UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(MARK ONE)
For the quarter ended
For the transition period from to
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 9, 2024, there were
PERSHING SQUARE SPARC HOLDINGS, LTD.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2024
TABLE OF CONTENTS
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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-i-
Part I—FINANCIAL INFORMATION
Item 1. Financial Statements
PERSHING SQUARE SPARC HOLDINGS, LTD.
Balance SheetS
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As of |
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March 31, 2024 |
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December 31, 2023 |
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Assets |
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Current Assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Prepaid expenses |
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Total Current Assets |
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Cash held in segregated account |
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Total Assets |
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$ |
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$ |
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Liabilities And Stockholders’ Equity/(Deficit) |
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Current Liabilities: |
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Accrued expenses |
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$ |
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$ |
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Directors compensation payable |
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Total Current Liabilities |
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Advisor Warrants liability |
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Sponsor Warrants liability |
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Total Liabilities |
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Stockholders’ Equity/(Deficit) |
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Common Stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total Stockholders’ Equity/(Deficit) |
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Total Liabilities And Stockholders’ Equity/(Deficit) |
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$ |
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$ |
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The accompanying notes are an integral part of the unaudited financial statements.
-1-
PERSHING SQUARE SPARC HOLDINGS, LTD.
StatementS of Operations
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For the three months ended |
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March 31, 2024 |
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March 31, 2023 |
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Interest income |
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$ |
— |
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$ |
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Compensation expense |
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— |
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Accounting and tax expense |
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Legal fees |
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Franchise tax expense |
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Printing fees |
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Other expenses |
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— |
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Research expense |
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Consulting fees |
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— |
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Income/(Loss) from operations |
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Change in fair value of Sponsor Warrants liability |
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— |
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Other income/(loss) |
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— |
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Net loss |
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$ |
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$ |
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Weighted average common shares outstanding, basic and diluted |
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Basic and diluted net loss per common share |
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$ |
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$ |
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The accompanying notes are an integral part of the unaudited financial statements.
-2-
PERSHING SQUARE SPARC HOLDINGS, LTD.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY/(DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND MARCH 31, 2023
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Common Stock |
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Shares |
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Additional |
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Accumulated |
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Total Stockholders’ |
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Balance – December 31, 2022 (Audited) |
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$ |
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$ |
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Net loss |
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Balance – March 31, 2023 (Unaudited) |
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$ |
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$ |
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Common Stock |
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Shares |
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Additional |
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Accumulated |
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Total Stockholders’ |
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Balance – December 31, 2023 (Audited) |
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$ |
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$ |
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$ |
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Net loss |
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— |
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Balance – March 31, 2024 (Unaudited) |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of the unaudited financial statements.
-3-
PERSHING SQUARE SPARC HOLDINGS, LTD.
StatementS of Cash Flows
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For the three months ended |
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March 31, 2023 |
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Cash flows from operating activities: |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Change in fair value of Sponsor Warrants liability |
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(Increase)/decrease in operating assets: |
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Prepaid expenses |
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Other receivables |
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Increase/(decrease) in operating liabilities: |
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Accrued expenses |
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Net cash used in operating activities |
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Net change in cash and cash equivalents and cash held in |
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Cash and cash equivalents and cash held in segregated account |
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Cash and cash equivalents and cash held in segregated account |
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$ |
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$ |
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The accompanying notes are an integral part of the unaudited financial statements.
-4-
PERSHING SQUARE SPARC HOLDINGS, LTD.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
March 31, 2024
Note 1—Description of Organization and Business Operations
Organization and General
Pershing Square SPARC Holdings, Ltd. (the “Company”) was incorporated on
The Company’s registration statement (the “Prospectus”) for the distribution of up to
The common shares of the surviving entity of the Business Combination, which, depending on the form the Business Combination takes, may be the Company or any entity other than the Company (the “Surviving Corporation”), are referred to as the “Public Shares”. All activity for the period from November 3, 2021 (inception) through March 31, 2024 relates to the Company’s formation, the Registration and the search for a Business Combination from and after effectiveness of the Registration. The Company may generate non-operating income in the form of interest from proceeds obtained in connection with the private placements of the Sponsor Shares and the Sponsor Warrants (defined in Note 4). The Company has selected December 31st as its fiscal year-end.
The Company’s sponsor is Pershing Square SPARC Sponsor, LLC (“Sponsor”), a Delaware limited liability company organized on November 4, 2021. The Sponsor is an affiliate of Pershing Square Capital Management, L.P. (“PSCM”), a registered investment advisor under the Investment Advisers Act of 1940, as amended. The Sponsor is wholly owned by Pershing Square Holdings, Ltd., a Guernsey company, Pershing Square, L.P., a Delaware limited partnership, and Pershing Square International, Ltd., a Cayman Islands exempted company, each of which is an investment fund managed by PSCM (collectively the “Pershing Square Funds”). The Sponsor is also an affiliate of Pershing Square Tontine Holdings, Ltd., a Delaware corporation (“PSTH”), which was a special purpose acquisition company (“SPAC”) that did not enter into an initial business combination within the prescribed time period and redeemed all of its Class A common stock and subsequently dissolved.
Board of Directors, Committees of the Board & Advisory Board
The Company’s board of directors (the “Board”) is comprised of Mr. William A. Ackman, Dr. Jennifer Blouin, Ms. Kathryn Judge and Ms. Linda Rottenberg. All directors other than Mr. Ackman are independent and were appointed on September 29, 2023. Mr. Ackman is the Chairman of the Board and Chief Executive Officer. The Board established an Audit Committee, a Compensation Committee, and a Nominating and Governance Committee. The committees are comprised solely of the independent directors of the Company. The Board also established an Advisory Board which is comprised of Ms. Lisa Gersh, Mr. Michael Ovitz and Ms. Jacqueline Dawn Reses.
-5-
Financing
Each SPAR will be exercisable for
The Company will finance the Business Combination with proceeds from the exercise of the SPARs, a minimum of $
Segregated Account
Of the total proceeds from the sale of the Sponsor Shares and Sponsor Warrants, $
Custodial Account
The funds received in connection with the submission of Elections will be held in a Custodial Account and will be held in cash or, at the election of the Company, invested solely in U.S. Treasury obligations (which are United States “government securities” within the meaning of Section 2 (a) (16) of the Investment Company Act) having a maturity of one hundred eighty (
-6-
The proceeds from the submission of SPAR exercise payments will remain in a Custodial Account (and will not be released) until the consummation of the Business Combination for use in connection therewith or the liquidation of the Company due to the failure to consummate a Business Combination during the Closing Period (which is extendable by
In connection with the consummation of the Business Combination, all amounts held in the Custodial Account will be released to the Company. The Company will use these funds to pay all or a portion of the consideration payable to the target or owners of the target of the Business Combination and to pay other expenses associated with the Business Combination. If the Business Combination is paid for using equity or debt instruments, or not all of the funds released from the Custodial Account are used for payment of the consideration in connection with the Business Combination, the Company may apply the balance of the cash released to the Company from the Custodial Account for general corporate purposes, including maintenance or expansion of operations of post-combination businesses, the payment of principal or interest due on indebtedness incurred in completing the Business Combination, to fund the purchase of other companies or make other investments, or for working capital. The proceeds deposited in the Custodial Account could become subject to the claims of the Company’s creditors, if any, which could have priority over the claims of holders of the Public Shares.
Business Combination
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the sale of the Sponsor Shares and Sponsor Warrants and from the exercise under the Forward Purchase Agreements (defined in Note 4), although substantially all proceeds are intended to be generally applied toward operating expenses in connection with identifying and consummating a Business Combination. The Company will enter into a Business Combination with a target business having a value of at least
The Company will comply with applicable requirements under Delaware law and, if and as applicable, the rules of the OTCQX marketplace of the OTC Markets Group. The Company will obtain any required stockholder approvals following the effectiveness of the Business Combination Registration Statement, at which time the Sponsor, as owner of the Sponsor Shares, will be the Company’s sole stockholder. Accordingly, the holders of SPARs will not have the opportunity to vote in favor of or against the proposed Business Combination or on any other matter submitted to a vote of stockholders. If the holders of the SPARs disapprove of the proposed transaction, their recourse will be limited to selling or choosing not to exercise their SPARs.
The SPARs will expire upon the earlier of (i) an Early Termination, (ii) Closing and (iii)
-7-
Prior to the Company’s dissolution, funds held in the Custodial Account, if such event occurs, will be returned to all electing SPAR holders who have submitted payment on a pro-rata basis. All costs and expenses associated with implementing the Company’s plan of dissolution, as well as payments to any creditors, will be funded from the Company’s remaining assets, which may not be sufficient for such purpose. Holders of SPARs will have no rights to the assets nor any obligations in respect of the liabilities of the Company in the event of dissolution or bankruptcy.
In the event of a liquidation, dissolution or winding up of the Company after a Business Combination, the stockholders are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities and after provision is made for each class of shares having preference over the Company’s Common Stock, if any. Stockholders have no preemptive or other rights. There are no sinking fund provisions applicable to the Common Stock or the Public Shares.
Note 2—Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the accounting and disclosure rules and regulations of the SEC. The financial information provided is unaudited. In the opinion of management, the accompanying financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the Company’s financial position, operating results and cash flows for the periods presented. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full year period or for any future periods and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC on March 20, 2024, which contains the audited financial statements and notes thereto.
In connection with the Company’s assessment of going concern considerations in accordance with ASU 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that the Company has sufficient liquidity to meet its current obligations and adequate resources to continue in operational existence for a minimum of one year from the date of issuance of these financial statements. Therefore, the Company has adopted the going concern basis in preparing the financial statements.
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 (the “JOBS Act”). As such, the Company is eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.”
Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (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 not elected to opt out of such extended transition period. This may make comparison of the Company’s financial statements with those of another public company difficult or impossible if such other public company is (i) not an emerging growth company or (ii) is an emerging growth company that has opted out of using the extended transition period, due to the potential differences in accounting standards used.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalent accounts in financial institutions, which, at times, may exceed the Federal Depository Insurance Coverage of $
-8-
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurement (“ASC 820”), approximates the carrying amounts represented in the accompanying balance sheets, primarily due to their short-term nature.
When the fair value of financial instruments recorded in the balance sheets cannot be derived from active markets, their fair value is determined by the Company’s management using prices obtained from an independent third-party valuation firm. The independent third-party valuation firm utilizes proprietary models to determine fair value. Refer to Note 6 for the significant unobservable inputs used in the valuation of Level 3 investments.
Use of Estimates
The preparation of the financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods, as well as disclosure of any contingent assets and liabilities as of the date of the financial statements.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with a maturity of three months or less at the time of purchase to be cash equivalents. As of March 31, 2024, the Company’s cash and cash equivalents balance was $
Advisor Warrants Liability
The Advisor Warrants (defined in Note 4) were issued at no cost to the Company’s advisory board members. Accordingly, the Company accounts for the Advisor Warrants under ASC 718—Stock compensation (“ASC 718”) as the instruments were issued in connection with services provided towards the Company’s operations and potential Business Combination by the advisory board. The Advisor Warrants have a settlement feature whereby the Company or the Sponsor has the option to purchase the warrant from the holder upon the termination of their services for $
Sponsor Warrants Liability
The Company accounts for the Sponsor Warrants (defined in Note 4) pursuant to applicable guidance in ASC 480—Distinguishing liabilities from equity (“ASC 480”), and ASC 815-40—Contracts in an entity’s own equity (“ASC 815-40”), under which the Sponsor Warrants do not meet the criteria for equity treatment because the number of underlying Public Shares for which the Sponsor Warrants are exercisable is dependent upon the number of Public Shares outstanding immediately following consummation of the Business Combination along with the amount of funds raised in connection therewith. Accordingly, the Sponsor Warrants’ fair value at initial measurement, was recorded as a derivative liability, and subsequent changes in fair value will be reflected on the statement of operations at each reporting period. The fair value of the Sponsor Warrants is measured using a Black-Scholes option pricing model and the Sponsor Warrants’ classification will be re-assessed at the end of each reporting period.
-9-
SPARs and Forward Purchase Agreement Liabilities
The Company accounts for the SPARs and the Forward Purchase Agreements (defined in Note 4) in accordance with the guidance contained in ASC 480 and ASC 815-40. Under this guidance, the Company has determined that the SPARs and the Forward Purchase Agreements do not meet the criteria for equity treatment and will be recorded as derivative liabilities. Upon issuance, the Company recorded the initial fair value of the SPARs and Forward Purchase Agreements as expenses because such instruments were distributed to parties other than shareholders and accordingly may not be recognized as dividends under ASC 505, Equity. These liabilities will subsequently be measured at fair value with changes in fair value reflected on the statement of operations at each reporting period. The classification of these instruments, including whether such instruments should be recorded as liabilities or as equity, will be re-assessed at the end of each reporting period.
Sponsor Shares
The Company accounts for the Sponsor Shares under equity treatment applicable to outstanding shares upon issuance under ASC 480 and ASC 815-40.
Net Income/(Loss) per Common 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 during the period, plus, to the extent dilutive, the incremental number of shares of Common Stock to settle the SPARs, the Forward Purchase Agreements, the Sponsor Warrants and the Advisor Warrants, as calculated using the treasury stock method.
As of March 31, 2024, the SPARs and Forward Purchase Agreements are anti-dilutive to the Company as the underlying securities from their exercise are the Public Shares of the Surviving Corporation. Additionally, the exercise of the Advisor Warrants and the Sponsor Warrants is contingent upon the occurrence of future events that have not been met as of March 31, 2024, and therefore the Company has not considered the effect of the Advisor Warrants and Sponsor Warrants on net loss per Common Share for the periods presented. As a result, diluted income/(loss) per share of Common Stock is the same as basic income/(loss) per share of Common Stock for the respective reporting periods.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under ASC 740, Income Taxes (“ASC 740”). Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the carrying value of existing assets and liabilities on the balance sheet and their respective tax bases and tax losses carried forward. 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 from a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC 740 provides guidance for the 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. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of March 31, 2024 and December 31, 2023. 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. As of March 31, 2024, the Company recorded a full valuation allowance against the deferred tax assets associated with the net loss recorded for the period from November 3, 2021 (inception) through March 31, 2024.
Recent Accounting Pronouncements
Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material impact on the Company’s financial statements.
-10-
Note 3—Registration
SPARs and Public Shares
Pursuant to the Prospectus, the Company distributed the SPARs as discussed in Note 1, at no cost, to the holders of record of PSTH’s Class A common stock and distributable redeemable warrants. The SPARs were issued pursuant to a SPAR Rights Agreement between the Company and the SPAR Rights Agent. The Company intends that the SPARs will be quoted on the OTCQX marketplace of the OTC Markets Group beginning at the SPAR Holder Election Period. The Public Shares will be issued in connection with the Closing. Depending on the form that the Business Combination takes, the Public Shares may be issued as shares of the Surviving Corporation. No fractional SPARs or Public Shares have been or will be issued, a SPAR cannot be exercised in part, and only whole SPARs and Public Shares will trade. The Company intends to issue up to
Note 4—Related Party Transactions
Sponsor Shares
For the period from November 3, 2021 (inception) through March 31, 2024, the Sponsor acquired
The Sponsor Shares are subject to transfer restrictions pursuant to the subscription agreement between the Company and the Sponsor, which provides that such shares are not transferable or salable unless (a) a registration statement on the appropriate form under the Securities Act and applicable state securities laws with respect to the Sponsor Shares proposed to be transferred is then effective or (b) the Company has received an opinion from counsel reasonably satisfactory to the Company, that such registration is not required because such transaction is exempt from registration under the Securities Act and the rules promulgated by the Securities and Exchange Commission thereunder and with all applicable securities laws.
Sponsor Warrants
On July 28, 2023, the Company sold warrants to the Sponsor (the “Sponsor Warrants”) for an aggregate price of $
The Company refers to the number of Public Shares into which the Sponsor Warrants are exercisable as the “Reference Shares.” The actual percentage of the Public Shares on a fully diluted basis into which the Sponsor Warrants are exercisable will depend on the amount of funds raised by the exercise of SPARs at the closing of the Business Combination and the amount of the Additional Forward Purchase, if any, made by the Additional Forward Purchaser, and will be calculated by multiplying
-11-
Because the Additional Forward Purchaser may exercise the Second Tranche Additional Forward Purchase at its election after the SPAR Holder Election Period as described above, the Additional Forward Purchaser (which, like the Sponsor, is an affiliate of PSCM) has the ability to prevent the Proration Fraction from being reduced to less than 1.0. In no event, however, will the Proration Fraction exceed
The Sponsor Warrants are exercisable at any time after the three-year anniversary, and on or prior to the 10-year anniversary, of the Business Combination and have an exercise price equal to 120% of the Final Exercise Price (the “Reference Price”). The Sponsor Warrants may be exercised on a cashless basis, with the number of Public Shares to be issued upon exercise calculated as the number of Reference Shares, multiplied by (x) the “fair market value” of a Public Share in excess of the Reference Price, divided by (y) the fair market value of a Public Share. As used above, “fair market value” refers to the volume-weighted average trading price of a Public Share over the 10 consecutive trading days ending on the third trading day prior to a notice of exercise being sent.
The Sponsor Warrants and the Public Shares issuable upon exercise of the Sponsor Warrants will generally not be saleable or transferable until three years after the consummation of the Business Combination (except to certain permitted transferees) and are subject to certain adjustments and registration rights. The Sponsor Warrants will expire on the date that is
Advisor Warrants
On September 29, 2023, the Company issued warrants at
In addition, in the event an advisory board member resigns for any reason prior to the Business Combination and at a time when the Company is not subject to a letter of intent (or a Definitive Agreement) with respect to its Business Combination, the Company or the Sponsor will be entitled, at its election, to repurchase in full such advisory board member’s Advisor Warrants. The repurchase price in each case will be $
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The repurchase price of the Advisor Warrants was established by the Sponsor in its discretion and was not intended to, and may not, represent the fair market value of the Advisor Warrants as of the time of issuance or any time of potential repurchase. The repurchase price and other terms of the Advisor Warrants were established in order to attract what the Company believes are highly experienced and capable advisory board members, and were based on the significant time commitment expected of an advisory board member, including with respect to assisting the Company in identifying potential Business Combination candidates, the novel nature of the Company in the public market and the risks and responsibilities attendant to untested public vehicles, the potential
As discussed in Note 2, the Advisor Warrants have a settlement feature that results in liability classification as the Advisor Warrants repurchase price on the grant date under ASC 718 and upon the consummation of the Business Combination (or vesting date) will be measured at fair value. The Advisor Warrants were granted to the advisory board members on September 29, 2023 and as a result the Company recorded compensation expense of $
Forward Purchase Agreements
On September 29, 2023, the Pershing Square Funds (the “Committed Forward Purchasers”) and PS SPARC I Master, L.P., a Cayman Islands limited partnership managed by PSCM (the “Additional Forward Purchaser” and together with the Committed Forward Purchasers, the “Forward Purchasers”) entered into the forward purchase agreements (the “Forward Purchase Agreements”), pursuant to which an aggregate amount of $
The Additional Forward Purchaser may exercise the Additional Forward Purchase, at its election, in one or two tranches (each, the “First Tranche Additional Forward Purchase” and the “Second Tranche Additional Forward Purchase”, respectively), each of which would be effectuated, at the Final Exercise Price, at the time of the consummation of the Business Combination; provided that in no event will the number of Public Shares purchased pursuant to the First Tranche Additional Forward Purchase and the Second Tranche Additional Forward Purchase collectively exceed the quotient of (i) the Aggregate Additional Forward Purchase Amount divided by (ii) the Final Exercise Price (the “Maximum Additional Forward Purchase”). The Additional Forward Purchaser will have the right, but not the obligation, to commit to purchase the First Tranche Additional Forward Purchase, in an amount up to the Maximum Additional Forward Purchase, by written notice to the Company no later than five business days prior to the execution of the Definitive Agreement. In the event that (i) the First Tranche Additional Forward Purchase is less than the Maximum Additional Forward Purchase and (ii) all SPARs issued and outstanding immediately prior to the commencement of the SPAR Holder Election Period are not elected to be exercised as of the end of the SPAR Holder Election Period, then the Company shall promptly notify the Additional Forward Purchaser of the number of such issued and outstanding SPARs that were not elected to be exercised (the “Unexercised SPARs”). The Additional Forward Purchaser will have the right, but not the obligation, to commit to purchase the Second Tranche Additional Forward Purchase no later than five business days after such notice, the Public Shares equal to the product of (i) two and (ii) the number of Unexercised SPARs at the Final Exercise Price.
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The Committed Forward Purchasers’ obligation to purchase the Committed Forward Purchase Shares may be allocated among the Committed Forward Purchasers from time to time, but may not be transferred to any third parties. The Additional Forward Purchaser’s right to purchase the Additional Forward Purchase Shares may be transferred, in whole or in part, to any entity that is managed by PSCM (“Affiliate Transferee”), but not to third parties.
The Forward Purchase Shares will be subject to transfer restrictions pursuant to lock-up provisions that are set forth in the Forward Purchase Agreements. These lock-up provisions will provide that such shares are not transferable or salable until the earlier of (i)
Registration Rights Agreement
On September 29, 2023, the Company entered into a registration rights agreement with the Sponsor, the Forward Purchasers and the advisory board members, pursuant to which the Company is required to use commercially reasonable efforts to file a registration statement within
Directors’ Compensation
Immediately after the effectiveness of the Registration, the Company appointed three independent directors to the Board. The independent directors will receive annual compensation of $
The directors and officers, or any of their respective affiliates, will be reimbursed for any reasonable out-of-pocket expenses incurred in connection with activities on behalf of the Company such as identifying potential target businesses and performing due diligence on suitable Business Combinations. The Company’s audit committee will review on a quarterly basis all payments that were made to the Sponsor, officers, directors or their affiliates and will determine which expenses and the amount of those expenses that will be reimbursed. There is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred by such persons in connection with activities on behalf of the Company.
Note 5—Stockholders’ Equity
Common Stock
The third amended and restated certificate of incorporation of the Company dated September 29, 2023, authorizes the issuance of up to
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Preferred Shares
The third amended and restated certificate of incorporation of the Company dated September 29, 2023, authorizes the issuance of up to
Note 6—Fair Value Measurements
Fair Value Hierarchy
The Company measures fair value of financial instruments in accordance with ASC 820. As of March 31, 2024 and December 31, 2023, the fair value of the Company’s financial assets and liabilities approximates the carrying amounts represented on the balance sheets.
ASC 820 establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements. 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 level within which the fair value measurement is categorized is determined on the basis of the lowest level input that is significant to the fair value measurement. The following fair value hierarchy is used to classify assets and liabilities based on the observable and unobservable inputs used to value the assets and liabilities:
|
Level 1: |
Inputs are unadjusted quoted prices in active markets.
|
|
Level 2: |
Inputs (other than quoted prices included in Level 1) are obtained directly or indirectly from observable market data at the measurement date.
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|
Level 3: |
Inputs, including significant unobservable inputs, reflect the Company’s best estimate of what market participants would use in pricing the assets and liabilities at the measurement date. |
Fair Value Measurement of Assets and Liabilities
The following table presents the Company’s liabilities at fair value and its fair value hierarchy as of March 31, 2024 and December 31, 2023.
Description |
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Level |
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As of |
|
As of |
|
||
Liabilities: |
|
|
|
|
|
|
|
||
Sponsor Warrants |
|
3 |
|
$ |
|
$ |
|
||
SPARs |
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3 |
|
|
|
|
|
||
Forward Purchase Agreements |
|
3 |
|
|
|
|
|
Level 3 Transfers
Transfers between levels during the period are determined and deemed to have occurred at each financial statement reporting date. There were
Level 3 Reconciliation
The following table presents the change in fair value of the Company’s Level 3 financial instruments for the three months ended March 31, 2024. The Company’s management employed an independent third-party valuation firm to conduct valuations for the Sponsor Warrants, the SPARs and the Forward Purchase Agreements. The independent third-party valuation firm provided the Company’s management with a written report documenting their recommended valuations as of the determination date.
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Description |
|
As of |
|
|
|
|
As of |
|
||||
Sponsor Warrants |
|
$ |
|
|
$ |
|
|
$ |
|
|||
SPARs |
|
|
|
|
|
|
|
|
|
|||
Forward Purchase Agreements |
|
|
|
|
|
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
As discussed in Note 2, the Sponsor Warrants were accounted for as a liability. At March 31, 2024 and December 31, 2023, the fair value of the Sponsor Warrants was estimated using a Black-Scholes option pricing model. At each reporting period the Company re-evaluates the inputs utilized in the Black-Scholes option pricing model to measure the fair value of the Sponsor Warrants, with changes in fair value reflected on the statements of operations.
The SPARs and Forward Purchase Agreements were accounted for as liabilities and their fair values were determined based on a number of factors embedded in the instruments, mainly that no active trading market exists for either instrument and it is likely that the Final Exercise Price of the SPARs will be set at a price that equates to its fair value. As a result, the fair values of the SPARs and Forward Purchase Agreements liabilities will likely remain unchanged until the SPARs are quoted on the OTCQX marketplace of the OTC Markets Group beginning at the SPAR Holder Election Period. The Company continues to re-evaluate its assumptions and significant estimates on these financial instruments at each reporting period when the financial statements are prepared. Existing circumstances and assumptions about future developments may change due to market changes or as the Company approaches a Definitive Agreement towards a Business Combination.
Level 3 Quantitative Information of Significant Unobservable Inputs
The significant unobservable inputs used in determining the fair value of the Sponsor Warrants associated with the liability as of March 31, 2024 and December 31, 2023 are listed below.
Sponsor Warrants |
|
As of |
|
As of |
|
||
Volatility |
|
|
% |
|
% |
||
Probability of Not Completing a Deal |
|
|
% |
|
% |
||
Expected Time to Complete a Deal (in years) |
|
|
|
|
|
||
Probability of Warrant Renegotiation |
|
|
% |
|
% |
||
Estimated Target Equity Value |
|
$ |
|
$ |
|
The Sponsor Warrants’ significant unobservable inputs include: (i) Volatility, (ii) Probability of Not Completing a Deal, (iii) Expected Time to Complete a Deal, (iv) Probability of Warrant Renegotiation and (v) Estimated Target Equity Value. The volatility reflects the anticipated implied volatility of the potential target company from the Company’s Business Combination over the Sponsor Warrants’
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Note 7—Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the March 31, 2024 balance sheet date up to the date that the financial statements were issued. Based upon this evaluation, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this report (the “Quarterly Report”) to “we,” “us”, “our” or the “Company” refer to Pershing Square SPARC Holdings, Ltd., and references to our “management” or our “management team” refer to our officers and directors. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited 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.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements, other than statements of historical facts, and including but not limited to statements regarding the Company or the Company’s management team’s expectations, hopes, beliefs, intentions or strategies regarding the future, included in this Quarterly Report that address activities, events or developments that the Company expects or anticipates will or may occur in the future are forward-looking statements. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond the Company’s control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Information concerning these and other factors can be found in the Company’s filings with the SEC, including those set forth in the Risk Factors section of the Company’s Prospectus. Copies are available on the SEC’s website, www.sec.gov. In light of the significant uncertainties in forward-looking statements, you should not regard such statements as a representation or warranty that the Company will achieve its objectives and plans in any specified timeframe, or at all, and you should not place undue reliance on any forward-looking statements. The Company disclaims any intention or obligation to update or revise any forward-looking statements, except as may be required by law.
Overview
We were incorporated as a Delaware corporation on November 3, 2021 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. We intend to effectuate our Business Combination using cash from the proceeds of the exercise of our SPARs and the private placements of the Sponsor Shares, Sponsor Warrants, Forward Purchase Shares, or a combination of cash, stock and debt.
The issuance of additional shares in a Business Combination, including the Forward Purchase Shares:
Similarly, if we issue debt instruments or otherwise incur significant debt to banks or other lenders or owners of a target, it could result in:
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We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to raise capital, including through the exercise of our SPARs and the sale of Forward Purchase Shares, or to complete our Business Combination will be successful.
Results of Operations
All activities since the Company's inception through March 31, 2024 were related to the Company’s organizational activities, preparation for, and the distribution of, SPARs, and searching for a Business Combination. We will not generate any operating revenues until after the completion of our Business Combination. We may generate non-operating income in the form of interest income on cash and cash equivalents held. There has been no significant change in our financial or trading position and no material adverse change has occurred since the date of our audited financial statements. We will incur substantially increased expenses in future periods as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
For the three months ended March 31, 2024, we had a net loss of $763,192, which consisted of (i) non-cash loss related to change in the fair value of the Sponsor Warrants liability of $304,455, (ii) Directors’ compensation expense of $225,000 and (iii) accounting, franchise tax, legal, printing, research, and other expenses totaling $233,737. For the three months ended March 31, 2023, we had a net loss of $2,112,854 offset by interest income, which consisted solely of accounting, consulting, franchise tax, legal, printing, research, and other expenses totaling $2,112,855.
Liquidity and Capital Resources
Our liquidity needs have been satisfied by the sale of $4,225,330 Sponsor Shares and the sale of $35,892,480 Sponsor Warrants to the Sponsor in private placements. As of March 31, 2024 and December 31, 2023, we had a cash balance of $24,634,158 and $24,992,649, respectively, in the operating account, after funding $5,001,000 to the Segregated Account. We will hold these funds in cash.
We will use the funds in the operating account primarily to pay ongoing expenses and director compensation and to identify and evaluate target businesses, perform 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, and structure, negotiate and complete a Business Combination.
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We intend to use substantially all of the funds provided by the exercise of our SPARs to complete our Business Combination. To the extent that our capital stock or debt financing is used, in whole or in part, as consideration to complete our Business Combination, the remaining proceeds from the exercise of SPARs, and any remaining proceeds from the sale of Forward Purchase Shares, will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
In order to fund working capital deficiencies or finance transaction costs in connection with an intended Business Combination, our Sponsor may, but is not obligated to, purchase additional Sponsor Shares.
If our estimates of the costs of identifying a target business, undertaking in-depth due diligence and negotiating our Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our Business Combination. Moreover, we may need to obtain additional financing to complete our Business Combination if the cash consideration to be paid exceeds our capital available, including because a lower-than-expected number of SPAR holders choose to exercise their SPARs or because an insufficient amount of Additional Forward Purchase Shares are purchased. In such case, we may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our Business Combination. If we are unable to complete our Business Combination because we do not have sufficient funds available to us, we may be forced to cease operations. In addition, following our Business Combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
Contractual Obligations
We do not have any long-term debt, capital lease obligations or operating lease obligations as of March 31, 2024 and December 31, 2023.
Critical Accounting Policies
The preparation of the unaudited financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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 identified the following critical accounting policies:
Advisor Warrants Liability
The Advisor Warrants were issued at no cost to our advisory board members. Accordingly, we account for the Advisor Warrants under ASC 718—Stock compensation as the instruments were issued in connection with services provided towards our operations and potential Business Combination by the advisory board. The Advisor Warrants’ have a settlement feature whereby we or our Sponsor have the option to purchase the warrant from the holder upon the termination of their services for $1,000,000. The settlement feature results in liability classification at the Advisor Warrants’ repurchase price on grant date. Upon the consummation of our Business Combination (or vesting date), the outstanding liability will be measured at fair value.
Sponsor Warrants Liability
We account for the Sponsor Warrants pursuant to applicable guidance in ASC 480—Distinguishing liabilities from equity (“ASC 480”) and ASC 815-40—Contracts in an entity’s own equity (“ASC 815-40”), under which the Sponsor Warrants do not meet the criteria for equity treatment because the number of underlying Public Shares for which the Sponsor Warrants are exercisable is dependent upon the number of Public Shares outstanding immediately following the consummation of our Business Combination along with the amount of funds raised in connection therewith. Accordingly, the Sponsor Warrants’ fair value at initial measurement was recorded as a derivative liability, and subsequent changes in fair value will be reflected on the statement of operations at each reporting period. The fair value of the Sponsor Warrants is measured using a Black-Scholes option pricing model and the Sponsor Warrants’ classification will be re-assessed at the end of each reporting period. See Note 6 of the notes to the unaudited financial statements included herein for further information on the significant inputs utilized to determine fair value.
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SPARs and Forward Purchase Agreement Liabilities
We account for the SPARs and the Forward Purchase Agreements in accordance with the guidance contained in ASC 480 and ASC 815-40. Under this guidance, we have determined that the SPARs and the Forward Purchase Agreements do not meet the criteria for equity treatment and will be recorded as derivative liabilities. Upon issuance, we recorded the initial fair value of the SPARs and Forward Purchase Agreements as expenses because such instruments were distributed to parties other than shareholders and accordingly may not be recognized as dividends under ASC 505, Equity. These liabilities will subsequently be measured at fair value with changes in fair value reflected on the statement of operations at each reporting period. The classification of these instruments, including whether such instruments should be recorded as liabilities or as equity, will be re-assessed at the end of each reporting period. See Note 6 of the notes to the unaudited financial statements included herein for further information on their fair values.
Off-Balance Sheet Arrangements
As of March 31, 2024 and December 31, 2023, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material impact on our financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of March 31, 2024, we were not subject to any market or interest rate risk. The funds received in connection with the submission of Elections will be held in a Custodial Account until the consummation of our Business Combination, or will be returned to electing SPAR holders in connection with certain events. The funds that are held in the Custodial Account will be held in cash or, at our election, will be invested in U.S. Treasury bills with a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act, which invest only in direct U.S. Treasury obligations. 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
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports filed under the Exchange Act 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 disclosures.
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 March 31, 2024, 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 Quarterly Report, our disclosure controls and procedures were effective at a reasonable assurance level and, accordingly, provided reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control over Financial Reporting
Due to a transition period established by SEC rules applicable to newly public companies, our management is not required to evaluate the effectiveness of our internal control over financial reporting until the filing of our Annual Report on Form 10-K for the year ended December 31, 2024. As a result, this Quarterly Report on Form 10-Q does not address whether there have been any changes in 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 for the fiscal year ended December 31, 2023 (“Form 10-K”) filed with the SEC on March 20, 2024. 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 on Form 10-Q, there have been no material changes to the risk factors disclosed in our Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
(a) None.
(b) None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
(a) None.
(b) None.
(c) None.
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Item 6. Exhibits
Exhibit No. |
Description of Exhibits |
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3.1 |
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3.2 |
Bylaws (incorporated by reference to Exhibit 3.5 to the Company’s S-1/A filed July 28, 2023) |
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31.1* |
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31.2* |
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32.1* |
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32.2* |
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101.INS* |
XBRL Instance Document - the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH* |
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents |
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104* |
Cover page formatted as Inline XBRL and contained in Exhibit 101 |
* Filed herewith.
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Part III - SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 9, 2024 |
|
Pershing Square SPARC Holdings, Ltd. |
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/s/ William A. Ackman |
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Name: |
William A. Ackman |
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|
Title: |
Chief Executive Officer, Chairman of the Board of Directors |
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Date: May 9, 2024 |
|
/s/ Michael Gonnella |
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Name: |
Michael Gonnella |
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|
Title: |
Chief Financial Officer |
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