UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
For the transition period______ from to______
Commission File No.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
New York,
(Address of Principal Executive Offices, including zip code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The | ||||
| The | ||||
| The |
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 (v232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes
As of May 21, 2024, there were
DENALI CAPITAL ACQUISITION CORP.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2024
TABLE OF CONTENTS
| Page | |||
| Part I. FINANCIAL INFORMATION | |||
| Item 1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - DENALI CAPITAL ACQUISITION CORP. | 1 | |
| Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 25 | |
| Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 30 | |
| Item 4. | CONTROLS AND PROCEDURES | 30 | |
| Part II. OTHER INFORMATION | |||
| Item 1. | LEGAL PROCEEDINGS. | 31 | |
| Item 1A. | RISK FACTORS | 31 | |
| Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. | 31 | |
| Item 3. | DEFAULTS UPON SENIOR SECURITIES. | 31 | |
| Item 4. | MINE SAFETY DISCLOSURES. | 31 | |
| Item 5. | OTHER INFORMATION | 31 | |
| Item 6. | EXHIBITS. | 32 | |
| Part III. SIGNATURES | 33 | ||
i
This report, including, without limitation, statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future, including with respect to our proposed business combination with Longevity (as defined below). In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this Quarterly Report on Form 10-Q may include, for example, statements about:
| ● | our ability to select an appropriate target business or businesses; |
| ● | our ability to complete our initial business combination, including our proposed business combination with Longevity Biomedical, Inc. (“Longevity”); |
| ● | our expectations around the performance of the prospective target business or businesses; |
| ● | our success in retaining or recruiting, or changes required in, our officers, key employees or directors following our initial business combination; |
| ● | our officers and directors allocating their time to other businesses and potentially having conflicts of interest with our business or in approving our initial business combination; |
| ● | our potential ability to obtain additional financing to complete our initial business combination; |
| ● | our pool of prospective target businesses; |
| ● | our ability to consummate an initial business combination due to the uncertainty resulting from the ongoing military action with the country of Ukraine commenced by the Russian Federation and Belarus in February 2022 and the ongoing hostilities in the Middle East, adverse changes in general economic industry and competitive conditions, or adverse changes in government regulation or prevailing market interest rates; |
| ● | our public securities’ potential liquidity and trading; |
| ● | the lack of a market for our securities; |
| ● | the use of proceeds not held in the trust account or available to us from interest income on the trust account balance; or |
| ● | the trust account not being subject to claims of third parties. |
The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our 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. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors,” elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the Securities and Exchange Commission (the “SEC”), including in our Annual Report on Form 10-K filed on April 1, 2024 and in our definitive proxy statement filed with the SEC on December 15, 2023 relating to our proposed business combination with Longevity (the “Longevity Disclosure Statement”). Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
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PArt I. FINANCIAL INFORMATION
ITem 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DENALI CAPITAL ACQUISITION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, 2024 (Unaudited) | December 31, 2023 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Investments held in Trust Account | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES, TEMPORARY EQUITY AND SHAREHOLDERS’ DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued interest expense – related party | ||||||||
| Accrued interest expense – others | ||||||||
| Promissory note – related party | ||||||||
| Promissory note – others | ||||||||
| Total Current Liabilities | ||||||||
| Deferred underwriter compensation | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Class A ordinary shares subject to possible redemption; | ||||||||
| Shareholders’ Deficit: | ||||||||
| Preference shares, $ | ||||||||
| Class A ordinary shares, $ | ||||||||
| Class B ordinary shares, $ | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Shareholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities, Temporary Equity and Shareholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
DENALI CAPITAL ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the three months ended March 31, 2024 and 2023
| For the three months ended March 31, 2024 | For the three months ended March 31, 2023 | |||||||
| Formation and operating costs | $ | $ | ||||||
| Other expense/(income) | ||||||||
| Interest expense | ||||||||
| Income on Trust Account | ( | ) | ( | ) | ||||
| Net income/(loss) | $ | $ | ( | ) | ||||
| $ | $ | ( | ) | |||||
| $ | ( | ) | $ | ( | ) | |||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
DENALI CAPITAL ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT (UNAUDITED)
For the three months ended March 31, 2024 and 2023
| Ordinary Shares | ||||||||||||||||||||||||
| Class A | Class B | Accumulated | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Deficit | Total | |||||||||||||||||||
| Balance as of December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||
| Subsequent measurement of Class A ordinary shares subject to possible redemption (income earned on Trust Account and extension deposit) | — | — | ( | ) | ( | ) | ||||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
| Ordinary Shares | ||||||||||||||||||||||||
| Class A | Class B | Accumulated | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Deficit | Total | |||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
| Net Loss | — | — | ( | ) | ( | ) | ||||||||||||||||||
| Subsequent measurement of Class A ordinary shares subject to possible redemption (income earned on Trust Account) | — | — | ( | ) | ( | ) | ||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
DENALI CAPITAL ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended March 31, 2024 and 2023
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income/(loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income/(loss) to net cash used in operating activities: | ||||||||
| Income on Trust Account | ( | ) | ( | ) | ||||
| Changes in current assets and liabilities: | ||||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ||||||||
| Accrued interest expense – related party | ||||||||
| Accrued interest expense – others | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of promissory note to a related party | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash | ( | ) | ( | ) | ||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental information for non-cash financing activities: | ||||||||
| Increase in investment held in Trust Account through issuance of promissory note | $ | $ | ||||||
| Subsequent measurement of Class A shares subject to possible redemption | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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DENALI CAPITAL ACQUISITION CORP.
Notes to the UNAUDITED CONDENSED consolidated financial statementS
March 31, 2024 AND 2023
NOTE 1 – ORGANIZATION AND BUSINESS OPERATION
Denali Capital Acquisition Corp. (the “Company”) is a blank check company incorporated in the Cayman Islands on January 5, 2022. The Company was formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization, or similar business combination with one or more businesses (a “Business Combination”).
As of March 31, 2024, the Company had not commenced any operations. All activity for the period from January 5, 2022 (inception) through March 31, 2024, relates to the Company’s organizational activities, those necessary to prepare for and complete the initial public offering (“IPO”), identifying a target company for a business combination, and activities in connection with initial business combination, including the business combination with Longevity Biomedical, Inc. (“Longevity”) (the “Longevity Business Combination”). The Company does not expect to generate any operating revenues until after the completion of an initial Business Combination. The Company is generating non-operating income in the form of income from the investment of proceeds derived from the IPO. The Company has selected December 31 as its fiscal year end.
The Company’s sponsor is Denali Capital Global Investments LLC, a Cayman Islands limited liability company (the “Sponsor”).
Financing
The registration statement for the Company’s
IPO became effective on April 6, 2022. On April 11, 2022, the Company consummated the IPO of
Trust Account
Following the consummation of the IPO on April 11, 2022, a total of
$
5
The Company’s management has broad discretion
with respect to the specific application of the net proceeds of the IPO and the sale of the Private Placement Units, although substantially
all of the net proceeds are intended to be applied generally toward consummating a Business Combination. The stock exchange listing rules
require that the Business Combination must be with one or more operating businesses or assets with a fair market value equal to at least
Business Combination
The Company will provide the holders of the outstanding
Public Shares (the “Public Shareholders”) with the opportunity to redeem all or a portion of their Public Shares either (i)
in connection with a shareholder 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 shareholder approval of a Business Combination or conduct a
tender offer will be made by the Company. The Public Shareholders will be entitled to redeem their Public Shares for a per-share price,
payable in cash, equal to the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation
of the initial Business Combination (initially anticipated to be $
6
The founder shares are designated as Class B ordinary
shares (the “founder shares”) and, except as described below, are identical to the Public Shares, and holders of founder shares
have the same shareholder rights as Public Shareholders, except that (i) prior to the Company’s initial Business Combination, only
holders of the founder shares have the right to vote on the appointment of directors, including in connection with the completion of the
Company’s initial Business Combination, and holders of a majority of the founder shares may remove a member of the board of directors
for any reason, (ii) the founder shares are subject to certain transfer restrictions, as described in more detail below, (iii) the Company’s
initial shareholders have entered into an agreement with the Company, pursuant to which they have agreed to (A) waive their redemption
rights with respect to their founder shares and Public Shares in connection with the completion of the Company’s initial Business
Combination, (B) waive their redemption rights with respect to their founder shares and Public Shares in connection with a shareholder
vote to approve an amendment to the Company’s amended and restated memorandum and articles of association that would affect the
substance or timing of the Company’s obligation to provide for the redemption of the Company’s Public Shares in connection
with an initial Business Combination or to redeem
The Sponsor has agreed that it will be liable
to the Company if and to the extent any claims by a third party (other than the Company’s registered public accounting firm) for
services rendered or products sold to the Company, or by 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 the lesser of (i) $
On January 25, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among Longevity Biomedical, Inc., a Delaware corporation (“Longevity”), Denali SPAC Holdco, Inc., a Delaware corporation and direct, wholly owned subsidiary of the Company (“Holdco”), Denali SPAC Merger Sub, Inc., a Delaware corporation and direct, wholly owned subsidiary of Holdco (“Denali Merger Sub”), Longevity Merger Sub, Inc., a Delaware corporation and direct, wholly owned subsidiary of Holdco (“Longevity Merger Sub”), and Bradford A. Zakes, solely in the capacity as seller representative (the “Seller Representative”).
7
Pursuant to the Merger Agreement, the parties thereto will enter into a business combination transaction (the “Longevity Business Combination” and, together with the other transactions contemplated by the Merger Agreement, the “Transactions”), pursuant to which, among other things, immediately following the consummation of the acquisitions by Longevity of each of Cerevast Medical, Inc., Aegeria Soft Tissue LLC, and Novokera LLC, (i) Denali Merger Sub will merge with and into the Company (the “Denali Merger”), with the Company as the surviving entity of the Denali Merger, and (ii) Longevity Merger Sub will merge with and into Longevity (the “Longevity Merger”), with Longevity as the surviving company of the Longevity Merger. Following the Mergers, each of Longevity and the Company will be a subsidiary of Holdco, and Holdco will become a publicly traded company. At the closing of the Transactions (the “Closing”), Holdco will change its name to Longevity Biomedical, Inc., and its common stock is expected to list on the Nasdaq Global Market under the ticker symbol “LBIO.”
The consummation of the proposed Longevity Business Combination is subject to certain conditions as further described in the Merger Agreement.
In connection with the execution of the Merger Agreement, the sole stockholder of Longevity (the “Voting Stockholder”) has entered into a Voting and Support Agreement (the “Longevity Support Agreement”), pursuant to which the Voting Stockholder has agreed to, among other things, (i) vote in favor of the Merger Agreement and the transactions contemplated thereby and (ii) be bound by certain other covenants and agreements related to the Transactions. The Voting Stockholder holds sufficient shares of Longevity to cause the approval of the Transactions on behalf of Longevity.
In connection with the execution of the Merger Agreement, the Company, Longevity and the Sponsor have entered into a Voting and Support Agreement (the “Sponsor Support Agreement”). The Sponsor Support Agreement provides that the Sponsor agrees (i) to vote in favor of the proposed transactions contemplated by the Merger Agreement, (ii) to appear at the purchaser special meeting for purposes of constituting a quorum, (iii) to vote against any proposals that would materially impede the proposed transactions contemplated by the Merger Agreement, (iv) to not redeem any of the Company’s ordinary shares held by it that may be redeemed, and (v) to waive any adjustment to the conversion ratio set forth in the Company’s amended and restated memorandum and articles of association with respect to the Class B ordinary shares of the Company held by the Sponsor, in each case, on the terms and subject to the conditions set forth in the Sponsor Support Agreement.
In support of the Transactions, the Sponsor and
FutureTech Capital LLC, a Delaware limited liability company and an entity controlled by Yuquan Wang, the Chairman of the Board of Longevity
(“FutureTech”), entered into a Sponsor Membership Interest Purchase Agreement dated November 8, 2022 (the “MIPA”). FutureTech
currently holds notes payable from Longevity that are convertible into shares of Longevity common stock, and is also an affiliate of a
significant group of stockholders of Cerevast Medical, Inc. Pursuant to the MIPA, FutureTech agreed to purchase
On January 26, 2023, the Company filed a Form 8-K/A with the SEC to report the Merger Agreement and other legal agreements relating to the Longevity Business Combination.
On March 29, 2023, Holdco filed a Form S-4 with the SEC to register shares of its common stock that will be issued in connection with the business combination contemplated by the Merger Agreement, as amended by Amendments Nos. 1, 2, 3, 4, 5 and 6 thereto, filed with the SEC on May 31, 2023, July 13, 2023, September 1, 2023, October 20, 2023, November 21, 2023 and December 6, 2023 respectively.
8
On April 11, 2023, the parties to the Merger Agreement and the Sponsor entered into an Amendment to and Consent under the Merger Agreement (the “Amendment”). The Amendment provides for the consent from the Company and the Seller Representative to the execution and issuance of the Convertible Promissory Note (as defined below) by the Company and amends the Merger Agreement to provide that the repayment of such Convertible Promissory Note by the Company at the closing of the business combination will not be given effect when calculating the Minimum Cash Amount (as defined in the Merger Agreement) for purposes of the minimum cash closing condition.
On April 11, 2023, the Company issued a convertible
promissory note (the “Convertible Promissory Note”) in the total principal amount of up to $
On April 12, 2023, the Company issued a press
release announcing that it deposited $
On July 11, 2023, the Company issued a convertible
promissory note (the “FutureTech Convertible Promissory Note”) in the total principal amount of $
On July 13, 2023, the Company issued a press release
announcing that an aggregate of $
On August 23, 2023, HoldCo entered into a Subscription
Agreement (the “Subscription Agreement”) with FutureTech, pursuant to which, among other things, FutureTech agreed to subscribe
for and purchase, and Holdco agreed to issue and sell to FutureTech,
Pursuant to the Merger Agreement, the parties
thereto agreed that the obligations of Longevity to consummate the Business Combination are subject to satisfaction or waiver by Longevity
of the condition that the aggregate unrestricted cash proceeds available, after giving effect to the payment of certain of the Company’s
and Longevity’s transaction expenses, to fund the balance sheet of the Company be at least $
9
On October 11, 2023, the Company issued another
convertible promissory note in the total principal amount of up to $
The shareholders further approved the Longevity Biomedical, Inc. 2023 Equity Incentive Plan (the “Equity Incentive Plan”) and any grants or awards issued thereunder (the “Incentive Plan Proposal”). As of the date of this report, the parties are working expeditiously to complete the remaining conditions to closing the Business Combination.
Liquidity, Capital Resources and Going Concern Consideration
The Company’s liquidity needs prior to the
consummation of the IPO had been satisfied through a payment from the Sponsor of $
As of March 31, 2024, the Company had marketable
securities held in the Trust Account of $
As of March 31, 2024, the Company had cash of
$
As described above, on January 25, 2023 and as amended on April 11, 2023, the Company entered into a Merger Agreement, by and among Longevity, Holdco, Denali Merger Sub, Longevity Merger Sub, and the Seller Representative.
10
As of March 31, 2024, the Company had a working
capital deficit of $
On July 11, 2023, the Company issued a FutureTech
Convertible Promissory Note in the total principal amount of $
11
Based on the foregoing, management believes that the Company will not have sufficient working capital and borrowing capacity to meet its needs through the consummation of the initial Business Combination. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all.
In accordance with ASC Subtopic 205-40, “Presentation of Financial Statements – Going Concern”, the Company has evaluated that there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern through July 11, 2024, subject to monthly extensions, the date that the Company will be required to cease all operations, except for the purpose of winding up, if a Business Combination is not consummated. These unaudited condensed consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
Risks and Uncertainties
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, related sanctions on the world economy and the ongoing hostilities in the Middle East are not determinable as of the date of these unaudited condensed consolidated financial statements. The specific impact on the Company’s financial condition, results of operations, and cash flow is also not determinable as of the date of these unaudited condensed consolidated financial statements.
On February 22, 2024, Denali Capital Acquisition
Corp. (the “Company”) received a letter (the “Letter”) from the staff at Nasdaq notifying the Company that, for
the 30 consecutive business days prior to the date of the Letter, the Company’s Minimum Value of Listed Securities (“MVLS”)
was below the minimum of $
12
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X under the Securities Act. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s report on Form 10-K filed with the SEC on April 1, 2024. The condensed consolidated Balance Sheet as of December 31, 2023 presented in this Form 10-Q has been derived from the audited Balance Sheet filed in the aforementioned Form 10-K. The interim results for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2024 or for any future interim periods.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. Any intercompany transactions and balances have been eliminated in consolidation.
Emerging Growth Company Status
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the 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 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 unaudited condensed consolidated 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.
13
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of income and expenses during the reporting period. 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 on March 31, 2024 and December 31, 2023.
Investments Held in Trust Account
The Company’s portfolio of investment held in the Trust Account is comprised of an investment in money market funds that invest in U.S. government securities and generally have a readily determinable fair value. Gains and losses resulting from the change in fair value of these securities are included in income on Trust Account in the accompanying consolidated statements of operations. The fair values of investment held in the Trust Account are determined using available market information.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under the FASB ASC 825, “Financial Instruments,” approximates the carrying amounts represented in the consolidated balance sheet, primarily due to its short-term nature.
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 FASB 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 meet all of the requirements for equity classification under FASB ASC 815, including whether the warrants are indexed to the Company’s own ordinary 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 of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all
of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the
time of issuance. For issued or modified warrants that do not meet all 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
14
Convertible Debt
The Company issues debt that may have conversion features.
Convertible debt – derivative treatment – When the Company issues debt with a conversion feature, the Company must first assess whether the embedded equity-linked component is clearly and closely related to its host instruments. If a component is clearly and closely related to its host instruments, then the Company has to assess whether the conversion feature meets the requirements to be treated as a derivative, as follows: a) one or more underlying, typically the price of our common stock; b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. An embedded equity-linked component that meets the definition of a derivative does not have to be separated from the host instrument if the component qualifies for the scope exception for certain contracts involving an issuer’s own equity. The scope exception applies if the contract is both a) indexed to its own stock; and b) classified in shareholders’ equity in its statement of financial position.
If the conversion feature within convertible debt meets the requirements to be treated as a derivative, the Company estimates the fair value of the embedded derivative using the Black Scholes method upon the date of issuance. If the fair value of the embedded derivative is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. The derivative shall be recorded at fair value as liability and the carrying value assigned to the host contract represents the difference between the previous carrying amount of the hybrid instrument and the fair value of the derivative; therefore, there is no gain or loss from the initial recognition and measurement of an embedded derivative that is accounted for separately from its host contract.
The ASU changes the accounting for convertible instruments by reducing the number of accounting models. It requires convertible debt instruments to be accounted for under one of the following three models: embedded derivative, substantial premium, or no proceeds allocated (traditional debt) models. It eliminates the cash conversion and beneficial conversion feature models, which will likely result in more convertible debt instruments being accounted for as a single unit.
The conversion feature in convertible promissory note issued by the Company on April 11, 2023 and July 11, 2023 does not qualify for either the derivative treatment. These convertible promissory notes are presented as traditional debt as of March 31, 2024, in the consolidated balance sheets.
Class A Ordinary Shares Subject to Possible Redemption
The Company accounts for its Class A ordinary
shares subject to possible redemption in accordance with ASC 480. Class A ordinary shares subject to mandatory redemption (if any) are classified
as a liability instrument and measured at fair value. Conditionally redeemable ordinary shares (including shares 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, ordinary shares are classified as shareholders’
equity. The Company’s ordinary shares feature certain redemption rights that are considered to be outside of the Company’s
control and are subject to the occurrence of uncertain future events. Accordingly, as of March 31, 2024, and December 31, 2023,
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable ordinary shares to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable ordinary shares are affected by charges against additional paid-in capital or accumulated deficit if additional paid-in capital equals to zero.
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| Shares | Amount | |||||||
| Ordinary shares subject to possible redemption – December 31, 2022 | ||||||||
| Redemption of shares ($10.92 per share) | ( | ) | ( | ) | ||||
| Subsequent measurement of Class A ordinary shares subject to possible redemption (income earned on Trust Account) | ||||||||
| Subsequent measurement of Class A ordinary shares subject to possible redemption (extension deposit) | ||||||||
| Ordinary shares subject to possible redemption – December 31, 2023 | $ | |||||||
| Subsequent measurement of Class A ordinary shares subject to possible redemption (income earned on Trust Account) | ||||||||
| Subsequent measurement of Class A ordinary shares subject to possible redemption (extension deposit) | ||||||||
| Ordinary shares subject to possible redemption – March 31, 2024 | $ | |||||||
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 $
Net Income/(Loss) Per Ordinary Share
The Company complies with the accounting and disclosure
requirements of FASB ASC 260, “Earnings Per Share.” Net loss per redeemable and non-redeemable ordinary share is computed
by dividing net loss by the weighted average number of ordinary shares outstanding between the redeemable and non-redeemable shares during
the period, excluding ordinary shares subject to forfeiture. Weighted average shares were reduced for the effect of an aggregate of
Subsequent measurement adjustments recorded pursuant to ASC 480-10-S99-3A related to redeemable shares are treated in the same manner as dividends on redeemable shares. Class A ordinary shares are redeemable at a price determined by the Trust Account held by the Company. This redemption price is not considered a redemption at fair value. Accordingly, the adjustments to the carrying amount are reflected in the Earnings Per Share (“EPS”) using the two-class method. The Company has elected to apply the two-class method by treating the entire periodic adjustment to the carrying amount of the Class A ordinary shares subject to possible redemption like a dividend.
Based on the above, any remeasurement of the redemption value of the Class A ordinary shares subject to possible redemption is considered to be dividends paid to the Public Shareholders. Warrants issued are contingently exercisable (i.e., on the later of 30 days after the completion of the initial Business Combination or 12 months from the closing of the IPO). Further, Convertible Promissory Notes are also contingently exercisable upon the consummation of the initial Business Combination. For EPS purpose, the warrants and notes are anti-dilutive since they would generally not be reflected in basic or diluted EPS until the contingency is resolved. As of March 31, 2024, and December 31, 2023, the Company did not have any other dilutive securities and other contracts that could, potentially, be exercised or converted into ordinary shares and then share in the earnings of the Company. As a result, diluted income (loss) per ordinary share is the same as basic earnings (loss) per ordinary share for the periods presented.
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| For the three months ended March 31, 2024 | For the three months ended March 31, 2023 | |||||||
| Net income/(loss) | $ | $ | ( | ) | ||||
| Income earned on Trust Account | ( | ) | ( | ) | ||||
| Accretion of carrying value to redemption value for extension deposit | ( | ) | ||||||
| Net loss including accretion of temporary equity | $ | ( | ) | $ | ( | ) | ||
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||||||||||
| Redeemable | Non-Redeemable | Redeemable | Non-Redeemable | |||||||||||||
| Particulars | Shares | Shares | Shares | Shares | ||||||||||||
| Basic and diluted net income/(loss) per share: | ||||||||||||||||
| Numerators: | ||||||||||||||||
| Allocation of net loss including accretion of temporary equity | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Income earned on Trust Account | ||||||||||||||||
| Accretion of temporary equity to redemption value for extension deposit | ||||||||||||||||
| Allocation of net income/(loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Denominators: | ||||||||||||||||
| Weighted-average shares outstanding | ||||||||||||||||
| $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
Income Taxes
The Company accounts for income taxes under FASB ASC 740, “Income Taxes” (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statements recognition and measurement of a tax position 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. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
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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 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 determined that the Cayman Islands is the Company’s only major tax jurisdiction and the location of all members of management, sponsors, directors, any employees, or assets to the extent employed is the United States.
The Company may be subject to potential examination by federal and state taxing authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next 12 months.
There is currently no taxation imposed on income by the Government of the Cayman Islands for the quarter ended March 31, 2024, and 2023.
Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, “Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”)”, which simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective January 1, 2024 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company has adopted ASU 2020-06 effective January 1, 2024 but does not have material impact on the financial position.
Management does not believe that any other recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated financial statements.
NOTE 3 – INITIAL PUBLIC OFFERING
On April 11, 2022, the Company consummated the
IPO of
The warrants will become exercisable on the later of 30 days after the completion of the Company’s initial Business Combination or 12 months from the closing of the IPO and will expire five years after the completion of the Company’s initial Business Combination or earlier upon redemption or liquidation (see Note 7).
NOTE 4 – PRIVATE PLACEMENT
Simultaneously with the closing of the IPO, the
Company consummated a private placement and the Sponsor purchased an aggregate of
If the Company does not complete a Business Combination within 18 months from the closing of the IPO (refer to Note 1), the proceeds from the sale of the Private Placement Units held in the Trust Account will be used to fund the redemption of the Company’s Class A ordinary shares (subject to the requirements of applicable law) and the Private Placement Units and all underlying securities will expire worthless. The Private Placement Units will not be transferable, assignable, or saleable until 30 days after the completion of an initial Business Combination, subject to certain exceptions.
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NOTE 5 – RELATED PARTY TRANSACTIONS
Founder Shares
On February 3, 2022, the Company issued an aggregate
of
The founder shares are identical to the Class A ordinary shares included in the units sold in the IPO, except that the founder shares will automatically convert into Class A ordinary shares at the time of the Company’s initial Business Combination (see Note 7). Also, the Sponsor and each member of the Company’s management team have entered into an agreement with the Company, pursuant to which they have agreed to waive their redemption rights with respect to any founder shares and Public Shares held by them.
The Sponsor and the Company’s directors
and executive officers have agreed not to transfer, assign or sell any of their founder shares until the earlier of (A) year after
the completion of an initial Business Combination and (B) subsequent to the Company’s initial Business Combination, (x) if the closing
price of Class A ordinary shares equals or exceeds $
The sale of the founder shares to the Company’s
Chief Financial Officer and to certain members of the Company’s board of directors is in the scope of FASB ASC Topic 718, “Compensation-Stock
Compensation” (“ASC 718”). Under ASC 718, stock-based compensation associated with equity-classified awards is measured
at fair value upon the grant date. The fair value of the
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Working Capital 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, provide the Company Working Capital Loans. If the Company completes a Business Combination, it would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. In the event that a Business Combination does not close the Company may use a portion of proceeds held outside of the Trust Account to repay the Working Capital Loans, but no proceeds held in the Trust Account would be used for such repayment.
The Working Capital loans would either be
repaid upon consummation 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 Shares and Private Placement Warrants, including any of those issued upon conversion of the Working Capital Loans (and any Private Placement Shares issuable upon the exercise of the Private Placement Warrants that may be issued upon conversion of the Working Capital Loans) will be entitled to registration rights pursuant to a registration and shareholder rights agreement signed on April 6, 2022. The holders of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed after the completion of the initial Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. The Company will bear the costs and expenses of filing any such registration statement.
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Underwriting Agreement
The underwriters received a cash underwriting
discount of $
NOTE 7 – SHAREHOLDER’S DEFICIT
Preference shares – The Company
is authorized to issue
Class A Ordinary Shares – The
Company is authorized to issue
Class B Ordinary Shares –
The Company is authorized to issue
Prior to the Company’s initial Business Combination, only holders of Class B ordinary shares will have the right to vote on the appointment of directors and holders of a majority of the Company’s Class B ordinary shares may remove a member of the board of directors for any reason. In addition, in a vote to continue the Company in a jurisdiction outside the Cayman Islands (which requires the approval of at least two-thirds of the votes of all ordinary shares voted at a general meeting), holders of founder shares will have ten votes for every founder share and holders of Class A ordinary shares will have one vote for every Class A ordinary share and, as a result, the Company’s initial shareholders will be able to approve any such proposal without the vote of any other shareholder.
The Class B ordinary shares will automatically
convert into Class A ordinary shares on the consummation of the initial Business Combination at a ratio such that the number of Class
A ordinary shares issuable upon conversion of all founder shares will equal, in the aggregate, on an as-converted basis, approximately
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Warrants
All warrants (Public Warrants and Private Warrants)
will become exercisable at $
In addition, if (x) the Company issues additional
Class A ordinary shares or equity-linked securities for capital raising purposes in connection with the closing of an initial Business
Combination at an issue price or effective issue price of less than $
The Company has not registered the Class A ordinary shares issuable upon exercise of the warrants at this time. However, the Company has agreed that as soon as practicable, but in no event later than 20 business days after the closing of the initial Business Combination, it will use commercially reasonable efforts to file with the SEC a registration statement covering the Class A ordinary shares issuable upon exercise of the warrants, and it will use commercially reasonable efforts to cause the same to become effective within 60 business days following the initial Business Combination and to maintain a current prospectus relating to those Class A ordinary shares until the warrants expire or are redeemed. Notwithstanding the above, if the Class A ordinary shares are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy 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, it will not be required to file or maintain in effect a registration statement, but the Company will be required to use 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
Once the warrants become exercisable, the Company may redeem the outstanding warrants:
| ● | in whole and not in part; |
| ● | at a price of $ |
| ● | upon a minimum of 30 days’ prior written notice of redemption, which is referred to as the 30-day redemption period; and |
| ● | if, and only if, the last reported sale price of ordinary shares equals or exceeds $ |
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The Company will not redeem the warrants unless a registration statement under the Securities Act covering the ordinary shares issuable upon exercise of the warrants is effective and a current prospectus relating to those ordinary shares is available throughout the 30-day redemption period, except if the warrants may be exercised on a cashless basis and such cashless exercise is exempt from registration under the Securities Act. 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 warrants for redemption as described above, its management will have the option to require all holders that wish to exercise warrants to do so on a “cashless basis.” In determining whether to require all holders to exercise their warrants on a “cashless basis,” the Company’s management will consider, among other factors, the cash position, the number of warrants that are outstanding and the dilutive effect on the Company’s shareholders of issuing the maximum number of ordinary shares issuable upon the exercise of the Company’s warrants. In such event, each holder would pay the exercise price by surrendering the warrants for that number of Class A ordinary shares equal to the quotient obtained by dividing (x) the product of the number of Class A ordinary shares underlying the warrants, multiplied by the excess of the “fair market value” over the exercise price of the warrants by (y) the fair market value. The “fair market value” shall mean the volume weighted average price of the Class A ordinary shares for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants.
NOTE 8 – FAIR VALUE MEASUREMENTS
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. |
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| As of March 31, 2024 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Inputs | |||||||||||||
| Assets: | ||||||||||||||||
| Investments held in Trust Account | $ | $ | ||||||||||||||
| As of December 31, 2023 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||||||
| Assets: | ||||||||||||||||
| Investments held in Trust Account | $ | $ | ||||||||||||||
NOTE 9 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date these unaudited condensed consolidated financial statements were issued and determined that there were no significant unrecognized events except for the below:
Subsequent to March 31, 2024, the Company has
deposited $
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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 the “Company,” “our,” “us” or “we” refer to Denali Capital Acquisition Corp. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the consolidated financial statements and the notes related thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and variations thereof and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s final prospectus for its initial public offering (“IPO”) filed with the SEC on April 7, 2022, the Annual Report on Form 10-K filed with the SEC on April 1, 2024, and the Company's definitive proxy statement filed with the SEC on December 15, 2023 relating to its proposed business combination with Longevity. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at http://www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a blank check company incorporated as a Cayman Islands exempted company on January 5, 2022 (inception), for the purpose of effecting an initial business combination. While we will not be limited to a particular industry or geographic region in our identification and acquisition of a target company, we intend to focus on technology, consumer and hospitality and will not complete our initial business combination with a target that is headquartered in China (including Hong Kong and Macau) or conducts a majority of its business in China (including Hong Kong and Macau). We intend to effectuate our initial business combination using cash from the proceeds of our IPO and the sale of units in the Private Placement to the sponsor, additional shares, debt or a combination of cash, equity and debt.
We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a business combination will be successful.
Recent Developments
On January 9, 2024, our shareholders held an extraordinary general meeting (the “Business Combination Meeting”) and voted in favor of approving the Longevity Business Combination. As a result, shareholders holding 4,440,202 public shares (after giving effect to withdrawals of redemptions) exercised their right to redeem such shares for a pro rata portion of the funds in the Company’s trust account. The funds for the 4,440,202 public shares to be redeemed are currently held in the Trust Account pending the closing of the Business Combination. The Company may continue to accept reversal of redemption requests until the closing of the Business Combination. Therefore, if the Business Combination does not proceed, the shares will be released and become tradeable again until either the completion of another business combination, when the public shareholders must be provided with another opportunity to redeem, or upon reaching the deadline to consummate an initial business combination resulting in the required liquidation of the Company.
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The shareholders also approved the following proposals by way of ordinary resolution (i) the Business Combination (as defined in the Merger Agreement), (ii) the adoption of the Agreement and Plan of Merger, dated as of January 25, 2023 (as amended by the Amendment to and Consent under Agreement and Plan of Merger dated April 11, 2023, the “Merger Agreement”), (iii) the Plan of Merger and (iv) the transactions contemplated by the Merger Agreement (the “Business Combination Proposal”).
Further, the shareholders approved the Merger Proposal as defined in the proxy statement along with authorization of merger of Denali Merger Sub with and into the Company.
Furthermore, the shareholders approved the alteration of authorized share capital at the effective time of the Denali Merger by (a) the reclassification and re-designation of (i) 200,000,000 issued and unissued Class A ordinary shares of a par value of US$0.0001 each to 200,000,000 issued and unissued ordinary shares of a par value of US$0.0001 each; (ii) 20,000,000 issued and unissued Class B ordinary shares of a par value of US$0.0001 each to 20,000,000 issued and unissued ordinary shares of a par value of US$0.0001 each; and (iii) 1,000,000 authorized but unissued preference shares of a par value of US$0.0001 each to 1,000,000 authorized but unissued ordinary shares of a par value of US$0.0001 each (the “Re-designation”); and (b) immediately following the Re-designation, the consolidation of every 100 issued and unissued ordinary shares of a par value of US$0.0001 each into one ordinary share of a par value of US$0.01 each (the “Consolidation”), such that following such Re-designation and Consolidation, the authorized share capital of the Company shall be US$22,100 divided into 2,210,000 shares of a par value of US$0.01 each (the “Share Capital Proposal”). It was approved with effect from the effective time of the Denali Merger, (a) the change of name of the Company to “LBI Sub 2, Inc.” and (b) the adoption of the Proposed Cayman Constitutional Documents (the “Organizational Documents Proposals”).
The shareholders further approved the Longevity Biomedical, Inc. 2023 Equity Incentive Plan (the “Equity Incentive Plan”) and any grants or awards issued thereunder (the “Incentive Plan Proposal”). As of the date of this report, the parties are working expeditiously to complete the remaining conditions to closing the Business Combination.
On February 22, 2024, Denali Capital Acquisition Corp. (the “Company”) received a letter (the “Letter”) from the staff at Nasdaq notifying the Company that, for the 30 consecutive business days prior to the date of the Letter, the Company’s Minimum Value of Listed Securities (“MVLS”) was below the minimum of $50 million required for continued listing on The Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(b)(2)(A). The staff at Nasdaq also noted in the Letter that the Company is not in compliance with Nasdaq Listing Rule 5450(b)(3)(A), which requires listed companies to have total assets and total revenue of at least $50,000,000 each for the most recently completed fiscal year or for two of the three most recently completed fiscal years. The Letter is only a notification of deficiency, not of imminent delisting, and has no current effect on the listing or trading of the Company’s securities on Nasdaq. In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company has 180 calendar days, or until August 20, 2024, to regain compliance. The Letter notes that to regain compliance, the Company’s MVLS must close at or above $50 million for a minimum of ten consecutive business days during the compliance period. The Letter further notes that if the Company is unable to satisfy the MVLS requirement prior to such date, the Company may be eligible to transfer the listing of its securities to The Nasdaq Capital Market (provided that the Company then satisfies the requirements for continued listing on that market). If the Company does not regain compliance by August 20, 2024, Nasdaq staff will provide written notice to the Company that its securities are subject to delisting. At that time, the Company may appeal any such delisting determination to a hearings panel. The Company intends to actively monitor the Company’s MVLS between now and August 20, 2024, and may, if appropriate, evaluate available options to resolve the deficiency and regain compliance with the MVLS requirement. While the Company is exercising diligent efforts to maintain the listing of its securities on Nasdaq, there can be no assurance that the Company will be able to regain or maintain compliance with Nasdaq listing standards.
During the quarter ended March 31, 2024, the Sponsor lent an aggregate of $170,700 to the Company resulting in the principal amount of the Sponsor Convertible Promissory Note being increased to $1,013,200.
During the quarter ended March 31, 2024, FutureTech lent an aggregate of $150,000 to the Company resulting in the principal amount of the Sponsor Convertible Promissory Note being increased to $1,125,000.
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Results of Operations
We have neither engaged in any operations nor generated any operating revenues to date. Our only activities from January 5, 2022 (inception) through March 31, 2024, were organizational activities, those necessary to prepare for and complete the IPO, and, subsequent to the IPO, identifying a target company for a business combination and activities in connection with the proposed Longevity Business Combination. We do not expect to generate any operating revenues until after the completion of our initial business combination. We are generating non-operating income in the form of interest income on marketable securities held after the IPO. We have incurred and will continue to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses in connection with searching for, and completing, a business combination.
For the three months ended March 31, 2024, we had a net income of $264,330 which primarily consists of income earned on investment held in the Trust Account of $653,885 partially offset by formation and operating expenses of $368,252 and interest expense of $21,303.
For the three months ended March 31, 2023, we had a net loss of $1,009,102 which primarily consists of formation and operating expenses of $1,921,748, partially offset by income earned on investments held in the Trust Account of $912,646.
Cash Flows from Operating Activities
For the three months ended March 31, 2024, net cash used in operating activities was $374,151, primarily due to net income of $264,330 for the period and the changes in current assets and liabilities of $15,404 due to prepaid expenses of $(59,423), accounts payable and accrued expenses of $53,524, accrued interest expense – related party of $11,430 and accrued interest expense – others of $9,873. In addition, net cash used in operating activities includes adjustments to reconcile net income from income on the Trust Account of $653,885.
For the three months ended March 31, 2023, net cash used in operating activities was $240,397, primarily due to net loss of $1,009,102 for the period and the changes in current assets and liabilities of $1,681,351 due to prepaid expenses of $(5,826) and accounts payable and accrued expenses of $1,687,177. In addition, net cash used in operating activities includes income on the Trust Account of $912,646.
Cash Flows from Financing Activities
For the three months ended March 31, 2024, net cash provided by financing activities was $170,700 primarily due to proceeds from issuance of promissory note to related party.
For the three months ended March 31, 2023, net cash provided by financing activities was $0.
Liquidity and Capital Resources
Our liquidity needs prior to the consummation of the IPO were satisfied through a payment from the Sponsor and the loan under an unsecured promissory note from the Sponsor of up to $400,000 (the “Promissory Note”), which was repaid after the IPO.
On April 11, 2022, we consummated the IPO of 8,250,000 Units, inclusive of 750,000 Units issued pursuant to the partial exercise by the underwriters of their over-allotment option. The Units were sold at a price of $10.00 per Unit, generating gross proceeds of $82,500,000. Simultaneously with the closing of the IPO, we consummated the sale of 510,000 Private Placement Units, inclusive of 30,000 Private Placement Units sold to the Sponsor pursuant to the underwriters’ partial exercise of their over-allotment option. Each whole Private Placement Unit consists of one Class A ordinary share and one warrant, each whole warrant entitling the holder thereof to purchase one Class A ordinary share at an exercise price of $11.50 per share. The Private Placement Units were sold at a price of $10.00 per Private Placement Unit, generating gross proceeds of $5,100,000.
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Following the closing of the IPO and sale of the Private Placement Units on April 11, 2022, a total of $84,150,000 was placed in the Trust Account, and we had $1,515,795 of cash held outside of the Trust Account, after payment of costs related to the IPO, and available for working capital purposes. In connection with the IPO, we incurred $5,105,315 in transaction costs, consisting of $1,650,000 of underwriting fees, $2,887,500 of deferred underwriting fees and $567,815 of other offering costs. As of March 31, 2024, we had investment held in the Trust Account of $51,281,849. We intend to use substantially all of the remaining funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less income taxes payable), to complete our business combination. To the extent that our share capital or debt is used, in whole or in part, as consideration to complete a business combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
As of March 31, 2024, we had cash of $1,013 outside of the Trust Account. If we do not complete the Longevity Business Combination, we intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a business combination.
On January 25, 2023, and as amended on April 11, 2023, we entered into the Merger Agreement, by and among Longevity, Holdco, Denali Merger Sub, Longevity Merger Sub, and the Seller Representative.
On March 29, 2023, HoldCo filed a Form S-4 with the SEC to register shares of its common stock that will be issued in connection with the business combination contemplated by the Merger Agreement, as amended by Amendments Nos. 1, 2, 3, 4, 5 and 6 thereto, filed with the SEC on May 31, 2023, July 13, 2023, September 1, 2023, October 20, 2023, November 21, 2023 and December 6, 2023 respectively. On December 14, 2023, HoldCo filed a notice of effectiveness. On January 9, 2024, our shareholders held a Business Combination Meeting and voted in favor of approving the Longevity Business Combination.
For finance transaction costs in connection with a business combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required (the “Working Capital Loans”). If we complete the initial business combination, we would repay such loaned amounts, or at the lender’s discretion, up to $1.5 million of such Working Capital Loans may be convertible into units of the post business combination entity at a price of $10.00 per unit. The units would be identical to the Private Placement Units. In the event that the initial business combination does not close, we may use a portion of the working capital held outside of the Trust Account to repay such loaned amounts, but no proceeds from the Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into units of the post-business combination entity, at a price of $10.00 per unit at the option of the lender. On April 11, 2023, we issued the Convertible Promissory Note in the total principal amount of up to $825,000 to the Sponsor. The Convertible Promissory Note bears an interest accruing on the unpaid and outstanding total principal amount at the lowest short-term Applicable Federal Rate as in effect on the date thereof and is payable in arrears on the maturity date. Interest will be calculated on the basis of a 365-day year and the actual number of days elapsed, to the extent permitted by applicable law. The Convertible Promissory Note was issued with an initial principal balance of $412,500. The Sponsor has further lent loans in the aggregate amount of $430,000 on July 18, 2023, October 12, 2023 and December 29, 2023. The Sponsor further lent an aggregate of $170,700 to the Company against the Convertible Promissory Note during the period ended March 31, 2024. As of March 31, 2024, there was an amount of $1,013,200 outstanding under Working Capital Loans in the form of the Convertible Promissory Note issued to Sponsor. Further, an amount of $29,451 with interest at 4.86% on the amount borrowed from the Sponsor was recognized as accrued interest expense – related party as of March 31, 2024. On April 2, 2024, the Company and Sponsor agree that, in addition to the Initial Principal Amount, the Company may request an additional aggregate amount of up to $186,800, which may be drawn down in one or more tranches at any time prior to the Maturity Date (each a “Drawdown Request”) raising the total limit up to $1,200,000.
On July 11, 2023, the Company issued a FutureTech Convertible Promissory Note in the total principal amount of $825,000 to FutureTech and 100% of such amount has been utilized to fund the required payment in order to extend the period of time to consummate a business combination. On October 11, 2023, the Company issued another convertible promissory note in the total principal amount of up to $450,000 to FutureTech. The Convertible Promissory Note was issued with an initial principal balance of $50,000, with the remaining $400,000 drawable at the Company’s request and upon the consent of FutureTech prior to the maturity of the Convertible Promissory Note. Consequently, $50,000 of such amount has been utilized to fund the required payment in order to extend the period of time to consummate a business combination by another month from current deadline of October 11, 2023 to November 11, 2023. During the quarter ended December 31, 2023, $100,000 has been further deposited in the Trust Account for extension to January 11, 2024. Until March 2024, there has been further deposit of an aggregate $150,000 into the Trust Account for extension from January 11, 2024 to April 11, 2024. As of March 31, 2024, there was an amount of $1,125,000 outstanding in the form of the Convertible Promissory Note issued to FutureTech. Further, the amount of $28,751 with interest at 4.80% on amount borrowed from Futuretech for the Extension was recognized as accrued interest expense – others, as of March 31, 2024.
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On October 11, 2023, our shareholders held an extraordinary general meeting (the “Extension Meeting”) to vote in favor of approving amendments to the Company’s amended and restated memorandum and articles of association (the “Articles”) to, amongst other things, extend the date by which we must consummate an initial business combination from October 11, 2023 to July 11, 2024 by electing to extend the date to consummate an initial business combination on a monthly basis for up to nine times by an additional one month each time (such date as extended, the “Extended Date”), subject to the Sponsor (or its affiliates or permitted designees) depositing into the Trust Account for each such one-month extension the lesser of (a) an aggregate of $50,000 or (b) $0.03 per public share that remains outstanding and is not redeemed prior to any such one-month extension, unless the closing of our initial business combination has occurred.
Based on the foregoing, management believes that we will not have sufficient working capital and borrowing capacity to meet our needs through the consummation of the initial business combination. If we are unable to raise additional capital, we may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. We cannot provide any assurance that new financing will be available to us on commercially acceptable terms, if at all.
In accordance with Accounting Standards Codification (“ASC”) Subtopic 205-40, “Presentation of Financial Statements – Going Concern”, the Company has evaluated that there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern through July 11, 2024, subject to monthly extensions, the date that the Company will be required to cease all operations, except for the purpose of winding up, if a business combination is not consummated. These unaudited condensed financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
If our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a 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 initial business combination. Moreover, we may need to obtain additional financing either to complete our business combination or because we become obligated to redeem a significant number of our public shares upon completion of our business combination, in which case we may issue additional securities or incur debt in connection with such business combination.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of March 31, 2024 and December 31, 2023. We do not participate in transactions that create relationships with entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Other Contractual Obligations
Registration Rights
The holders of our founder shares, Private Placement Shares and Private Placement Warrants, including any of those issued upon conversion of any Working Capital Loans (and any Private Placement Shares issuable upon the exercise of the Private Placement Warrants that may be issued upon conversion of any Working Capital Loans) will be entitled to registration rights pursuant to a registration and shareholder rights agreement signed on April 6, 2022. The holders of these securities are entitled to make up to three demands, excluding short form demands, that we register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed after the completion of our initial business combination and rights to require us to register for resale such securities pursuant to Rule 415 under the Securities Act. We will bear the costs and expenses of filing any such registration statements.
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Underwriting Agreement
The underwriters received a cash underwriting discount of $0.20 per Unit, or $1,650,000 in the aggregate, paid upon the closing of the IPO. In addition, the underwriters will be entitled to a deferred fee of $0.35 per Unit, or $2,887,500 in the aggregate. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that we complete a business combination, subject to the terms of the underwriting agreement. On November 20, 2023, the Company entered into a Deferred Discount Agreement with the underwriters and Holdco, pursuant to which the representatives of the IPO agreed to receive $886,250 of the aggregate $1,887,500 deferred fee owed to them upon the closing of the Business Combination in the form of 86,625 shares of Holdco’s common stock (the “Common Stock Consideration”). Upon the terms of the Deferred Discount Agreement, the Common Stock Consideration will be issued at the closing of the Business Combination and the remaining $2,021,250 of the aggregate deferred fee owed will remain payable at the closing of the Business Combination. The Deferred Discount Agreement will terminate in the event that the Company does not consummate the Business Combination.
Critical Accounting Estimates
The preparation of unaudited condensed consolidated financial statements and related disclosures in conformity with U.S. 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 unaudited condensed consolidated financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. Management does not believe that the Company has any critical accounting estimates.
Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, “Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”)”, which simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective January 1, 2024, and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company has adopted ASU 2020-06 effective January 1, 2024 but does not have material impact on the financial position.
Management does not believe that any other recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on our unaudited condensed consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The net proceeds of our IPO and the Private Placement held in the Trust Account are invested in U.S. government securities with a maturity of 185 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. government 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 controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under 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.
As required by Rules 13a-15f and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2024. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were effective.
Changes in Internal Control over Financial Reporting
During the quarter ended March 31, 2024, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
None.
Item 1A. Risk Factors.
Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks contained in our registration statement on Form S-1 (File No. 263123) filed in connection with our IPO, our Annual Report on Form 10-K for the annual period ended December 31, 2023, and our definitive proxy statement relating to our proposed business combination with Longevity (File No. 333-270917), as filed with the SEC on December 15, 2023 (see below).
As of the date of this Quarterly Report, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the annual period ended December 31, 2023, as filed with the SEC on April 1, 2024, and our definitive proxy statement, filed with the SEC on December 15, 2023, relating to our proposed business combination with Longevity (File No. 333-270917). However, we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. MINE SAFETY DISCLOSURES.
Not applicable.
Item 5. OTHER INFORMATION.
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Item 6. EXHIBITS.
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| * | Incorporated herein by reference as indicated. |
| ** | Filed herein. |
| *** | Furnished herein. |
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Part III.
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: May 21, 2024 | DENALI CAPITAL ACQUISITION CORP. |
| By: | /s/ Lei Huang | |
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ You “Patrick” Sun | |
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
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