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 |
Stock and one-half of one Warrant |
The Stock Market LLC | |
| The | ||
of Class A Common Stock at an exercise price of $11.50 |
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).
The number of shares outstanding of the registrant’s common stock on August 14, 2023, was .
TABLE OF CONTENTS
| 2 |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
FORTUNE RISE ACQUISITION CORPORATION
CONDENSED BALANCE SHEETS
| June 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Prepaid expenses - related party | ||||||||
| Total current assets | ||||||||
| Investments held in Trust Account | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities, Temporary Equity, and Stockholders’ Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Due to related parties | ||||||||
| Promissory notes - related party | ||||||||
| Income taxes payable | ||||||||
| Franchise taxes payable | ||||||||
| Excise taxes payable | ||||||||
| Total current liabilities | ||||||||
| Deferred tax liability | ||||||||
| Deferred underwriters' discount | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Class A Common Stock subject to possible redemption, shares and shares at redemption value of $ and $ per share as of June 30, 2023 and December 31, 2022, respectively | ||||||||
| Stockholders’ Deficit: | ||||||||
| Preferred Stock, $ par value; shares authorized; issued and outstanding as of June 30, 2023 and December 31, 2022 | ||||||||
| Class A Common Stock, $par value; shares authorized; shares issued and outstanding (excluding 3,614,952 shares and 9,775,000 shares subject to possible redemption) as of June 30, 2023 and December 31, 2022 | ||||||||
| Class B Common Stock, $ par value; shares authorized; shares issued and outstanding as of June 30, 2023 and December 31, 2022 | ||||||||
| 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 STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended | For the Three Months Ended | For the Six Months Ended | For the Six Months Ended | |||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||
| Formation and 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 income (loss) 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.
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FORTUNE RISE ACQUISITION CORPORATION
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(Unaudited)
| For the Six Months Ended June 30, 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 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Accretion of carrying value to redemption value | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||
| Excise taxes accrual on redemption of Class A Common Stock | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||
| Net loss | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| For the Six Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||
| 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, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| Net loss | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance as of March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net loss | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 5 |
FORTUNE RISE ACQUISITION CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the | For the | |||||||
| Six Months Ended | Six Months Ended | |||||||
| June 30, 2023 | June 30, 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) 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 | ( | ) | ||||||
| Prepaid expenses - related party | ||||||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Income taxes payable | ( | ) | ||||||
| Franchise taxes payable | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of investments held in Trust Account | ( | ) | ||||||
| Withdrawal of investments held in Trust Account | ||||||||
| Net cash provided by investing activities | ||||||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from issuance of promissory notes to a related party | ||||||||
| Class A Common Stock redemptions | ( | ) | ||||||
| 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 | $ | $ | ||||||
| Excise taxes accrual on redemption of Class A Common Stock | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
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FORTUNE RISE ACQUISITION CORPORATION
NOTES TO UNAUDITED CONDENSED 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 June 30, 2023 and December 31, 2022, the Company had not commenced any operations. For the period from February 1, 2021 (inception) through June 30, 2023, 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 and will continue to generate non-operating income in the form of money market fund dividend income earned from the proceeds derived from the IPO.
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
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 $10.00 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 September 5, 2023 (or up to November 5, 2023, if the Company extends the time to complete a Business Combination).
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Following the closing of the IPO and the issuance and the sale of Private Placement Shares on November 5, 2021, $99,705,000 ($10.20 per Public Unit) from the net proceeds of the sale of the Public Units in the IPO and the sale of Private Placement Shares was placed in a trust account (the “Trust Account”) maintained by Wilmington Trust, National Association as a trustee and invested the proceeds in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, with a maturity of 180 days or less, or in any open-ended investment company that holds itself out as a money market fund meeting the conditions of Rule 2a-7 of the Investment Company Act of 1940, as amended (the “Investment Company Act”), as determined by the Company, until the earlier of: (a) the completion of the initial Business Combination, (b) the redemption of any public shares properly submitted in connection with a stockholder vote to amend the Company’s amended and restated certificate of incorporation (i) 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 it does not complete the initial Business Combination by September 5, 2023 (or up to November 5, 2023, if the Company extends the time to complete a Business Combination) or (ii) with respect to any other provision relating to stockholders’ rights or pre-initial Business Combination activity and (c) the redemption of the Company’s public shares if it is unable to complete the Business Combination by September 5, 2023 (or up to November 5, 2023, if the Company extends the time to complete a Business Combination), subject to applicable law. The proceeds deposited in the Trust Account could become subject to the claims of the Company’s creditors, if any, which could have priority over the claims of the Company’s public stockholders.
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 has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and, if the Company seeks stockholder approval, a majority of the issued and outstanding shares voted are voted in favor of the Business Combination. The Company will have until September 5, 2023 (or up to November 5, 2023, if the Company extends the time to complete a Business Combination and payment of the extension 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 September 5, 2023 (or up to November 5, 2023, if the Company extends the time to complete a Business Combination) and payment of the extension 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 September 5, 2023 (or up to November 5, 2023, if the Company extends the time to complete a Business Combination and payment of the extension 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.
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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.
Termination of Prior Proposed Business Combination
On April 26, 2022, the Company entered into an agreement and plan of merger (the “Merger Agreement”) by and among Sigma Merger Sub Inc., a Delaware corporation and its direct, wholly owned subsidiary (“Sigma Merger Sub”), Gamma Merger Sub Inc., a Delaware corporation and its direct, wholly owned subsidiary (“Gamma Merger Sub”), VCV Power Sigma, Inc., a Delaware corporation (“Sigma”), VCV Power Gamma, Inc., a Delaware corporation (“Gamma,” and, together with Sigma, “VCV Digital Technology”), and Jerry Tang, in his capacity as the representative for stockholders of VCV Digital Technology and for certain limited purposes under Section 5.13 thereunder. Pursuant to the Merger Agreement, among other things, (i) in accordance with the General Corporation Law of the State of Delaware, as amended (the “DGCL”), Sigma Merger Sub would merge with and into Sigma, with Sigma surviving the Sigma Merger as the Company’s wholly owned subsidiary, and (ii) in accordance with the DGCL, Gamma Merger Sub will merge with and into Gamma, with Gamma surviving the Gamma Merger as its wholly owned subsidiary.
On July 19, 2022, pursuant to Section 11.01(a) of the Merger Agreement, the Company and VCV Digital Technology entered into a termination agreement and mutually agreed to terminate the Merger Agreement and the transaction contemplated thereby was abandoned.
Change of Sponsor
On December 22, 2022, Water On Demand, Inc. (“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.
Non-binding Letter of Intent of 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 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.
Extension Amendment on Business Combination
On November 4, 2022, an aggregate of $
On February 6, 2023, $
On April 11, 2023, the Company filed with the Secretary of State of the State of Delaware an amendment (the “Extension 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 Extension Amendment at a special meeting of stockholders of the Company on April 10, 2023.
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On May 5, 2023, $
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 an 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. On June 5, 2023, $
On July 5, 2023, $
On August 4, 2023, $
Liquidity and Going Concern
As of June 30, 2023, 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 September 5, 2023 (or up to November 5, 2023, 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.
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.
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As a result of the shares of Class
A common stock redeemed in April 2023 and June 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, 2022, filed with the Securities and Exchange Commission on April 13, 2023.
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 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 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 both June 30, 2023 and December 31, 2022,
the Company did
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Investments held in Trust Account
As of June 30, 2023 and December 31, 2022, $
Gains and losses resulting from the change in
fair value of investments held in Trust Account are accounted as dividend income in the accompanying unaudited condensed statement of
operations. Dividend income for the three months ended June 30, 2023 and 2022 amounted to $
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 unaudited condensed 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 June 30, 2023 and December 31, 2022, shares of Class A Common Stock subject to possible redemption are presented at redemption value of $10.75 and $10.39 per share, respectively, as temporary equity, outside of the stockholders’ deficit section of the Company’s unaudited condensed 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.
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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 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 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.
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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 and six months ended June 30, 2023 and 2022, the Company has not considered the effect of the warrants sold in the IPO to purchase an aggregate of 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 | |||||||||||||||
| June 30, 2023 | June 30, 2022 | |||||||||||||||
| Non- | Non- | |||||||||||||||
| Redeemable | Redeemable | Redeemable | Redeemable | |||||||||||||
| Common | Common | Common | Common | |||||||||||||
| Stock | Stock | Stock | Stock | |||||||||||||
| Basic and diluted net income/(loss) per share: | ||||||||||||||||
| Numerators: | ||||||||||||||||
| Allocation of net loss including carrying value to redemption value | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Accretion of carrying value to redemption value | ||||||||||||||||
| Allocation of net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Denominators: | ||||||||||||||||
| Weighted-average shares outstanding | ||||||||||||||||
| Basic and diluted net income (loss) per share | $ | $ | ) | $ | ) | $ | ) | |||||||||
| For the | For the | |||||||||||||||
| Six Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2023 | June 30, 2022 | |||||||||||||||
| Non- | Non- | |||||||||||||||
| Redeemable | Redeemable | Redeemable | Redeemable | |||||||||||||
| Common | Common | Common | Common | |||||||||||||
| Stock | Stock | Stock | Stock | |||||||||||||
| Basic and diluted net income/(loss) per share: | ||||||||||||||||
| Numerators: | ||||||||||||||||
| Allocation of net loss including carrying value to redemption value | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Accretion of carrying value to redemption value | ||||||||||||||||
| Allocation of net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Denominators: | ||||||||||||||||
| Weighted-average shares outstanding | ||||||||||||||||
| Basic and diluted net income (loss) per share | $ | $ | ) | $ | ) | $ | ) | |||||||||
| 14 |
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 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 Board 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. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Board specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The Company has not early adopted this ASU and it will become effective for the Company on January 1, 2024, as the Company is an emerging growth company. The Company believes the adoption of this ASU would not have a material effect on the Company’s unaudited condensed financial statements.
Note 3 — Investments Held in Trust Account
As of June 30, 2023 and December 31, 2022, assets
held in the Trust Account were comprised of $
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis at June 30, 2023 and December 31, 2022 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| Description | Level | June 30, 2023 | December 31, 2022 | |||||||||
| Assets: | ||||||||||||
| Trust Account - U.S. Treasury Securities Money Market Fund | 1 | $ | $ | |||||||||
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.
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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).
As of June 30, 2023 and December 31, 2022, the Class A Common Stock reflected on the unaudited condensed balance sheets is reconciled in the following table.
| Common stock subject to possible redemption, December 31, 2021 | $ | |||
| Plus: | ||||
| Accretion of carrying value to redemption value | ||||
| Common stock subject to possible redemption, December 31, 2022 | ||||
| Less: | ||||
| Redemptions | ( | ) | ||
| Plus: | ||||
| Accretion of carrying value to redemption value | ||||
| Common stock subject to possible redemption, June 30, 2023 | $ |
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 $
As of June 30, 2023 and December 31, 2022, 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, US Tiger Securities, Inc., a Representative, as the designee of Mr. Lei Huang, former Chief Executive Officer who resigned on December 22, 2022, acquired 122,000 Founder Shares at the same price originally paid for such shares. Dr. Lei Xu, the Company’s former President, Ms. Yuanmei Ma, the Company’s former Chief Financial Officer, Ms. Christy Szeto, the Company’s former secretary, Dr. David Xianglin Li, Mr. Michael Daidov, and Mr. Norman Kristoff, 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.
| 16 |
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 $716,250, 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 June 30, 2023 and December 31, 2022, 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 $
Representative Shares
The Company issued 120,000 Representative Shares 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 September 5, 2023 (or up to November 5, 2023, if the Company extends the time to complete a Business Combination and payment of the extension by our Sponsor, or its affiliates).
Prepaid Expenses – Related Party
Effective December 1, 2022 (the “Effective
Date”), Mr. J. Richard Iler, the Company’s former Principal Executive Officer, Chief Financial Officer, Secretary, and Treasurer,
entered into a Consulting Agreement (the “Agreement”) with the Company and OriginClear, Inc. (OriginClear), a Nevada corporation
and the parent company of the Sponsor, pursuant to which Mr. Iler received an initial payment of $
| 17 |
Due to Related Parties
In December 2022, OriginClear advanced $
Promissory Notes — Related Party (Working Capital Loans)
On November 4, 2022, an aggregate of $
On February 6, 2023, $
On March 16, 2023, the board of directors of the
Company approved the issuance of an unsecured promissory note dated March 9, 2023 in the principal amount of $
On April 17, 2023, the board of directors of the Company, approved the issuance of the following unsecured promissory notes (“Notes 2”):
| · | Unsecured promissory note dated November 23,
2022 in the principal amount of $ | |
| · | Unsecured promissory note dated January 6, 2023
in the principal amount of $ | |
| · | Unsecured promissory note dated January 9, 2023
in the principal amount of $ | |
| · | Unsecured promissory note dated February 15,
2023 in the principal amount of $ | |
| · | Unsecured promissory note dated February 28,
2023 in the principal amount of $ | |
| · | Unsecured promissory note dated February 28,
2023 in the principal amount of $ | |
| · | Unsecured promissory note dated March 3, 2023
in the principal amount of $ | |
| · | Unsecured promissory note dated March 8, 2023
in the principal amount of $ | |
| · | Unsecured promissory note dated March 17, 2023
in the principal amount of $ | |
| · | Unsecured promissory note dated March 31, 2023
in the principal amount of $ |
On May 5, 2023, in connection with the Third Extension
Payment, the Company issued an unsecured promissory note in the principal amount of $
On June 5, 2023, in connection with the Fourth
Extension Payment, the Company issued an unsecured promissory note in the principal amount of $
| 18 |
The Company also issued the following unsecured promissory notes (“Notes 3”) to WODI for working capital purpose:
| · | Unsecured promissory note dated May 2, 2023 in
the principal amount of $ | |
| · | Unsecured promissory note dated May 5, 2023 in
the principal amount of $ | |
| · | Unsecured promissory note dated May 25, 2023
in the principal amount of $ | |
| · | Unsecured promissory note dated June 2, 2023
in the principal amount of $ | |
| · | Unsecured promissory note dated June 6, 2023
in the principal amount of $ | |
| · | Unsecured promissory note dated June 8, 2023
in the principal amount of $ | |
| · | Unsecured promissory note dated June 9, 2023
in the principal amount of $ | |
| · | Unsecured promissory note dated June 23, 2023
in the principal amount of $ |
The First Extension Note, the Second Extension Note, the Third Extension Note, the Fourth Extension Note, Note 1, Notes 2, and Notes 3 (herein referred to as the “Notes” or the “Working Capital 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.
As of June 30, 2023 and December 31, 2022, the
Company had borrowings of $
Note 7 — Commitments & Contingencies
Risks and Uncertainties
Management is currently evaluating the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of these unaudited condensed financial statements. The unaudited condensed 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 (2.0%) of the gross proceeds of the IPO, or $
| 19 |
Note 8 — Deferred Underwriters’ Discount
The Company is 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 $
Note 9 — 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 June 30, 2023 and December 31, 2022, 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 approximately $
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 approximately $
As of June 30, 2023 and December 31, 2022, there were shares of common stock issued and outstanding, excluding and shares of common stock, respectively, 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 $
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 June 30, 2023 and December 31, 2022,
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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.
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 Company’s taxable income primarily consists of interest earned on investments held in the Trust Account.
The income tax provision (benefit) consists of the following:
| For the Three Months Ended June 30, 2023 | For the Three Months Ended June 30, 2022 | For the Six Months Ended June 30, 2023 | For the Six Months Ended June 30, 2022 | |||||||||||||
| Current | ||||||||||||||||
| Federal | $ | $ | $ | $ | ||||||||||||
| State | ||||||||||||||||
| Deferred | ||||||||||||||||
| Federal | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| State | ( | ) | ( | ) | ||||||||||||
| Valuation allowance | ||||||||||||||||
| Income tax provision | $ | $ | $ | $ | ||||||||||||
The effective tax rate is
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The Company’s net deferred tax assets (liabilities) were as follows as of:
| June 30, 2023 | December 31, 2022 | |||||||
| Deferred tax assets: | ||||||||
| Start-up/organization costs | $ | $ | ||||||
| Deferred tax liabilities: | ||||||||
| Accrued dividend income | ( | ) | ||||||
| Total deferred tax assets, net | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax liability, net | $ | $ | ( | ) | ||||
As of June 30, 2023 and December 31, 2022, the
Company had $
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 financial statements.
Promissory Notes — Related Party (Working Capital Loans)
On July 5, 2023, $100,000 (the “Fifth Extension Payment”) was deposited into the Trust Account, for the public stockholders, representing $0.027 per public share, which enabled the Company to extend the period of time it had to consummate its initial Business Combination by one month from July 5, 2023 to August 5, 2023 (the “Fifth Extension”). The Fifth Extension was the third of the six one-month extensions permitted under the Company’s governing documents. In connection with the Fifth Extension Payment, the Company issued an unsecured promissory note (the “Fifth Extension Note”) to WODI.
On August 4, 2023, $100,000 (the “Sixth Extension Payment”) was deposited into the Trust Account, for the public stockholders, representing $0.027 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 August 5, 2023 to September 5, 2023 (the “Sixth Extension”). The Sixth Extension was the fourth of the six one-month extensions permitted under the Company’s governing documents. In connection with the Sixth Extension Payment, the Company issued an unsecured promissory note (the “Sixth Extension Note”) to WODI.
The Fifth Extension Note and the Sixth Extension Note 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.
On July 14, 2023, the Company entered into a consulting agreement with Richard A. Brand (the “Consulting Agreement”). The Consulting Agreement provides for compensation to Mr. Brand of $10,000 per month. The Consulting Agreement provides for a term of six months, unless earlier terminated by either party upon 10 business days’ written notice.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this report (the “Quarterly Report”) to “we,” “us” 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 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 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 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.
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.
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Since our inception, we have been actively searching for a suitable business combination target, and on January 5, 2023, we signed a non-binding Letter of Intent with WODI, under which we propose to acquire all the outstanding securities of WODI based on certain material financial and business terms and conditions being met. A business combination will be subject to our due diligence of WODI as well as negotiating a definitive agreement; however, there is no assurance that any definitive agreement will be reached between us and WODI. We are not limited to a particular industry or geographic region for purposes of consummating an initial business combination except that we will not undertake our initial business combination with any entity with its principal business operations in China (including Hong Kong and Macau).
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
On November 4, 2022, an aggregate of $977,500 (the “First Extension Payment”) was deposited into our Trust Account for the public stockholders, representing $0.10 per public share, which enabled us to extend the period of time we had to consummate our initial business combination by three months from November 5, 2022 to February 5, 2023 (the “First Extension”). The First Extension was the first of the two three-month extensions permitted under our amended and restated certificate of incorporation prior to its amendment in April 2023. In connection with the First Extension Payment, we issued unsecured promissory notes (the “First Extension Notes”) to certain initial stockholders including (i) a note of $413,750 to Mr. Koon Keung Chan, the former manager of the Sponsor, (ii) a note of $150,000 to US Tiger Securities, and (iii) a note of $170,000 to Dr. Lei Xu, our former President and Chairwoman. The First Extension Notes were later assigned to our Sponsor on December 22, 2022.
On February 6, 2023, $977,500 (the “Second Extension Payment”) was deposited into the Trust Account, for the public stockholders, representing $0.10 per public share, which enabled us to extend the period of time we had to consummate our initial business combination by three months from February 5, 2023 to May 5, 2023 (the “Second Extension”). The Second Extension was the second and final of the two three-month extensions permitted under our amended and restated certificate of incorporation prior to its amendment in April 2023. In connection with the Second Extension Payment, we issued an unsecured promissory note (the “Second Extension Note”) to WODI.
On May 5, 2023, $330,064.50 (the “Third Extension Payment”) was deposited into the Trust Account, for the public stockholders, representing $0.0625 per public share, which enabled us to extend the period of time we had to consummate our initial business combination by one month from May 5, 2023 to June 5, 2023 (the “Third Extension”). The Third Extension was the first of the six one-month extensions permitted under our amended and restated certificate of incorporation after its amendment in April 2023. In connection with the Third Extension Payment, we issued an unsecured promissory note (the “Third Extension Note”) to WODI.
On June 5, 2023, $100,000 (the “Fourth Extension Payment”) was deposited into the Trust Account, for the public stockholders, representing $0.027 per public share, which enabled us to extend the period of time we had to consummate our initial business combination by one month from June 5, 2023 to July 5, 2023 (the “Fourth Extension”). The Fourth Extension was the second of the six one-month extensions permitted under our amended and restated certificate of incorporation after its amendment in April 2023. In connection with the Fourth Extension Payment, we issued an unsecured promissory note (the “Fourth Extension Note”) to WODI.
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On July 5, 2023, $100,000 (the “Fifth Extension Payment”) was deposited into the Trust Account, for the public stockholders, representing $0.027 per public share, which enabled us to extend the period of time we had to consummate our initial business combination by one month from July 5, 2023 to August 5, 2023 (the “Fifth Extension”). The Fifth Extension was the third of the six one-month extensions permitted under our amended and restated certificate of incorporation after its amendment in April 2023. In connection with the Fifth Extension Payment, we issued an unsecured promissory note (the “Fifth Extension Note”) to WODI.
On August 4, 2023, $100,000 (the “Sixth Extension Payment”) was deposited into the Trust Account, for the public stockholders, representing $0.027 per public share, which enabled us to extend the period of time we have to consummate our initial business combination by one month from August 5, 2023 to September 5, 2023 (the “Sixth Extension”). The Sixth Extension was the fourth of the six one-month extensions permitted under our amended and restated certificate of incorporation after its amendment in April 2023. In connection with the Sixth Extension Payment, we issued an unsecured promissory note (the “Sixth Extension Note,” collectively with the First Extension Notes, the Second Extension Note, the Third Extension Note, the Fourth Extension Note, and the Fifth Extension Note, herein referred to as the “Notes”) to WODI.
The 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 Notes have the right, but not the obligation, to convert their 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.
On April 10, 2023, at a special meeting of stockholders, our stockholders approved the filing of an amendment to the Amended and Restated Certificate of Incorporation (the “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. On April 11, 2023, we filed the Amendment with the Delaware Secretary of State. The stockholder vote to approve the Amendment also triggered a redemption right for the holders of the public shares of Class A Common Stock. As a result of the Amendment, 4,493,968 shares of Class A Common Stock were redeemed for a total redemption amount of $47,501,242.
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 an 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.
On June 2, 2023, at a 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 approximately $17,927,021. Following such redemptions, 3,614,952 public shares of Class A Common Stock remain outstanding.
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. 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 June 30, 2023, we had a net loss of $4,927 which consisted of formation and operating costs of $535,438, franchise tax expenses of $22,400 and income tax provision of $206,656, offset by dividend income earned on investments held in Trust Account of $759,567.
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For the three months ended June 30, 2022, we had a net loss of $182,204 which consisted of operating costs of $275,613 and franchise tax expenses of $48,200, offset by dividend earned on investment held in Trust Account of $141,609.
For the six months ended June 30, 2023, we had a net income of $351,279 which consisted of dividend earned on investment held in Trust Account of $1,854,942, offset by formation and operating costs of $959,657, franchise tax expenses of $72,400 and income tax provision of $471,606.
For the six months ended June 30, 2022, we had a net loss of $452,826 which consisted of formation and operating costs of $505,972 and franchise tax expenses of $96,600, offset by dividend earned on investment held in Trust Account of $149,746.
Liquidity and Capital Resources
As of June 30, 2023, we had cash outside the Trust Account of $187,204 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 June 30, 2023, none of the amount on deposit in the Trust Account was available to be withdrawn as described above except for tax payments.
For the six months ended June 30, 2023, there was $2,167,800 of cash used in operating activities resulting from dividend earned on investment held in Trust Account amounting to $1,854,942, non-cash deferred tax expense of $83,724, increase in prepaid expenses of $208,187, decrease in accounts payable and accrued expenses of $54,796, decrease in income tax payable of $142,671 and decrease in franchise tax payable of $199,759, offset by net income of $351,279 and decrease in prepaid expenses – related party of $25,000.
For the six months ended June 30, 2023, there was $65,009,968 of cash provided by investing activities resulting from the withdrawal of an investment held in the Trust Account amounting to $66,417,533, offset by the purchase of an investment held in Trust Account amounting to $1,407,565.
For the six months ended June 30, 2022, there were no cash investing activities.
For the six months ended June 30, 2023, there was $62,827,278 of cash used in financing activities resulting from the Class A common stock redemptions of $65,428,263, offset by the proceeds from the issuance of promissory notes to a related party amounting to $2,600,985.
For the six months ended June 30, 2022, there were no cash financing activities.
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.
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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 September 5, 2023 (or up to November 5, 2023, 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 financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities that would be considered off-balance sheet arrangements as of June 30, 2023 and December 31, 2022. 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 June 30, 2023 and December 31, 2022, we do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities. As of June 30, 2023 and December 31, 2022, we have $0 and $50,000, respectively, payable due to a related party. As of June 30, 2023 and December 31, 2022, we have $3,384,735 and $733,750, 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 Policies and 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.
Investments held in Trust Account
As of June 30, 2023 and December 31, 2022, $38,787,501 and $101,942,526, respectively, representing all of the assets held in the Trust Account, were held in money market funds, and consisted of U.S. Treasury securities carried at fair value.
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 June 30, 2023 and June 30, 2022 amounted to $759,567 and $141,609, respectively. Dividend income for the six months ended June 30, 2023 and June 30, 2022 amounted to $1,854,942 and $149,746, respectively.
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Warrants
We account 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 our own Common Stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of our 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.
We accounted for the 4,887,500 Warrants issued with the Initial Public Offering 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
We account for our Class A Common Stock, $0.0001 par value per share (the “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 our control) is classified as temporary equity. At all other times, Class A Common Stock is classified as stockholders’ equity. Our public shares feature certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, as of June 30, 2023 and December 31, 2022, shares of Class A Common Stock subject to possible redemption are presented at redemption value of $10.75 and $10.39, respectively, per share as temporary equity, outside of the stockholders’ deficit section of our unaudited condensed balance sheets. We recognize changes in redemption value immediately as they occur and adjust 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 value 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 equals to zero.
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 us. Unobservable inputs reflect our 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 we have 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 our 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 balance sheets, primarily due to their short-term nature.
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Income Taxes
We account 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.
We recognize accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of June 30, 2023 and December 31, 2022. We are currently not aware of any issues under review that could result in significant payments, accruals or material deviation from our position.
We have identified the United States as our only “major” tax jurisdiction.
We 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. Our management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
Net Income (Loss) per Share
We comply with accounting and disclosure requirements of FASB ASC 260, Earnings Per Share. In order to determine the net income (loss) attributable to both the redeemable shares and non-redeemable shares, we 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. We 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.
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. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Board specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. We have has not early adopted the ASU, and it will become effective for us on January 1, 2024, as we are an emerging growth company. We believe the adoption of this ASU would not have a material effect on our unaudited condensed financial statements.
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 financial statements.
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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 June 30, 2023, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our 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 June 30, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 6. Exhibits
*Filed with this Report.
**Furnished with this Report.
(1) Incorporated by reference to the Company’s Form 8-K/A, 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 Amendment No. 6 to the 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 April 21, 2023.
(6) Incorporated by reference to the Company’s Form 8-K, filed with the SEC on May 8, 2023.
(7) Incorporated by reference to the Company’s Form 8-K, filed with the SEC on June 6, 2023.
(8) Incorporated by reference to the Company’s Form 8-K, filed with the SEC on July 19, 2023.
(9) Incorporated by reference to the Company’s Form 8-K, filed with the SEC on August 7, 2023
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| FORTUNE RISE ACQUISITION CORPORATION | ||
| Date: August 14, 2023 | By | /s/ Richard A. Brand |
| Richard A. Brand, Chief Financial Officer | ||
| (Principal Executive Officer and Principal Financial and Accounting Officer) | ||
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