Common Stock Subject to Possible Redemption and Stockholders’ Deficit |
$ |
$ |
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For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
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2023 |
2022 |
2023 |
2022 |
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EXPENSES |
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Operating and Formation Expenses |
$ | $ | $ | $ | ||||||||||||
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Loss from Operations |
( |
) |
( |
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( |
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( |
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Other Income (Expense) |
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Interest and income earned on Cash and Trust Investments |
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Unrealized gain on investments held in Trust |
( |
) | ||||||||||||||
Change in fair value of warrant liabilities |
( |
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Total Other Income (Expense) |
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Income before provision for income taxes |
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Provision for income taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
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Net income (loss) |
$ |
$ |
$ |
$ |
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Weighted Average Ordinary Shares Outstanding subject to possible redemption |
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Basic and diluted net income (loss) per share, Ordinary Shares Outstanding subject to possible redemption |
$ |
$ |
$ |
( |
) |
$ |
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Weighted Average Ordinary Shares Outstanding not subject to possible redemption |
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Basic and diluted net income (loss) per share, Ordinary Shares Outstanding not subject to possible redemption |
$ |
$ |
$ |
( |
) |
$ |
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For the Three and Nine Months Ended September 30, 2023 |
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Common Stock |
Additional |
Total |
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Class A |
Class B |
Paid-In |
Accumulated |
Stockholders’ |
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Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Deficit |
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Balance—January 1, 2023 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||
Net Loss |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Remeasurement of Common Stock Subject to Redemption |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Accrued Excise Tax on Common Stock Redemptions |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
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Balance—March 31, 2023 |
( |
) |
( |
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Net Loss |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Remeasurement of Common Stock Subject to Redemption |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
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Balance—June 30, 2023 |
( |
) |
( |
) | ||||||||||||||||||||||||
Remeasurement of Common Stock Subject to Redemption |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Net Income |
— | — | — | — | — | |||||||||||||||||||||||
Accrued Excise Tax on Common Stock Subject to Redemption |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
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Balance—September 30, 2023 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||
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For the Three Months and Nine Months Ended September 30, 2022 |
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Common Stock |
Additional |
Total |
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Class A |
Class B |
Paid-In |
Accumulated |
Shareholders’ |
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Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Deficit |
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Balance—January 1, 2022 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||
Net Income |
— | — | — | — | — | |||||||||||||||||||||||
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Balance—March 31, 2022 |
( |
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( |
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Remeasurement of Common Stock Subject to Redemption |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Net Income |
— | — | — | — | — | |||||||||||||||||||||||
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Balance—June 30, 2022 |
( |
) |
( |
) | ||||||||||||||||||||||||
Remeasurement of Common Stock Subject to Redemption |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Net Income |
— | — | — | — | — | |||||||||||||||||||||||
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Balance—September 30, 2022 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||
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For the Nine Months Ended September 30, |
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2023 |
2022 |
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Cash Flows from Operating Activities: |
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Net (loss) income |
$ | $ | ||||||
Adjustments to reconcile net (loss) income to cash used in operating activities: |
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Reinvested dividends on Funds held in Trust Account |
( |
) | ( |
) | ||||
Unrealized Gain on Investments Held in Trust |
( |
) | — | |||||
Realized Gain on Investments Held in Trust |
( |
) | — | |||||
Deferred Income Tax B enefit |
( |
) | — | |||||
Change in fair value of warrant liabilities |
( |
) | ||||||
Changes in Operating Assets and Liabilities: |
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Prepaid Expenses |
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Accounts Payable |
( |
) | ( |
) | ||||
Accrued Offering Costs |
— | ( |
) | |||||
Accrued Franchise Tax |
( |
) | ( |
) | ||||
Income Tax Payable |
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Accrued Expenses |
( |
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Due to Related Party |
— | ( |
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Net Cash Used in Operating Activities |
( |
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( |
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Cash Flows from Investing Activities: |
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Cash withdrawn from Trust Account to pay franchise and income taxes |
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Cash Deposited into Trust Account |
( |
) | — | |||||
Cash withdrawn from Trust Account in connection with redemption |
— | |||||||
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Net Cash Provided by Investing Activities |
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Cash Flows from Financing Activities: |
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Proceeds from Note Payable—Sponsor |
— | |||||||
Proceeds from Promissory Note—Related Party |
— | |||||||
Proceeds from Working Capital Loan—Related Party |
— | |||||||
Payment to redeeming stockholders |
( |
) | — | |||||
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Net Cash Used in Financing Activities |
( |
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— |
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Net Change in Cash |
( |
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( |
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Cash – Beginning of Period |
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Cash – End of Period |
$ |
$ |
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Supplemental Disclosure of Noncash Investing and Financing Activities: |
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Remeasurement of Common Stock Subject to Redemption |
$ | $ | ||||||
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Excise tax liability arising from redemption of Class A shares |
$ | $ | — | |||||
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For the Three Months Ended September 30, |
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2023 |
2022 |
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Shares Subject to |
Shares Not Subject to |
Shares Subject to |
Shares Not Subject to |
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Possible Redemption |
Possible Redemption |
Possible Redemption |
Possible Redemption |
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Basic and diluted net income per common stock |
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Numerator: |
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Allocation of net income |
$ | $ | $ | $ | ||||||||||||
Denominator: |
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Basic and diluted weighted average common shares outstanding |
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Basic and diluted net income per common stock |
$ | $ | $ | $ |
For the Nine Months Ended September 30, |
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2023 |
2022 |
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Shares Subject to |
Shares Not Subject to |
Shares Subject to |
Shares Not Subject to |
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Possible Redemption |
Possible Redemption |
Possible Redemption |
Possible Redemption |
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Basic and diluted net (loss) income per common stock |
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Numerator: |
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Allocation of net (loss) income |
$ | $ | $ | $ | ||||||||||||
Denominator: |
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Basic and diluted weighted average common shares outstanding |
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Basic and diluted net (loss) income per common stock |
$ | ( |
) | $ | ( |
) | $ | $ |
Gross Proceeds |
$ | |||
Less: |
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Proceeds allocated to Public Warrants |
( |
) | ||
Common Stock issuance costs |
( |
) | ||
Plus: |
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Accretion of carrying value to redemption value |
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Class A Common stock subject to possible redemption, December 31, 2021 |
$ |
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Remeasurement of Class A common stock subject to possible redemption |
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Class A Common stock subject to possible redemption, December 31, 2022 |
$ |
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Less: |
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Redemption of Class A common stock |
( |
) | ||
Plus: |
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Remeasurement of Class A common stock subject to possible redemption |
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Class A Common stock subject to possible redemption, March 31, 2023 |
$ |
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Plus: |
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Remeasurement of Class A common stock subject to possible redemption |
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Class A Common stock subject to possible redemption, June 30, 2023 |
$ |
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Less: |
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Redemption of Class A common stock |
( |
) | ||
Plus: |
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Remeasurement of Class A common stock subject to possible redemption |
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Class A Common stock subject to possible redemption, September 30, 2023 |
$ |
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• | in whole and not in part; |
• | at a price of $ |
• | upon a minimum of |
• | the last sales price of the common stock reported has been at least $ trading-day period ending on the third trading day prior to the date on which notice of the redemption for the Public Warrants is given. |
Description |
Amount at Fair Value |
Level 1 |
Level 2 |
Level 3 |
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September 30, 2023 |
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Assets |
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Investments held in Trust—US Treasury Bill |
$ | $ | $ | $ | ||||||||||||
Liabilities |
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Warrant Liability—Public Warrants |
$ | $ | $ | $ | ||||||||||||
Warrant Liability—Private Placement Warrants |
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Warrant Liabilities |
$ | $ | $ | $ | ||||||||||||
Description |
Amount at Fair Value |
Level 1 |
Level 2 |
Level 3 |
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December 31, 2022 |
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Assets |
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Investments held in Trust—US Treasury Fund |
$ | $ | $ | $ | ||||||||||||
Liabilities |
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Warrant Liability—Public Warrants |
$ | $ | $ | $ | ||||||||||||
Warrant Liability—Private Placement Warrants |
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Warrant Liabilities |
$ | $ | $ | $ |
At September 30, 2023 |
At December 31, 2022 |
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Share Price |
$ | $ | ||||||
Exercise Price |
$ | $ | ||||||
Years to Expiration |
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Volatility |
% | % | ||||||
Risk-Free Rate |
% | % | ||||||
Dividend Yield |
% | % | ||||||
Fair Value of warrants |
$ | $ |
Warrant Liabilities |
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Fair Value at January 1, 2023 |
$ | |||
Fair Value at March 31, 2023 |
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Fair Value at June 30, 2023 |
$ | |||
( |
) | |||
Fair Value at September 30, 2023 |
$ |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
References in this report (the “Quarterly Report”) to “we” “us” or the “Company” refer to Integrated Rail and Resources Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to DHIP Natural Resources Investments, 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.
Overview
We are a blank check company incorporated as a Delaware Corporation on March 12, 2021 (inception) formed for the purpose of effecting a merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization or other similar business combination with one or more businesses (the “Business Combination”). We intend to effectuate our Business Combination using cash derived from the proceeds of our initial public offering in March 12, 2021 (the “Initial Public Offering” or “IPO”) and the sale of the 9,400,000 warrants (the “Private Placement Warrants”) at a price of $1.00 per Private Placement Warrant in a private placement to the Sponsor, our shares, debt or a combination of cash, shares and debt.
We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues to date. Our only activities from inception through September 30, 2023 were organizational activities and those necessary to prepare for the Initial Public Offering and an initial Business Combination, described below. We do not expect to generate any operating revenues until after the completion of our initial Business Combination. We expect to generate non-operating income in the form of interest income on marketable securities held after the initial Public Offering. We expect that we will incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence and other expenses in connection with searching for, and completing, a Business Combination.
For the three months ended September 30, 2023, we had a net income of $3,503,854, which consisted of operating costs of $273,767 and a provision for income taxes of $213,088, offset by interest and income earned on cash and the trust account established during our Initial Public Offering (“Trust Account”) of $1,298,862, unrealized gain on investments held in the Trust Account of $234,153, and a non-cash change in fair value of warrant liabilities of $2,926,000.
For the three months ended September 30, 2022, we had a net income of $4,548,362, which consisted of operating costs of $366,194 a provision for income taxes of $136,293, offset by and interest and income earned on cash and investment in the Trust Account of $682,849 a non-cash changes in fair value of warrant liabilities of $4,368,000.
For the nine months ended September 30, 2023, we had a net income of $25,868, which consisted of operating costs of $1,044,323, a non-cash change in fair value of warrant liabilities of $2,299,000, and a provision for income taxes of $855,721, offset by the interest and income earned on cash and investment in the Trust Account of $4,110,737 and unrealized gain on investments held in Trust of $114,175.
For the nine months ended September 30, 2022, we had a net income of $9,830,640, which consisted of operating costs of $1,003,127 and a provision for income taxes of $178,445, offset by a non-cash change in fair value of warrant liabilities of $9,853,400, off set by interest and income earned on cash and investments in the Trust Account of $1,158,8129.
Liquidity and Capital Resources
On November 16, 2021, we completed the Initial Public Offering of 23,000,000 units of our class A common stock, par value $0.0001 per share, (the “Public Shares”) and one-half of one redeemable warrant (the “Units”), which includes the full exercise by the underwriters of their over-allotment option in the amount of 3,000,000 Units, at a price of $10.00 per Unit, generating gross proceeds of $230,000,000. Simultaneously with the closing of the Initial Public Offering, we completed the sale of 9,400,000 Private Placement Warrants to the Sponsor at a price of $1.00 per Private Placement Warrant generating gross proceeds of $9,400,000.
40
Following the Initial Public Offering and the sale of the Private Placement Warrants, a total of $232,300,000 was placed in the Trust Account, and we had $1,712,612 of cash held outside of the Trust Account after payment of costs related to the Initial Public Offering, and available for working capital purposes. We incurred $24,917,410 in transaction costs, including $4,600,000 of underwriting fees, $8,050,000 of deferred underwriting fees, $11,675,823 for the excess fair value of Founder Shares attributable to the anchor investors, and $591,587 of other offering costs.
In connection with the vote on an amendment to the Company’s Amended and Restated Certificate of Incorporation to extend the date by which the company must effect the Business Combination (an “Extension Amendment”) at the Special Meeting of Stockholders of our Company on February 8, 2023, stockholders holding a total of 9,155,918 shares of the Company’s Class A common stock exercised their right to redeem such shares for a pro rata portion of the funds in the Trust Account. As a result, $94,489,075 (approximately $10.32 per share) was withdrawn from the Trust Account to pay such holders.
For the nine months ended September 30, 2023, cash used in operating activities was $1,298,289. Net income of $25,868 was affected by a non-cash charge for the change in fair value of warrant liabilities of $2,299,000, deferred income taxes of $236,249, unrealized gain on marketable securities held in Trust Account of $114,175 and interest and realized gains on marketable securities held in the Trust Account of $4,110,737. Changes in operating assets and liabilities provided $838,004 of cash for operating activities.
For the nine months ended September 30, 2023, cash provided by investing activities was $170,342,981 and affected by cash deposited in Trust Account of $4,433,225, transfer of funds from Trust Account to redeeming shareholders for $174,141,949 and transfer of funds from Trust Account for payment of franchise and income taxes of $634,257.
For the nine months ended September 30, 2023, cash used in financing activities was $169,090,789 and affected by proceeds from a note payable from Sponsor, and a related party of the Company and other loans outstanding for $4,433,225 and $617,935, respectively and a payment to redeeming shareholders for $174,141,949.
For the nine months ended September 30, 2022, cash used in operating activities was $971,432. Net income of $9,830,640 was affected by a non-cash charge for the change in fair value of warrant liabilities of $9,853,400, interest and income earned on investments in the Trust Account of $1,158,349, and net cash provided by changes in other operating assets and liabilities of $209,677.
At December 31, 2022, the Company held $237,537,270 of investments in the Trust Account at fair value in a fund invested in United States Treasury instruments. As of September 30, 2023, the Company withdrew funds for payment to redeeming shareholders totaling $174,141,949. At September 30, 2023, the fair value of the investments held in the Trust Account was $71,419,197 as recognized on the unaudited condensed balance sheet. As of September 30, 2023, the Company recognized $642,716 of unrealized gains on the investments held in the Trust Account on the unaudited condensed statement of operations.
We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account, which interest shall be net of taxes payable and excluding deferred underwriting commissions, to complete a Business Combination. We may withdraw interest from the Trust Account to pay taxes, if any. To the extent that our share capital or debt is used, in whole or in part, as consideration to complete a Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies. During the nine months ended September 30, 2023, the Company used $634,257 of interest earned in the Trust Account to pay income taxes.
At September 30, 2023, we had cash of $8,076 held outside of the Trust Account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, structure, negotiate and complete a Business Combination.
The Company will need to raise additional funds to meet the expenditures required for operating its business as it currently has insufficient funds available to operate the business prior to the initial Business Combination. If the Company is unable to complete an initial Business Combination due to insufficient available funds, it will be forced to cease operations and liquidate the Trust Account.
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At September 30, 2023, the Company had approximately $8,076 in cash and $8,283,203 in working capital deficiency.
The Company has incurred and expects to continue to incur significant costs in pursuit of its acquisition plans and while the Company believes it has sufficient access to additional sources of capital, there are no assurances that such additional capital will ultimately be available. In addition, the Company currently has less than 12 months from the date these unaudited condensed financial statements were issued to complete a Business Combination and if the Company is unsuccessful in consummating an initial Business Combination, it is required to liquidate and dissolve. In connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 205-40, “Presentation of Financial Statements – Going Concern”, management has determined that these factors raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the issuance of these financial statements. The unaudited condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty. As is customary for a special purpose acquisition company, if the Company is not able to consummate a Business Combination during the combination period, it will cease all operations and redeem the Public Shares. Management plans to continue its efforts to consummate a Business Combination during the combination period.
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. 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
During the nine months ended September 30, 2023, we entered into a promissory note with a related party for up to $600,000 to fund working capital. Additionally, during the nine months ended September 30, 2023, the Sponsor loaned us $4,433,225 to fund costs related to the extension of the date by which the Company must consummate an initial Business Combination pursuant to the Company’s Amended and Restated Certificate of Incorporation (as amended on February 9, 2023 and August 8, 2023). We also have an agreement to pay an affiliate of the Sponsor a monthly fee of $10,000 for office space, secretarial, and administrative services provided to the Company. We will continue to incur these fees monthly until the earlier of the completion of a Business Combination and the Company’s liquidation.
The underwriters are entitled to a deferred fee of $0.35 per Unit, or approximately $8.1 million. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that we complete a Business Combination, subject to the terms of the underwriting agreement.
Critical Accounting Policies
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 policies.
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Class A Ordinary Shares Subject to Possible Redemption
We account for our Class A common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480, Distinguished Liabilities from Equity. Common stock subject to redemption 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 Class A common stock feature certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. As of September 30, 2023, 13,844,082 Class A common stock subject to possible redemption are presented at redemption value as temporary equity, outside of stockholders’ equity section of the Company’s balance sheet.
Net Income (Loss) per Ordinary Share
We comply with accounting and disclosure requirements of ASC Topic 260, “Earnings Per Share.” Net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common stock outstanding during the period, excluding Class A common stock subject to forfeiture.
Warrant Liabilities
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 ASC 480, Distinguished 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, 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. 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 additional paid-in capital 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 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 fair value of the Public Warrants (as defined in Note 7) and Private Placement Warrants was estimated using an independent third-party valuation.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC Topic 820, Fair Value Measurement (“ASC 820”), approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature. The Company applies ASC 820, which establishes a framework for measuring fair value and clarifies the definition of fair value within the framework. ASC 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.
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Recent Accounting Standards
The Company’s management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the accompanying financial statements.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
As of September 30, 2023, we were not subject to any market or interest rate risk. The net proceeds held in the Trust Account have been invested in U.S. government treasury bills, notes or bonds with a maturity of 185 days or less, or in certain money market funds that invest solely in U.S. treasuries. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.
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 the 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 Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2023. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were effective.
Changes in Internal Control Over Financial Reporting
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected, or is 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 |
Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 31, 2023. 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 Annual Report on Form 10-K filed with the SEC on March 31, 2023, except as set forth below. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
We have no operating history and are subject to a mandatory liquidation and subsequent dissolution requirement if we do not complete our initial Business Combination by December 15, 2023, or up to February 15, 2024, if all possible remaining monthly extensions are implemented. As such, there is a risk that we will be unable to continue as a going concern if we do not consummate an initial Business Combination within the prescribed time frame. If we are unable to effect an initial Business Combination by the applicable date, we will be forced to liquidate.
We are a blank check company and have no operating history. Because we are subject to a mandatory liquidation and subsequent dissolution requirement, there is a risk that we will be unable to continue as a going concern if we do not consummate an initial Business Combination within the prescribed time frame, subject to extensions, as further described in our Annual Report on Form 10-K filed with the SEC on March 31, 2023, our proxy statement on Schedule 14A, as amended, filed with the SEC on July 17, 2023 and July 24, 2023, and in Item 5 of this Quarterly Report. We have incurred and expect to continue to incur significant costs in pursuit of our financing and acquisition plans. Our plans to raise capital and to consummate our initial Business Combination may not be successful. These factors, among others, raise substantial doubt about our ability to continue as a going concern. The financial statements contained in our Annual Report on Form 10-K filed with the SEC on March 31, 2023 and in this Quarterly Report on Form 10-Q do not include any adjustments that might result from our inability to continue as a going concern.
In addition, prior to the completion of its IPO, the Company lacked the liquidity it needed to sustain operations for a reasonable period of time, which is considered to be one year from the issuance date of the financial statements. The Company has since completed its IPO at which time capital in excess of the funds deposited in the Trust Account and/or used to fund offering expenses was released to the Company for general working capital purposes. The Company used these funds primarily to identify and evaluate target businesses to complete an initial Business Combination.
Because the Company’s initial estimates of the costs of completing an initial Business Combination were less than the actual amount necessary to do so, it had insufficient funds available to operate the business prior to the initial Business Combination. Furthermore, because the term for entering into a Business Combination has been extended as further described in our Annual Report on Form 10-K, filed with the SEC on March 31, 2023, and in Item 5 of this Quarterly Report, the Company has needed to raise additional funds to meet the expenditures required for operating its business through such extension dates. If the Company is unable to complete an initial Business Combination due to insufficient available funds, it will be forced to cease operations and liquidate the Trust Account.
In order to fund working capital deficiencies or finance transaction costs in connection with an intended initial Business Combination, the Sponsor or any affiliates of the Sponsor, may continue to, but are not obligated to, loan funds to the Company on a non-interest basis as may be required. In the event that an 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 $1,500,000 of such loans may be convertible into warrants, identical to the Private Placement Warrants, at a price of $1.00 per warrant at the option of the lender. The Company does not expect to seek loans from parties other than the Sponsor or any affiliates of the Sponsor. Additionally, the Company could suspend payments on a certain administrative service agreement (as discussed in Note 5 to the financial statements of our Annual Report on Form 10-K filed with the SEC on March 31, 2023 and in this Quarterly Report) to conserve working capital.
At September 30, 2023, the Company had $8,076 in cash and $8,283,203 in working capital deficiency.
The Company currently has less than 12 months to complete a Business Combination, and if the Company is unsuccessful in consummating an initial Business Combination, it is required to liquidate and dissolve. In connection with the Company’s assessment of going concern considerations in accordance with 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 factors raise substantial doubt about the Company’s ability to continue as a going concern.
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In connection with the Company’s assessment of going concern considerations in accordance with FASB ASC 205-40, “Presentation of Financial Statements – Going Concern”, management has determined that these factors raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the issuance of these financial statements. The unaudited condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty. If the Company is not able to consummate a Business Combination during the combination period, it will cease all operations and redeem the public shares.
To mitigate the risk that we might be deemed to be an investment company for purposes of the Investment Company Act, we are currently assessing the relevant risk and it is possible that to mitigate the risk of the Company being deemed to have been operating as an unregistered investment company (including under the subjective test of Section 3(a)(1)(A) of the Investment Company Act), the Company may instruct the trustee with respect to the Trust Account to liquidate the U.S. government treasury obligations and money market funds held in the Trust Account 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 any such liquidation of investments in the Trust Account, we would likely receive minimal interest, if any, on the funds held in the Trust Account, which would reduce the dollar amount our public stockholders would receive upon any redemption or liquidation of the Company.
The funds in the Trust Account have, since our Initial Public Offering, been held only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds investing solely in U.S. government treasury obligations and meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended (the “Investment Company Act”). However, to mitigate the risk of us being deemed to be an unregistered investment company (including under the subjective test of Section 3(a)(1)(A) of the Investment Company Act) and thus subject to regulation under the Investment Company Act, we are currently assessing the relevant risks and it is possible that to mitigate the risk of the Company being deemed to have been operating as an unregistered investment company (including under the subjective test of Section 3(a)(1)(A) of the Investment Company Act), the Company may instruct the trustee with respect to the Trust Account to liquidate the U.S. government treasury obligations and money market funds held in the Trust Account 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 a liquidation, we would likely receive minimal interest, if any, on the funds held in the Trust Account. However, interest previously earned on the funds held in the Trust Account still may be released to us to pay our taxes, if any. As a result, any decision to liquidate the investments held in the Trust Account and thereafter to hold all funds in the Trust Account in cash items would reduce the dollar amount our public stockholders would receive upon any redemption or liquidation of the Company.
The Company did not liquidate the U.S. government treasury obligations and money market funds held in the Trust Account on or before November 10, 2023, the expiry of the 24-month anniversary of the effective date of the Company’s initial public offering prospectus. We may be deemed to be an investment company. 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, the greater the risk that we may be considered an unregistered investment company, in which case we may be required to liquidate the Company. Accordingly, we may determine, in our discretion, to liquidate the securities held in the Trust Account at any time and instead hold all funds in the Trust Account in as cash items which would further reduce the dollar amount our public stockholders would receive upon any redemption or liquidation of the Company. Were we to liquidate, our warrants would expire worthless, and our securityholders would lose the investment opportunity associated with an investment in the combined company, including any potential price appreciation of our securities.
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ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
The securities in the Initial Public Offering were registered under the Securities Act on a registration statement on Form S-1 (No. 333-256381). The registration statement for the Initial Public Offering was declared effective on November 10, 2021. On November 16, 2021, the Company consummated the Initial Public Offering of 23,000,000 Units, each consisting of one share of Class A common stock and one-half of one redeemable warrant, at $10.00 per unit, generating gross proceeds of $230,000,000.
Simultaneously with the closing of the IPO, the Company consummated the sale of the 9,400,000 Private Placement Warrant at a price of $1.00 per Private Placement Warrant in a private placement to the Sponsor.
For a description of the use of the proceeds generated in our IPO, see Part I, Item 2 of this Quarterly Report.
In connection with the vote on the extension amendment at the special meeting held on February 8, 2023, stockholders holding a total of 9,155,918 shares of the Company’s common stock exercised their right to redeem such shares for a pro rata portion of the funds in the Company’s Trust Account. As a result, $94,489,075 was withdrawn from the Company’s Trust Account to pay such holders.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
ITEM 5. | OTHER INFORMATION |
None.
ITEM 6. | EXHIBITS |
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
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* | These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing. |
+ | Filed herewith. |
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SIGNATURES
In accordance with 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.
INTEGRATED RAIL AND RESOURCES ACQUISITION CORP. | ||||||
Date: November 20, 2023 | By: | /s/ Mark A. Michel | ||||
Name: | Mark A. Michel | |||||
Title: | Chief Executive Officer and Chairman (Principal Executive Officer) | |||||
Date: November 20, 2023 | By: | /s/ Timothy J. Fisher | ||||
Name: | Timothy J. Fisher | |||||
Title: | Chief Financial Officer, President and Vice Chairman (Principal Financial and Accounting Officer) |
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