UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
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As of August 16, 2023, there were
NUBIA BRAND INTERNATIONAL CORP.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2023
TABLE OF CONTENTS
Part I - FINANCIAL INFORMATION | 1 | |
Item 1. | Unaudited Condensed Consolidated Financial Statements | 1 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 26 |
Item 4. | Controls and Procedures | 26 |
Part II - OTHER INFORMATION | 27 | |
Item 1. | Legal Proceedings | 27 |
Item 1A. | Risk Factors | 27 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 27 |
Item 3. | Defaults Upon Senior Securities | 27 |
Item 4. | Mine Safety Disclosures | 27 |
Item 5. | Other Information | 27 |
Item 6. | Exhibits | 27 |
SIGNATURES | 28 |
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PART I
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
NUBIA BRAND INTERNATIONAL CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2023 | December 31, | |||||||
(unaudited) | 2022 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash | $ | $ | ||||||
Prepaid expenses | ||||||||
Total Current Assets | ||||||||
Investments held in the Trust Account | ||||||||
Other assets | ||||||||
Total Assets | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | $ | ||||||
Income taxes payable | ||||||||
Excise taxes payable | ||||||||
Accrued offering costs | ||||||||
Advances from Target | ||||||||
Convertible note payable – Sponsor | ||||||||
Total Current Liabilities | ||||||||
Deferred underwriting commission | ||||||||
Total liabilities | ||||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
Class A common stock subject to possible redemption; | ||||||||
Stockholders’ Deficit: | ||||||||
Preferred stock, $ | ||||||||
Class A common stock, $ | ||||||||
Class B common stock, $ | ||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
Total Liabilities and Stockholders’ Deficit | $ | $ |
The accompanying notes are an integral part of these unaudited financial statements.
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NUBIA BRAND INTERNATIONAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
EXPENSES | ||||||||||||||||
Administrative fee - related party | $ | $ | $ | $ | ||||||||||||
General and administrative | ||||||||||||||||
TOTAL EXPENSES | ||||||||||||||||
OTHER INCOME | ||||||||||||||||
Income earned on Investments held in Trust Account | ||||||||||||||||
Interest income | ||||||||||||||||
Change in fair value of over-allotment liability | ||||||||||||||||
TOTAL OTHER INCOME | ||||||||||||||||
Net income (loss) before provision for income taxes | ( | ) | ( | ) | ||||||||||||
Provision for income taxes | ||||||||||||||||
Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Weighted average number of shares of Class A redeemable common stock outstanding, basic | ||||||||||||||||
Basic net income (loss) per share of Class A redeemable common stock | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Weighted average number of shares of Class A and B non-redeemable common stock outstanding, basic | ||||||||||||||||
Basic net income (loss) per share of Class A and B non-redeemable common stock | $ | $ | ( | ) | $ | $ | ( | ) |
The accompanying notes are an integral part of these unaudited financial statements.
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NUBIA BRAND INTERNATIONAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERs’ (DEFICIT) EQUITY
(UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023
Class A | Class B | Additional | ||||||||||||||||||||||||||
Common Stock | Common Stock | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
Balance, January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
Class A Common Stock Redeemable Remeasurement Adjustment | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
Net income | — | — | ||||||||||||||||||||||||||
Balance at March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||
Class A Common Stock Redeemable Remeasurement Adjustment | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
Excise tax on redemption of Class A Common Stock | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
Net income | — | — | ||||||||||||||||||||||||||
Balance at June 30, 2023 | $ | $ | $ | $ | ( | ) | ( | ) |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
Class A | Class B | Additional | Stockholders’ | |||||||||||||||||||||||||
Common Stock | Common Stock | Paid-in | Accumulated | Equity | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
Balance, January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
Proceeds Allocated to Public Warrants | — | — | ||||||||||||||||||||||||||
Proceeds from Private Warrants | — | — | ||||||||||||||||||||||||||
Value of transaction costs allocated to the fair value of equity instruments | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
Class A common stock issued to Representative | ||||||||||||||||||||||||||||
Class A Common Stock Redeemable Remeasurement Adjustment | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
Balance at March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
Forfeiture of Class B Common Stock | ( | ) | ( | ) | ||||||||||||||||||||||||
Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
Balance at June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) |
The accompanying notes are an integral part of these unaudited financial statements.
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NUBIA BRAND INTERNATIONAL CORP.
CONDENSED CONSOLIDATED STATEMENTs OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended June 30, | ||||||||
2023 | 2022 | |||||||
Cash Flows From Operating Activities: | ||||||||
Net income (loss) | $ | $ | ( | ) | ||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Income earned on Investments held in Trust Account | ( | ) | ( | ) | ||||
Change in fair value of over-allotment liability | ( | ) | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses | ( | ) | ||||||
Other assets | ( | ) | ||||||
Accrued formation and offering costs | ( | ) | ||||||
Income taxes payable | ( | ) | ||||||
Accounts payable and accrued expenses | ||||||||
Net Cash Used In Operating Activities | ( | ) | ( | ) | ||||
Cash Flows From Investing Activities: | ||||||||
Cash withdrawn for taxes | ||||||||
Cash withdrawn for redemptions of Class Common Stock | ||||||||
Cash deposited into Trust Account | ( | ) | ( | ) | ||||
Net Cash Provided By (Used In) Investing Activities | ( | ) | ||||||
Cash Flows From Financing Activities: | ||||||||
Proceeds from convertible note - Sponsor | ||||||||
Advances from Target | ||||||||
Proceeds from redemption of Class A Common Stock | ( | ) | ||||||
Sale of Units in the Initial Public Offering, net of underwriting discount | ||||||||
Proceeds from sale of Private Placement Warrants | ||||||||
Payment of offering costs | ( | ) | ||||||
Net Cash Provided By (Used In) Financing Activities | ( | ) | ||||||
Net change in cash | ( | ) | ||||||
Cash at beginning of period | ||||||||
Cash at end of period | $ | $ | ||||||
Supplemental disclosure | ||||||||
Cash paid for income taxes | $ | $ | ||||||
Supplemental disclosure of non-cash financing activities: | ||||||||
Deferred underwriters’ compensation charged to temporary equity in connection with the Public Offering | $ | $ | ||||||
Class A redeemable Common Stock measurement adjustment at Initial Public Offering | $ | $ | ||||||
Fair value of representative shares | $ | $ | ||||||
Fair value of over-allotment option | $ | $ | ||||||
Excise tax on redemption of Class A Common Stock | $ | $ | ||||||
Class A Common Stock Redeemable Current Period Remeasurement Adjustment | $ | $ |
The accompanying notes are an integral part of these unaudited financial statements.
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NUBIA BRAND INTERNATIONAL CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — DESCRIPTION OF ORGANIZATION, BUSINESS OPERATIONS AND GOING CONCERN
Nubia Brand International Corp. was incorporated in Delaware on June 14, 2021 and Nubia Merger Sub, Inc., an Ohio corporation, (collectively, the Company”) The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). The Company is not limited to a particular industry or sector for purposes of consummating a Business Combination. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of June 30, 2023, the Company had not commenced any operations. All activity for the period from June 14, 2021 (inception) through June 30, 2023 relates to the Company’s formation and the initial public offering (“Initial Public Offering” or “IPO”), which is described below. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering. The Company has selected December 31 as its fiscal year end.
On February 16, 2023, the Company entered into a Merger Agreement (the “Merger Agreement”) by and among Honeycomb Battery Company, an Ohio corporation (the “Honeycomb”), the Company, and Nubia Merger Sub, Inc., an Ohio corporation (“Merger Sub”) and wholly-owned subsidiary of the Company, pursuant to which Merger Sub will merge with and into Honeycomb (the “Merger”) with Honeycomb as the surviving corporation of the Merger and becoming a wholly-owned subsidiary of the Company. In connection with the Merger, the Company will change its name to “Honeycomb Battery Company” or such other name designated by Honeycomb by notice to the Company, which is referred to herein as the “Combined Company.” The board of directors of the Company (the “Nubia Board”) has unanimously (i) approved and declared advisable the Merger Agreement, the Merger and the other transactions contemplated thereby (collectively, the “Transactions”) and (ii) resolved to recommend approval of the Merger Agreement and related matters by the stockholders of the Company.
The Merger Agreement provides that the Company
will issue to the Honeycomb shareholders aggregate consideration of
(ii) | 7,500,000 Earnout Shares if, over any ten (10) trading days within any thirty (30) trading day period from and after the date that is one hundred eighty (180) days following the Closing Date until the date that is forty-two (42) months following the Closing Date, the VWAP of the shares of Combined Company’s Class A common stock is greater than or equal to $15.00 per share (subject to any adjustment pursuant to the Merger Agreement); and |
(iii) | 10,000,000 Earnout Shares if over any ten (10) trading days within any thirty (30) trading day period from and after the date that is one hundred eighty (180) days following the Closing Date until the fourth anniversary of the Closing Date, the VWAP of the shares of Combined Company’s Class A common stock is greater than or equal to $25.00 per share (subject to any adjustment pursuant to the Merger Agreement). |
The Merger Agreement contains customary representations and warranties of the parties.
The Merger is expected to be accounted for as a reverse recapitalization with Honeycomb as the accounting acquirer.
The registration statement for the Company’s
Initial Public Offering was declared effective on March 10, 2022. On March 15, 2022, the Company consummated the Initial Public Offering
of
Simultaneously with the closing of the Initial
Public Offering, the Company consummated the private sale (the “Private Placement”) of an aggregate of
5
On March 15, 2022, the underwriters purchased
an additional
The Company’s ability to commence operations
is contingent upon obtaining adequate financial resources through its Initial Public Offering of
The Company’s management has broad discretion
with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of Private Placement Warrants,
although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There
is no assurance that the Company will be able to complete a Business Combination successfully. The Company must complete one or more initial
Business Combinations with one or more operating businesses or assets with a fair market value equal to at least
The Company will provide the holders of the outstanding
Public Shares (the “Public Stockholders”) with the opportunity to redeem all or a portion of their Public Shares either (i)
in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer in connection with
the Business Combination. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a
tender offer will be made by the Company. The Public Stockholders will be entitled to redeem their Public Shares for a pro rata portion
of the amount then in the Trust Account (initially to be $
If the Company seeks stockholder approval of the Business Combination, the Company will proceed with a Business Combination if a majority of the outstanding shares voted are voted in favor of the Business Combination, or such other vote as required by law or stock exchange rule. If a stockholder vote is not required by applicable law or stock exchange listing requirements and the Company does not decide to hold a stockholder vote for business or other reasons, the Company will, pursuant to its second amended and restated certificate of incorporation (the “Certificate of Incorporation”), conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”) and file tender offer documents with the SEC prior to completing a Business Combination. If, however, stockholder approval of the transaction is required by applicable law or stock exchange listing requirements, or the Company decides to obtain stockholder approval for business or other reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with a Business Combination, the Sponsor has agreed to vote its Founder Shares (as defined in Note 5) and any Public Shares purchased during or after the Initial Public Offering in favor of approving a Business Combination. Additionally, each Public Stockholder may elect to redeem their Public Shares without voting, and if they do vote, irrespective of whether they vote for or against the proposed transaction.
6
Notwithstanding the foregoing, if the Company
seeks stockholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Certificate
of Incorporation will provide that a Public Stockholder, together with any affiliate of such stockholder or any other person with whom
such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate of
The holders of the Founder Shares have agreed
(a) to waive their redemption rights with respect to the Founder Shares and Public Shares held by them in connection with the completion
of a Business Combination and (b) not to propose an amendment to the Certificate of Incorporation (i) to modify the substance or timing
of the Company’s obligation to allow redemptions in connection with a Business Combination or to redeem
On June 14, 2023, the Company held a special meeting of stockholders (the “Special Meeting”). At the Special Meeting, stockholders approved to amend the Company’s Amended and Restated Certificate of Incorporation to allow the Company to extend the date by which the Company must consummate a business combination (the “Extension”) on a monthly basis up to six times from June 15, 2023 (the date that is 15 months from the closing date of the Company’s initial public offering of units) to December 15, 2023 (the date that is 21 months from the closing date of the IPO).
Stockholders elected
to redeem an aggregate
In connection with the
redemption, the Company recorded an excise tax liability and equity adjustment of $
If the Company does not
complete a business combination with Honeycomb or another target business by September 15, 2023 (or up to December 15, 2023 if the Company
has extended the deadline for completing the business combination on a monthly basis up to six times by contributing $125,000 per month
for each extension to the Company’s trust account in accordance with the current certificate of incorporation), the Company must
redeem
If the Company has not completed a Business Combination
within the specified period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably
possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the
aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously
released to pay taxes (less up to $
7
The holders of the Founders Shares have agreed
to waive their liquidation rights with respect to the Founder Shares if the Company fails to complete a Business Combination within the
Combination Period. However, if the holders of Founder Shares acquire Public Shares in or after the Initial Public Offering, such Public
Shares are entitled to liquidating distributions from the Trust Account if the Company fails to complete a Business Combination within
the Combination Period. The underwriters have agreed to waive their rights to their deferred underwriting commission (see Note 6) held
in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period and, in such event,
such amounts will be included with the other funds held in the Trust Account that will be available to fund the redemption of the Public
Shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution
will be less than the Initial Public Offering price per Unit ($
In order to protect the amounts held in the Trust
Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a third party for services rendered or
products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement,
reduce the amount of funds in the Trust Account to below (i) $
Going Concern Consideration
At June 30, 2023, the Company had cash
outside of trust of $
8
Risks and Uncertainties
The IR Act imposes a
In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy are not determinable as of the date of these financial statements. The specific impact on the Company’s financial condition, results of operations, and cash flows is also not determinable as of the date of these financial statements.
Management is currently evaluating the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations, close of the Initial Public Offering and/or search for a target company, the specific impact is 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 this uncertainty.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the SEC.
Certain information and note disclosures normally included in the financial statements prepared in accordance with US GAAP have been condensed. As such, the information included in these financial statements should be read in conjunction with the audited financial statements as of December 31, 2022 filed with the SEC on Form 10-K. In the opinion of the Company’s management, these condensed financial statements include all adjustments, which are only of a normal and recurring nature, necessary for a fair statement of the Company’s financial position as of June 30, 2023 and the Company’s results of operations and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2023 not necessarily indicative of the results to be expected for the full year ending December 31, 2023.
The consolidated financial statements include the Company entities. All intercompany transactions have been eliminated for consolidation purposes.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
9
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.
Use of Estimates
The preparation of financial statements in conformity with US 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 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 balance sheet 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 and cash equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of June 30, 2023 and December 31, 2022.
Investments held in Trust Account
At June 30, 2023 and December 2022, the Company
had $
10
Offering Costs associated with an Initial Public Offering
The Company complies with the requirements of
the Financial Accounting Standards Board (“FASB”) ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic
5A, “Expenses of Offering.” Offering costs were allocated to the separable financial instruments issued in the Initial
Public Offering based on a relative fair value basis, compared to total proceeds received. Upon completion of the Initial Public Offering,
offering costs associated with the shares of Class A Common Stock were allocated between temporary equity and the Public Warrants by the
relative fair value method. Total offering costs at the close of the Initial Public Offering were $
Class A ordinary shares subject to possible redemption
The Company accounts for its Class A common stock
subject to possible redemption in accordance with the guidance enumerated in ASC 480 “Distinguishing Liabilities from Equity”.
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 features redemption rights that are either within the control of the holder or subject to redemption
upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other
times, common stock is classified as stockholders’ equity (deficit). The Company’s Class A common stock features certain redemption
rights that are considered by the Company to be outside of the Company’s control and subject to the occurrence of uncertain future
events. Accordingly, at June 30, 2023 and December 31, 2022, the shares of Class A common stock subject to possible redemption in the
amount of $
The Company recognizes changes in redemption value
immediately as they occur and adjusts the carrying value of redeemable Class A common stock to equal the redemption value at the end of
each reporting period. Immediately upon the closing of the Initial Public Offering, the Company recognized a measurement adjustment from
initial book value to redemption amount value. The change in the carrying value of redeemable Class A ordinary shares resulted in charges
against additional paid-in capital and accumulated deficit of approximately $
Class A common stock subject to possible redemption – December 31, 2022 | $ | |||
Remeasurement adjustment | ||||
Class A common stock subject to possible redemption – March 31, 2023 | ||||
Redemptions | ( | ) | ||
Remeasurement adjustment | ||||
Class A common stock subject to possible redemption – June 30, 2023 | $ |
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 statements 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.
11
Our effective tax rate was
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 June 30, 2023 and December 31, 2022. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
While ASC 740 identifies usage of the effective annual tax rate for purposes of an interim provision, it does allow for estimating individual elements in the current period if they are significant unusual or infrequent. Computing the ETR for the Company is complicated due to the potential impact of the Company’s change in fair value of warrants for any other change in fair value of a complex financial instrument), the timing of any potential Business Combination expenses and the actual interest income that will be recognized during the year. The Company has taken a position as to the calculation of income tax expenses in the current period based on 740-270-25-3 which states, “if an entity is unable to estimate a part of its ordinary income (or loss) or the related tax (or benefit) but is otherwise able to make a reliable estimate, the tax (or benefit) applicable to the item that cannot be estimated shall be reported in the interim period in which the item is reported.” The Company believes its calculation to be a reliable estimate and allows it to properly take into account the unusual elements that can impact its annualized book income and its impact on ETR. As such, the Company is computing its taxable income (loss) and associated income tax provision based on actual results through June 30, 2023.
Net Income (Loss) per Common Stock
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” Net income (loss) per share of common stock is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period. The Company applies the two-class method in calculating earnings per share. The remeasurement adjustment associated with the redeemable shares of Class A Common Stock is excluded from income (loss) per share as the redemption value approximates fair value.
The calculation of diluted income (loss) per share
of common stock does not consider the effect of the warrants issued in connection with the (i) Initial Public Offering and (ii) the Private
Placement since the exercise of the warrants is contingent upon the occurrence of future events.
As of June 30, 2023, the warrants are exercisable to purchase
12
For the Three months ended | For the Three months ended | |||||||
June 30, | June 30, | |||||||
2023 | 2022 | |||||||
Class A Redeemable Common Stock | ||||||||
Numerator: Income (loss) allocable to Class A Redeemable Common Stock | $ | $ | ( | ) | ||||
$ | $ | ( | ) | |||||
Class A and Class B Non-Redeemable Common Stock | ||||||||
Numerator: Income (loss) allocable to Class A and Class B Non-Redeemable Common Stock | $ | $ | ( | ) | ||||
$ | $ | ( | ) |
For the Six months ended | For the Six months ended | |||||||
June 30, | June 30, | |||||||
2023 | 2022 | |||||||
Class A Redeemable Common Stock | ||||||||
Numerator: Income (loss) allocable to Class A Redeemable Common Stock | $ | $ | ( | ) | ||||
$ | $ | ( | ) | |||||
Class A and Class B Non-Redeemable Common Stock | ||||||||
Numerator: Income (loss) allocable to Class A and Class B Non-Redeemable Common Stock | $ | $ | ( | ) | ||||
$ | $ | ( | ) |
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 of $
13
Fair Value of Financial Instruments
Fair value is defined as the price that would be received for sale of an asset or paid to transfer of a liability, in an orderly transaction between market participants at the measurement date. US 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). See Note 8.
Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, and FASB 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 shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment is conducted at the time 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 of 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. The Company accounts for outstanding warrants as equity-classified instruments.
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 the Company’s financial statements.
NOTE 3 — INITIAL PUBLIC OFFERING
Pursuant to the Initial Public Offering, the Company
sold
On March 15, 2022, the underwriters purchased
an additional
NOTE 4 — PRIVATE PLACEMENTS
The Sponsor purchased an aggregate of
14
On March 15, 2022, in connection with the exercise
of the over-allotment option, the Sponsor and the underwriter purchased an additional
NOTE 5 — RELATED PARTIES
Founder Shares
On August 17, 2021, the Sponsor received
The holders of the Founder Shares have agreed,
subject to limited exceptions, not to transfer, assign or sell any of the Founder Shares until the earlier to occur of: (A) one year after
the completion of a Business Combination and (B) subsequent to a Business Combination, (x) if the last reported sale price of the Class
A common stock equals or exceeds $
Promissory Note — Sponsor
On July 27, 2021, the Sponsor issued an unsecured
promissory note to the Company (the “Promissory Note”), pursuant to which the Company may borrow up to an aggregate principal
amount of $
Advances from Target
On July 14, 2023, Honeycomb Battery Company
advanced to the Company $
Advances from Related Parties
From time to time, affiliates of the Sponsor
advance funds to the Company or pay expenses on behalf of the Company for formation and operating costs. These advances are due on demand
and are non-interest bearing. During the three months ended June 30, 2023 and 2022, there were no expenses paid by related parties. During
the six months ended June 30, 2023 and 2022, the related parties paid $
15
General and Administrative Services
Commencing on the date of the Initial Public
Offering, the Company has agreed to pay the Sponsor a total of $
Related Party Loans
In order to finance transaction costs in connection
with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may,
but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). Such Working Capital Loans
would be evidenced by promissory notes. The notes may be repaid upon completion of a Business Combination, without interest, or, at the
lender’s discretion, up to $
NOTE 6 — COMMITMENTS AND CONTINGENCIES
Registration Rights
The holders of the Founder Shares, Private Placement Warrants that may be issued upon conversion of Working Capital Loans (and any shares of common stock issuable upon the exercise of the Private Placement Warrants or warrants issued upon conversion of the Working Capital Loans and upon conversion of the Founder Shares) are entitled to registration rights pursuant to a registration rights agreement to be signed prior to or on the effective date of Initial Public Offering requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion to shares of Class A common stock). The holders of these securities are entitled to make up to three demands, excluding short form registration demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to completion of a Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. However, the registration rights agreement provides that the Company will not be required to effect or permit any registration or cause any registration statement to become effective until the securities covered thereby are released from their lock-up restrictions. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The Company granted the underwriters a 45-day
option from the date of Initial Public Offering to purchase up to
The underwriters were paid a cash underwriting
discount of $
16
On March 15, 2022, the underwriters purchased
an additional
The Representative Shares have been deemed compensation
by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following the date of the effectiveness of the registration
statement of which this prospectus forms a part pursuant to Rule 5110(e)(1) of the FINRA Manual. Upon close of the Initial Public Offering,
the Company recorded additional stock issuance costs of $
NOTE 7 — STOCKHOLDERS’ DEFICIT
Preferred Stock — The Company
is authorized to issue
Class A Common Stock — The
Company is authorized to issue
Class B Common Stock — The
Company is authorized to issue
Only holders of the Class B common stock will have the right to vote on the election of directors prior to the Business Combination. Holders of Class A common stock and holders of Class B common stock will vote together as a single class on all matters submitted to a vote of our shareholders except as otherwise required by law. In connection with our initial business combination, we may enter into a stockholders agreement or other arrangements with the stockholders of the target or other investors to provide for voting or other corporate governance arrangements that differ from those in effect upon completion of this offering.
The shares of Class B common stock will automatically
convert into Class A common stock at the time of a Business Combination, or earlier at the option of the holder, on a one-for-one basis,
subject to adjustment. In the case that additional shares of Class A common stock, or equity-linked securities, are issued or deemed issued
in excess of the amounts issued in the Initial Public Offering and related to the closing of a Business Combination, the ratio at which
shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of
the then-outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance)
so that the number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the
aggregate, on an as converted basis,
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Warrants — As of June 30,
2023, there were
The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act covering the issuance of the shares of Class A common stock issuable upon exercise of the warrants is then effective and a current prospectus relating to those shares of Class A common stock is available, subject to the Company satisfying its obligations with respect to registration, or a valid exemption from registration is available. No warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of residence of the exercising holder, or an exemption from registration is available.
The Company has agreed that as soon as practicable after the closing of a Business Combination the Company will use its commercially reasonable efforts to file, and within 90 days following a Business Combination to have declared effective, a registration statement covering the issuance of the shares of Class A common stock issuable upon exercise of the warrants and to maintain a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed. Notwithstanding the above, if the Class A common stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a) (9) of the Securities Act and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement, but will use its commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Redemption of Warrants When the Price per Share of Class A Common Stock Equals or Exceeds $18.00 — Once the warrants become exercisable, the Company may redeem the outstanding Public Warrants:
● | in whole and not in part; |
● | at a price of $0.01 per Public Warrant; |
● | upon a minimum of 30 days’ prior written notice of redemption, or the 30-day redemption period to each warrant holder; and |
● | if, and only if, the last reported sale price of the Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganization, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to warrant holders. |
If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
If the Company calls the Public Warrants for redemption, as described above, its management will have the option to require any holder that wishes to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of common stock issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, except as described below, the Public Warrants will not be adjusted for issuances of common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the Public Warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of Public Warrants will not receive any of such funds with respect to their Public Warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such Public Warrants. Accordingly, the Public Warrants may expire worthless.
18
The Private Placement Warrants are identical to the Public Warrants underlying the Units being sold in the Initial Public Offering.
NOTE 8 — FAIR VALUE MEASUREMENTS
The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1—quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2—observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3—unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.
June 30, | December 31, | |||||||||
Description: | Level | 2023 | 2022 | |||||||
Assets: | ||||||||||
Investments held in Trust Account | 1 | $ | $ |
The estimated fair value of Investments held in Trust Account are determined using available market information.
NOTE 9 — SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. The Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
On July 15, 2023, the
Company deposited $
19
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and the notes related thereto which are included in “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Certain information contained in the discussion and analysis set forth below includes forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “Special Note Regarding Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K.
Overview
We are a blank check company incorporated as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Initial Business Combination”).
We intend to effectuate an Initial Business Combination using cash from the proceeds of our initial public offering (the “Public Offering”) that closed on March 15, 2022 (the “Closing Date”) and the private placement warrants sold in a private placement (the “Private Placement Warrants”) that closed on the Closing Date and from additional issuances, if any, of, our capital stock and our debt, or a combination of cash, stock and debt.
Our business activities from inception to June 30, 2023 consisted primarily of our preparation for our Public Offering that was completed on March 15, 2022 and, since the Closing Date, identification and evaluation of prospective acquisition targets for an Initial Business Combination.
On February 16, 2023, we entered into a Merger Agreement (the “Merger Agreement”) by and among Honeycomb Battery Company, an Ohio corporation (“Honeycomb”), we, and Nubia Merger Sub, Inc., an Ohio corporation (“Merger Sub”) and our wholly-owned subsidiary, pursuant to which Merger Sub will merge with and into Honeycomb (the “Merger”) with Honeycomb as the surviving corporation of the Merger and becoming our wholly-owned subsidiary. In connection with the Merger, we will change its name to “Honeycomb Battery Company” or such other name designated by Honeycomb by notice to us, which is referred to herein as the “Combined Company.” Our board of directors has unanimously (i) approved and declared advisable the Merger Agreement, the Merger and the other transactions contemplated thereby (collectively, the “Transactions”) and (ii) resolved to recommend approval of the Merger Agreement and related matters by our stockholders.
The Merger Agreement provides that we will issue to the Honeycomb shareholders aggregate consideration of 70,000,000 shares of the Combined Company’s common stock (the “Closing Merger Consideration Shares”) at the effective time of the Merger Agreement (the “Effective Time”), plus up to an additional 22,500,000 shares of the Combined Company’s common stock (the “Earnout Shares”) upon the occurrence of the following events (or earlier upon a change of control of the Combined Company but subject to (and only to the extent that) the valuation of the Combined Company’s common stock implied by such change of control transaction meeting the respective VWAP (as defined below) thresholds set forth below):
(i) | 5,000,000 Earnout Shares if, over any ten (10) trading days within any thirty (30) trading day period from and after the date that is thirty (30) days following the closing date of the Transactions (the “Closing Date”) until the second anniversary of the Closing Date, the VWAP of the shares of the Combined Company’s Class A common stock is greater than or equal to $12.50 per share (subject to any adjustment pursuant to the Merger Agreement); |
(ii) | 7,500,000 Earnout Shares if, over any ten (10) trading days within any thirty (30) trading day period from and after the date that is one hundred eighty (180) days following the Closing Date until the date that is forty-two (42) months following the Closing Date, the VWAP of the shares of Combined Company’s Class A common stock is greater than or equal to $15.00 per share (subject to any adjustment pursuant to the Merger Agreement); and |
20
(iii) | 10,000,000 Earnout Shares if over any ten (10) trading days within any thirty (30) trading day period from and after the date that is one hundred eighty (180) days following the Closing Date until the fourth anniversary of the Closing Date, the VWAP of the shares of Combined Company’s Class A common stock is greater than or equal to $25.00 per share (subject to any adjustment pursuant to the Merger Agreement). |
For purposes of the foregoing, “VWAP” means, for any security as of any date(s), the dollar volume-weighted average price for such security on the principal securities exchange or securities market on which such security is then traded during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its “HP” function (set to weighted average) or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported by OTC Markets Group Inc. If the VWAP cannot be calculated for such security on such date(s) on any of the foregoing bases, the VWAP of such security on such date(s) shall be the fair market value per share on such date(s) as reasonably determined by us.
In accordance with the terms and subject to the conditions of the Merger Agreement, each share of Honeycomb’s common stock outstanding immediately prior to the Effective Time will be converted into the right to receive its allocable portion of the Closing Merger Consideration Shares and the Earnout Shares, if any.
The Business Combination will require the approval of our shareholders and the shareholders of Honeycomb and is subject to other customary closing conditions, including a proxy statement being filed with and cleared by the U.S. Securities and Exchange Commission. The Transactions is expected to close in the third quarter of 2023.
At June 30, 2023, we had cash of $6,258 and working capital deficit of $3,337,584. Further, we expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete an Initial Business Combination will be successful.
21
Results of Operations
For the three months ended June 30, 2023, we had net income of $622,220 which consisted of interest income earned in the amount of $1,449,140 on cash and funds held in the Trust Account, partially offset by operating expenses totaling $535,144. In addition, the Company recorded an income tax provision of $293,483.
For the three months ended June 30, 2022, we had a net loss of $21,393 which consisted of interest income earned in the amount of $170,309 on cash and funds held in the Trust Account, a gain on the over-allotment liability of $15,720 and operating expenses totaling $190,581. In addition, the Company recorded an income tax provision of $16,841.
For the six months ended June 30, 2023, we had net income of $669,880 which consisted of interest income earned in the amount of $2,805,459 on cash and funds held in the Trust Account, partially offset by operating expenses totaling $1,572,932. In addition, the Company recorded an income tax provision of $568,729.
For the six months ended June 30, 2022, we had a net loss of $133,392 which consisted of interest income earned in the amount of $178,964 on cash and funds held in the Trust Account, a gain on the over-allotment liability of $19,432 and operating expenses totaling $314,947. In addition, the Company recorded an income tax provision of $16,841.
Going Concern Considerations, Liquidity and Capital Resources
On March 15, 2022, we consummated the Initial Public Offering of 11,000,000 Units at a price of $10.00 per Unit, which includes the exercise by the underwriters of the over-allotment option to purchase an additional 1,350,000 Units, generating gross proceeds of $123,500,000. Simultaneously with the closing of the Initial Public Offering and exercise of the over-allotment option, we consummated the sale of 5,405,000 Private Placement Warrants at a price of $1.00 per Private Placement Warrant in a private placement to our Sponsor, generating gross proceeds of $5,405,000.
Following the Initial Public Offering, the exercise of the over-allotment option by the underwriters’ and the sale of the Private Placement Warrants, a total of $125,970,000 was placed in the Trust Account and as of June 30, 2023, we had $6,258 of cash held outside of the Trust Account, after payment of costs related to the Initial Public Offering, and available for working capital purposes. Transaction costs amounted to $6,951,081 consisting of $1,235,000 of underwriting fees, $4,322,500 of deferred underwriting fees payable and $597,334 of other offering costs. In addition, the Company recorded the fair value of $776,815 for representative shares issued upon close of the Public Offering as well as the fair value of the remaining over-allotment option of $19,432 as offering costs.
For the six months ended June 30, 2023, cash used in operating activities was $1,574,609, which consisted of net income of $669,880, interest earned on marketable securities held in the Trust Account of $2,805,459, and changes in operating assets and liabilities provided $560,970 of cash from operating activities.
For the six months ended June 30, 2023, cash provided by investing activities was $88,839,046, primarily related to redemptions.
For the six months ended June 30, 2023, cash used by financing activities was $87,803,834, primarily related to redemptions, partially offset by proceeds from notes.
For the six months ended June 30, 2022, cash used in operating activities was $608,009 which consisted of the net loss of $133,392, interest earned on marketable securities held in the Trust Account of $178,752, the gain on the change in fair value of the over-allotment liability of $19,432 and changes in operating liabilities used $276,433 of cash from operating activities.
22
For the six months ended June 30, 2022, the Company used cash of $125,970,000 in investing activities for the purchase of investments in the Trust Account following the Initial Public Offering, the exercise of the over-allotment option by the underwriters’ and the sale of the Private Placement Warrants.
For the six months ended June 30, 2022, cash from financing activities provided $127,240,757. The Company received gross proceeds of $128,905,000 from the Initial Public Offering, the exercise of the over-allotment option by the underwriters’ and the sale of the Private Placement Warrants. These increases were offset by payment of the underwriting fees and offering costs of $1,235,000 and $429,243, respectively.
As of June 30, 2023, we had investments held in the Trust Account of $41,749,295 principally invested in U.S. government securities. Interest income on the balance in the Trust Account may be used by us to pay taxes, and to pay up to $100,000 of any dissolution expenses.
At June 30, 2023, the Company had cash outside of trust of $6,258 and working capital deficit of $3,337,584. Further, the Company has incurred and expects to continue to incur significant costs in pursuit of its financing and acquisition plans. 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 liquidity risks, as well as if the Company is unsuccessful in consummating an initial business combination within 18 months, or September 15, 2023 as the Company deposited $125,000 into the trust account in June, July and August 2023 to fund the monthly extension (or up to 21 months, or December 15, 2023, if the Company extends the period of time to consummate a business combination on monthly basis in accordance with the Company’s charter) from the closing of the IPO, the requirement that the Company cease all operations, redeem the public shares and thereafter liquidate and dissolve raises substantial doubt about the ability to continue as a going concern for the next twelve months from the issuance of this filing. The balance sheets do not include any adjustments that might result from the outcome of this uncertainty. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“US GAAP”), which contemplate continuation of the Company as a going concern.
We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account, excluding the deferred underwriting commissions, to complete an initial business combination. To the extent that capital stock or debt is used, in whole or in part, as consideration to complete an initial 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 growth strategies. If an initial business combination agreement requires us to use a portion of the cash in the Trust Account to pay the purchase price or requires us to have a minimum amount of cash at closing, we will need to reserve a portion of the cash in the Trust Account to meet such requirements or arrange for third-party financing.
23
We completed the sale of 12,350,000 units (the “Public Units”) at an offering price of $10.00 per unit in the Public Offering including 1,350,000 units at the initial public offering price less the underwriting discounts and commissions pursuant to the full exercise of the underwriters’ over-allotment option. On the Closing Date, simultaneously with the consummation of the Public Offering, the Company consummated the private sale (the “Private Placement”) of an aggregate of 5,000,000 warrants (the “Private Placement Warrants”) to our Sponsor at a purchase price of $1.00 per Private Placement Warrant, generating gross proceeds to the Company in the amount of $5,000,000.
Each Public Unit consists of one share of our Class A common stock, $0.0001 par value (each a “Public Share”), and one-half of one redeemable warrant, with each whole warrant exercisable for one share of Class A common stock (each, a “Warrant” and, collectively, the “Warrants”). One Warrant entitles the holder thereof to purchase one whole share of Class A common stock at a price of $11.50 per share.
Of the proceeds of the Public Offering and the Private Placement aggregating $128,905,000, $125,970,000 were deposited in a trust account (the “Trust Account”). Income on the funds held in the Trust Account may be released to us to pay our franchise and income taxes.
On July 27, 2021, the Sponsor issued an unsecured promissory note to the Company (the “Promissory Note”), pursuant to which the Company may borrow up to an aggregate principal amount of $300,000. The Promissory Note is non-interest bearing and payable on the earlier of (i) March 31, 2022 or (ii) the consummation of the Initial Public Offering (the “Original Maturity Date”). On May 20, 2022, the Company and the Sponsor amended and restated the Promissory Note (the “Amended Note”) (i) to extend the Original Maturity Date to a new maturity date which shall be upon the earlier of the closing of the Company’s initial business combination or the Company’s liquidation, and (ii) to permit the holder of the Amended Note, in its sole discretion, to convert any or all of the unpaid principal under the Amended Note into warrants, at a price of $1.00 per warrant, upon consummation of the Company’s initial business combination. On May 17, 2023, the Sponsor issued an unsecured promissory note to the Company (the “Note”), pursuant to which the Company may borrow up to an aggregate principal amount of $1,000,000. The Promissory Note is non-interest bearing and payable on the earlier of the closing of the Company’s initial business combination or the Company’s liquidation, and to permits the holder of the Note, in its sole discretion, to convert any or all of the unpaid principal under the Amended Note into warrants, at a price of $1.00 per warrant, upon consummation of the Company’s initial business combination. As of June 30, 2023 and December 31, 2022, there was $1,297,500 and $125,341 outstanding under the Promissory Note.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. 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 entered into any non-financial agreements involving assets.
Contractual Obligations
At June 30, 2023, we did not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities. We entered into an administrative support agreement pursuant to which we have agreed to pay an affiliate of the Sponsor a total of $10,000 per month for office space, utilities and secretarial, and administrative support services. Upon the earlier of the completion of the Initial Business Combination and the Company’s liquidation, we will cease paying these monthly fees.
Pursuant to the Underwriting Agreement., upon the consummation of our Initial Business Combination, we will pay the underwriters a cash fee in an amount equal to 3.5% of the gross proceeds of the Public Offering (exclusive of any applicable finders’ fees which might become payable). No fee will be due if we do not complete an Initial Business Combination.
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Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States 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 condensed financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following as our critical accounting policies:
Net Income (Loss) per Common Share
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” Net income (loss) per share of common stock is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period. The Company applies the two-class method in calculating earnings per share. The remeasurement adjustment associated with the redeemable shares of Class A Common Stock is excluded from income (loss) per share as the redemption value approximates fair value.
The calculation of diluted income (loss) per share of common stock does not consider the effect of the warrants issued in connection with the (i) Initial Public Offering and (ii) the Private Placement. As a result, diluted income (loss) per share of common stock is the same as basic income (loss) per common stock for the periods presented. On March 10, 2022, the Company effectuated a 1.1-for-1 share split, resulting in an aggregate of 3,162,500 founder shares outstanding (up to 412,500 shares of which are subject to forfeiture. All share amounts have been retroactively adjusted to reflect this share split. The weighted average shares excludes an aggregate of up to 75,000 shares of Class B common stock subject to forfeiture if the over-allotment option is not exercised in full by the underwriters. As of June 30, 2023, the warrants are exercisable to purchase 11,580,000 shares of Class A common stock in the aggregate.
Class A common stock subject to possible redemption
The Company accounts for its shares of Class A common stock subject to possible redemption in accordance with the guidance enumerated in ASC 480 “Distinguishing Liabilities from Equity”. 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 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 is classified as stockholders’ equity. The shares of the Company’s Class A common stock feature certain redemption rights that are considered by the Company to be outside of the Company’s control and subject to the occurrence of uncertain future events.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received for sale of an asset or paid to transfer of a liability, in an orderly transaction between market participants at the measurement date. US 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).
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Derivative Financial Instruments
The Company evaluates its financial instruments, including the over-allotment option, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 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 grant 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 condensed 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.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s balance sheet.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
This item is not applicable as we are a smaller reporting company.
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 Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the fiscal quarter ended June 30, 2023, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that during the period covered by this report, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
During the fiscal quarter ended June 30, 2023, 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
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
ITEM 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.
ITEM 6. EXHIBITS
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
* | Filed herewith. |
** | Furnished. |
*** | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 17, 2023. |
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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.
Nubia Brand International Corp. | ||
Date: August 17, 2023 | By: | /s/ Jaymes Winters |
Jaymes Winters | ||
Chief Executive Officer |
Nubia Brand International Corp. | ||
Date: August 17, 2023 | By: | /s/ Vlad Prantsevich |
Vlad Prantsevich | ||
Chief Financial Officer |
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