UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the quarterly period ended |
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the transition period from _______________________to___________________________ |
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
|
|
|
| (Address of principal executive offices) | (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 Stock Market LLC | ||
| The Stock Market LLC | ||
| The Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| 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
The number of shares outstanding of the registrant’s common stock on May 14, 2024, was , consisting of 3,828,048 shares of Class A Common Stock and 2,443,750 shares of Class B common stock.
TABLE OF CONTENTS
| 2 |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
FORTUNE RISE ACQUISITION CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Cash held in Trust Account | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities, Temporary Equity, and Stockholders’ Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Due to a related party | ||||||||
| Promissory notes - related parties | ||||||||
| Franchise taxes payable | ||||||||
| Excise taxes payable | ||||||||
| Total current liabilities | ||||||||
| Deferred underwriters' discount | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Class A Common Stock subject to possible redemption, shares at redemption value of $ and $ per share as of March 31, 2024 and December 31, 2023, respectively | ||||||||
| Stockholders’ Deficit: | ||||||||
| Preferred Stock, $ par value; shares authorized; issued and outstanding as of March 31, 2024 and December 31, 2023 | ||||||||
| Class A Common Stock, $ par value; shares authorized; shares issued and outstanding (excluding 3,162,548 shares subject to possible redemption) as of March 31, 2024 and December 31, 2023 | ||||||||
| Class B Common Stock, $ par value; shares authorized; shares issued and outstanding as of March 31, 2024 and December 31, 2023 | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders' Deficit | ( | ) | ( | ) | ||||
| Total Liabilities, Temporary Equity, and Stockholders' Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 3 |
FORTUNE RISE ACQUISITION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended | For the Three Months Ended | |||||||
| March 31, 2024 | March 31, 2023 | |||||||
| Operating costs | $ | $ | ||||||
| Franchise tax expenses | ||||||||
| Loss from Operations | ( | ) | ( | ) | ||||
| Other income: | ||||||||
| Dividend earned on investments held in Trust Account | ||||||||
| Income (loss) before income taxes | ( | ) | ||||||
| Income taxes provision | ( | ) | ||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Basic and diluted weighted average shares outstanding, Common Stock subject to possible redemption | ||||||||
| Basic and diluted net (loss) income per share, Common Stock subject to possible redemption | $ | ) | $ | |||||
| Basic and diluted weighted average shares outstanding, Common Stock attributable to Fortune Rise Acquisition Corporation | ||||||||
| Basic and diluted net loss per share, Common Stock attributable to Fortune Rise Acquisition Corporation | $ | ) | $ | ) | ||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 4 |
FORTUNE RISE ACQUISITION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(Unaudited)
| For the Three Months Ended March 31, 2024 | ||||||||||||||||||||||||||||||||
| Preferred Stock | Class A Common Stock | Class B Common Stock | Accumulated | Stockholders' | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Deficit | Deficit | |||||||||||||||||||||||||
| Balance as of December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| Accretion of carrying value to redemption value | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||
| Net loss | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| For the Three Months Ended March 31, 2023 | ||||||||||||||||||||||||||||||||
| Preferred Stock | Class A Common Stock | Class B Common Stock | Accumulated | Stockholders' | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Deficit | Deficit | |||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| Accretion of carrying value to redemption value | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||
| Net income | – | – | – | |||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 5 |
FORTUNE RISE ACQUISITION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the | For the | |||||||
| Three Months Ended | Three Months Ended | |||||||
| March 31, 2024 | March 31, 2023 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||||
| Dividend earned on investment held in Trust Account | ( | ) | ||||||
| Deferred tax expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ( | ) | ||||||
| Due to a related party | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Income taxes payable | ||||||||
| Franchise taxes payable | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Deposit of funds held in Trust Account | ( | ) | ||||||
| Purchase of investments held in Trust Account | ( | ) | ||||||
| Withdrawal of investments held in Trust Account | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from issuance of promissory notes to related parties | ||||||||
| Advances from a related party | ||||||||
| Net cash provided by financing activities | ||||||||
| Net Change in Cash | ( | ) | ( | ) | ||||
| Cash at beginning of the period | ||||||||
| Cash at end of the period | $ | $ | ||||||
| Supplemental Cash Flow Information | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Supplemental Disclosure of Non-cash Financing Activities | ||||||||
| Accretion of carrying value to redemption value | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 6 |
FORTUNE RISE ACQUISITION CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Organization and Business Operation
Fortune Rise Acquisition Corporation (the “Company”) is a blank check company incorporated as a Delaware corporation on February 1, 2021. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (a “Business Combination”). The Company has signed a non-binding Letter of Intent for the Proposed Business Combination as discussed below. The Company has selected December 31 as its fiscal year end.
As of March 31, 2024 and December 31, 2023, the Company had not commenced any operations. For the period from February 1, 2021 (inception) through March 31, 2024, the Company’s efforts have been limited to organizational activities as well as activities related to the IPO (as defined below). The Company will not generate any operating revenues until after the completion of a Business Combination, at the earliest. The Company had generated non-operating income in the form of money market fund dividend income earned from the proceeds derived from the IPO up until September 2023 when all the money market funds were converted into cash.
The registration statement for the Company’s
initial public offering (“IPO”) became effective on November 2, 2021. On November 5, 2021, the Company consummated
the IPO of units (including 1,275,000 units issued upon the full exercise of the over-allotment option, the “Public Units”).
Each Public Unit consists of , $ par value per share (“Class A Common Stock”), and
(“Warrant”), each whole Warrant entitling the holder thereof to purchase one share of Class
A Common Stock at an exercise price of $
Substantially concurrently with the closing of
the IPO, the Company completed the private sale of shares of Class A Common Stock (the “Private Placement Shares”),
comprised of shares sold to the Company’s sponsor, Fortune Rise Sponsor LLC (the “Sponsor”) and shares
sold to US Tiger Securities, Inc. (“US Tiger Securities”), and EF Hutton, a division of Benchmark Investment LLC, the representatives
of the several underwriters (each, a “Representative”), at a purchase price of $ per Private Placement Share, generating
gross proceeds to the Company of $
Transaction costs for the IPO amounted to $
The Company also issued shares of Class A Common Stock (the “Representative Shares”) to the Representatives as part of their underwriting compensation. The Representative Shares are identical to the public shares except that the Representatives have agreed not to transfer, assign or sell any such Representative Shares until the completion of the Company’s initial Business Combination. The Representative Shares are deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following the date of the commencement of sales in the IPO pursuant to FINRA Rule 5110(e)(1). In addition, the Representatives have agreed (i) to waive their redemption rights with respect to such shares in connection with the completion of the Company’s initial Business Combination and (ii) to waive their rights to liquidating distributions from the Trust Account (as defined below) with respect to such shares if the Company fails to complete its initial Business Combination by June 5, 2024 (or up to November 5, 2024, if the Company extends the time to complete a Business Combination).
| 7 |
Following the closing of the IPO and the issuance
and the sale of Private Placement Shares on November 5, 2021, $
The Company’s initial Business Combination must occur with one or more target businesses that together have an aggregate fair market value of at least 80% of the assets held in the Trust Account (excluding the deferred underwriting fee and taxes payable and interest previously released for working capital purposes on the income earned on the Trust Account) at the time of the agreement to enter into the initial Business Combination. However, the Company will only complete a Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires an interest in the target sufficient for the post-transaction company not to be required to register as an investment company under the Investment Company Act. There is no assurance that the Company will be able to complete a Business Combination successfully.
The shares of Class A Common Stock subject to redemption were recorded at a redemption value and classified as temporary equity upon the completion of the IPO, in accordance with Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” The Company will proceed with a Business Combination (if the Company seeks stockholder approval), if a majority of the issued and outstanding shares voted are voted in favor of the Business Combination. The Company will have until June 5, 2024 (or up to November 5, 2024, if the Company extends the time to complete a Business Combination and payment of the extension deposit by the Sponsor, or its affiliates), to complete the initial Business Combination (the “Combination Period”). If the Company is unable to complete the initial 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 not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the funds held in the Trust Account and not previously released to the Company for working capital purposes or to pay the Company’s taxes (less up to $50,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and its board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to complete the Business Combination within the Combination Period. The founders have entered into a letter agreement with the Company, pursuant to which they have agreed (i) to waive their redemption rights with respect to any Founder Shares (defined below), Private Placement Shares, and any public shares held by them in connection with the completion of the initial Business Combination, (ii) waive their redemption rights with respect to their Founder Shares, Private Placement Shares and public shares in connection with a stockholder vote to approve an amendment to the Company’s Amended and Restated Certificate of Incorporation (A) to modify the substance or timing of the Company’s obligation to allow redemption in connection with the initial Business Combination or to redeem 100% of the Company’s public shares if the Company does not complete its initial Business Combination by June 5, 2024 (or up to November 5, 2024, if the Company extends the time to complete a Business Combination) and payment of the extension deposit by our Sponsor, or its affiliates), or (B) with respect to any other provision relating to stockholders’ rights or pre-initial Business Combination activity and (iii) to waive their rights to liquidating distributions from the Trust Account with respect to any Founder Shares held by them if the Company fails to complete the initial Business Combination by June 5, 2024 (or up to November 5, 2024, if the Company extends the time to complete a Business Combination and payment of the extension deposit by our Sponsor, or its affiliates), although they will be entitled to liquidating distributions from the Trust Account with respect to any public shares they hold if the Company fails to complete the initial Business Combination within the prescribed time frame. If the Company submits its initial Business Combination to its stockholders for a vote, the Company will complete its initial Business Combination only if a majority of the outstanding shares of common stock voted are voted in favor of the initial Business Combination. In no event will the Company redeem its public shares of Class A Common Stock in an amount that would cause its net tangible assets to be less than $5,000,001. In such case, the Company would not proceed with the redemption of public shares of Class A Common Stock and the related Business Combination, and instead may search for an alternate Business Combination. As approved by its stockholders at the Special Meeting on October 25, 2023, the Company deleted the limitations that the Company shall not consummate a business combination or redeem shares if such actions would cause the Company’s net tangible assets to be less than $5,000,001 and filed an amendment to its Amended and Restated Certificate of Incorporation with the Delaware Secretary of State on October 25, 2023.
| 8 |
The Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or 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 (i) $10.20 per public share or (ii) such lesser amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account due to reductions in the value of the trust assets, in each case net of the interest which may be withdrawn to pay taxes. This liability will not apply with respect to any claims by a third party who executed a waiver of any and all rights to seek access to the Trust Account and except as to any claims under the Company’s indemnity of the underwriters of the IPO against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, then the Company’s Sponsor will not be responsible to the extent of any liability for such third-party claims.
Change of Sponsor
On December 22, 2022, Water On Demand, Inc., a Nevada corporation (“WODI”), entered into a Membership Interest Purchase and Transfer Agreement with Ka Wai Cheung, Koon Lin Chan, and Koon Keung Chan (each a “Seller,” and collectively, the “Sellers”) and the Sponsor, pursuant to which WODI purchased 100 membership interests in the Sponsor from the Sellers, which constitutes 100% of the membership interests in the Sponsor. The Sponsor holds 2,343,750 shares out of 2,443,750 shares of the issued and outstanding shares of Class B Common Stock of the Company.
The Proposed Business Combination
On January 5, 2023, the Company filed a press release which announced the signing of a non-binding Letter of Intent (“LOI”) with WODI under which the Company proposes to acquire all the outstanding securities of WODI, based on certain material financial and business terms and conditions being met. On September 28, 2023, the Company announced that the LOI was amended and assigned to Water On Demand, Inc. (f/k/a Progressive Water Treatment Inc.), a Texas corporation (“WODI-PWT”). WODI-PWT recently merged with WODI. Accordingly, the LOI executed January 5, 2023 with WODI has been amended to designate WODI-PWT as the new target of the acquisition. Under the revised/amended LOI, the Company proposes to acquire all the outstanding securities of WODI-PWT, based on certain material financial and business terms and conditions being met. The LOI is not binding on the parties and is intended solely to guide good-faith negotiations toward definitive agreements.
On October 24, 2023, the Company entered into a Business Combination Agreement (as it may be amended, supplemented or otherwise modified from time to time, the “BCA”) with FRLA Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company incorporated on October 13, 2023 (“Merger Sub”), and WODI-PWT.
The BCA provides, among other things, that Merger Sub will merge with and into WODI-PWT, with WODI-PWT as the surviving company in the merger and, after giving effect to such merger, WODI-PWT shall be a wholly-owned subsidiary of the Company (the “Merger”). The Company will change its name to “Water on Demand, Inc.” The Merger and the other transactions contemplated by the BCA are hereinafter referred to as the “Business Combination.” In accordance with the terms and subject to the conditions of the BCA, at the effective time of the Merger (the “Effective Time”), among other things: (i) each share of Class A Common Stock and each share of Class B Common Stock (except for Class B Common Stock held by the Sponsor which are subject to forfeiture pursuant to the Sponsor Letter Agreement) that is issued and outstanding immediately prior to the Merger will become one share of common stock, par value $0.0001 per share, of the Company, and (ii) each share of common stock of WODI-PWT (subject to limited exceptions) issued and outstanding as of immediately prior to the Effective Time shall be automatically canceled and extinguished and converted into the right to receive that number of shares of the Company’s common stock equal to an exchange ratio, calculated as (a) the aggregate equity value of WODI-PWT of $32.0 million, divided by the aggregate number of shares of WODI-PWT common stock outstanding immediately prior to the Effective Time, divided by (b) the FRLA Share Value, where “FRLA Share Value” means (i) the aggregate amount of cash on deposit in the Trust Account (without giving effect to stockholder redemptions) as of two business days prior to the closing date of the Merger, including interest not previously released to the Company to pay taxes of the Company divided by (ii) the total number of then issued and outstanding shares of Class A Common Stock (without giving effect to stockholder redemptions).
Extension Amendments for Business Combination
On April 11, 2023, the Company filed with the Secretary of State of the State of Delaware an amendment (the “First Amendment”) to the Company’s Amended and Restated Certificate of Incorporation to extend the date by which the Company must consummate a Business Combination up to six times, each by an additional month, for an aggregate of six additional months (i.e., from May 5, 2023 to up to November 5, 2023) or such earlier date as determined by the board of directors. The Company’s stockholders approved the First Amendment at a special meeting of stockholders of the Company on April 10, 2023.
| 9 |
As a result of the June 2, 2023 special meeting of stockholders of the Company, the Company filed with the Secretary of State of the State of Delaware an amendment to the Company’s Amended and Restated Certificate of Incorporation to amend the monthly extension amounts to be paid by the Sponsor (or its affiliates), to extend the period of time for the Company to consummate a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination involving the Company to be made upon the request of the Sponsor, and approval by the Company’s board of directors, from a previously amended price per unredeemed share of Class A Common Stock of $0.0625 to the lower of $100,000 or $0.05 per unredeemed share of Class A Common Stock.
As approved by its stockholders at the special meeting of stockholders held on October 25, 2023, the Company entered into an amendment to the Investment Management Trust Agreement, dated as of November 2, 2021 (the “Trust Agreement”), by and between the Company and Wilmington Trust, National Association (“Wilmington Trust”), on October 25, 2023 (the “Trust Amendment”). The Trust Amendment extended the initial date on which Wilmington Trust must commence liquidation of the Trust Account to up to November 5, 2024, or such earlier date as determined by the Company’s board of directors, unless the closing of the Company’s initial business combination shall have occurred, provided that the Sponsor (or its affiliates or permitted designees) will deposit into the Trust Account the lesser of: (i) $100,000 and (ii) an aggregate amount equal to $0.05 multiplied by the number of public shares of the Company that are not redeemed, for each such one-month extension unless the closing of the Company’s initial business combination shall have occurred, in exchange for a non-interest bearing, unsecured promissory note payable upon consummation of a business combination.
From November 2022 to May 2024, a total of $
Liquidity and Going Concern
As of March 31, 2024, the Company had $
In connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Update (ASU) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that these conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan to address this uncertainty is through the Promissory Notes – related parties and the Working Capital Loans, as defined below (see Note 6). In addition, if the Company is unable to complete a Business Combination within the Combination Period by June 5, 2024 (or up to November 5, 2024, if the Company extends the time to complete a Business Combination), the Company’s board of directors would commence a winding up, dissolution and liquidation pursuant to the terms of the Amended and Restated Certificate of Incorporation and thereby a formal dissolution of the Company. There is no assurance that the Company’s plans to consummate a Business Combination will be successful within the Combination Period. As a result, management has determined that such additional condition also raises substantial doubt about the Company’s ability to continue as a going concern. The unaudited condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| 10 |
Inflation Reduction Act of 2022
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases (including redemptions) of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its stockholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax. Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension vote or otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax in connection with a Business Combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances issued within the same taxable year of a Business Combination and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business Combination and in the Company’s ability to complete a Business Combination.
As a result of the
shares of Class A Common Stock redeemed in April 2023, June 2023 and November 2023 as discussed in Note 9, as of March 31, 2024 and
December 31, 2023, the Company accrued the 1% excise tax in the amount of $
Note 2 — Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC, and include all normal and recurring adjustments that management of the Company considers necessary for a fair presentation of its financial position and operation results. Interim results are not necessarily indicative of results to be expected for any other interim period or for the full year. The information included in this Form 10-Q should be read in conjunction with information included in the Company’s annual report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on April 1, 2024.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiary. All intercompany transactions and balances are eliminated in consolidation.
A subsidiary is an entity in which the Company, directly or indirectly, controls more than one half of the voting power; or has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at the meeting of directors.
| 11 |
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, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. The accompanying unaudited condensed consolidated financial statements include all adjustments management considers necessary for a fair presentation.
Cash
The Company considers all short-term investments
with an original maturity of three months or less when purchased to be cash equivalents. As of March 31, 2024 and December 31, 2023, the
Company did
Cash held in Trust Account
To mitigate the risk that the Company might be deemed to be an investment company for purposes of the Investment Company Act, on September 28, 2023, the Company instructed Wilmington Trust, National Association, the trustee with respect to the Trust Account, to liquidate the investments held in the Trust Account and instead to hold the funds in the Trust Account in cash until the earlier of the consummation of the Company’s initial Business Combination or its liquidation.
As of March 31, 2024 and December 31, 2023, $
Gains and losses resulting from the change in
fair value of investments held in Trust Account are accounted as dividend income in the accompanying statement of operations. Dividend
income for the three months ended March 31, 2024 and 2023 amounted to $
| 12 |
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 Financial Accounting Standards Board (“FASB”) ASC 480 “Distinguishing Liabilities from Equity” (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether they meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own Common Stock 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, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations.
The Company accounted for the 4,887,500 Warrants issued with the IPO as equity instruments in accordance with ASC 480, “Distinguishing Liabilities from Equity” and ASC 815-40, “Derivatives and Hedging: Contracts in Entity’s Own Equity.”
Class A Common Stock Subject to Possible Redemption
The Company accounts for its Class A Common Stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption (if any) is classified as a liability instrument and is measured at fair value. Conditionally redeemable Class A Common Stock (including Class A Common Stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, Class A Common Stock is classified as stockholders’ equity. The Company’s public shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, as of March 31, 2024 and December 31, 2023, shares of Class A Common Stock subject to possible redemption are presented at redemption value of $11.14 and $11.03 per share, respectively, as temporary equity, outside of the stockholders’ deficit section of the Company’s consolidated balance sheets. The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable Class A Common Stock to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of shares of redeemable Class A Common Stock are affected by charges against additional paid in capital or accumulated deficit if additional paid in capital is zero.
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 Depository Insurance Corporation coverage limit of $250,000. The Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
| 13 |
Fair Value of Financial Instruments
ASC Topic 820 “Fair Value Measurements and Disclosures” defines fair value, the methods used to measure fair value and the expanded disclosures about fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between the buyer and the seller at the measurement date. In determining fair value, the valuation techniques consistent with the market approach, income approach and cost approach shall be used to measure fair value. ASC Topic 820 establishes a fair value hierarchy for inputs, which represent the assumptions used by the buyer and seller in pricing the asset or liability. These inputs are further defined as observable and unobservable inputs. Observable inputs are those that buyer and seller would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs that the buyer and seller would use in pricing the asset or liability developed based on the best information available in the circumstances.
The fair value hierarchy is categorized into three levels based on the inputs as follows:
| · | Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not being applied. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment. | |
| · | Level 2 – Valuations based on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived principally from or corroborated by market through correlation or other means. | |
| · | Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
The fair value of the Company’s current assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the accompanying unaudited condensed consolidated balance sheets, primarily due to their short-term nature.
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 statements 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. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
The Company recognizes accrued interest and
penalties related to unrecognized tax benefits and income taxes as income tax expense. There were
The Company has identified the United States as its only “major” tax jurisdiction.
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 twelve months.
| 14 |
The Company complies with the accounting and disclosure requirements of FASB ASC 260, Earnings Per Share. To determine the net income (loss) attributable to both the redeemable shares and non-redeemable shares, the Company first considered the undistributed income (loss) allocable to both the redeemable common stock and non-redeemable common stock and the undistributed income (loss) is calculated using the total net loss less any dividends paid. The Company then allocated the undistributed income (loss) ratably based on the weighted average number of shares outstanding between the redeemable and non-redeemable common stock. Any remeasurement of the accretion to redemption value of the common stock subject to possible redemption was considered to be dividends paid to the public stockholders. For the three months ended March 31, 2024 and 2023, the Company has not considered the effect of the warrants sold in the IPO to purchase an aggregate of 4,887,500 shares in the calculation of diluted net income (loss) per share, since the exercise of the warrants is contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive and the Company did not have any other dilutive securities and other contracts that could, potentially, be exercised or converted into common stock and then share in the earnings of the Company. As a result, diluted income (loss) per share is the same as basic (income) loss per share for the period presented.
| For the | For the | |||||||||||||||
| Three Months Ended | Three Months Ended | |||||||||||||||
| March 31, 2024 | March 31, 2023 | |||||||||||||||
| Non- | Non- | |||||||||||||||
| Redeemable | Redeemable | Redeemable | Redeemable | |||||||||||||
| Common | Common | Common | Common | |||||||||||||
| Stock | Stock | Stock | Stock | |||||||||||||
| Basic and diluted net (loss) income per share: | ||||||||||||||||
| Numerators: | ||||||||||||||||
| Allocation of net loss excluding accretion of carrying value to redemption value | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Accretion of carrying value to redemption value | ||||||||||||||||
| Allocation of net (loss) income | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Denominators: | ||||||||||||||||
| Weighted-average shares outstanding | ||||||||||||||||
| Basic and diluted net (loss) income per share | $ | ) | $ | ) | $ | $ | ) | |||||||||
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, “Debt – Debt Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40).” The amendment in this ASU is to address issues identified as a result of the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. For convertible instruments, the FASB decided to reduce the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with prior GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The amendments in this ASU are effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company adopted this ASU on January 1, 2024. The adoption of this ASU did not have a material effect on the Company’s unaudited condensed consolidated financial statements.
| 15 |
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. The Company is currently evaluating the potential impact of adopting this new guidance on its unaudited condensed consolidated financial statements and related disclosures.
Note 3 — Cash Held in Trust Account
To mitigate the risk that the Company might be deemed to be an investment company for purposes of the Investment Company Act, on September 28, 2023, the Company instructed Wilmington Trust, National Association, the trustee with respect to the Trust Account, to liquidate the investments held in the Trust Account and instead to hold the funds in the Trust Account in cash until the earlier of the consummation of the Company’s initial Business Combination or its liquidation.
As of March 31, 2024 and December 31, 2023, assets
held in the Trust Account were comprised of $
Note 4 — Initial Public Offering
Pursuant to the IPO on November 5, 2021,
the Company sold Units at $10.00 per Public Unit, generating gross proceeds of $
All of the 9,775,000 public shares sold as part of the Public Units in the IPO contain a redemption feature which allows for the redemption of such public shares if there is a stockholder vote or tender offer in connection with the Business Combination and in connection with certain amendments to the Company’s Amended and Restated Certificate of Incorporation, or in connection with the Company’s liquidation. In accordance with the Securities and Exchange Commission (the “SEC”) and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within the control of the Company require Class A Common Stock subject to redemption to be classified outside of permanent equity.
The Company’s redeemable Class A Common Stock is subject to the SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99. If it is probable that the equity instrument will become redeemable, the Company has the option to either accrete changes in the redemption value over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of the instrument or to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The Company has elected to recognize the changes immediately. The accretion or remeasurement is treated as a deemed dividend (i.e., a reduction to retained earnings, or in absence of retained earnings, additional paid-in capital).
| 16 |
For three months ended March 31, 2024 and for the year ended December 31, 2023, the Class A Common Stock reflected on the unaudited condensed consolidated balance sheets is reconciled in the following table.
| Class A Common Stock subject to possible redemption, December 31, 2022 | $ | |||
| Less: | ||||
| Redemptions | ( | ) | ||
| Plus: | ||||
| Accretion of carrying value to redemption value | ||||
| Class A Common Stock subject to possible redemption, December 31, 2023 | ||||
| Plus: | ||||
| Accretion of carrying value to redemption value | ||||
| Class A Common Stock subject to possible redemption, March 31, 2024 | $ | |||
Note 5 — Private Placement
Substantially concurrently with the closing of the IPO, the Company completed the private sale of Private Placement Shares, comprised of shares sold to the Sponsor and shares sold to the Representatives, at a purchase price of $10.00 per Private Placement Share, generating gross proceeds to the Company of $. The Private Placement Shares are identical to the public shares, except that the holders have agreed not to transfer, assign or sell any of the Private Placement Shares (except to certain permitted transferees) until 30 days after the completion of the Company’s initial Business Combination.
Note 6 — Related Party Transactions
Founder and Private Placement Shares
On February 18, 2021, the Sponsor acquired shares of common stock from the Company for a purchase price of $. On March 2, 2021, the Company amended and restated its certificate of incorporation to divide its common stock into Class A Common Stock and Class B Common Stock without changing the total amount of the authorized capital of common stock. As a result, the Company cancelled the 2,443,750 shares of common stock held by the Sponsor and simultaneously issued 2,443,750 shares (the “Founder Shares”) of Class B common stock, par value $0.0001 per share (“Class B Common Stock”) to the Sponsor.
As of March 31, 2024 and December 31, 2023, there were Founder Shares issued and outstanding. The aggregate capital contribution was $25,000, or approximately $0.01 per share.
The number of Founder Shares issued was determined based on the expectation that such Founder Shares would represent 20% of the outstanding shares upon completion of the IPO (excluding the sale of Private Placement Shares and issuance of the Representative Shares).
In November 2021, the Sponsor transferred an aggregate of 443,750 Founder Shares to the Company’s former officers, directors, secretary and their designees at the same price originally paid for such shares prior to the closing of the IPO. As a result of such transfers, each of the Company’s former directors collectively acquired the remaining 321,750 Founder Shares at the same price originally paid for such shares. On December 22, 2022, the Company’s officers, directors and secretary resigned from their respective positions and returned and sold a total of 343,750 Founder Shares back to the Sponsor for the original purchase price. Out of the issued and outstanding shares of Class B Common Stock, an aggregate of shares remains owned by former management.
| 17 |
The sale of the Founder Shares from Sponsor to the Company’s officers, directors and secretary 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 grant date fair value of the remaining 100,000 shares, net of forfeiture of 343,750 shares, granted to the Company’s officers, directors and secretary was $, or $7.16 per share. The Founders Shares were granted subject to a performance condition (i.e., the occurrence of a Business Combination). Compensation expense related to the Founders Shares is recognized only when the performance condition is probable of occurrence under the applicable accounting literature in this circumstance. As of March 31, 2024 and December 31, 2023, the Company determined that a Business Combination was not considered probable, and, therefore, no stock-based compensation expense has been recognized. Stock-based compensation would be recognized at the date a Business Combination is considered probable (i.e., upon consummation of a Business Combination) in an amount equal to the number of Founders Shares times the grant date fair value per share (unless subsequently modified) less the amount initially received for the purchase of the Founder Shares.
The holders of the Founder Shares have agreed not to transfer, assign or sell 50% of their Founder Shares until the earlier to occur of: (A) six months after the date of the consummation of the Company’s initial Business Combination, or (B) the date on which the closing price of the Company’s Class A Common Stock equals or exceeds $12.50 per share (as adjusted for share splits, share dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing after the Company’s initial Business Combination and the remaining 50% of the Founder Shares may not be transferred, assigned or sold until six months after the date of the consummation of the Company’s initial Business Combination, or earlier, in either case, if, subsequent to the Company’s initial Business Combination, the Company consummates a subsequent liquidation, merger, stock exchange or other similar transaction which results in all of the Company’s stockholders having the right to exchange their shares for cash, securities or other property.
On November 5, 2021, the Company completed the
private sale of shares of Class A Common Stock to the Sponsor, Fortune Rise Sponsor LLC, at a purchase price of $10.00 per
Private Placement Share, generating gross proceeds to the Company of $
In connection with BCA, on October 17, 2023, the Sponsor and the three independent directors of the Company entered into three separate securities transfer agreements (the “Securities Transfer Agreement”) to transfer a total of shares of the Founder shares to the three directors. The transfer of the Founder Shares from the Sponsor to the three independent directors of the Company 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 grant date fair value of the shares granted to the Company’s three independent directors was $, or $ per share. The Founders Shares were granted subject to a performance condition (i.e., the occurrence of a Business Combination). Compensation expense related to the Founders Shares is recognized only when the performance condition is probable of occurrence under the applicable accounting literature in this circumstance. As of March 31, 2024 and December 31, 2023, the Company determined that a Business Combination was not considered probable, and, therefore, no stock-based compensation expense has been recognized. Stock-based compensation would be recognized at the date a Business Combination is considered probable (i.e., upon consummation of a Business Combination) in an amount equal to the number of Founders Shares times the grant date fair value per share (unless subsequently modified) less the amount initially received for the purchase of the Founder Shares.
In connection with BCA, on October 24, 2023, the Sponsor, the Company and WODI-PWT entered into a letter agreement (the “Sponsor Letter Agreement”) pursuant to which the Sponsor agreed to (a) vote in favor of the Business Combination Agreement and the Business Combination, (b) waive any adjustment to the conversion ratio set forth in the governing documents of the Company or any other anti-dilution or similar protection with respect to the Class B Common Stock, such that the Class B Common Stock will convert into Class A Common Stock at the Closing on a one-to-one basis, and (c) subject certain of the Class B Common Stock currently held by the Sponsor to forfeiture.
| 18 |
Due to a Related Party
On December 22, 2023, the board of directors appointed
Ryan Spick to serve as the Company’s Principal Executive Officer and Chief Financial Officer effective as of December 22, 2023.
The terms and conditions of Mr. Spick’s appointment will be governed by a consulting agreement dated as of December 22, 2023 by
and between the Company and Mr. Spick (the “Consulting Agreement”). The Consulting Agreement provides for compensation to
Mr. Spick of $
Promissory Notes — Related Parties (Working Capital and Extension Loans)
Working Capital Loans – OriginClear
In December 2022, OriginClear, Inc. (“OriginClear”),
a Nevada corporation and the parent company of the Sponsor, advanced $
As of March 31, 2024 and December 31, 2023, the
Company had borrowings of $
Working Capital Loans – WODI
On November 4, 2022, an aggregate of $
In addition, in order to finance transaction costs in connection consummating an intended initial business combination, WODI may, but are not obligated to, loan the Company funds as may be required. In the event that the initial business combination does not close, the Company may use a portion of the working capital held outside the trust account to repay such loaned amounts, but no proceeds from the Trust Account would be used for such repayment. Such loans would be evidenced by promissory notes.
As of March 31, 2024 and December 31, 2023, the
Company had borrowings of $
Extension Loans – WODI
From November 2022 to May 2024, a total of $
| 19 |
Terms of the Working Capital and Extension Loans
The Working Capital and Extension Loans are non-interest bearing and payable (subject to the waiver against trust provisions) on the earlier of (i) consummation of the Company’s initial Business Combination and (ii) the date of the liquidation of the Company. The principal balance may be prepaid at any time, at the election of the Company. The holders of the Notes have the right, but not the obligation, to convert their Notes, in whole or in part, respectively, into private shares of Class A Common Stock (the “Conversion Shares”), as described in the IPO prospectus of the Company (File Number 333-256511). The number of Conversion Shares to be received by the holders in connection with such conversion shall be an amount, up to $3,000,000, determined by dividing (x) the sum of the outstanding principal amount payable to such holders by (y) $10.00.
In order to finance transaction costs in connection with an intended initial Business Combination, the founders or an affiliate of the founders or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required. If the Company completes the initial Business Combination, it would repay such loaned amounts. Up to $3,000,000 of such loans may be convertible into working capital shares, at a price of $10.00 per share at the option of the lender. Such working capital shares would be identical to the Private Placement Shares. In the event that the initial Business Combination does not close, the Company may use a portion of the working capital held outside the Trust Account to repay such loaned amounts, but no proceeds from the Trust Account would be used for such repayment.
Note 7 — Commitments & Contingencies
Risks and Uncertainties
As a result of the military action commenced in February 2022 by the Russian Federation and Belarus in the country of Ukraine and related economic sanctions, the Company’s ability to consummate a Business Combination, or the operations of a target business with which the Company ultimately consummates a Business Combination, may be materially and adversely affected. In addition, the Company’s ability to consummate a transaction may be dependent on the ability to raise equity and debt financing which may be impacted by these events, including as a result of increased market volatility, or decreased market liquidity in third-party financing being unavailable on terms acceptable to the Company or at all. The impact of this action and related sanctions on the world economy and the specific impact on the Company’s financial position, results of operations and/or ability to consummate a Business Combination are not yet determinable. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Registration Rights
The holders of the Founder Shares, Private Placement Shares and shares of common stock that may be issued upon conversion of working capital loans are entitled to registration rights pursuant to a registration rights agreement entered into in connection with the IPO, requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion into Class A Common Stock). The holders of the majority 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 subsequent to 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 expenses incurred in connection with the filing of any such registration statements.
Underwriters Agreement
The Representatives entitled to underwriting discounts
of (i) two percent (
| 20 |
Note 8 — Deferred Underwriters’ Discount
The Company is obligated to pay the underwriters
a deferred underwriters’ discount equal to
Note 9 — Temporary Equity and Stockholders’ Deficit
Preferred stock — The Company is authorized to issue shares of preferred stock, par value $ per share, and with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. As of March 31, 2024 and December 31, 2023, there were shares of preferred stock issued or outstanding.
Common stock — The Company was initially authorized to issue up to shares of common stock, par value $ per share. On February 19, 2021, there were shares of common stock issued and outstanding. On March 2, 2021, the Company amended and restated its certificate of incorporation to divide its common stock into Class A Common Stock and Class B Common Stock, with the result that the Company is authorized to issue up to 60,000,000 shares of common stock, par value $0.0001 per share, comprised of shares of Class A Common Stock and shares of Class B Common Stock. In connection therewith, the Company cancelled 2,443,750 shares of common stock issued to the Sponsor and issued shares of Class B Common Stock to the Sponsor.
Holders of record of Common Stock are entitled to one vote for each share held on all matters to be voted on by stockholders. The Company’s stockholders are entitled to receive ratable dividends when, as and if declared by the board of directors out of funds legally available therefor. Holders of record of the Class A Common Stock and holders of record of the Class B Common Stock will vote together as a single class on all matters submitted to a vote of the stockholders, with each share of common stock entitling the holder to one vote except as required by applicable law. The shares of Class B Common Stock will automatically convert into shares of Class A Common Stock at the closing of the Company’s initial Business Combination on a one-for-one basis, subject to adjustment pursuant to certain anti-dilution right.
Class A Common Stock — The Company is authorized to issue shares of Class A Common Stock with a par value of $ per share.
In connection with the special meeting of stockholders
on April 10, 2023, holders of public shares of Class A Common Stock properly exercised their right to redeem their shares
(and did not withdraw their redemption) for cash at a redemption price of approximately $ per share, for an aggregate redemption
amount of $
In connection with the special meeting of stockholders
on June 2, 2023, holders of public shares of Class A Common Stock properly exercised their right to redeem their shares
(and did not withdraw their redemption) for cash at a redemption price of approximately $ per share, for an aggregate redemption
amount of $
In connection with the special meeting of stockholders
on October 25, 2023, holders of public shares of Class A Common Stock properly exercised their right to redeem their
shares (and did not withdraw their redemption) for cash at a redemption price of approximately $per share, for an aggregate redemption
amount of $
| 21 |
Representative Shares
The Company issued Representative Shares in Class A Common Stock to the Representatives of the underwriters for the Company’s IPO, as part of their underwriting compensation. The Representative Shares are identical to the public shares except that the Representatives have agreed not to transfer, assign or sell any such Representative Shares until the completion of the Company’s initial Business Combination. The Representative Shares are deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following the date of the commencement of sales in this offering pursuant to FINRA Rule 5110(e)(1). In addition, the Representatives have agreed (i) to waive their redemption rights with respect to such shares in connection with the completion of the Company’s initial Business Combination and (ii) to waive their rights to liquidating distributions from the Trust Account (as defined below) with respect to such shares if the Company fails to complete its initial Business Combination by June 5, 2024 (or up to November 5, 2024, if the Company extends the time to complete a Business Combination and payment of the extension deposit by our Sponsor, or its affiliates).
As of March 31, 2024 and December 31, 2023, there were shares of common stock issued and outstanding, excluding shares of common stock subject to possible redemption.
Class B Common Stock —
The Company is authorized to issue
shares of Class B Common Stock with a par value of $
per share. On March 2, 2021, the Company issued
shares of Class B Common Stock to the founders for $
In connection with BCA, on October 24, 2023, the Sponsor, the Company and WODI-PWT entered into a letter agreement (the “Sponsor Letter Agreement”) pursuant to which the Sponsor agreed to (a) vote in favor of the Business Combination Agreement and the Business Combination, (b) waive any adjustment to the conversion ratio set forth in the governing documents of the Company or any other anti-dilution or similar protection with respect to the Class B Common Stock, such that the Class B Common Stock will convert into Class A Common Stock at the Closing on a one-to-one basis, and (c) subject certain of the Class B Common Stock currently held by the Sponsor to forfeiture.
Warrants — On November 5, 2021, the Company issued warrants in connection with the IPO. Each whole warrant entitles the registered holder to purchase one whole share of the Company’s Class A Common Stock at a price of $11.50 per share, subject to adjustment as discussed below, at any time commencing on the later of 12 months from the closing of the IPO or 30 days after the completion of the initial Business Combination. Pursuant to the warrant agreement, a warrant holder may exercise its warrants only for a whole number of shares of Class A Common Stock. This means that only a whole warrant may be exercised at any given time by a warrant holder. No fractional warrants will be issued upon separation of the units and only whole warrants will trade. The warrants will expire five years after the completion of the Company’s initial Business Combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.
As of March 31, 2024 and December 31, 2023,
The Company has agreed that as soon as practicable, but in no event later than 30 business days, after the closing of the initial Business Combination, it will use its commercially reasonable efforts to file, and within 60 business days following its initial Business Combination to have declared effective, a registration statement for the registration, under the Securities Act, of the shares of Class A Common Stock issuable upon exercise of the warrants. The Company will use its commercially reasonable efforts to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the warrants in accordance with the provisions of the warrant agreement. No warrants will be exercisable for cash unless the Company has an effective and current registration statement covering the Class A Common Stock issuable upon exercise of the warrants and a current prospectus relating to such shares of common stock. Notwithstanding the above, if the Company’s Class A Common Stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of 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 it so elect, it will not be required to file or maintain in effect a registration statement, but it will be required to use its commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
| 22 |
Once the warrants become exercisable, the Company may call the warrants for redemption:
| · | in whole and not in part; | |
| · | at a price of $0.01 per warrant; | |
| · | upon not less than 30 days’ prior written notice of redemption to each warrant holder; and | |
| · | if, and only if, the reported last sale price of the common stock equals or exceeds $16.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on third business day before the Company send the notice of redemption to the warrant holders. |
The Company accounted for the 4,887,500 warrants
issued with the IPO as equity instruments in accordance with ASC 480, “Distinguishing Liabilities from Equity” and ASC 815-40,
“Derivatives and Hedging: Contracts in Entity’s Own Equity.” The Company accounted for the warrant as an expense of
the IPO resulting in a charge directly to stockholders’ equity. The Company estimates that the fair value of the warrants of the
date of grant date is approximately $
Note 10 — Income Taxes
The effective tax rate is
Note 11 — Subsequent Events
In accordance with ASC 855, Subsequent Events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued, the Company has evaluated all events or transactions that occurred after the balance sheet date, up through the date was the Company issued the unaudited condensed consolidated financial statements.
Promissory Notes — Related Parties (Working Capital and Extension Loans)
On April 5, 2024, $100,000 (the “Fourteenth Extension Payment”) was deposited into the Trust Account, for the public stockholders, representing $0.032 per public share, which enabled the Company to extend the period of time it has to consummate its initial Business Combination by one month from April 5, 2024 to May 5, 2024. The Fourteenth Extension was the sixth of the twelve one-month extensions permitted under the Company’s governing documents, as amended in October 2023. In connection with the Fourteenth Extension Payment, the Company issued an unsecured promissory note (the “Fourteenth Extension Note”) to WODI.
On May 6, 2024, $100,000 (the “Fifteenth Extension Payment”) was deposited into the Trust Account, for the public stockholders, representing $0.032 per public share, which enabled the Company to extend the period of time it has to consummate its initial Business Combination by one month from May 5, 2024 to June 5, 2024. The Fifteenth Extension was the seventh of the twelve one-month extensions permitted under the Company’s governing documents, as amended in October 2023. In connection with the Fifteenth Extension Payment, the Company issued an unsecured promissory note (the “Fifteenth Extension Note”) to WODI.
The Company also issued the following unsecured promissory notes (“Notes”) to WODI for working capital purpose:
| · | Unsecured promissory note dated April 1, 2024 in the principal amount of $75,000 to WODI; and | |
| · | Unsecured promissory note dated April 25, 2024 in the principal amount of $50,000 to WODI; |
The Fourteenth Extension Note, the Fifteenth Extension Note, and the Notes are non-interest bearing and payable (subject to the waiver against trust provisions) on the earlier of (i) consummation of the Company’s initial Business Combination and (ii) the date of the liquidation of the Company. The principal balance may be prepaid at any time, at the election of the Company. The holders of the Notes have the right, but not the obligation, to convert their Notes, in whole or in part, respectively, into private shares of the Class A Common Stock (the “Conversion Shares”) of the Company, as described in the IPO prospectus of the Company (File Number 333-256511). The number of Conversion Shares to be received by the holders in connection with such conversion shall be an amount determined by dividing (x) the sum of the outstanding principal amount payable to such holders by (y) $10.00.
| 23 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Fortune Rise Acquisition Corporation. References to our “management” or our “management team” refer to our officers and directors, and references to the “sponsor” refer to Fortune Rise Sponsor LLC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act 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 our 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 our final prospectus for our initial public offering filed with the SEC on November 3, 2021, our Proxy Statement on Schedule 14A, as filed with the SEC on October 2, 2023, and the “Risk Factors” section of this report. Our securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, we disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated 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.
Overview
We are a blank check company formed as a Delaware corporation for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses.
Effective December 22, 2022, Ka Wai Cheung, Koon Lin Chan, and Koon Keung Chan, Fortune Rise Sponsor LLC (the “Sponsor”), and Water On Demand, Inc., a Nevada corporation that controls our Sponsor (“WODI”), entered into a Membership Interest Purchase and Transfer Agreement pursuant to which they sold to WODI all right, title and interest in and to the membership interests held by each of Messrs. Cheung, Chan, and Chan in the Sponsor (an aggregate of 100 membership interests) for $400,000.
In addition, effective December 22, 2022, our Sponsor entered into a Securities Transfer Agreement with each of US Tiger Securities, Inc. (as designee of Lei Huang), Lei Xu, Yuanmei Ma, Norman C. Kristoff, David Xianglin Li, Michael Davidov, and Christy Szeto (the “Sellers”), pursuant to which the Sellers sold to the Sponsor an aggregate of 343,750 shares of Class B Common Stock for the purchase price of $3,506.25. Out of the issued and outstanding shares of Class B Common Stock, an aggregate of 100,000 shares remain owned by former management.
| 24 |
Lastly, on December 22, 2022, each of Koon Keung Chan, Lei Xu, and US Tiger Securities, Inc. assigned each of their promissory notes issued on November 4, 2022 in the aggregate amount of $733,750 to the Sponsor.
Since our inception, we have been actively searching for a suitable business combination target, and on October 24, 2023, we entered into a Business Combination Agreement (as it may be amended, supplemented or otherwise modified from time to time, the “BCA”) with FRLA Merger Sub, Inc., a Delaware corporation and our wholly owned subsidiary (the “Merger Sub”) and WODI.
We will effectuate our business combination using cash (subject to potential reduction of the trust account for the benefit of our public stockholders (the “Trust Account”) by stockholder redemptions) derived from the proceeds of (i) our initial public offering (the “IPO”), (ii) the sale of Common Stock (the “Private Placement Shares”) in a private placement (the “Private Placement”) to the Sponsor, and/or (iii) the issuance of additional shares, debt or a combination of 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. Our management has broad discretion with respect to the specific application of the proceeds of the IPO and the Private Placement that are held outside of the Trust Account, although substantially all the net proceeds are intended to be applied generally towards consummating a business combination and working capital.
Since our IPO, our sole business activity has been identifying and evaluating suitable acquisition transaction candidates. We presently have no revenue and have had losses since inception from incurring formation and operating costs. We have relied upon the sale of our securities and loans from the Sponsor and other parties to fund our operations.
Recent Developments
Extension of the Company’s Time to Consummate its Initial Business Combination
From November 2022 to May 2024, a total of $3,485,065 was deposited into the Trust Account for the public stockholders, which enabled us to extend the period of time it had to consummate its initial Business Combination from November 5, 2022 to June 5, 2024, with most of the borrowings to fund the extension payments from WODI. In connection with the extension payments, we issued a total of fifteen unsecured extension notes (the “Extension Notes”) to WODI.
The Extension Notes are non-interest bearing and payable (subject to the waiver against trust provisions) on the earlier of (i) consummation of our initial business combination and (ii) the date of our liquidation. The principal balance may be prepaid at any time, at our election. The holders of the Extension Notes have the right, but not the obligation, to convert their Extension Notes, in whole or in part, respectively, into private shares of our Class A Common Stock (the “Conversion Shares”), as described in our IPO prospectus (File Number 333-256511). The number of Conversion Shares to be received by the holders in connection with such conversion shall be an amount, up to $3,000,000, determined by dividing (x) the sum of the outstanding principal amount payable to such holders by (y) $10.00.
Extension of Business Combination Deadline
On March 3, 2023, our board of directors approved a stockholder proposal to amend our Amended and Restated Certificate of Incorporation to extend, upon the request of our Sponsor and approval by our board of directors, the period of time for us to (i) consummate a business combination, (ii) cease our operations if we fail to complete such business combination, and (iii) redeem or repurchase 100% of the public shares, up to six times, each by an additional month, for an aggregate of six additional months (i.e., from May 5, 2023 to up to November 5, 2023) or such earlier date as determined by the board of directors.
| 25 |
At our April 10, 2023 special meeting of stockholders, our stockholders approved the filing of an amendment to the Amended and Restated Certificate of Incorporation (the “First Amendment”) to extend, upon the request of our Sponsor, and approval by our board of directors, the period of time for us to (i) consummate a business combination, (ii) cease our operations if we fail to complete such business combination, and (iii) redeem or repurchase 100% of the public shares, up to six times, each by an additional month, for an aggregate of six additional months (i.e., from May 5, 2023 to up to November 5, 2023) or such earlier date as determined by the board of directors. As a result, on April 11, 2023, we filed the First Amendment with the Delaware Secretary of State. The stockholder vote to approve the First Amendment also triggered a redemption right for the holders of the public shares of Class A Common Stock. As a result of the First Amendment, 4,493,968 shares of Class A Common Stock were redeemed for a total redemption amount of $47,501,242. We have effected all six of those permitted monthly extensions.
As a result of our June 2, 2023 special meeting of stockholders, we filed with the Secretary of State of the State of Delaware an amendment to our Amended and Restated Certificate of Incorporation to amend the monthly extension amounts to be paid by the Sponsor (or its affiliates), to extend the period of time for us to consummate a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination involving us to be made upon the request of the Sponsor, and approval by our board of directors, from a previously amended price per unredeemed share of Class A Common Stock of $0.0625 to the lower of $100,000 or $0.05 per unredeemed share of Class A Common Stock.
At that June 2, 2023 special meeting of stockholders, the holders of 1,666,080 public shares properly exercised their right to redeem their shares (and did not withdraw their redemption) for cash at a redemption price of approximately $10.76 per share, for an aggregate redemption amount of $17,927,021. Following such redemptions, 3,614,952 public shares of Class A Common Stock remained outstanding.
At our October 25, 2023 special meeting of stockholders, the holders of 452,404 public shares properly exercised their right to redeem their shares (and did not withdraw their redemption) for cash at a redemption price of approximately $10.96 per share, for an aggregate redemption amount of $4,958,347. Following such redemptions, 3,162,548 public shares of Class A Common Stock remain outstanding. As of the date of this filing, we have effected seven of those permitted twelve monthly extensions.
Results of Operations
Our entire activity from inception to date was related to our formation, the IPO and general and administrative activities. Since the IPO, our activity has been limited to the evaluation of business combination candidates, and we will not generate any operating revenues, if any, until the closing and completion of our initial business combination. We generate non-operating income in the form of money market fund dividend income earned on investments held in the Trust Account up until September 2023. To mitigate the risk that we might be deemed to be an investment company for purposes of the Investment Company Act, on September 28, 2023, we instructed Wilmington Trust, National Association, the trustee with respect to the Trust Account, to liquidate the investments held in the Trust Account and instead to hold the funds in the Trust Account in cash until the earlier of the consummation of our initial Business Combination or our liquidation.
We are incurring 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 March 31, 2024, we had a net loss of $487,166 which consisted of formation and operating costs $452,266, and franchise tax expenses of $34,900.
For the three months ended March 31, 2023, we had a net income of $356,206 which consisted of dividend earned on investment held in Trust Account of $1,095,375, offset by formation and operating costs of $424,219, franchise tax expenses of $50,000 and income tax provision of $264,950.
Liquidity and Capital Resources
As of March 31, 2024, we had cash outside the Trust Account of $6,981 available for working capital needs. All remaining cash is held in the Trust Account and is generally unavailable for our use prior to an initial business combination, and is restricted for use either in a business combination or to redeem the public shares of Common Stock. As of March 31, 2024, none of the amount on deposit in the Trust Account was available to be withdrawn as described above except for tax payments.
| 26 |
For the three months ended March 31, 2024, there was $215,929 of cash used in operating activities resulting from net loss of $487,166, offset by decrease in prepaid expenses of $72,125, increase in due to a related party of $30,000, increase in accounts payable and accrued expenses of $153,602, and increase in franchise tax payable of $15,510.
For the three months ended March 31, 2023, there was $850,219 of cash used in operating activities resulting from dividend earned on investment held in Trust Account amounting to $1,095,375, increase in prepaid expenses of $66,320, and decrease in franchise tax payable of $149,759, offset by net income of $356,206, deferred tax expense of $16,966, increase in accounts payable and accrued expenses of $12,079 and increase in income tax payable of $75,984.
For the three months ended March 31, 2024, there was $380,000 of cash used in investing activities resulting from the deposit of funds held in Trust Account amounting to $380,000.
For the three months ended March 31, 2023, there was $777,741 of cash used in investing activities resulting from the purchase of an investment held in Trust Account amounting to $977,500, offset by withdrawal of an investment held in the Trust Account amounting to $199,759.
For the three months ended March 31, 2024, there was $590,000 of cash provided by financing activities resulting from the proceeds from the issuance of promissory notes to a related party amounting to $590,000.
For the three months ended March 31, 2023, there was $1,607,920 of cash provided by financing activities resulting from proceeds from the issuance of promissory notes to a related party amounting to $1,052,500 and advances from a related party amounting to $555,420.
Until consummation of the business combination, we will use the funds held outside the Trust Account, and any additional funding that may be loaned to us by our Sponsor, for identifying and evaluating prospective acquisition candidates, performing business due diligence on prospective target businesses, traveling to and from the offices, plants or similar locations of prospective target businesses, reviewing corporate documents and material agreements of prospective target businesses, selecting the target business to acquire and structuring, negotiating and consummating the business combination.
If our estimates of the costs of 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 the business combination and will need to raise additional capital. In this event, our officers, directors or their affiliates may, but are not obligated to, loan us funds as may be required. If we consummate an initial business combination, we would repay such loaned amounts out of the proceeds of the Trust Account released to us upon consummation of the business combination, or, at the lender’s discretion, up to $3,000,000 of such loans may be convertible into shares of Class A Common Stock of the post business combination entity at a price of $10.00 per share of Class A Common Stock. In the event that the initial business combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts, but no proceeds from our Trust Account would be used for such repayment. The terms of such loans by our Initial Stockholders, officers and directors, if any, have not been determined and no written agreements exist with respect to such loans.
Moreover, we may need to obtain additional financing either to consummate our initial business combination or because we become obligated to redeem a significant number of our public shares upon consummation of our initial business combination, in which case we may issue additional securities or incur debt in connection with such business combination. Subject to compliance with applicable securities laws, we would only consummate such financing simultaneously with the consummation of our initial business combination. Following our initial business combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
In connection with our assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Update (ASU) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that these conditions raise substantial doubt about our ability to continue as a going concern. Management’s plan in addressing this uncertainty is through the Promissory Notes – related parties and the Working Capital Loans. In addition, if we are unable to complete a business combination within the Combination Period by June 5, 2024 (or up to November 5, 2024, if the Company extends the time to complete a Business Combination), our board of directors would proceed to commence a voluntary liquidation and thereby a formal dissolution of the Company. There is no assurance that our plans to consummate a business combination will be successful within the Combination Period. As a result, management has determined that this additional condition also raises substantial doubt about our ability to continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| 27 |
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities that 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 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
As of March 31, 2024 and December 31, 2023, we do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities. As of March 31, 2024 and December 31, 2023, we have $32,903 and $2,903, respectively, payable due to a related party. As of March 31, 2024 and December 31, 2023, we have $5,353,735 and $4,763,735, respectively, promissory notes issued to related parties.
We are obligated to pay the underwriters a deferred underwriters’ discount equal to 3.5% of the gross proceeds of the IPO. The deferred underwriters’ discount of $3,421,250 will become payable to the US Tiger Securities and EF Hutton, a division of Benchmark Investment LLC, the representatives of the several underwriters of the IPO (each, a “Representative”), from the amounts held in the Trust Account solely in the event that we complete a business combination.
Critical Accounting Estimates
Use of Estimates
The preparation of unaudited condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. The Company does not have any critical accounting estimates.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, “Debt – Debt Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40).” The amendment in this ASU is to address issues identified as a result of the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. For convertible instruments, the Board decided to reduce the number of accounting models for convertible debt instruments and convertible preferred stock per this ASU. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with prior GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The amendments in this ASU are effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. We adopted this ASU on January 1, 2024. The adoption of this ASU did not have a material effect on our unaudited condensed consolidated financial statements.
| 28 |
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. We are currently evaluating the potential impact of adopting this new guidance on our unaudited condensed consolidated financial statements and related disclosures.
Management does not believe that any 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
As a smaller reporting company, we have elected not to provide the disclosure required by this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Financial Officer who also serves as our principal executive officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2024, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our Chief Financial Officer who also serves as our principal executive officer, has concluded that during the period covered by this report, our disclosure controls and procedures were effective.
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during the quarter ended March 31, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| 29 |
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
To the knowledge of our management, 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, as of the date of this Report, other than as set forth below, there have been no material changes with respect to those risk factors previously disclosed in our (i) Registration Statement on Form S-1 for our initial public offering, and (ii) Proxy Statement on Schedule 14A, as filed with the SEC on October 2, 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.
Nasdaq may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.
We cannot assure you that our securities will continue to be, listed on Nasdaq. In order to continue listing our securities on Nasdaq prior to our initial business combination, we must maintain certain financial, distribution and share price levels. On August 21, 2023, we received a written notice from the Listing Qualifications Department of Nasdaq indicating that we are not in compliance with Listing Rule 5450(b)(2)(A), due to our failure to maintain a minimum Market Value of Listed Securities of $50 million, and on October 16, 2023 we received a written notice that we are not in compliance with Listing Rule 5450(a)(2), due to our failure to maintain a minimum of 400 Total Holders. On October 25, 2023, we transferred the listing of our securities to the Nasdaq Capital Market, remedying the deficiency under Rule 5450(b)(2)(A), and requiring us to comply with Listing Rule 5550(a)(3), which requires us to have at least 300 public holders (the “Public Holders Rule”). Nasdaq granted us an extension until April 13, 2024 (the “Extension Period”), to evidence compliance with the Public Holders Rule.
On April 16, 2024, we received a written notice (the “Notice”) from Nasdaq notifying us that we did not regain compliance with the Public Holders Rule during the Extension Period. As a result, Nasdaq advised us that our securities would be subject to delisting unless we timely requested a hearing before an independent Hearings Panel (the “Panel”). On April 19, 2024, we submitted a request for a hearing (the “Hearing”). The hearing request will stay the suspension of our securities and the termination of registration of the securities with Nasdaq as required by the rules of the SEC pending the Panel’s decision and, therefore, Nasdaq’s notice has no immediate effect on the listing of our common stock, units or warrants on Nasdaq. The Hearing has been scheduled for May 30, 2024.
On April 24, 2024, we received an additional notice from Nasdaq stating that we were not in compliance with Listing Rule 5250(f) (the “Fee Payment Rule”) because we had not paid certain fees to Nasdaq, which serves as an additional basis for delisting our securities from the Nasdaq Capital Market. The failure to comply with the Fee Payment Rule will also be considered by the Panel at the Hearing.
There can be no assurance that the Panel will grant our request for continued listing. We cannot assure you that we will be able to regain compliance with the Nasdaq continued listing requirements, including the Public Holders Rule or the Fee Payment Rule, or that our securities will continue to be listed on Nasdaq.
Additionally, in connection with our initial business combination, we will be required to demonstrate compliance with the applicable exchange’s initial listing requirements, which are more rigorous than the continued listing requirements, in order to continue to maintain the listing of our securities. We cannot assure you that we will be able to meet those initial listing requirements at that time.
| 30 |
If any of our securities are delisted from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect such securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:
| · | a limited availability of market quotations for our securities; | |
| · | reduced liquidity for our securities; | |
| · | a determination that our Class A common stock is a “penny stock” which will require brokers trading in our Class A common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; | |
| · | a limited amount of news and analyst coverage; and | |
| · | a decreased ability to issue additional securities or obtain additional financing in the future. |
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or pre-empts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Our Units, Class A common stock and warrants currently qualify as covered securities under such statute. Although the states are pre-empted from regulating the sale of covered securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While we are not aware of a state having used these powers to prohibit or restrict the sale of securities issued by blank check companies, other than the State of Idaho, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. Further, if we were no longer listed on Nasdaq, our securities would not qualify as covered securities under such statute and we would be subject to regulation in each state in which we offer our securities, including in connection with our initial business combination, which may negatively impact our ability to consummate our initial business combination.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On November 5, 2021, we consummated our initial public offering of 9,775,000 units, including 1,275,000 units as a result of the exercise in full of the underwriters’ over-allotment option, in each case, at an offering price of $10.00 per Unit, generating aggregate gross proceeds of $97,750,000. The securities sold in our initial public offering were registered under the Securities Act on a registration statement on Form S-1 (File No. 333-256511). The registration statement became effective on November 2, 2021. Substantially concurrently with the closing of our initial public offering, we completed a private placement of 545,000 shares of Class A Common Stock at a purchase price of $10.00 per share, generating aggregate gross proceeds of $5,455,000. For a description of the use of the proceeds generated in our IPO and private placement, see Part I, Item 2 of this Quarterly Report. There has been no material change in the planned use of the proceeds from the IPO and private placement as is described in the Company’s final prospectus related to the IPO.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
During the quarter
ended March 31, 2024, no director or officer of the Company
| 31 |
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Report.
_____________________
| * | Filed with this Report. |
| ** | Furnished with this Report. |
| (1) | Incorporated by reference to the Company’s Form 8-K, filed with the SEC on November 5, 2021. |
| (2) | Incorporated by reference to the Company’s Form 8-K, filed with the SEC on April 13, 2023. |
| (3) | Incorporated by reference to the Company’s Form 8-K, filed with the SEC on June 2, 2023. |
| (4) | Incorporated by reference to the Company’s Registration Statement on Form S-1 filed with the SEC on May 26, 2021. |
| (5) | Incorporated by reference to the Company’s Form 8-K, filed with the SEC on January 8, 2024. |
| (6) | Incorporated by reference to the Company’s Form 8-K, filed with the SEC on February 6, 2024. |
| (7) | Incorporated by reference to the Company’s Form 8-K, filed with the SEC on October 27, 2023. |
| (8) | Incorporated by reference to the Company’s Form 8-K, filed with the SEC on March 6, 2024. |
| (9) | Incorporated by reference to the Company’s Form 8-K, filed with the SEC on April 8, 2024. |
| (10) | Incorporated by reference to the Company’s Form 8-K, filed with the SEC on May 7, 2024. |
| (11) | Incorporated by reference to the Company’s Form 8-K, filed with the SEC on February 7, 2024. |
| 32 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| FORTUNE RISE ACQUISITION CORPORATION | ||
| Date: May 15, 2024 | By: | /s/ Ryan Spick |
| Name: | Ryan Spick | |
| Title: | Principal Executive Officer and Chief Financial Officer | |
| (Principal Executive Officer and Principal Financial and Accounting Officer) | ||
| 33 |