UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(MARK ONE)
For the quarter ended
For the transition period from to
Commission file number:
(Exact Name of Registrant as Specified in Its Charter)
| ||
(State or other jurisdiction of | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) |
(Issuer’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading |
| Name of each exchange on |
|
| 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 (§ 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 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 November 14, 2023, there were
DISTOKEN ACQUISITION CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2023
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
Item 1. Interim Financial Statements
DISTOKEN ACQUISITION CORPORATION
CONDENSED BALANCE SHEETS
| September 30, |
| December 31, | |||
| 2023 |
| 2022 | |||
(Unaudited) | ||||||
ASSETS | ||||||
Current assets | ||||||
Cash | $ | | $ | — | ||
Other receivable | — | | ||||
Prepaid expenses |
| |
| | ||
Total current assets |
| |
| | ||
Deferred offering costs |
| — |
| | ||
Cash and Investments held in Trust Account | | — | ||||
TOTAL ASSETS | $ | | $ | | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
| ||
Current liabilities |
|
|
|
| ||
Accounts payable and accrued expenses | $ | | $ | | ||
Accrued offering costs |
| |
| | ||
Advances from Sponsor |
| |
| | ||
Promissory note – Sponsor |
| — |
| | ||
TOTAL LIABILITIES |
| |
| | ||
Commitments and contingencies |
|
|
|
| ||
Ordinary shares subject to possible redemption | | — | ||||
SHAREHOLDERS’ EQUITY |
|
|
|
| ||
Preference shares, $ |
|
| ||||
Ordinary shares, $ |
| |
| | ||
Additional paid-in capital |
| — |
| | ||
Accumulated Deficit |
| |
| ( | ||
TOTAL SHAREHOLDERS’ EQUITY |
| |
| | ||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | | $ | | ||
(1) |
(2) |
(3) |
The accompanying notes are an integral part of the unaudited condensed financial statements.
1
DISTOKEN ACQUISITION CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Operating and formation costs | $ | | $ | | $ | | $ | | ||||
Loss from operations | ( | ( | ( | ( | ||||||||
|
|
| ||||||||||
Other income: |
|
| ||||||||||
Interest earned on Investments held in Trust Account | | — | | — | ||||||||
Unrealized gain on Investments held in Trust Account | | — | | — | ||||||||
Total other income, net | | — | | — | ||||||||
Income (loss) before provision for income taxes | | ( | | ( | ||||||||
Provision for income taxes | ( | — | ( | — | ||||||||
Net income (loss) | $ | | $ | ( | $ | | $ | ( | ||||
|
|
| ||||||||||
Basic and diluted weighted average shares outstanding, ordinary shares subject to possible redemption value | | — | | — | ||||||||
|
|
| ||||||||||
Basic and diluted net income (loss) per share, ordinary shares subject to possible redemption value | $ | | $ | — | $ | | $ | — | ||||
|
|
| ||||||||||
Basic and diluted weighted average shares outstanding, Non-redeemable ordinary shares(1)(2)(3) | | | | | ||||||||
|
|
|
|
|
|
| ||||||
Basic and diluted net income (loss) per share, Non-redeemable ordinary shares | $ | | $ | ( | $ | | $ | ( | ||||
(1) | At December 31, 2022, excludes an aggregate of up to |
(2) | On January 26, 2023, the shareholders of the Company approved, through an ordinary resolution, the redesignation of authorized share capital from |
(3) | On January 30, 2023, the Company effected a share dividend of |
The accompanying notes are an integral part of the unaudited condensed financial statements.
2
DISTOKEN ACQUISITION CORPORATION
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
| Additional |
| Total | |||||||||||
| Ordinary Shares |
| Paid-in |
| Accumulated |
| Shareholders’ | |||||||
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity | |||||
Balance – December 31, 2022(1)(2)(3) |
| | $ | | $ | | $ | ( | $ | | ||||
Sale of | | | | — | | |||||||||
Fair value of public warrants at issuance |
| — |
| — |
| |
| — |
| | ||||
Fair value of representative shares |
| — |
| — |
| |
| — |
| | ||||
Fair value of rights included in public units |
| — |
| — |
| |
| — |
| | ||||
Fair value of representative warrants | — | — | | — | | |||||||||
Allocated value of transaction costs | — | — | ( | — | ( | |||||||||
Accretion for ordinary shares to redemption amount | — | — | ( | — | ( | |||||||||
Net income |
| — |
| — |
| — |
| |
| | ||||
Balance – March 31, 2023 | | | | | | |||||||||
Accretion for ordinary shares to redemption amount | — | — | ( | — | ( | |||||||||
Net income | — | — | — | | | |||||||||
Balance – June 30, 2023 | | | | | | |||||||||
Accretion for ordinary shares to redemption amount | — | — | ( | ( | ( | |||||||||
Net income | — | — | — | | | |||||||||
Balance – September 30, 2023 |
| | $ | | $ | — | $ | | $ | | ||||
3
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
| Additional |
| Total | |||||||||||
| Ordinary Shares |
| Paid-in |
| Accumulated |
| Shareholders’ | |||||||
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity | |||||
Balance – December 31, 2021(1)(2)(3) | | $ | | $ | | $ | ( | $ | | |||||
Net loss | — | — | — | ( | ( | |||||||||
Balance – March 31, 2022(1)(2)(3) | | | | ( | | |||||||||
Net loss | — | — | — | ( | ( | |||||||||
Balance – June 30, 2022(1)(2)(3) | | | | ( | | |||||||||
Net loss | — |
| — |
| — |
| ( |
| ( | |||||
Balance – September 30, 2022(1)(2)(3) | | $ | | $ | | $ | ( | $ | | |||||
(1) | At December 31, 2022, includes an aggregate of up to |
(2) | On January 26, 2023, the shareholders of the Company approved, through an ordinary resolution, the redesignation of authorized share capital from |
(3) | On January 30, 2023, the Company effected a share dividend of |
The accompanying notes are an integral part of the unaudited condensed financial statements.
4
DISTOKEN ACQUISITION CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Nine Months Ended September 30, | |||||
| 2023 |
| 2022 | |||
Cash Flows from Operating Activities: | ||||||
Net income (loss) | $ | | $ | ( | ||
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
|
|
|
| ||
Interest earned on Investments held in Trust Account |
| ( |
| — | ||
Unrealized gain on Investments held in Trust Account |
| ( |
| — | ||
Changes in operating assets and liabilities: |
|
|
|
| ||
Other receivable | | — | ||||
Prepaid expenses | ( | ( | ||||
Accounts payable and accrued expenses | | — | ||||
Net cash used in operating activities |
| ( |
| ( | ||
Cash Flows from Investing Activities: |
|
|
|
| ||
Investment of cash in Trust Account | ( | — | ||||
Net cash used in investing activities | ( | — | ||||
Cash Flows from Financing Activities: |
|
| ||||
Proceeds from sale of Units, net of underwriting discounts paid |
| |
| — | ||
Proceeds from sale of Private Units | | — | ||||
Proceeds from sale of Representative warrants | | — | ||||
Advances from the Sponsor | | | ||||
Repayment of advances from the Sponsor |
| ( |
| — | ||
Repayment of promissory note – the Sponsor |
| ( |
| — | ||
Payment of offering costs | ( | ( | ||||
Net cash provided by financing activities |
| |
| | ||
Net Change in Cash | | — | ||||
Cash – Beginning of period |
|
| | |||
Cash – End of period | $ | | $ | | ||
Non-Cash investing and financing activities: | ||||||
Offering costs included in accrued offering costs | $ | | $ | | ||
Accretion of Class A ordinary shares to redemption value | $ | | $ | — | ||
The accompanying notes are an integral part of the unaudited condensed financial statements.
5
DISTOKEN ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
NOTE 1 — DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Distoken Acquisition Corporation (the “Company”) is a blank check company incorporated as a Cayman Islands exempted company on July 1, 2020. The Company was formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or similar business combination with one or more businesses or entities (“Business Combination”).
As of September 30, 2023, the Company had not commenced any operations. All activity for the period from July 1, 2020 (inception) through September 30, 2023 relates to the Company’s formation, the preparation of the initial public offering (“Initial Public Offering”), which closed on February 17, 2023, as described below, and subsequent to the Initial Public Offering, identifying a target company for a Business Combination. The Company will not generate any operating revenues until after the completion of a Business Combination, at the earliest. The Company generates non-operating income in the form of interest income and unrealized gains from the proceeds derived from the Initial Public Offering. The Company has selected December 31 as its fiscal year end.
The registration statement for the Company’s Initial Public Offering was declared effective on February 13, 2023. On February 17, 2023, the Company consummated the Initial Public Offering of
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of
Transaction costs amounted to $
Following the closing of the Initial Public Offering on February 17, 2023, an amount of $
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. Nasdaq rules provide that the Business Combination must be with one or more target businesses that together have an aggregate fair market value of at least
The Company will provide its shareholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a shareholder meeting called to approve the Business Combination or (ii) by means of a tender offer. 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, solely in its discretion. The shareholders will be entitled to redeem their shares for a pro rata portion of the amount held in the Trust Account (initially $
6
DISTOKEN ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
The Company will proceed with a Business Combination only if the Company has net tangible assets of at least $
Notwithstanding the foregoing, if the Company seeks shareholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Company’s Memorandum and Articles of Association provides that a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to
The Sponsor has agreed (a) to waive its redemption rights with respect to any Founder Shares, Private Shares and Public Shares held by it in connection with the completion of a Business Combination (and not seek to sell its shares to the Company in any tender offer the Company undertakes in connection with a Business Combination) and (b) not to propose an amendment to the Memorandum and Articles of Association (i) that would affect the ability of holders of Public Shares to convert or sell their shares to the Company in connection with a Business Combination or to modify the substance or timing of the Company’s obligation to redeem
The Company initially had 9 months from the closing of the Initial Public Offering, or until November 17, 2023, to consummate a Business Combination. However, if the Company anticipated that it would not be able to consummate a Business Combination within 9 months, it was originally permitted, by resolution of the Company’s board of directors (the “Board”) if requested by the Sponsor, extend the period of time to consummate a Business Combination up to three times, each by an additional three months (for a total of up to 18 months), subject to the Sponsor depositing additional funds into the Trust Account (the “Original Extension”). Pursuant to the terms of the Memorandum and Articles of Association and the Trust Agreement entered into between the Company and Continental Stock Transfer & Trust Company on the date of the prospectus, in order for the time available to consummate the Initial Business Combination to be extended, the Sponsor or its affiliates or designees, upon
On November 10, 2023, the Company held an extraordinary general meeting (the “Extension Meeting”), at which the Company’s shareholders approved, as a special resolution, an amendment to the Company’s Memorandum and Articles of Association to amend the terms of the Original Extension and to give the Board the right to extend the date by which the Company has to consummate a Business Combination (such date, the “Termination Date”) from November 17, 2023 on a monthly basis up to twelve (12) times until November 18, 2024, or such earlier date as determined by the Board (the “New Extension”). In connection with the New Extension,
7
DISTOKEN ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
shareholders holding
On November 10, 2023, the Company issued a promissory note (the “Extension Note”) in the aggregate principal amount of up to $
As a result of the New Extension, the Company has the ability to extend liquidation until November 18, 2024, or such earlier date as determined by the Board (the “Combination Period”) to consummate a Business Combination. If the Company is unable to complete a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no more than 10 business days thereafter, 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 independent auditors) for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account to below (1) $
Going Concern Consideration
The Company’s liquidity needs prior to the consummation of the Initial Public Offering were satisfied through the payment of $
In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a Business Combination, it would repay such loaned amounts at that time. Up to $
8
DISTOKEN ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
In connection with the Company’s assessment of going concern considerations in accordance with the authoritative guidance in Financial Accounting Standard Board (“FASB”) Accounting Standards Update (“ASU”) Topic 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that the Company currently lacks the liquidity it needs to sustain operations for a reasonable period of time, which is considered to be at least one year from the date that the financial statement is issued as it expects to continue to incur significant costs in pursuit of its acquisition plans. In addition, the Company has until November 17, 2023 to consummate a Business Combination, which may be extended until November 18, 2024 as per the terms of the New Extension. It is uncertain that the Company will be able to consummate a Business Combination by this time. If a Business Combination is not consummated by a liquidation deadline, there will be a mandatory liquidation and subsequent dissolution.
Management has determined that mandatory liquidation, should a Business Combination not occur, and potential subsequent dissolution and the liquidity condition raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date these unaudited condensed financial statements are issued. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after a liquidation deadline. The Company intends to continue to search for and seek to complete a Business Combination before the mandatory liquidation date.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed 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 of the SEC. 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 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 financial statements should be read in conjunction with the Company’s prospectus for its Initial Public Offering as filed with the SEC on February 15, 2023, as well as the Company’s Current Report on Form 8-K, as filed with the SEC on March 27, 2023 and Annual Report on Form 10-K for the period ended December 31, 2022, as filed with the SEC on April 18, 2023. The interim results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any future periods.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and 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 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
9
DISTOKEN ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
private companies adopt the new or revised standard. This may make comparison of the Company’s unaudited condensed financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of 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 and disclosure of contingent assets and liabilities at 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 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 has $
Cash and Investments in Trust Account
At September 30, 2023, substantially all of the assets held in the Trust Account were held in U.S. Treasury Bills. The Company accounts for its investments as trading securities under ASC 320, where securities are presented at fair value on the balance sheets and with unrealized gains or losses, if any, presented on the statements of operations. From inception through September 30, 2023, the Company did
Redeemable Share Classification
The Public Shares contain a redemption feature which allows for the redemption of such Public Shares in connection with the Company’s liquidation, or if there is a shareholder vote or tender offer in connection with the Company’s initial business combination. In accordance with ASC 480-10-S99, the Company classifies Public Shares subject to redemption outside of permanent equity as the redemption provisions are not solely within the control of the Company. The Public Shares sold as part of the Units in the Initial Public Offering were issued with other freestanding instruments (i.e., Public Warrants and Public Rights) and as such, the initial carrying value of Public Shares classified as temporary equity are the allocated proceeds determined in accordance with ASC 470-20. The Company recognizes changes in redemption value immediately as it occurs and will adjust the carrying value of redeemable shares to equal the redemption value at the end of each reporting period. Immediately upon the closing of the Initial Public Offering, the Company recognized the accretion from initial book value to redemption amount value. The change in the carrying value of redeemable shares will result in charges against additional paid-in capital and accumulated deficit. Accordingly, at September 30, 2023, shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’ equity section of the Company’s balance sheet.
10
DISTOKEN ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
At September 30, 2023, the ordinary shares reflected in the balance sheet are reconciled in the following table:
Gross proceeds |
| $ | |
Less: |
|
|
|
Proceeds allocated to Public Warrants |
|
| ( |
Proceeds allocated to Public Rights |
|
| ( |
Ordinary share issuance costs |
|
| ( |
Plus: |
|
|
|
Remeasurement of carrying value to redemption value |
|
| |
Ordinary shares subject to possible redemption, September 30, 2023 |
| $ | |
Offering Costs
The Company complies with the requirements of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A — “Expenses of Offering”. Offering costs consist principally of professional and registration fees, cash underwriting discount, fair value of representative shares, and fair value of representative warrants incurred through the balance sheet date that are related to the Initial Public Offering. Offering costs were allocated to the separable financial instruments issued in the Initial Public Offering based on relative fair value basis, compared to total proceeds received. Offering costs allocated to the Public Shares were charged to temporary equity and offering costs allocated to Public Warrants (as defined in Note 3) were charged to shareholders’ equity upon the completion of the Initial Public Offering.
Income Taxes
The Company accounts for income taxes under 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 statement 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 statement and prescribes a recognition threshold and measurement process for financial statement 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. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. The Company has determined there is a possibility it will be considered a Chinese Income Tax Resident for which it will owe taxes to the Chinese government. As such, the Company has accrued $
The Company is considered an exempted Cayman Islands Company and is presently not subject to income taxes or income tax filing requirements in the Cayman Islands or the United States. As such, the Company’s tax provision was zero for the period presented.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with FASB ASC Topic 815, “Derivatives and Hedging”. Derivative instruments are initially recorded at fair value on the grant date and re-valued at each reporting date, with changes in the fair value reported in the statement of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative assets and liabilities are classified in the balance sheet as current or non-
11
DISTOKEN ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
current based on whether or not net-cash settlement or conversion of the instruments could be required within 12 months of the balance sheet date.
Warrant Instruments
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the instruments’ specific terms and applicable authoritative guidance in ASC 480 and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the instruments are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the instruments meet all of the requirements for equity classification under ASC 815, including whether the instruments are indexed to the Company’s own common shares and whether the instrument holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the instruments are outstanding. Upon further review of the warrant agreement, management concluded that the warrants issued pursuant to the warrant agreement qualify for equity accounting treatment.
Net Income (Loss) Per Share
The Company complies with accounting and disclosure requirements of Financial Accounting Standards Board (“FASB”) ASC Topic 260, “Earnings Per Share”. Net income (loss) per ordinary share is computed by dividing net income (loss) by the weighted average number of ordinary shares outstanding for the period. Accretion associated with the redeemable shares of Class A ordinary shares is excluded from earnings per share as the redemption value approximates fair value.
The calculation of diluted income (loss) per share does not consider the effect of the warrants issued in connection with the (i) Initial Public Offering, and (ii) the private placement since the exercise of the warrants to purchase
The following table reflects the calculation of basic and diluted net income (loss) per ordinary share (in dollars, except per share amounts):
| For the Three Months Ended September 30, | |||||||||||
2023 | 2022 | |||||||||||
Redeemable |
| Non-redeemable |
| Redeemable |
| Non-redeemable | ||||||
Basic and diluted net income (loss) per ordinary share |
| |||||||||||
Numerator: |
| |||||||||||
Allocation of net income (loss) |
| $ | | $ | | $ | — | $ | ( | |||
Denominator: |
| |||||||||||
Basic and diluted weighted average ordinary share outstanding | | | — | | ||||||||
Basic and diluted net income (loss) per ordinary share | $ | | $ | | $ | — | $ | ( | ||||
12
DISTOKEN ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
| For the Nine Months Ended September 30, | |||||||||||
2023 | 2022 | |||||||||||
Redeemable |
| Non-redeemable |
| Redeemable |
| Non-redeemable | ||||||
Basic and diluted net income (loss) per ordinary share |
| |||||||||||
Numerator: |
| |||||||||||
Allocation of net income (loss) |
| $ | | $ | | $ | — | $ | ( | |||
Denominator: |
| |||||||||||
Basic and diluted weighted average ordinary share outstanding | | | — | | ||||||||
Basic and diluted net income (loss) per ordinary share | $ | | $ | | $ | — | $ | ( | ||||
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution which, at times may exceed the Federal Deposit Insurance Corporation coverage limit of $250,000. The Company has not experienced losses on this account.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature.
Recently Issued Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.
NOTE 3 — PUBLIC OFFERING
Pursuant to the Initial Public Offering, the Company sold
NOTE 4 — PRIVATE PLACEMENT
Simultaneously with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of
13
DISTOKEN ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
NOTE 5 — RELATED PARTY TRANSACTIONS
Founder Shares
On July 8, 2020, the Sponsor paid $
On January 26, 2023, the shareholders of the Company approved, through an ordinary resolution, the redesignation of authorized share capital from two classes of ordinary shares (Class A and Class B) to one class of ordinary shares and, through a special resolution and, related amendments to the memorandum and articles of association. All share and per-share amounts and descriptions have been retrospectively presented.
The Sponsor has agreed, subject to limited exceptions, not to transfer, assign or sell any of its Founder Shares until the earlier of (A)
Administrative Services Agreement
The Company entered into an agreement, commencing on February 15, 2023, to pay the Sponsor or its affiliate up to $
Due from Sponsor
At the closing of the Initial Public Offering on February 17, 2023, a portion of the proceeds from the sale of the Private Units in the amount of $
14
DISTOKEN ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Advances from Sponsor
The advances from Sponsor represents the amounts paid by the Sponsor on behalf of the Company in excess of the limit that can be drawn against the promissory note. As of September 30, 2023 and December 31, 2022, there were $
Promissory Note — Sponsor
On July 8, 2020, the Company issued an unsecured promissory note to the Sponsor, pursuant to which the Company may borrow up to an aggregate principal amount of $
Related Party Loans
In order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required. Such Working Capital Loans would be evidenced by promissory notes. The notes may be repaid upon completion of a Business Combination, without interest, or, at the lender’s discretion, up to $
Related Party Extension Loans
As discussed in Note 1, on November 10, 2023, the Company issued the Extension Note in the aggregate principal amount of up to $
NOTE 6 — COMMITMENTS
Registration Rights
Pursuant to a registration rights agreement entered into on February 15, 2023, the holders of the Founder Shares, Representative Shares, Private Units and any units that may be issued on conversion of the Working Capital Loans (and any securities underlying the Private Units or units issued upon conversion of Working Capital Loans) will be entitled to registration rights pursuant to a registration rights agreement. The holders of these securities will be entitled to make up to
15
DISTOKEN ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Underwriting Agreement
The Company granted the underwriters a 45-day option to purchase up to
The underwriters were also entitled to a cash underwriting discount of $
Business Combination Marketing Agreement
The Company has engaged I-Bankers Securities, Inc. (“I-Bankers”), the representative of the underwriters in the Initial Public Offering, as an advisor in connection with its Business Combination to assist in holding meetings with the Company shareholders to discuss the potential Business Combination and the target business’ attributes, introduce the Company to potential investors that are interested in purchasing its securities in connection with its initial Business Combination and assist with press releases and public filings in connection with the Business Combination. The Company will pay I-Bankers a cash fee for such services upon the consummation of its initial business combination in an amount equal to
Vendor Agreement
On April 30, 2023, the Company entered into an agreement with a vendor for legal and consulting services, pursuant to which the Company agreed to pay the vendor $
NOTE 7 — SHAREHOLDERS’ EQUITY
Preference Shares — The Company is authorized to issue
Ordinary Shares — On January 26, 2023, the shareholders of the Company approved, through an ordinary resolution, the redesignation of authorized share capital from
The Company is authorized to issue
16
DISTOKEN ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
of
Rights — Each holder of a right will receive (1/10) of one ordinary share upon consummation of a Business Combination, even if the holder of such right redeemed all shares held by it in connection with a Business Combination. No fractional shares will be issued upon exchange of the rights.
If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of rights will not receive any of such funds with respect to their rights, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such rights, and the rights will expire worthless. Further, there are
Warrants — The Public Warrants will become exercisable
No warrants will be exercisable for cash unless the Company has an effective and current registration statement covering the ordinary shares issuable upon exercise of the warrants and a current prospectus relating to such ordinary shares. Notwithstanding the foregoing, if a registration statement covering the ordinary shares issuable upon exercise of the Public Warrants is not effective within
Once the Public Warrants become exercisable, the Company may redeem the Public Warrants for redemption:
| ● | in whole and not in part; |
| ● | at a price of $ |
| ● | upon not less than |
| ● | if, and only if, the reported last sale price of the ordinary shares equals or exceeds $ |
| ● | if, and only if, there is a current registration statement in effect with respect to the ordinary shares underlying such warrants. |
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of ordinary shares issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a share dividend,
17
DISTOKEN ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, except as described below, the Public Warrants will not be adjusted for issuances of ordinary shares at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the Public Rights or Public Warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of Public Warrants will not receive any of such funds with respect to their Public Warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such Public Warrants. Accordingly, the Public Rights and Public Warrants may expire worthless.
In addition, if (x) the Company issues additional ordinary shares or equity-linked securities for capital raising purposes in connection with the closing of a Business Combination at an issue price or effective issue price of less than $
The Private Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private Warrants and the ordinary shares issuable upon the exercise of the Private Warrants will not be transferable, assignable or salable until
Representative Shares
On July 28, 2020 the Company issued to EarlyBirdCapital and its designees an aggregate of
18
DISTOKEN ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
of the Initial Public Offering. The representative shares are classified as Level 3 at the measurement date due to the use of unobservable inputs including the probability of a business combination, the probability of the initial public offering, and other risk factors.
The following table presents the quantitative information regarding market assumptions used in the representative shares valuation:
| August 23, |
| October 28, |
| |||
2021 | 2021 | ||||||
Market price(1) | $ | | $ | | |||
Risk-free rate(2) |
| | % |
| | % | |
Dividend yield(3) |
| | % |
| | % | |
Volatility(4) |
| | % |
| | % | |
(1) | As reported by Bloomberg on the Valuation Date |
| August 23, |
| October 28, | |||
2021 | 2021 | |||||
1.00 shares per Unit |
| $ | |
| $ | |
0.50 warrants per Unit |
|
| |
| | |
0.10 rights per Unit |
|
| |
| | |
Total price per Unit |
| $ | | $ | | |
Offering price per Unit | $ | | $ | | ||
(2) | Based on the U.S. Treasury rate with a term matching the time to expiration |
(3) | Based on an analysis of the guideline companies and discussions with management |
(4) | Implied volatility calculated using the Black-Scholes formula using the fair value of the warrant. This value is presented for comparison purposes only as it excludes the impact of redemption features. |
The holders of the representative shares have agreed not to transfer, assign or sell any such shares until the completion of a Business Combination. In addition, the holders have agreed (i) to waive conversion rights (or right to participate in any tender offer) with respect to such shares in connection with the completion of a Business Combination and (ii) to waive their rights to liquidating distributions from the Trust Account with respect to such shares if the Company fails to complete a Business Combination within the Combination Period.
The representative shares have been deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following the effective date of the registration statement related to the Initial Public Offering pursuant to Rule 5110(g)(1) of the FINRA Manual. Pursuant to FINRA Rule 5110(g)(1), these securities will not be sold during the Initial Public Offering, or sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the economic disposition of the securities by any person for a period of 180 days immediately following the effective date of the registration statement related to the Initial Public Offering or commencement of sales of the Initial Public Offering, except to any underwriter and selected dealer participating in the Initial Public Offering and their bona fide officers or partners.
Representative Warrants
In addition, the Company entered into a separate warrant agreement with I-Banker Securities, Inc. (referred as “I-Bankers”, the “Representative” of the Underwriters) to issue Representative Warrants exercisable to purchase
19
DISTOKEN ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
anniversary of such effectiveness date. Notwithstanding anything to the contrary, neither I-Bankers nor its designees will be permitted to exercise the warrants after the five-year anniversary of the effective date of the registration statement for the Initial Public Offering. The Representative Warrants and such shares to be purchased pursuant to the Representative Warrants have been deemed compensation by FINRA and are therefore subject to a lock-up period of 180 days immediately following the date of the effectiveness of the registration statement for the Initial Public Offering pursuant to FINRA Rule 5110(g)(1). Pursuant to FINRA Rule 5110(g)(1), these securities may not be sold, transferred, assigned, pledged or hypothecated or the subject of any hedging, short sale, derivative, put or call transaction that would result in the economic disposition of the securities by any person for a period of 180 days immediately following the effective date of the registration statement for the Initial Public Offering except to any underwriter and selected dealer that participated in the Initial Public Offering and their bona fide officers or partners.
NOTE 8 — FAIR VALUE MEASUREMENTS
The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1: | Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
Level 2: | Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. |
Level 3: | Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability. |
At September 30, 2023, assets held in the Trust Account were comprised of $
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis at September 30, 2023 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
September 30, | |||||
Description |
| Level |
| 2023 | |
Assets: |
| ||||
Investments held in Trust Account | 1 | $ | | ||
The following table presents information about the Company’s equity instruments that are measured at fair value at February 17, 2023, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.
| Level |
| February 17, 2023 | ||
Equity: | |||||
Representative Warrants |
| 3 |
| $ | |
Fair Value of Public Rights for ordinary shares subject to redemption allocation |
| 3 |
| $ | |
Fair Value of Public Warrants for ordinary shares subject to redemption allocation |
| 3 |
| $ | |
20
DISTOKEN ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
The Public Warrants were valued using the binomial lattice model incorporating the Cox-Ross-Rubenstein methodology. The private and representative warrants were valued using the Black-Scholes model. The following table presents the quantitative information regarding market assumptions used in the valuation of warrants:
| February 17, |
| ||
| 2023 | |||
Market price of public share | $ | | ||
Risk-free rate |
| | % | |
Dividend yield |
| % | ||
Volatility |
| | % | |
The rights were valued using a scenario analysis. The following table presents the quantitative information regarding market assumptions used in the valuation of the rights. The appraiser determined the value of the Rights based on the value of underlying security:
| February 17, |
| ||
| 2023 | |||
Value in De-SPAC(1) | $ | | ||
Value without De-SPAC(2) | $ | — | ||
Probability(3) |
| | % | |
Fair value of Right to buy one Share(4) | $ | | ||
(1) | As the Founder Share will be converted to an ordinary share at the consummation of a transaction, it is assumed that the value of the Founder Share in the de-SPAC transaction scenario would simply equal the value of the ordinary share in a de-SPAC transaction. |
(2) | The probability is as used in warrant analysis |
(3) | Probability of the consummation of an initial business combination |
(4) | Calculated as the weighted average price |
NOTE 9 — SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed financial statements were issued. Based upon this review, except as set forth below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed financial statements.
On November 10, 2023, the Company held the Extension Meeting, at which the Company’s shareholders approved, the New Extension to extend the Termination Date from November 17, 2023 on a monthly basis up to twelve (12) times until November 18, 2024, or such earlier date as determined by the Board. In connection with the New Extension, shareholders holding
On November 10, 2023, the Company issued the Extension Note in the aggregate principal amount of up to $
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this report (the “ Report”) to “we,” “us” or the “Company” refer to Distoken Acquisition Corporation References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Xiaosen Sponsor LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this 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
All statements other than statements of historical fact included in this Report including, without limitation, statements in this section regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this Report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto included in this Report under “Item 1. Financial Statements”.
Overview
We are a blank check company incorporated in the Cayman Islands on July 1, 2020 formed for the purpose of effecting a merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization or other similar Business Combination with one or more businesses. We intend to effectuate our Business Combination using cash derived from the proceeds of the Initial Public Offering and the sale of the Private Units, our shares, debt or a combination of cash, shares and debt.
We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities from July 1, 2020 (inception) through September 30, 2023 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and identifying a target company for a Business Combination. We do not expect to generate any operating revenues until after the completion of our Business Combination. We generate non-operating income in the form of interest income on marketable securities held in the Trust Account. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
For the three months ended September 30, 2023, we had net income of $391,367, which consists of interest income on marketable securities held in the Trust Account of $914,783 and an unrealized gain on marketable securities held in our Trust Account of $26,564, offset by operating costs of $428,379 and Chinese income tax of $121,601.
For the nine months ended September 30, 2023, we had net income of $1,080,034, which consists of interest income on marketable securities held in the Trust Account of $2,143,508 and an unrealized gain on marketable securities held in our Trust Account of $16,128, offset by operating costs of $724,967 and Chinese income tax of $354,635.
For the three and nine months ended September 30, 2022, we had a net loss of $463 and $1,388, respectively, which consisted of operating costs.
22
Factors That May Adversely Affect our Results of Operations
Our results of operations and our ability to complete an initial Business Combination may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond our control. Our business could be impacted by, among other things, downturns in the financial markets or in economic conditions, increases in oil prices, inflation, increases in interest rates, supply chain disruptions, declines in consumer confidence and spending, the ongoing effects of the COVID-19 pandemic, including resurgences and the emergence of new variants, and geopolitical instability, such as the military conflict in Ukraine and the Middle East. We cannot at this time fully predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact our business and our ability to complete an initial Business Combination.
Liquidity and Capital Resources
On February 17, 2023, we completed our initial public offering of 6,900,000 units, at $10.00 per unit, generating gross proceeds of $69,000,000. Simultaneously with the closing of our initial public offering, we completed the sale of 545,000 private units at a price of $10.00 per private unit in the private placement to the Sponsor, generating gross proceeds of $5,450,000.
Following the initial public offering, the full exercise of the over-allotment option and the sale of the private units, a total of $70,380,000 was placed in the trust account. Transaction costs amounted to $4,366,343 consisting of $2,070,000 of cash underwriting discount, $1,185,493 fair value of representative shares, $12,075 fair value of representative warrants, and $1,098,775 of other offering costs.
For the nine months ended September 30, 2023, cash used in operating activities was $637,824. Net income of $1,080,034 was affected by interest earned on marketable securities held in the Trust Account of $2,143,508 and unrealized gain on marketable securities held in our Trust Account of $16,128. Changes in operating assets and liabilities provided $441,778 of cash from operating activities.
For the nine months ended September 30, 2022, cash used in operating activities was $1,850. Net loss of $1,388 was affected by the cash used to pay prepaid expenses of $462.
As of September 30, 2023, we had cash and marketable securities held in the Trust Account of $72,539,636 (including $2,159,636 of interest income and unrealized gains) consisting of U.S. Treasury Bills with a maturity of 185 days or less. We may withdraw interest from the Trust Account to pay taxes, if any. We intend to use substantially all of the 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 our 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 September 30, 2023, we had cash of $348,701. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, structure, negotiate and complete a Business Combination.
In order to finance transaction costs in connection with a Business Combination, our Sponsor or an affiliate of our Sponsor or certain of our directors and officers may, but are not obligated to (except as described below), loan us Working Capital Loans as may be required. If we complete a Business Combination, we would repay such loaned amounts. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the trust account to repay such Working Capital Loans but no proceeds from our trust account would be used for such repayment. Up to $1,500,000 of such Working Capital 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. The units would be identical to the private units. The terms of such Working Capital Loans by our officers and directors, if any, have not been determined and no written agreements exist with respect to such Working Capital Loans. The Working Capital Loans would be repaid upon consummation of a Business Combination, without interest.
The Company was originally permitted to extend the period of time to consummate a Business Combination up to three times, each by an additional three months (for a total of 18 months to complete a Business Combination). In order to extend the time available for us to consummate a Business Combination, our Sponsor or its affiliates or designees was originally required to deposit into the Trust Account $690,000 ($0.10 per public share), on or prior to the date of the applicable deadline, for each three month extension. Any such
23
payments would be made in the form of a non-interest bearing loan. The terms of the promissory note to be issued in connection with any such loans have not yet been negotiated. If we complete a Business Combination, we would repay such loaned amounts out of the proceeds of the trust account released to us. If we do not complete a business combination, we will not repay such loans. Our Sponsor and its affiliates or designees are not obligated to fund the trust account to extend the time for us to complete a Business Combination. On November 10, 2023, the Company held the Extension Meeting, at which the Company’s shareholders approved the New Extension to extend the Termination Date from November 17, 2023 on a monthly basis up to twelve (12) times until November 18, 2024, or such earlier date as determined by the Board. In connection with the New Extension, shareholders holding 3,018,308 ordinary shares exercised their right to the Extension Redemption. As a result of the Extension Redemption, an aggregate amount of $31.9 million (approximately $10.57 per share) will be removed from the Trust Account to pay such holders.
On November 10, 2023, the Company issued the Extension Note in the aggregate principal amount of up to $360,000 to the Sponsor, pursuant to which the Extension Funds will be deposited into the Trust Account in monthly installments for the benefit of each Public Share that was not redeemed in connection with the New Extension. The Sponsor has agreed to pay $30,000 per month (or approximately $0.01 per Public Share not redeemed) that the Company decides to take to complete an initial Business Combination for each calendar month until November 18, 2024, or portion thereof, that is needed to complete an initial Business Combination, for up to an aggregate of $360,000. The Extension Note bears no interest and is repayable in full upon the earlier of (a) the date of the consummation of the initial Business Combination, and (b) the date of the liquidation of the Company.
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.
We may need to raise additional capital through loans or additional investments from our Sponsor, shareholders, officers, directors, or third parties. Our officers, directors and our Sponsor may, but are not obligated to, loan us funds as may be required. Accordingly, we may not be able to obtain additional financing. If we are 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. We cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. In addition, we may extend the amount of time to consummate a Business Combination until November 18, 2024, as extended by the New Extension. It is uncertain that we will be able to consummate a Business Combination by this time. If a Business Combination is not consummated by a liquidation deadline there will be a mandatory liquidation and subsequent dissolution.
We have determined that mandatory liquidation, should a Business Combination not occur, and an extension not be approved by our shareholders, and potential subsequent dissolution and the liquidity issue raise substantial doubt about our ability to continue as a going concern for a reasonable period of time which is considered to be one year from the date of the issuance of the unaudited condensed financial statements. The 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 we be unable to continue as a going concern.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of September 30, 2023. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay our Sponsor or its affiliate up to a monthly fee of $10,000 for office space, administrative and support services. We began incurring these fees on February 15, 2023 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation.
24
We have engaged I-Bankers, representative of the underwriters in the initial public offering, as an advisor to assist in holding meetings with our shareholders to discuss any potential Business Combination and the target business’ attributes, introduce us to potential investors that are interested in purchasing our securities in connection with our initial Business Combination and assist with press releases and public filings in connection with the Business Combination. We will pay I-Bankers a cash fee for such services upon the consummation of our initial Business Combination in an amount equal to 4.0%, or $2,760,000 in the aggregate, of the gross proceeds of the initial public offering (exclusive of any applicable finders’ fees which might become payable). We will also pay I-Bankers a cash fee in an amount equal to 1.0%, or $690,000 in the aggregate, of the gross proceeds of the initial public offering if it introduces us to the target business with whom the Company completes its initial Business Combination.
On April 30, 2023, we entered into an agreement with a vendor for legal and consulting services, pursuant to which we agreed to pay the vendor $500,000 as follows: (i) $200,000 upon the execution of the agreement, (ii) $100,000 upon the execution of a definitive agreement for the Business Combination; and (iii) $200,000 upon submission of the proxy statement for the Business Combination to the SEC. Additionally, if the Business Combination closes, we will make a final additional payment of $850,000. If the Business Combination does not close, we shall not be responsible for any further payments.
Critical Accounting Policies
The preparation of unaudited condensed 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 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:
Redeemable Share Classification
The public shares contain a redemption feature which allows for the redemption of such public shares in connection with our liquidation, or if there is a shareholder vote or tender offer in connection with the initial Business Combination. In accordance with ASC Topic 480-10-S99, “Distinguishing Liabilities from Equity”, we classify public shares subject to redemption outside of permanent equity as the redemption provisions are not solely within our control. The public shares sold as part of the units in the initial public offering were issued with other freestanding instruments (i.e., public warrants and public rights) and as such, the initial carrying value of public shares classified as temporary equity are the allocated proceeds determined in accordance with ASC Topic 470-20 “Debt with Conversion and Other Options”. We recognize changes in redemption value immediately as it occurs and will adjust the carrying value of redeemable shares to equal the redemption value at the end of each reporting period. Immediately upon the closing of the initial public offering, we recognized the accretion from initial book value to redemption amount value. The change in the carrying value of redeemable shares will result in charges against additional paid-in capital and accumulated deficit.
We recognize changes in redemption value immediately as they occur and adjusts the carrying value of redeemable shares to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable shares are affected by charges against additional paid in capital and accumulated deficit.
Net Income (Loss) Per Ordinary Share
Net income (loss) per share is computed by dividing net income (loss) by the weighted average number of ordinary shares outstanding during the period, excluding ordinary shares subject to forfeiture. Weighted average shares were reduced for the effect of an aggregate of 258,000 ordinary shares that are subject to forfeiture if the over-allotment option was not exercised by the underwriter. At September 30, 2023 and 2022, we did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into ordinary shares and then share in our earnings. As a result, diluted income (loss) per share is the same as basic income (loss) per share for the periods presented.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our unaudited condensed financial statements.
25
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures 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 management, including our Chief Executive Officer and Chief Financial Officer (together, the “Certifying Officers”), or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our Certifying Officers, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officers concluded that our disclosure controls and procedures were not effective as of September 30, 2023, due to material weaknesses previously identified in our internal control over financial reporting, as defined in the SEC guidelines for public companies. The material weaknesses previously identified relate to ineffective review controls over the financial statement preparation process including the valuation of complex financial instruments and recording of accrued expenses, including income taxes and including proper cut off procedures, which has not yet been remediated and still exist as of September 30, 2023.
In light of these material weaknesses, we have enhanced our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our financial statements including making greater use of third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. We believe our efforts will enhance our controls relating to accounting for complex financial transactions, but we can offer no assurance that our controls will not require additional review and modification in the future as industry accounting practice may evolve over time.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the quarterly period ended September 30, 2023 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
To the knowledge of our management team, there is no litigation currently pending or contemplated against us, any of our officers or directors in their capacity as such or against any of our property.
Item 1A. Risk Factors
As a smaller reporting company under Rule 12b-2 of the Exchange Act, we are not required to include risk factors in this Report. However, other than as disclosed below, as of the date of this Report, there have been no material changes with respect to those risk factors previously disclosed in our (i) Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023, as filed with the SEC on May 18, 2023, (ii) registration statement for our Initial Public Offering, (iii) Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on April 18, 2023; and (iv) definitive proxy statement, as filed with the SEC on October 24, 2023. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risks could arise that may also affect our business or ability to consummate an initial Business Combination. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.
Military or other conflicts in Ukraine, the Middle East or elsewhere may lead to increased volume and price volatility for publicly traded securities, or affect the operations or financial condition of potential target companies, which could make it more difficult for us to consummate an initial Business Combination.
Military or other conflicts in Ukraine, the Middle East or elsewhere may lead to increased volume and price volatility for publicly traded securities, or affect the operations or financial condition of potential target companies, and to other company or industry-specific, national, regional or international economic disruptions and economic uncertainty, any of which could make it more difficult for us to identify a Business Combination target and consummate an initial Business Combination on acceptable commercial terms, or at all.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None
Use of Proceeds
For a description of the use of the proceeds generated in our Initial Public Offering and the related private placement, see Part II, Item 5 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the SEC on April 18, 2023. There has been no material change in the planned use of proceeds from our Initial Public Offering and private placement as described in the registration statement for the Initial Public Offering. The specific investments in our trust account may change from time to time.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
27
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
No. |
| Description of Exhibit |
31.1* | ||
31.2* | ||
32.1** | ||
32.2** | ||
101.INS* | XBRL Instance Document | |
101.SCH* | XBRL Taxonomy Extension Schema Document | |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | XBRL Taxonomy Extension Labels Linkbase Document | |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | |
104* | Cover Page Interactive Date File (Embedded as Inline XBRL document and contained in Exhibit 101) |
* | Filed herewith. |
** | Furnished herewith. |
28
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DISTOKEN ACQUISITION CORPORATION | ||
| ||
Date: November 14, 2023 | By: | /s/ Jian Zhang |
Name: | Jian Zhang | |
Title: | Chief Executive Officer | |
Date: November 14, 2023 | By: | /s/ Jirong Lyu |
Name: | Jirong Lyu | |
Title: | Chief Financial Officer |
29