UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
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: 001-41340
Redwoods Acquisition Corp. |
(Exact name of registrant as specified in its charter) |
Delaware | | 86-2727441 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer
Identification No.) |
1115 Broadway, 12th Floor New York, NY 10010 |
(Address of principal executive offices) (Zip Code) |
(646) 916-5315 |
(Registrant’s telephone number, including area code) |
|
(Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of
the Act:
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Units | | RWODU | | The Nasdaq Stock Market LLC |
Common Stock | | RWOD | | The Nasdaq Stock Market LLC |
Warrants | | RWODW | | The Nasdaq Stock Market LLC |
Rights | | RWODR | | The Nasdaq 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. Yes ☒ No ☐
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).
Yes ☒ No ☐
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 | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| | Emerging growth company | ☒ |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒ No ☐
As of August 21, 2023, there were 8,801,650 shares
of the registrant’s common stock, $0.0001 par value, issued and outstanding.
REDWOODS ACQUISITION CORP.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE
30, 2023
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
REDWOODS ACQUISITION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
| |
June 30, 2023 (Unaudited) | | |
December 31, 2022 (Audited) | |
Assets | |
| | |
| |
Current Assets | |
| | |
| |
Cash | |
$ | 123,722 | | |
$ | 340,962 | |
Prepaid expenses | |
| 135,196 | | |
| 99,196 | |
Total Current Assets | |
| 258,918 | | |
| 440,158 | |
| |
| | | |
| | |
Investments held in Trust Account | |
| 56,950,088 | | |
| 117,806,478 | |
Total Assets | |
$ | 57,209,006 | | |
$ | 118,246,636 | |
| |
| | | |
| | |
Liabilities, Temporary Equity, and Stockholders’ Deficit | |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Accrued expenses | |
$ | 273,522 | | |
$ | 140,370 | |
Franchise tax payable | |
| 66,000 | | |
| 122,801 | |
Income tax payable | |
| 380,468 | | |
| 243,070 | |
Excise tax liability | |
| 631,696 | | |
| — | |
Total Current Liabilities | |
| 1,351,686 | | |
| 506,241 | |
| |
| | | |
| | |
Warrant liability | |
| 63,600 | | |
| 31,800 | |
Deferred tax liability | |
| 128,162 | | |
| 78,955 | |
Convertible promissory note - related party | |
| 870,000 | | |
| — | |
Deferred underwriting fee payable | |
| 4,312,500 | | |
| 4,312,500 | |
Total Liabilities | |
| 6,725,948 | | |
| 4,929,496 | |
| |
| | | |
| | |
Commitments and Contingencies | |
| | | |
| | |
| |
| | | |
| | |
Common stock subject to possible redemption, 5,396,650 shares and 11,500,000 shares at redemption value of $10.47 and $10.21 per share as of June 30, 2023 and December 31, 2022, respectively | |
| 56,528,771 | | |
| 117,361,652 | |
| |
| | | |
| | |
Stockholders’ Deficit | |
| | | |
| | |
Common stock, $0.0001 par value; 50,000,000 shares authorized; 3,405,000 shares issued and outstanding | |
| 340 | | |
| 340 | |
Additional paid-in capital | |
| — | | |
| — | |
Accumulated deficit | |
| (6,046,053 | ) | |
| (4,044,852 | ) |
Total Stockholders’ Deficit | |
| (6,045,713 | ) | |
| (4,044,512 | ) |
Total Liabilities, Temporary Equity, and Stockholders’ Deficit | |
$ | 57,209,006 | | |
$ | 118,246,636 | |
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
REDWOODS ACQUISITION CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| |
Three months ended June 30, | | |
Six months ended June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
| | |
| | |
| | |
| |
General and administrative expenses | |
$ | 324,051 | | |
$ | 193,440 | | |
$ | 617,705 | | |
$ | 198,450 | |
Franchise tax expenses | |
| 33,900 | | |
| 39,300 | | |
| 66,000 | | |
| 39,300 | |
Loss from operations | |
| (357,951 | ) | |
| (232,740 | ) | |
| (683,705 | ) | |
| (237,750 | ) |
| |
| | | |
| | | |
| | | |
| | |
Interest earned on investment held in Trust Account | |
| 862,224 | | |
| 146,397 | | |
| 2,112,292 | | |
| 146,397 | |
Change in fair value of convertible notes | |
| (462,670 | ) | |
| — | | |
| — | | |
| — | |
Change in fair value of warrant liabilities | |
| (21,200 | ) | |
| (122,483 | ) | |
| (31,800 | ) | |
| (122,483 | ) |
Income (loss) before income taxes | |
| 20,403 | | |
| (208,826 | ) | |
| 1,396,787 | | |
| (213,836 | ) |
| |
| | | |
| | | |
| | | |
| | |
Income taxes provision | |
| (173,949 | ) | |
| — | | |
| (429,722 | ) | |
| — | |
Net income (loss) | |
$ | (153,546 | ) | |
$ | (208,826 | ) | |
$ | 967,065 | | |
$ | (213,836 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted weighted average shares outstanding, redeemable common stock | |
| 5,396,650 | | |
| 11,066,667 | | |
| 8,364,025 | | |
| 5,533,333 | |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted net income per share, redeemable common stock | |
$ | 0.06 | | |
$ | 0.55 | | |
$ | 0.16 | | |
$ | 1.70 | |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted weighted average shares outstanding, non-redeemable common stock | |
| 3,405,000 | | |
| 3,385,583 | | |
| 3,405,000 | | |
| 3,082,375 | |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted net loss per share, non-redeemable common stock | |
$ | (0.13 | ) | |
$ | (1.86 | ) | |
$ | (0.12 | ) | |
$ | (3.13 | ) |
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
REDWOODS ACQUISITION CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY(DEFICIT)
For the Three and Six Months
Ended June 30, 2023
| |
Common stock | | |
Additional Paid-in | | |
Accumulated | | |
Total Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
Balance, January 1, 2023 | |
| 3,405,000 | | |
$ | 340 | | |
$ | — | | |
$ | (4,044,852 | ) | |
$ | (4,044,512 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Accretion of common stock to redemption value | |
| — | | |
| — | | |
| — | | |
| (1,322,195 | ) | |
| (1,322,195 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Excise tax liability | |
| — | | |
| — | | |
| — | | |
| (631,696 | ) | |
| (631,696 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| — | | |
| — | | |
| — | | |
| 1,120,611 | | |
| 1,120,611 | |
Balance as of March 31, 2023 | |
| 3,405,000 | | |
$ | 340 | | |
$ | — | | |
| (4,878,132 | ) | |
| (4,877,792 | ) |
Accretion of common stock to redemption value | |
| — | | |
| — | | |
| — | | |
| (1,014,375 | ) | |
| (1,014,375 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| — | | |
| — | | |
| — | | |
| (153,546 | ) | |
| (153,546 | ) |
Balance as of June 30, 2023 | |
| 3,405,000 | | |
$ | 340 | | |
$ | — | | |
$ | (6,046,053 | ) | |
$ | (6,045,713 | ) |
For the Three and Six Months
Ended June 30, 2022
| |
Common stock | | |
Additional paid-in | | |
Accumulated | | |
Total Stockholders’ | |
| |
Shares | | |
Amount | | |
capital | | |
deficit | | |
equity(deficit) | |
Balance, January 1, 2022 | |
| — | | |
$ | — | | |
$ | — | | |
$ | (3,559 | ) | |
$ | (3,559 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued to initial stockholders | |
| 2,875,000 | | |
| 287 | | |
| 24,713 | | |
| — | | |
| 25,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| — | | |
| — | | |
| — | | |
| (5,010 | ) | |
| (5,010 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance as of March 31, 2022 | |
| 2,875,000 | | |
| 287 | | |
| 24,713 | | |
| (8,569 | ) | |
| 16,431 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Sale of public units in initial public offering | |
| 11,500,000 | | |
| 1,150 | | |
| 114,998,850 | | |
| — | | |
| 115,000,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Sale of private placement units | |
| 530,000 | | |
| 53 | | |
| 5,299,947 | | |
| — | | |
| 5,300,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Sale of unit purchase option to underwriter | |
| — | | |
| — | | |
| 100 | | |
| — | | |
| 100 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Underwriter commissions | |
| — | | |
| — | | |
| (7,187,500 | ) | |
| — | | |
| (7,187,500 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Offering costs | |
| — | | |
| — | | |
| (462,536 | ) | |
| — | | |
| (462,536 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Warrant Liabilities | |
| — | | |
| — | | |
| (587,717 | ) | |
| — | | |
| (587,717 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Reclassification of common stock subject to redemption | |
| (11,500,000 | ) | |
| (1,150 | ) | |
| (96,337,784 | ) | |
| — | | |
| (96,338,934 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Allocation of offering costs to common stock subject to redemption | |
| — | | |
| — | | |
| 6,901,405 | | |
| — | | |
| 6,901,405 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Accretion of common stock to redemption value | |
| — | | |
| — | | |
| (22,649,478 | ) | |
| (4,062,993 | ) | |
| (26,712,471 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| — | | |
| — | | |
| — | | |
| (208,826 | ) | |
| (208,826 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance as of June 30, 2022 | |
| 3,405,000 | | |
$ | 340 | | |
$ | — | | |
$ | (4,280,388 | ) | |
$ | (4,280,048 | ) |
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
REDWOODS ACQUISITION CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
Six Months Ended June 30, | |
Cash flows from operating activities: | |
2023 | | |
2022 | |
Net Income (loss) | |
$ | 967,065 | | |
$ | (213,836 | ) |
Adjustments to reconcile net cash used in operating activities: | |
| | | |
| | |
Interest earned on investment held in Trust Account | |
| (2,112,292 | ) | |
| (146,397 | ) |
Change in fair value of warrant liabilities | |
| 31,800 | | |
| 122,483 | |
Changes in current assets and current liabilities: | |
| | | |
| | |
Prepaid expenses | |
| (36,001 | ) | |
| (218,173 | ) |
Accrued expenses | |
| 133,152 | | |
| 30,000 | |
Franchise tax payable | |
| (56,801 | ) | |
| 39,300 | |
Income tax payable | |
| 137,398 | | |
| — | |
Deferred income tax liability | |
| 49,207 | | |
| — | |
Net cash used in operating activities | |
| (886,472 | ) | |
| (386,623 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchase of investment held in Trust Account | |
| — | | |
| (116,150,000 | ) |
Cash withdrawn from Trust Account to pay taxes | |
| 519,232 | | |
| — | |
Cash withdrawn from Trust Account to pay redeemed public stockholders | |
| 63,169,451 | | |
| — | |
Cash deposited in Trust Account for term extension | |
| (720,000 | ) | |
| — | |
Net cash provided by (used in) investing activities | |
| 62,968,683 | | |
| (116,150,000 | ) |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Proceeds from issuance of insider shares to the initial stockholders | |
| — | | |
| 25,000 | |
Proceeds from sale of public units through public offering | |
| — | | |
| 115,000,000 | |
Proceeds from sale of private placement units | |
| — | | |
| 5,300,000 | |
Proceeds from sale of unit purchase option | |
| — | | |
| 100 | |
Proceeds from issuance of promissory note to related party | |
| 870,000 | | |
| 200,000 | |
Payment to redeemed public stockholders | |
| (63,169,451 | ) | |
| — | |
Repayment of promissory note to related party | |
| — | | |
| (200,000 | ) |
Repayment of advance from related party | |
| — | | |
| (8,511 | ) |
Payment of underwriters’ commissions | |
| — | | |
| (2,875,000 | ) |
Payment of deferred offering costs | |
| — | | |
| (462,536 | ) |
Net cash provided by (used in) financing activities | |
| (62,299,451 | ) | |
| 116,979,053 | |
| |
| | | |
| | |
Net change in cash | |
| (217,240 | ) | |
| 442,430 | |
Cash, beginning of the period | |
| 340,962 | | |
| 4,952 | |
Cash, end of the period | |
$ | 123,722 | | |
$ | 447,382 | |
Supplemental Disclosure of Non-cash Financing Activities | |
| | | |
| | |
Initial classification of common stock subject to redemption | |
$ | — | | |
$ | 96,338,934 | |
Initial recognition of warrant liabilities | |
$ | — | | |
$ | 587,717 | |
Deferred underwriting fee payable | |
$ | — | | |
$ | 4,312,500 | |
Allocation of offering costs to common stock subject to redemption | |
$ | — | | |
$ | 6,901,405 | |
Accretion of Common stock to redemption value | |
$ | 2,336,570 | | |
$ | 26,712,471 | |
Redeemed common stock payable | |
$ | 63,169,451 | | |
$ | — | |
Excise tax liability | |
$ | 631,696 | | |
$ | — | |
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
REDWOODS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 1 — Description of Organization and Business Operations
Redwoods Acquisition Corp. (the “Company”)
is a newly organized blank check company incorporated as a Delaware corporation on March 16, 2021. The Company was formed for the purpose
of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more
businesses or entities (“Business Combination”). The Company is not limited to a particular industry or geographic region
for purposes of consummating a Business Combination.
As of June 30, 2023, the Company had not commenced
any operations. All activities through June 30, 2023 are related to the Company’s formation, the initial public offering (“IPO”
as defined below in Note 4) and, subsequent to the IPO, identifying a target company for a Business Combination. The Company will not
generate any operating revenues until after the completion of a Business Combination, at the earliest. The Company generates non-operating
income in the form of interest income from the proceeds derived from the IPO. The Company has selected December 31 as its fiscal year
end.
The Company’s sponsor is Redwoods Capital
LLC, a Delaware limited liability company (the “Sponsor”).
The registration statement for the Company’s
IPO became effective on March 30, 2022. On April 4, 2022, the Company consummated the IPO of 10,000,000 units at an offering price of
$10.00 per unit (the “Public Units’), generating gross proceeds of $100,000,000. Simultaneously with the closing of the IPO,
the Company sold to the Sponsor and Chardan Capital Markets LLC (“Chardan”), in a private placement, 377,500 units and 100,000
units, respectively, at $10.00 per unit (the “Private Units”), generating total gross proceeds of $4,775,000, which is described
in Note 5.
The Company granted the underwriters a 45-day
option to purchase up to 1,500,000 additional Public Units to cover over-allotments, if any. On April 7, 2022, the underwriters exercised
the over-allotment option in full and purchased 1,500,000 Public Units at a price of $10.00 per Public Unit, generating gross proceeds
of $15,000,000. Simultaneously with the closing of the over-allotment option, the Company consummated the sale of an additional aggregate
of 52,500 Private Units with the Sponsor and Chardan at a price of $10.00 per Private Unit, generating total proceeds of $525,000.
Transaction costs amounted to $8,365,339, consisting
$2,875,000 of underwriting fees, $4,312,500 of deferred underwriting fees (payable only upon completion of a Business Combination) and
$1,177,839 of other offering costs.
Upon the closing of the IPO and the sale of Private
Units on April 4, 2022, and the exercise of the over-allotment option and the sale of the additional Private Units on April 7, 2022, a
total of $116,150,000 was placed in a trust account (the “Trust Account”) maintained by Continental Stock Transfer & Trust
Company as a trustee and will be invested only in U.S. government treasury bills with a maturity of 185 days or less or in money market
funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended (the “Investment Company Act”),
and that invest only in direct U.S. government treasury obligations. These funds will not be released until the earlier of the completion
of the initial Business Combination and the liquidation due to the Company’s failure to complete a Business Combination within the
applicable period of time. 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. In addition, interest income earned on the
funds in the Trust Account may be released to the Company to pay its income or other tax obligations. With these exceptions, expenses
incurred by the Company may be paid prior to a business combination only from the net proceeds of the IPO and private placement not held
in the Trust Account.
On March 31, 2023, the Company held a
special meeting of stockholders, at which the Company’s stockholders approved (i) an amendment to the Company’s amended
and restated certificate of incorporation (the “Extension Amendment”) and (ii) an amendment (the “Trust
Amendment”) to the Investment Management Trust Agreement, dated March 30, 2022, by and between the Company and Continental
Stock Transfer & Trust Company, as trustee, extending the date by which the Company must consummate a Business Combination from
April 4, 2023 to July 4, 2023, with the ability to further extend the deadline on a monthly basis up to five times from July 4, 2023
to December 4, 2023. In connection with the stockholders’ vote at the special meeting, an aggregate of 6,103,350 shares with
redemption value of approximately $63,169,451 (or $10.35 per share) of the Company’s common stock were tendered for
redemption.
On June 29, 2023, the Sponsor made a deposit of $360,000 to the Trust
Account and extended the period of time the Company has to consummate an initial Business Combination from July 4, 2023 to October 4,
2023.
As a result of the stockholder approval of the
Extension Amendment and the Trust Amendment, the Sponsor, or any of their respective affiliates or designees, agreed to deposit into the
Trust Account $360,000 for the initial three-month extension and $120,000 per month for each subsequent one-month extension. The extension
payment(s) will bear no interest and will be repayable by the Company to the contributors upon consummation of the Business Combination.
The loans will be forgiven by the contributors if the Company is unable to consummate the Business Combination except to the extent of
any funds held outside of the Trust Account.
The Company will provide its holders of the outstanding
Public Shares (the “Public Stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the
completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or
(ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct
a tender offer will be made by the Company, solely in its discretion. The Public Stockholders will be entitled to redeem their Public
Shares for a pro rata portion of the amount then in the Trust Account (initially anticipated to be $10.10 per Public Share, plus any pro
rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its franchise and income
tax obligations).
If a stockholder vote is not required by law and
the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its Amended
and Restated Certificate of Incorporation (the “Amended and Restated Certificate of Incorporation”), conduct the redemptions
pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”) and file tender offer documents
with the SEC prior to completing a Business Combination. If, however, stockholder approval of the transaction is required by law, or the
Company decides to obtain stockholder approval for business or legal reasons, the Company will offer to redeem shares in conjunction with
a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. Additionally, each public stockholder may
elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction. If the Company seeks stockholder
approval in connection with a Business Combination, the Company’s Sponsor and any of the Company’s officers or directors that
may hold Insider Shares (as defined in Note 6) (the “Initial Stockholders”) and Chardan have agreed (a) to vote
their Insider Shares, the shares underlying the Private Units (“Private Shares”) and any Public Shares purchased during or
after the IPO in favor of approving a Business Combination and (b) not to convert any shares (including the Insider Shares) in connection
with a stockholder vote to approve, or sell the shares to the Company in any tender offer in connection with, a proposed Business Combination.
The Initial Stockholders and Chardan have agreed
(a) to waive their redemption rights with respect to the Insider Shares, Private Shares and Public Shares held by them in connection with
the completion of a Business Combination and (b) not to propose, or vote in favor of, an amendment to the Amended and Restated Certificate
of Incorporation that would affect the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if the
Company does not complete a Business Combination, unless the Company provides the public stockholders with the opportunity to redeem their
Public Shares in conjunction with any such amendment.
The Company has until October 4, 2023 (after depositing
$360,000 into the Trust Account on June 29, 2023) to consummate a Business Combination. In addition, if the Company anticipates that it
may not be able to consummate a Business Combination by such date, the Sponsor or its affiliates may extend the period of time to consummate
a Business Combination five times by an additional one month each time to December 4, 2023 (for a total of 20 months to complete a Business
Combination) (the “Combination Period”). In order to extend the time available for the Company to consummate a Business Combination,
the Sponsor or its affiliates or designees, within two business days prior to the applicable deadline, must deposit into the Trust Account
$120,000 for each subsequent one-month extension.
If the Company is unable to complete a Business
Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly
as reasonably possible but 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 (which interest shall be net of taxes payable, and
less certain amount 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 the Company’s 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.
The Initial Stockholders and Chardan have agreed
to waive their liquidation rights with respect to the Insider Shares and Private Shares, as applicable, if the Company fails to complete
a Business Combination within the Combination Period. However, if any Initial Stockholder or Chardan acquires Public Shares in or after
the IPO, such Public Shares will be entitled to liquidating distributions from the Trust Account if the Company fails to complete a Business
Combination within the Combination Period. The underwriters have agreed to waive their rights to their deferred underwriting commissions
(see Note 7) held in the Trust Account in the event the Company does not complete a Business Combination within in the Combination Period
and, in such event, such amounts will be included with the other funds held in the Trust Account that will be available to fund the redemption
of the Public Shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for
distribution will be less than $10.10.
In order to protect the amounts held in the Trust
Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a third party (excluding the Company’s
independent registered public accounting firm) for services rendered or products sold to the Company, or a prospective target business
with which the Company has entered into a written letter of intent, confidentiality or similar agreement or business combination agreement,
reduce the amount of funds in the Trust Account to below the lesser of (i) $10.10 per Public Share and (ii) the actual amount per Public
Share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.10 per share due to reductions
in the value of the trust assets, in each case less taxes payable, provided that such liability will not apply to any claims by a third
party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account (whether or not
such waiver is enforceable), nor will it apply 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, the Sponsor will not be responsible to the extent
of any liability for such third party claims.
On May 30, 2023, the Company entered into a business
combination agreement (the “Business Combination Agreement”) by and among the Company, ANEW Medical Sub, Inc., a Wyoming corporation
(“Merger Sub”), and ANEW Medical, Inc., a Wyoming corporation (“ANEW”). The Business Combination Agreement provides,
among other things, that on the terms and subject to the conditions set forth therein, Merger Sub will merge with and into ANEW, with
ANEW as the surviving company in the merger and, after giving effect to such merger, a wholly owned subsidiary of the Company (the “Merger”).
Upon the closing of the Merger, the Company will change its name to “ANEW Medical, Inc.”
Under the Business Combination Agreement, the
Company will acquire all of the outstanding equity interests of ANEW in exchange for shares of the Company’s common stock, par value
$0.0001 per share (the “Common Stock”), based on an implied ANEW equity value of $60,000,000, to be paid to ANEW stockholders
at the effective time of the Merger. In addition, certain ANEW stockholders will be issued additional shares of Common Stock (the “Contingent
Consideration Shares”), which will be issued as follows: (i) 2,000,000 Contingent Consideration Shares upon the Company achieving
a closing price equal to or exceeding $12.50 for 10 trading days within a 20-day trading period in the first three years following the
closing of the Merger; (ii) 2,000,000 Contingent Consideration Shares upon the Company achieving a closing price equal to or exceeding
$15.00 for 10 trading days within a 20-day trading period in the first three years following the closing of the Merger; and (iii) 1,000,000
Contingent Consideration Shares upon the Company achieving a closing price equal to or exceeding $20.00 for 10 trading days within a 20-day
trading period in the first five years following the closing of the Merger.
In connection with the execution of the Business
Combination Agreement, the Sponsor and other persons party thereto (together with the Sponsor, collectively, the “Company Insiders”),
entered into a support agreement with the Company and ANEW (the “Sponsor Support Agreement”). Under the Sponsor Support Agreement,
the Sponsor agreed to vote, at any meeting of the stockholders of the Company and in any action by written consent of the stockholders
of the Company, all of such Sponsor’s 2,875,000 shares of common stock (the “Founder Shares”) and 530,000 Private Units,
each consisting of one share of Common Stock (such shares, together with the Founder Shares, the “Supporter Shares”), one
warrant and one right, (i) in favor of (a) the Business Combination Agreement and each ancillary document to which the Company is a party
and the transactions contemplated thereby and (b) the other proposals that the Company and ANEW agreed in the Business Combination Agreement
shall be submitted at such meeting for approval by the Company’s stockholders together with the proposal to approve the Merger,
(ii) approval of the Company’s Amended and Restated Certificate of Incorporation and Bylaws and (iii) against any other action that
would reasonably be expected to impede, interfere with or adversely affect the Merger. The Sponsor Support Agreement also prohibits the
Sponsor from, among other things and subject to certain exceptions, selling, assigning or transferring any Supporter Shares held by the
Sponsor or taking any action that would have the effect of preventing or materially delaying the Sponsor from performing its obligations
under the Sponsor Support Agreement. In addition, in the Sponsor Support Agreement, the Sponsor agreed to waive, and not to assert or
claim, to the fullest extent permitted by applicable law, any anti-dilution protection pursuant to the organizational documents of the
Company in connection with the Merger.
The Sponsor Support Agreement commits 1,375,000
Founder Shares (the “Deferred Shares”) to a share escrow account which will be established at the closing of the Merger pursuant
to an escrow agreement to be entered into on such date by and among the Company, the Company Insiders and Continental Stock Transfer &
Trust Company, as escrow agent. The Deferred Shares will be released from the escrow account as follows: (i) 458,333 Deferred Shares upon
the Company achieving a closing price equal to or exceeding $12.50 for 10 trading days within a 20-day trading period in the first three
years following the closing of the Merger; (ii) 458,333 Deferred Shares upon the Company achieving a closing price equal to or exceeding
$15.00 for 10 trading days within a 20-day trading period in the first three years following the closing of the Merger; and (iii) 458,333
Deferred Shares upon the Company achieving a closing price equal to or exceeding $20.00 for 10 trading days within a 20-day trading period
in the first five years following the closing of the Merger.
In connection with the execution of the Business
Combination Agreement, certain ANEW stockholders (the “ANEW Supporting Stockholders”) entered into a voting and support agreement
with the Company and ANEW (the “ANEW Support Agreement”). Under the ANEW Support Agreement, each ANEW Supporting Stockholder
agreed that, at any meeting of ANEW’s stockholders related to the transactions contemplated by the Business Combination Agreement,
each such ANEW Supporting Stockholder will appear at the meeting or otherwise cause its shares to be voted (i) in favor of the Business
Combination Agreement and the transactions contemplated thereby, and authorize and approve any amendment to ANEW’s governing documents
that is deemed necessary or advisable by ANEW to effect the Merger; and (ii) against any other action would reasonably be expected to
impede, interfere with or adversely affect the Merger.
The ANEW Support Agreement also restricts the
ANEW Supporting Stockholders from, among other things, selling, assigning or otherwise transferring any of its shares unless the buyer,
assignee or transferee thereof executes a joinder agreement to the ANEW Support Agreement in a form reasonably acceptable to the Company.
Liquidity, Capital Resources and Going Concern
As of June 30, 2023, the Company had cash of $123,722
and a working capital deficit of $646,300 (excluding income tax and franchise tax payable as the taxes will be paid out of the Trust Account).
On March 22, 2023, March 30, 2023, and June 28, 2023 the Sponsor provided a loan of $150,000, $360,000 and $360,000, respectively, to
be used, in part, for transaction costs related to the Business Combination (see Note 6). The Company has until October 4, 2023 (or December
4, 2023, if the time to complete a business combination is extended as described herein) to consummate a Business Combination. It is uncertain
that the Company will be able to consummate a Business Combination by this time. If a Business Combination is not consummated by this
date, there will be a mandatory liquidation and subsequent dissolution.
The Company expects to continue to incur significant
professional costs to remain as a publicly traded company and to incur significant transaction costs in pursuit of the consummation of
a Business Combination. The Company may need to obtain additional financing either to complete its Business Combination or because it
becomes obligated to redeem a significant number of public shares upon consummation of its Business Combination, in which case the Company
may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities
laws, the Company would only complete such financing simultaneously with the completion of our Business Combination. If the Company is
unable to complete its Business Combination because it does not have sufficient funds available, it will be forced to cease operations
and liquidate the Trust Account. In addition, following the Business Combination, if cash on hand is insufficient, the Company may need
to obtain additional financing in order to meet its obligations.
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”, the Company has until
October 4, 2023 (or December 4, 2023, if the Company extends the time to complete a Business Combination) to complete a Business Combination.
It is uncertain that the Company will be able to consummate a Business Combination by this time. If a Business Combination is not consummated
by such date and an extension has not been requested by the Sponsor and approved by the Company’s stockholders, there will be a
mandatory liquidation and subsequent dissolution of the Company. Management has determined that the date for liquidation and subsequent
dissolution as well as liquidity concerns raise substantial doubt about the Company’s ability to continue as a going concern. The
financial statement does not include any adjustments that might result from the outcome of this uncertainty.
Risks and Uncertainties
Management has evaluated the impact of
persistent inflation and rising interest rates, financial market instability, including the recent bank failures, the lingering
effects of the COVID-19 pandemic and certain geopolitical events, including the conflict in Ukraine and the surrounding region, and
has concluded that while it is reasonably possible that the risks and uncertainties related to or resulting from these events 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 consolidated financial statements. The
unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of these
risks and uncertainties.
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 domestic (i.e., U.S.) corporations and certain domestic
subsidiaries of publicly traded foreign corporations. The excise tax is imposed on the repurchasing corporation itself, not its shareholders
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. The IR Act applies only to
repurchases that occur after December 31, 2022.
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 in connection with a Business Combination (or otherwise issued not in connection with a Business Combination
but 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 holders, 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.
At this time, it has been determined that the
IR Act tax provisions would have an impact to the Company’s fiscal 2023 tax provision as there were redemptions by the public stockholders
in March 2023; as a result, the Company recorded $631,696 excise tax liability as of June 30, 2023. The Company will continue to monitor
for updates to the Company’s business along with guidance issued with respect to the IR Act to determine whether any adjustments
are needed to the Company’s tax provision in future periods.
Note 2 — Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed
consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of
America (“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.
Operating results for the six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2023 or any future period. These financial statements should be read in conjunction with the
Company’s 2022 Annual Report on Form 10-K as filed with the SEC on April 10, 2023.
Emerging Growth Company
The Company is an “emerging growth company,”
as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, (the “JOBS Act”),
and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that
are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and
proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and 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 an 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
In preparing these unaudited condensed
consolidated financial statements in conformity with U.S. GAAP, the Company’s management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
unaudited condensed consolidated financial statements and the reported expenses during the reporting period.
Making estimates requires management to
exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set
of circumstances that existed at the date of the unaudited condensed consolidated financial statements, which management considered
in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual
results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments
with an original maturity of six months or less when purchased to be cash equivalents. The Company had $123,722 and $340,962 in cash and
did not have any cash equivalents as of June 30, 2023 and December 31, 2022, respectively.
Investments Held in Trust Account
As of June 30, 2023, the assets held in the Trust
Account were held in cash and U.S. Treasury securities. The Company classifies its U.S. Treasury securities as trading securities in accordance
with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 320, “Investments—Debt
and Equity Securities.” Trading securities are presented on balance sheets at fair value at the end of each reporting period. Gains
and losses resulting from the change in fair value of these securities is included in gain on investments held in Trust Account in the
accompanying statement of operations. The estimated fair values of all assets held in the Trust Account are determined using available
market information and classified as Level 1 measurements.
Offering Costs
The Company complies with the requirements of
FASB ASC Topic 340-10-S99-1, “Other Assets and Deferred Costs – SEC Materials” (“ASC 340-10-S99”) and SEC
Staff Accounting Bulletin Topic 5A, “Expenses of Offering”. Offering costs were $8,365,339 consisting principally of underwriting,
legal, accounting and other expenses that are directly related to the IPO and charged to stockholders’ equity upon the completion
of the IPO.
Income Taxes
The Company accounts for income taxes under
ASC 740, “Income Taxes.” ASC 740, Income Taxes, requires the recognition of deferred tax assets and liabilities for both
the expected impact of differences between the unaudited condensed consolidated financial statements and tax basis of assets and
liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally
requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will
not be realized.
The Company’s effective tax rate was 852.52%
and 0.00% for the three months ended June 30, 2023 and 2022, respectively, and 30.76% and 0.00% for six months ended June 30, 2023 and
2022, respectively. The effective tax rate differs from the statutory tax rate of 21% for the three and six months ended June 30, 2023
and 2022, due to change in fair value of warrants and convertible notes and the change in valuation of deferred tax assets.
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.
While ASC 740 identifies usage of an effective
annual tax rate for purposes of an interim provision, it does allow for estimating individual elements in the current period if they are
significant, unusual or infrequent. Computing the effective tax rate for the Company is complicated due to the potential impact of the
timing of any Business Combination expenses and the actual interest income that will be recognized during the year. The Company has taken
a position as to the calculation of income tax expense in a current period based on ASC 740-270-25-3 which states, “If an entity
is unable to estimate a part of its ordinary income (or loss) or the related tax (benefit) but is otherwise able to make a reasonable
estimate, the tax (or benefit) applicable to the item that cannot be estimated shall be reported in the interim period in which the item
is reported.” The Company believes its calculation to be a reliable estimate and allows it to properly take into account the usual
elements that can impact its annualized book income and its impact on the effective tax rate. As such, the Company is computing its taxable
income (loss) and associated income tax provision based on actual results through June 30, 2023.
The Company recognizes accrued interest and penalties
related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest
and penalties as of June 30, 2023 and December 31, 2022. The Company is currently not aware of any issues under review that could result
in significant payments, accruals or material deviation from its position.
The Company has identified the United States and
the State of New York as its only “major” tax jurisdiction. The Company is subject to income taxation by major taxing authorities
since inception. These 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.
Net Loss Per Share
The Company complies with accounting and
disclosure requirements of FASB ASC 260, Earnings Per Share. The unaudited condensed consolidated statements of operations include a
presentation of income (loss) per redeemable share and income (loss) per non-redeemable share following the two-class method of
income per share. In order 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 shares and non-redeemable shares 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 shares. Any remeasurement of the accretion to redemption value of the common shares subject to possible redemption
was considered to be dividends paid to the public shareholders. As of June 30, 2023, the Company did not have any dilutive
securities and other contracts that could, potentially, be exercised or converted into common shares and then share in the earnings
of the Company. As a result, diluted loss per share is the same as basic loss per share for the period presented.
The net income (loss) per share presented in the
unaudited condensed consolidated statement of operations is based on the following:
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2023 | | | 2022 | | | 2023 | | | 2022 | |
Net income (loss) | | $ | (153,546 | ) | | $ | (208,826 | ) | | $ | 967,065 | | | $ | (213,836 | ) |
Accretion of common stock to redemption value(1) | | | (1,014,375 | ) | | | (26,712,471 | ) | | | (2,336,570 | ) | | | (26,712,471 | ) |
Net loss including accretion of common stock to redemption value | | $ | (1,167,921 | ) | | $ | (26,921,297 | ) | | $ | (1,369,505 | ) | | $ | (26,926,307 | ) |
| |
Three Months Ended June 30, 2023 | | |
Three Months Ended June 30, 2022 | |
| |
Redeemable
share | | |
Non-
redeemable
shares | | |
Redeemable
shares | | |
Non-
redeemable
shares | |
Basic and diluted net income/(loss) per share: | |
| | |
| | |
| | |
| |
Numerator: | |
| | |
| | |
| | |
| |
Allocation of net income (loss) including accretion of common stock | |
$ | (716,100 | ) | |
$ | (451,821 | ) | |
$ | (20,614,715 | ) | |
$ | (6,306,582 | ) |
Accretion of common stock to redemption value(1) | |
| 1,014,375 | | |
| — | | |
| 26,712,471 | | |
| — | |
Allocation of net income (loss) | |
$ | 298,275 | | |
$ | (451,821 | ) | |
$ | 6,097,756 | | |
$ | (6,306,582 | ) |
| |
| | | |
| | | |
| | | |
| | |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Basic and diluted weighted average shares outstanding | |
| 5,396,650 | | |
| 3,405,000 | | |
| 11,066,667 | | |
| 3,385,583 | |
Basic and diluted net income (loss) per share | |
$ | 0.06 | | |
$ | (0.13 | ) | |
$ | 0.55 | | |
$ | (1.86 | ) |
| |
Six Months Ended June 30, 2023 | | |
Six Months Ended June 30, 2022 | |
| |
Redeemable
share | | |
Non-
redeemable
shares | | |
Redeemable
shares | | |
Non-
redeemable
shares | |
Basic and diluted net income/(loss) per share: | |
| | |
| | |
| | |
| |
Numerator: | |
| | |
| | |
| | |
| |
Allocation of net income (loss) including accretion of common stock | |
$ | (973,281 | ) | |
$ | (396,224 | ) | |
$ | (17,293,091 | ) | |
$ | (9,633,216 | ) |
Accretion of common stock to redemption value(1) | |
| 2,336,570 | | |
| — | | |
| 26,712,471 | | |
| — | |
Allocation of net income (loss) | |
$ | 1,363,289 | | |
$ | (396,224 | ) | |
$ | 9,419,380 | | |
$ | (9,633,216 | ) |
| |
| | | |
| | | |
| | | |
| | |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Basic and diluted weighted average shares outstanding | |
| 8,364,025 | | |
| 3,405,000 | | |
| 5,533,333 | | |
| 3,082,375 | |
Basic and diluted net income (loss) per share | |
$ | 0.16 | | |
$ | (0.12 | ) | |
$ | 1.70 | | |
$ | (3.13 | ) |
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 and money market funds held in the Trust
Account. The Company has not experienced losses on this account and management believes the Company is not exposed to significant risks
on such account.
Fair Value of Financial Instruments
FASB 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. FASB 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 certain
assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurements and Disclosures,”
approximates the carrying amounts represented in the consolidated balance sheet. The fair values of cash and cash equivalents, and other
current assets, accrued expenses, due to sponsor are estimated to approximate the carrying values as of June 30, 2023 and December 31,
2022 due to the short maturities of such instruments. See Note 9 for the disclosure of the Company’s assets and liabilities that
were measured at fair value on a recurring basis.
Convertible
Promissory Note
The Company
initially accounted for its convertible promissory notes under ASC 815, “Derivatives and Hedging” and elected the fair value
option under ASC 825. Using the fair value option method, each convertible promissory note is required to be recorded at its initial fair
value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the notes are recognized
as a non-cash gain or loss on the statements of operations.
Subsequently,
the conversion feature of the convertible promissory notes was amended on May 15, 2023; the holder of the convertible promissory notes,
in its sole discretion, may convert any or all of the unpaid principal under the convertible promissory notes into common stocks of the
Company (see Note 6). As a result, the Company assessed the change in conversion feature and determined that the convertible promissory
notes should be recorded as debt (liability) at cash proceeds on the balance sheet. The Company’s assessment of the embedded conversion
feature considered the derivative scope exception guidance under ASC 815 pertaining to equity classification of contracts in an entity’s
own equity.
The Company’s assessment was also based
on ASC 470-50 – Debt Modifications and Exchanges; management determined that the amended conversion option (which is based on shares
of the Company’s common stocks) is substantially different from the original conversion option (which was based on units). Since
each unit consists of one share of common stock, one share of right convertible into one-tenth (1/10) of one share of common stock upon
the consummation of a Business Combination, the original conversion option offers at least 10% more shares of common stock (including
underlying shares from the rights conversion) than the amended conversion option. As such, a remeasurement under ASC 825 has occurred
and the previously selected fair value option is no longer applied. The convertible promissory notes were recorded as debt (liability)
at cash proceeds on the balance sheet effective May 15, 2023.
For all newly issued and unmodified convertible promissory notes, the
Company elects an early adoption of the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own
Equity (Subtopic 815-40) (“ASU 2020-06”) and accounts for newly issued s as debt (liability) on the balance sheet. The Company
considers the derivative scope exception guidance under ASC 815 pertaining to equity classification of contracts in an entity’s
own equity.
Warrants
The Company accounts for warrants (Public Warrants
or Private 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”) Accounting Standards Codification
(“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,
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 shares and whether the warrant holders
could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions
for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance
and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all
of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance.
For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded
as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair
value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The Company has elected to account
for its Public Warrants as equity and the Private Warrants as liabilities.
Common Stock Subject to Possible Redemption
The Company accounts for its 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) are classified as a liability instrument and are measured at fair value. Conditionally redeemable
common stock (including common stock that feature redemption rights that is 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, common stock is classified as stockholders’ equity. The Company’s common stock features certain redemption rights that
are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. The Company recognizes
changes in redemption value immediately as they occur and adjusts the carrying value of redeemable 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 common stock are
affected by charges against additional paid in capital or accumulated deficit if additional paid in capital equals to zero.
Recent Accounting Pronouncements
Management does not believe that any recently
issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed
consolidated financial statements.
Note 3 — Cash and Investment Held in
Trust Account
As of June 30, 2023 and December 31, 2022, investment
securities in the Company’s Trust Account consisted of $56,950,088 and $117,806,478 in cash and U.S. Treasury securities, respectively.
The following table presents information about
the Company’s assets that are measured at fair value on a recurring basis as of June 30, 2023 and indicates the fair value hierarchy
of the valuation inputs the Company utilized to determine such fair value.
| |
June 30, 2023 | | |
Quoted Prices in Active Markets
(Level 1) | | |
Significant Other Observable Inputs (Level 2) | | |
Significant Other Unobservable Inputs (Level 3) | |
Assets | |
| | |
| | |
| | |
| |
Marketable securities held in Trust Account | |
$ | 56,950,088 | | |
$ | 56,950,088 | | |
| — | | |
| — | |
| |
December 31, 2022 | | |
Quoted Prices in Active Markets
(Level 1) | | |
Significant Other Observable Inputs (Level 2) | | |
Significant Other Unobservable Inputs (Level 3) | |
Assets | |
| | |
| | |
| | |
| |
Marketable securities held in Trust Account | |
$ | 117,806,478 | | |
$ | 117,806,478 | | |
| — | | |
| — | |
Note 4 — Initial Public Offering
On April 4, 2022, pursuant to its initial public
offering (the “IPO”), the Company sold 10,000,000 Public Units at $10.00 per Public Unit, generating gross proceeds of $100,000,000.
The Company granted the underwriters a 45-day option to purchase up to 1,500,000 additional Public Units to cover over-allotments, if
any. On April 7, 2022, the underwriters exercised the over-allotment option in full and purchased 1,500,000 Public Units at a price of
$10.00 per Public Unit, generating gross proceeds of $15,000,000. Each Public Unit consists of one share of common stock (“Public
Share”), one right (“Public Right”) and one redeemable warrant (“Public Warrant”). Each Public Right will
convert into one-tenth (1/10) of one share of common stock upon the consummation of a Business Combination. Each Public Warrant entitles
the holder to purchase one share of common stock at a price of $11.50 per share, subject to adjustment. The Public Warrants will become
exercisable on the later of the completion of the Company’s initial Business Combination or 12 months from the closing of the IPO,
and will expire five years after the completion of the Company’s initial Business Combination or earlier upon redemption or liquidation.
All of the 11,500,000 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 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 common stock subject to redemption to be classified outside of permanent equity.
The Company’s redeemable common stock is
subject to 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, the shares of common stock
reflected on the balance sheet are reconciled in the following table.
Gross proceeds | |
$ | 115,000,000 | |
Less: | |
| | |
Proceeds allocated to Public Warrants | |
| (10,695,000 | ) |
Proceeds allocated to Public Rights | |
| (9,430,000 | ) |
Offering costs of Public Shares | |
| (6,901,405 | ) |
Plus: | |
| | |
Accretion of carrying value to redemption value | |
| 29,388,057 | |
Class A Common stock subject to possible redemption– December 31, 2022 | |
$ | 117,361,652 | |
Plus: | |
| | |
Accretion of carrying value to redemption value – six months period ended June 30, 2023 | |
| 2,336,570 | |
Redeemed common stock payable to public stockholders | |
| (63,169,451 | ) |
Class A Common stock subject to possible redemption– June 30, 2023 | |
$ | 56,528,771 | |
Note 5 — Private Placement
Simultaneously with the closing of the IPO, the
Sponsor and Chardan purchased an aggregate of 477,500 Private Units at a price of $10.00 per Private Unit for an aggregate purchase price
of $4,775,000 in a private placement. Simultaneously with the closing of the over-allotment option, the Company consummated the sale of
an additional aggregate of 52,500 Private Units with the Sponsor and Chardan at a price of $10.00 per Private Unit, generating total proceeds
of $525,000. The Private Units are identical to the Public Units except with respect to certain registration rights and transfer restrictions
and the private warrants, which have terms and provisions that are identical to those of the warrants being sold as part of the units
in the IPO, except that the private warrants (i) will be exercisable either for cash or on a cashless basis at the holder’s option
and (ii) will not be redeemable by the Company, in either case as long as the private warrants are held by the initial purchasers or any
of their permitted transferees. The net proceeds from the Private Units were added to the proceeds from the IPO to be held in the Trust
Account. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Private
Units will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law), and the Private Units
and all underlying securities will expire worthless.
Note 6 — Related Party Transactions
Insider Shares
On January 4, 2022, the Company issued 2,875,000
shares of common stock (the “Insider Shares”) to the Initial Stockholders for an aggregate consideration of $25,000, or approximately
$0.009 per share. As a result of the underwriters’ full exercise of their over-allotment option on April 7, 2022, no insider shares
are currently subject to forfeiture. As of June 30, 2023, there were 2,875,000 Insider Shares issued and outstanding.
The Initial Stockholders have agreed, subject
to certain limited exceptions, not to transfer, assign or sell any of their Insider Shares until, with respect to 50% of the Insider Shares,
the earlier of six months after the consummation of a Business Combination and the date on which the closing price of the common
stock equals or exceeds $12.50 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 commencing after a Business Combination and, with respect to the remaining
50% of the Insider Shares, until the six months after the consummation of a Business Combination, or earlier, in either case, if,
subsequent to a Business Combination, the Company completes a liquidation, merger, stock exchange or other similar transaction which results
in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property.
Promissory Note — Related Party
On January 4, 2022 and February 28, 2022, the
Sponsor agreed to loan the Company up to an aggregate amount of $200,000 to be used, in part, for transaction costs incurred in connection
with the IPO (the “Promissory Notes”). The Promissory Notes were unsecured, interest-free and due on the closing the IPO.
The Company repaid the outstanding balance of $200,000 to the Sponsor on April 7 and April 8, 2022. As of June 30, 2023, the Company had
no borrowings under the Promissory Notes.
On March 22, 2023, the Company issued an unsecured,
non-interest bearing promissory note in the principal amount of $150,000 to the Sponsor (“Convertible Note 1”). On March 30,
2023, the Company issued an unsecured, non-interest bearing promissory note in the principal amount of $360,000 to the Sponsor (“Convertible
Note 2”). Both convertible promissory notes are payable upon the closing of the Business Combination or the liquidation of the Company.
The holder of the convertible promissory notes, in its sole discretion, may convert any or all of the unpaid principal under the convertible
promissory notes into Private Units of the Company, at a price of $10.00 per unit, upon consummation of the Business Combination.
On May 15, 2023, the conversion feature of
Convertible Note 1 and Convertible Note 2 was amended; the holder of the convertible promissory notes, in its sole discretion, may
convert any or all of the unpaid principal under the convertible promissory notes into shares of common stock of the Company, at a
conversion price of $10.00 per share, upon consummation of the Business Combination.
On June 28, 2023, the Company issued an
unsecured, non-interest bearing promissory note in the principal amount of $360,000 to the Sponsor (“Convertible Note
3”). Convertible Note 3 is payable upon the closing of the Business Combination or the liquidation of the Company. The holder
of the Convertible Note 3, in its sole discretion, may convert any or all of the unpaid principal under the convertible promissory
notes into shares of common stock of the Company, at a price of $10.00 per share, upon consummation of the Business Combination.
As of June 30, 2023, a total amount of $870,000
was outstanding under the three convertible promissory notes.
Related Party Loans
In addition, in order to finance transaction costs
in connection with searching for a target business or consummating an intended initial business combination, the initial stockholders,
officers, directors or their affiliates may, but are not obligated to, loan us funds as may be required. In the event that the initial
business combination does not close, the Company may use a portion of the working capital held outside the trust account to repay such
loaned amounts, but no proceeds from the Trust Account would be used for such repayment. Such loans would be evidenced by promissory notes.
The notes would either be paid upon consummation of our initial business combination, without interest, or, at the lender’s discretion,
up to $500,000 of the notes may be converted upon consummation of the Company’s business combination into private units at a price
of $10.00 per unit. The purchase price of these units will approximate the fair value of such units when issued. However, if it is determined,
at the time of issuance, that the fair value of such units exceeds the purchase price, the Company would record compensation expense for
the excess of the fair value of the units on the day of issuance over the purchase price in accordance with Accounting Standards
Codification (“ASC”) 718 - Compensation - Stock Compensation.
As of June 30, 2023, the Company had no borrowings
under the working capital loans.
Administrative Services Agreement
The Company entered into an agreement, commencing
on the effective date of the IPO through the earlier of the Company’s consummation of a Business Combination and its liquidation,
to pay the Sponsor a total of $10,000 per month for office space, utilities, secretarial and administrative support. However, pursuant
to the terms of such agreement, the Sponsor agreed to defer the payment of such monthly fee. Any such unpaid amount will accrue without
interest and be due and payable no later than the date of the consummation of initial Business Combination. For the six months ended June
30, 2023 and 2022, the Company incurred $60,000 and $30,000, respectively, in fees for these services, of which $150,000 and $90,000 were
included in accrued expenses in the accompanying unaudited condensed consolidated balance sheets as of June 30, 2023 and December 31,
2022, respectively.
Note 7 — Commitments and
Contingencies
Registration Rights
The holders of the insider shares, the private
units, securities underlying the Unit Purchase Option and any units that may be issued upon conversion of working capital loans or extension
loans (and any securities underlying the private units or units issued upon conversion of the working capital loans or extension loans)
will be entitled to registration rights pursuant to a registration rights agreement signed on the effective date of the IPO. The holders
of a majority of these securities are entitled to make up to two demands (or one demand with respect to the securities underlying the
Unit Purchase Option) that the Company register such securities. The holders of the majority of the Insider Shares can elect to exercise
these registration rights at any time commencing three months prior to the date on which these shares of common stock are to be released
from escrow. The holders of a majority of the private units and units issued in payment of working capital loans made to us can elect
to exercise these registration rights at any time commencing on the date that the Company consummate an initial business combination.
In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent
to the consummation of an initial business combination. Furthermore, notwithstanding the foregoing, pursuant to FINRA Rule 5110, Chardan
may not exercise its demand and “piggyback” registration rights after five and seven years, respectively, after the commencement
of sales of this offering and may not exercise its demand rights on more than one occasion. The Company will bear the expenses incurred
in connection with the filing of any such registration statements.
Underwriting Agreement
Pursuant to an underwriting agreement in connection
with the IPO, the Company granted Chardan, the representative of the underwriters, a 45-day option from the date of the prospectus for
the IPO to purchase up to 1,500,000 additional Public Units to cover over-allotments, if any, at the IPO price less the underwriting
discounts and commissions. On April 7, 2022, Chardan exercised the over-allotment option in full (see Note 4).
The underwriters were paid a cash underwriting
discount of 2.5% of the gross proceeds of the IPO (including the exercise of the over-allotment option), or $2,875,000. In addition, the
underwriters will be entitled to a deferred fee of 3.75% of the gross proceeds of the IPO (including the exercise of the over-allotment
option), or $4,312,500, which will be paid upon the closing of a Business Combination from the amounts held in the Trust Account, subject
to the terms of the underwriting agreement.
Unit Purchase Option
Simultaneously with the IPO (including the closing
of the over-allotment option), the Company sold to Chardan, for $100, an option (the “Unit Purchase Option”) to purchase 345,000
units exercisable at $11.50 per unit (or an aggregate exercise price of $3,967,500) commencing on the later of six months from the effective
date of the registration statement related to the IPO and the consummation of a Business Combination. The Unit Purchase Option may be
exercised for cash or on a cashless basis, at the holder’s option, and expires five years from the effective date of the registration
statement related to the IPO. The units issuable upon exercise of the Unit Purchase Option are identical to those offered in the IPO.
The Company accounts for the Unit Purchase Option, inclusive of the receipt of $100 cash payment, as an expense of the IPO resulting in
a charge directly to stockholders’ equity. The Unit Purchase Option and such units purchased pursuant to the Unit Purchase Option,
as well as the common stock underlying such units, the rights included in such units, the shares of common stock that are issuable for
the rights included in such units, the warrants included in such units, and the shares underlying such warrants, have been deemed compensation
by FINRA and are therefore subject to a 180-day lock-up pursuant to FINRA Rule 5110(e)(1). The Unit Purchase Option grants to holders
demand and “piggy back” rights for periods of five and seven years, respectively, from the effective date of the registration
statement with respect to the registration under the Securities Act of the securities directly and indirectly issuable upon
exercise of the Unit Purchase Option. The Company will bear all fees and expenses attendant to registering the securities, other than
underwriting commissions which will be paid for by the holders themselves. The exercise price and number of units issuable upon exercise
of the Unit Purchase Option may be adjusted in certain circumstances including in the event of a stock dividend, or the Company’s
recapitalization, reorganization, merger or consolidation. However, the option will not be adjusted for issuances of common stock at a
price below its exercise price.
Right of First Refusal
The Company has granted Chardan a right of first
refusal, for a period of 18 months after the date of the consummation of a Business Combination, to act as a book-running manager
or placement agent, with at least 30% of the economics, for any and all future public and private equity, equity linked and debt offerings
of the Company or any of its successors or subsidiaries.
Note 8 — Stockholders’
Equity
Common Stock — The
Company is authorized to issue 50,000,000 shares of common stock with a par value of $0.0001 per share. Holders of the common stock are
entitled to one vote for each share. At June 30, 2023, there were 3,405,000 shares of common stock issued and outstanding (excluding 5,396,650
shares subject to possible redemption).
Rights — Each holder
of a right will receive one-tenth (1/10) of one share of common stock upon consummation of a Business Combination, even if the holder
of such right redeemed all shares held by it in connection with a Business Combination. No fractional shares will be issued upon conversion
of the rights. No additional consideration will be required to be paid by a holder of rights in order to receive its additional shares
upon consummation of a Business Combination, as the consideration related thereto has been included in the unit purchase price paid for
by investors in the IPO. If the Company enters into a definitive agreement for a Business Combination in which the Company will not be
the surviving entity, the definitive agreement will provide for the holders of rights to receive the same per share consideration the
holders of the common stock will receive in the transaction on an as-converted into common stock basis and each holder of a right will
be required to affirmatively covert its rights in order to receive 1/10 share underlying each right (without paying additional consideration).
The shares issuable upon conversion of the rights will be freely tradable (except to the extent held by affiliates of the Company).
If the Company is unable to complete a Business
Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of rights will not receive
any of such funds with respect to their rights, nor will they receive any distribution from the Company’s assets held outside of
the Trust Account with respect to such rights, and the rights will expire worthless. Further, there are no contractual penalties for failure
to deliver securities to the holders of the rights upon consummation of a Business Combination. Additionally, in no event will the Company
be required to net cash settle the rights. Accordingly, holders of the rights might not receive the shares of common stock underlying
the rights.
Warrants — Each
redeemable warrant entitles the holder thereof to purchase one share of common stock at a price of $11.50 per share, subject to adjustment
as described in this prospectus. The warrants will become exercisable on the later of the completion of an initial Business Combination
and 12 months from the closing of the IPO. However, no Public Warrants will be exercisable for cash unless the Company has an effective
and current registration statement covering the issuance of the common stock issuable upon exercise of the warrants and a current prospectus
relating to such common stock. Notwithstanding the foregoing, if a registration statement covering the issuance of the common stock issuable
upon exercise of the Public Warrants is not effective within 90 days from the closing of the Company’s initial Business Combination,
warrant holders may, until such time as there is an effective registration statement and during any period when we shall have failed to
maintain an effective registration statement, exercise warrants on a cashless basis pursuant to an available exemption from registration
under the Securities Act. If an exemption from registration is not available, holders will not be able to exercise their warrants on a
cashless basis. The warrants will expire five years from the closing of the Company’s initial Business Combination at 5:00 p.m.,
New York City time or earlier redemption.
In addition, if (x) the Company issues additional
shares of common stock or equity-linked securities for capital raising purposes in connection with the closing of the Company’s
initial Business Combination at an issue price or effective issue price of less than $9.50 per share (with such issue price or effective
issue price to be determined in good faith by our board of directors), (y) the aggregate gross proceeds from such issuances represent
more than 60% of the total equity proceeds, and interest thereon, available for the funding of the Company’s initial Business Combination,
and (z) the volume weighted average trading price of the Company’s common stock during the 20 trading day period starting
on the trading day prior to the day on which the Company consummates its initial Business Combination (such price, the “Market
Price”) is below $9.50 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115%
of the Market Price, and the $16.50 per share redemption trigger price described below will be adjusted (to the nearest cent) to be equal
to 165% of the Market Value.
The Company may redeem the outstanding Public
Warrants at any time while the warrants are exercisable:
| ● | in whole and not in part; |
| | |
| ● | at a price of $0.01 per warrant; |
| | |
| ● | upon a minimum of 30 days’ prior written notice of redemption, which the Company refers to as the 30-day redemption period; |
| | |
| ● | if, and only if, the last reported sale price of the Company’s 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 the third trading day prior to the date on which the Company sends the notice of redemption to the to the warrant holders. |
If the Company calls the Public Warrants for redemption,
management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,”
as described in the warrant agreement. In such event, each holder would pay the exercise price by surrendering the whole warrants for
that number of shares of common stock equal to the quotient obtained by dividing (x) the product of the number of shares of common
stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value”
(defined below) by (y) the fair market value. The “fair market value” shall mean the average reported last sale price
of the common stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption
is sent to the holders of warrants.
Except as described above, no warrants will be
exercisable and the Company will not be obligated to issue common stock unless at the time a holder seeks to exercise such warrant, a
prospectus relating to the common stock issuable upon exercise of the warrants is current and the common stock have been registered or
qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. Under the terms of
the warrant agreement, the Company has agreed to use its best efforts to meet these conditions and to maintain a current prospectus relating
to the common stock issuable upon exercise of the warrants until the expiration of the warrants. However, the Company cannot assure that
it will be able to do so and, if the Company does not maintain a current prospectus relating to the common stock issuable upon exercise
of the warrants, holders will be unable to exercise their warrants and the Company will not be required to settle any such warrant exercise.
If the prospectus relating to the common stock issuable upon the exercise of the warrants is not current or if the common stock is not
qualified or exempt from qualification in the jurisdictions in which the holders of the warrants reside, the Company will not be required
to net cash settle or cash settle the warrant exercise, the warrants may have no value, the market for the warrants may be limited and
the warrants may expire worthless.
The private warrants have terms and provisions
that are identical to those of the warrants being sold as part of the units in the IPO, except that the private warrants (i) will be exercisable
either for cash or on a cashless basis at the holder’s option and (ii) will not be redeemable by the Company, in either case as
long as the private warrants are held by the initial purchasers or any of their permitted transferees.
Note 9 —Fair Value Measurements
The fair value of the Company’s consolidated
financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with
the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants
at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the
use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions
about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities
based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1: |
Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
|
|
Level 2: |
Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. |
|
|
Level 3: |
Unobservable inputs based on the assessment of the assumptions that market participants would use in pricing the asset or liability. |
The following table presents information about
the Company’s liabilities that are measured at fair value on 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:
| |
June 30, 2023 | | |
Quoted Prices in Active Markets (Level 1) | | |
Significant Other Observable Inputs (Level 2) | | |
Significant Other Unobservable Inputs (Level 3) | |
Liabilities: | |
| | |
| | |
| | |
| |
Warrant liability | |
$ | 63,600 | | |
| — | | |
| — | | |
$ | 63,600 | |
| |
December 31, 2022 | | |
Quoted Prices in Active Markets (Level 1) | | |
Significant Other Observable Inputs (Level 2) | | |
Significant Other Unobservable Inputs (Level 3) | |
Liabilities: | |
| | |
| | |
| | |
| |
Warrant liability | |
$ | 31,800 | | |
| — | | |
| — | | |
$ | 31,800 | |
The private warrants are accounted for as liabilities
in accordance with ASC 815-40 and are presented within warrant liabilities on the balance sheet. Changes in the fair value of the warrants
are recorded in the statement of operations each period.
The table below shows the change in fair value of warrant liabilities
as of June 30, 2023:
| |
Private Warrants | | |
Total | |
Fair value at January 1, 2023 | |
$ | 31,800 | | |
$ | 31,800 | |
Change in fair value | |
| 31,800 | | |
| 31,800 | |
Fair value as of June 30, 2023 | |
$ | 63,600 | | |
$ | 63,600 | |
The Company established the initial fair value
for the private warrants at $587,717 (including over-allotment) on April 4, 2022, the date of the Company’s IPO, using the Black-Scholes
model. The Company allocated the proceeds received from the sale of Private Units, first to the private warrants based on their fair values
as determined at initial measurement, with the remaining proceeds recorded as common shares subject to possible redemption, and common
shares based on their relative fair values recorded at the initial measurement date. The warrants were classified as Level 3 at the initial
measurement date due to the use of unobservable inputs.
The key inputs into the Black-Scholes model were as follows at their
measurement date:
| |
June 30, 2023 | | |
April 4, 2022 (initial measurement) | |
Exercise Price | |
$ | 11.50 | | |
$ | 11.50 | |
Underlying share price | |
$ | 10.46 | | |
$ | 8.08 | |
Expected Volatility | |
| 6.36 | % | |
| 25.62 | % |
Warrant life (years) | |
| 5.0 | | |
| 5.0 | |
Risk-free rate | |
| 4.13 | % | |
| 2.42 | % |
The fair value of the Convertible Note 1 was estimated
at the as converted value at March 31, 2023 and initial measurement date of March 22, 2023 to be $13,930 and $13,910, respectively. The
fair value of the Convertible Note 2 was estimated at the as converted value at March 31, 2023 and initial measurement date of March 30,
2023 to be $33,400 and $33,400, respectively. The binomial tree model was used for the underlying warrants based on the following key
assumptions which were unchanged as of March 31, 2023.
| |
March 30, 2023 Convertible
Note 2 | | |
March 22, 2023 Convertible
Note 1 | |
Strike Price | |
$ | 10.00 | | |
$ | 10.00 | |
Spot Price | |
$ | 10.28 | | |
$ | 10.26 | |
Time to maturity | |
| 0.68 | | |
| 0.70 | |
Business combination success rate | |
| 9 | % | |
| 9 | % |
Expected Volatility | |
| 5.0 | % | |
| 5.0 | % |
Expected dividend rate | |
| 0 | % | |
| 0 | % |
Risk-free rate | |
| 4.8 | % | |
| 4.7 | % |
The following table presents the changes in the
fair value of the Level 3 Convertible Notes:
Fair value as of January 1, 2023 | |
$ | — | |
Proceeds received through Convertible Note 1 on March 22, 2023 | |
| 150,000 | |
Proceeds received through Convertible Note 2 on March 30, 2023 | |
| 360,000 | |
Change in valuation inputs or other assumptions | |
| (462,670 | ) |
Fair value as of March 31, 2023 | |
$ | 47,330 | |
As a result of amendments to the conversion feature of Convertible
Note 1 and Convertible Note 2, a remeasurement under ASC 825 has occurred and the previously selected fair value option is no longer applied.
The convertible promissory notes were recorded as debt (liability) at cash proceeds on the balance sheet effective May 15, 2023. As of
June 30, 2023, the Convertible Note 1 and Convertible Note 2 were recorded at $150,000 and $360,000, respectively, based on the cash proceeds
on March 22, 2023 and March 30, 2023.
Note 10 — Subsequent Events
In accordance with ASC 855,
“Subsequent Events,” the Company evaluated subsequent events and transactions that occurred after the balance sheet date
up to the date that the unaudited condensed consolidated financial statements were issued. Based on this review, the Company did not
identify any subsequent events that would have required disclosure in the unaudited condensed consolidated financial statements.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
References in this report (this
“Quarterly Report”) to “we,” “us” or the “Company” refer to Redwoods Acquisition
Corp. References to our “management” or our “management team” refer to our officers and directors. The
following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction
with the unaudited condensed consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report.
Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks
and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and
Section 21E of the Securities Exchange Act of 1934, as amended (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 Quarterly Report, including, without limitation, statements in this “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” regarding the search for an initial business combination,
the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking
statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,”
“seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking
statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently
available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and
results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to
differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s
final prospectus for its initial public offering filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s
filings with the SEC can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable
securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result
of new information, future events or otherwise.
Overview
We are a blank check company incorporated in Delaware
on March 16, 2021. We were formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization,
reorganization or other similar business combination with one or more target businesses, which we refer to herein as our “initial
business combination.” We intend to effectuate our initial business combination using cash from the proceeds of our initial public
offering (“IPO” as defined below) and the private placement of Private Units (as defined below), our securities, debt or a
combination of cash, securities 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 an initial business combination will be successful.
Recent Developments
On March 31, 2023, we held a special meeting of
stockholders, at which our stockholders approved (i) an amendment to our amended and restated certificate of incorporation (the “Extension
Amendment”) and (ii) an amendment (the “Trust Amendment”) to the Investment Management Trust Agreement, dated March
30, 2022, by and between the Company and Continental Stock Transfer & Trust Company, as trustee, extending the date by which we must
consummate a Business Combination from April 4, 2023 to July 4, 2023, with the ability to further extend the deadline on a monthly basis
up to five times from July 4, 2023 to December 4, 2023. In connection with the stockholders’ vote at the special meeting, an aggregate
of 6,103,350 shares with redemption value of approximately $63,169,451 (or $10.35 per share) of the Company’s common stock were
tendered for redemption.
As a result of the stockholder approval of the
Extension Amendment and the Trust Amendment, the Sponsor, or any of their respective affiliates or designees, agreed to deposit into the
Trust Account $360,000 for the initial three-month extension and $120,000 per month for each subsequent one-month extension. The extension
payment(s) will bear no interest and will be repayable by the Company to the contributors upon consummation of the Business Combination.
The loans will be forgiven by the contributors if the Company is unable to consummate the Business Combination except to the extent of
any funds held outside of the Trust Account.
On May 30, 2023, we entered into a business combination
agreement (the “Business Combination Agreement”) by and among the Company, ANEW Medical Sub, Inc., a Wyoming corporation (“Merger
Sub”), and ANEW Medical, Inc., a Wyoming corporation (“ANEW”). The Business Combination Agreement provides, among other
things, that on the terms and subject to the conditions set forth therein, Merger Sub will merge with and into ANEW, with ANEW as the
surviving company in the merger and, after giving effect to such merger, a wholly owned subsidiary of the Company (the “Merger”).
Upon the closing of the Merger, the Company will change its name to “ANEW Medical, Inc.”
Under the Business Combination Agreement, we will
acquire all of the outstanding equity interests of ANEW in exchange for shares of our common stock, par value $0.0001 per share (the “Common
Stock”), based on an implied ANEW equity value of $60,000,000, to be paid to ANEW stockholders at the effective time of the Merger.
In addition, certain ANEW stockholders will be issued additional shares of Common Stock (the “Contingent Consideration Shares”),
which will be issued as follows: (i) 2,000,000 Contingent Consideration Shares upon the Company achieving a closing price equal to or
exceeding $12.50 for 10 trading days within a 20-day trading period in the first three years following the closing of the Merger; (ii)
2,000,000 Contingent Consideration Shares upon the Company achieving a closing price equal to or exceeding $15.00 for 10 trading days
within a 20-day trading period in the first three years following the closing of the Merger; and (iii) 1,000,000 Contingent Consideration
Shares upon the Company achieving a closing price equal to or exceeding $20.00 for 10 trading days within a 20-day trading period in the
first five years following the closing of the Merger.
In connection with the execution of the Business
Combination Agreement, the Sponsor and other persons party thereto (together with the Sponsor, collectively, the “Company Insiders”),
entered into a support agreement with the Company and ANEW (the “Sponsor Support Agreement”). Under the Sponsor Support Agreement,
the Sponsor agreed to vote, at any meeting of the stockholders of the Company and in any action by written consent of the stockholders
of the Company, all of such Sponsor’s 2,875,000 shares of common stock (the “Founder Shares”) and 530,000 Private Units,
each consisting of one share of Common Stock (such shares, together with the Founder Shares, the “Supporter Shares”), one
warrant and one right, (i) in favor of (a) the Business Combination Agreement and each ancillary document to which the Company is a party
and the transactions contemplated thereby and (b) the other proposals that the Company and ANEW agreed in the Business Combination Agreement
shall be submitted at such meeting for approval by the Company’s stockholders together with the proposal to approve the Merger,
(ii) approval of the Company’s Amended and Restated Certificate of Incorporation and Bylaws and (iii) against any other action that
would reasonably be expected to impede, interfere with or adversely affect the Merger. The Sponsor Support Agreement also prohibits the
Sponsor from, among other things and subject to certain exceptions, selling, assigning or transferring any Supporter Shares held by the
Sponsor or taking any action that would have the effect of preventing or materially delaying the Sponsor from performing its obligations
under the Sponsor Support Agreement. In addition, in the Sponsor Support Agreement, the Sponsor agreed to waive, and not to assert or
claim, to the fullest extent permitted by applicable law, any anti-dilution protection pursuant to the organizational documents of the
Company in connection with the Merger.
The Sponsor Support Agreement commits 1,375,000
Founder Shares (the “Deferred Shares”) to a share escrow account which will be established at the closing of the Merger pursuant
to an escrow agreement to be entered into on such date by and among the Company, the Company Insiders and Continental Stock Transfer &
Trust Company, as escrow agent. The Deferred Shares will be released from the escrow account as follows: (i) 458,333 Deferred Shares upon
the Company achieving a closing price equal to or exceeding $12.50 for 10 trading days within a 20-day trading period in the first three
years following the closing of the Merger; (ii) 458,333 Deferred Shares upon the Company achieving a closing price equal to or exceeding
$15.00 for 10 trading days within a 20-day trading period in the first three years following the closing of the Merger; and (iii) 458,333
Deferred Shares upon the Company achieving a closing price equal to or exceeding $20.00 for 10 trading days within a 20-day trading period
in the first five years following the closing of the Merger.
In connection with the execution of the Business
Combination Agreement, certain ANEW stockholders (the “ANEW Supporting Stockholders”) entered into a voting and support agreement
with the Company and ANEW (the “ANEW Support Agreement”). Under the ANEW Support Agreement, each ANEW Supporting Stockholder
agreed that, at any meeting of ANEW’s stockholders related to the transactions contemplated by the Business Combination Agreement,
each such ANEW Supporting Stockholder will appear at the meeting or otherwise cause its shares to be voted (i) in favor of the Business
Combination Agreement and the transactions contemplated thereby, and authorize and approve any amendment to ANEW’s governing documents
that is deemed necessary or advisable by ANEW to effect the Merger; and (ii) against any other action would reasonably be expected to
impede, interfere with or adversely affect the Merger.
The ANEW Support Agreement also restricts the
ANEW Supporting Stockholders from, among other things, selling, assigning or otherwise transferring any of its shares unless the buyer,
assignee or transferee thereof executes a joinder agreement to the ANEW Support Agreement in a form reasonably acceptable to the Company.
See the Registration Statement on Form S-4 filed
by the Company with the SEC on August 4, 2023 for additional information
On June 29, 2023, the Sponsor made a deposit of
$360,000 to the Trust Account and extended the period of time we have to consummate an initial Business Combination from July 4, 2023
to October 4, 2023.
Results of Operations
We have neither engaged in any operations nor
generated any operating revenues to date. Our only activities through June 30, 2023 were organizational activities and those necessary
to prepare for our IPO, which is described below, and subsequent to the IPO, identifying a target company for an initial business combination.
We do not expect to generate any operating revenues until after the completion of our initial business combination. We generate non-operating
income in the form of interest income on cash and cash equivalents held in the Trust Account, which is described below. There has been
no significant change in our financial or trading position and no material adverse change has occurred since the date of our audited financial
statements. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance),
as well as for due diligence expenses in connection with searching for, and completing, an initial business combination.
For the three months ended June 30, 2023, we had
a net loss of $153,546 which consisted of general and administrative expenses of $324,051, franchise tax of $33,900, an increase in fair
value of warrant liabilities of $21,200, increase in fair value of convertible promissory notes of $462,670 and income tax expense of
$173,949, offset by interest earned on the investments held in the Trust Account of $862,224. For the three months ended June 30, 2022,
we had a net loss of $208,826 which consisted of general and administrative expenses of $193,440, franchise tax of $39,300, and an increase
in fair value of warrant liabilities of $122,483, offset by interest earned on the investments held in the Trust Account of $146,397.
For the six months ended June 30, 2023, we had
net income of $967,065 which consisted of general and administrative expenses of $617,705, franchise tax of $ 66,000, an increase in fair
value of warrant liabilities of $31,800, and income tax expense of $429,722, offset by interest earned on the investments held in the
Trust Account of $2,112,292. For the six months ended June 30, 2022, we had a net loss of $213,836 which consisted of general and administrative
expenses of $198,450, franchise tax of $39,300, and an increase in fair value of warrant liabilities of $122,483, offset by interest earned
on the investments held in the Trust Account of $146,397.
Liquidity, Capital Resources and Going Concern
On April 4, 2022, we completed our initial public
offering (“IPO”) of 10,000,000 units (the “Public Units”), at $10.00 per Public Unit, generating gross proceeds
of $100,000,000. Each Public Unit consisted of one share of common stock, par value $0.0001, one redeemable warrant and one right to receive
one-tenth (1/10) of a share of common stock upon the consummation of an initial business combination. Simultaneously with the closing
of the IPO, we completed the sale of 477,500 units (the “Private Units”) in a private placement, at a price of $10.00 per
Private Unit, generating gross proceeds of $4,775,000. The Private Units are identical to the Public Units sold in the IPO, except that
the private warrants will be non-redeemable and may be exercised on a cashless basis, in each case so long as they continue to be held
by their initial purchasers or their permitted transferees.
We granted the underwriters in the IPO a 45-day
option to purchase up to 1,500,000 additional Public Units to cover over-allotments, if any. On April 7, 2022, the underwriters exercised
the over-allotment option in full and purchased an additional 1,500,000 Public Units (the “Over-Allotment Units”), at a price
of $10.00 per unit, generating gross proceeds of $15,000,000. Simultaneously with the closing of the exercise of the over-allotment option,
we consummated the sale of 52,500 Private Units (the “Over-Allotment Private Units”) in a private placement, at a purchase
price of $10.00 per Private Unit, generating gross proceeds of $525,000.
Simultaneously with the closing of the IPO, we
issued to Chardan Capital Markets, LLC (“Chardan”), the representative of the underwriters, for an aggregate of $100.00, an
option (the “UPO”) to purchase up to 345,000 units. The UPO is exercisable at any time, in whole or in part, commencing on
the later of the consummation of the initial business combination and six months from the date of the prospectus for the IPO and expiring
on the fifth anniversary of the date of the prospectus, at a price of $11.50 per unit.
Following the IPO and the private placement (including
the Over-Allotment Units and the Over-Allotment Private Units), a total of $116,150,000 was placed in a trust account located in the United
States established for the benefit of the Company’s public stockholders (the “Trust Account”). We incurred $8,365,339
of transaction costs, consisting of $2,875,000 of underwriting fees, $4,312,500 of deferred underwriting fees (payable only upon completion
of an initial business combination) and $1,177,839 of other offering costs.
On March 31, 2023, we held a special meeting of
stockholders, at which the Company’s stockholders approved (i) an amendment to the Company’s amended and restated certificate
of incorporation (the “Extension Amendment”) and (ii) an amendment (the “Trust Amendment”) to the Investment Management
Trust Agreement, dated March 30, 2022, by and between the Company and Continental Stock Transfer & Trust Company, as trustee, extending
the date by which the Company must consummate a business combination from April 4, 2023 to July 4, 2023, with the ability to further extend
the deadline on a monthly basis up to five times from July 4, 2023 to December 4, 2023. In connection with the stockholders’ vote
at the special meeting, an aggregate of 6,103,350 shares of the Company’s common stock were tendered for redemption representing
a total redemption amount of $63,169,451 (or $10.35 per share).
As a result of the approval of the Extension Amendment
and the Trust Amendment, Redwoods Capital LLC, or any of its affiliates or designees, agreed to deposit into the Trust Account $360,000
for the initial three-month extension and $120,000 per month for each subsequent one-month extension. The extension payment(s) will bear
no interest and will be repayable by the Company to the contributors upon consummation of an initial business combination. The loans will
be forgiven by the contributors if the Company is unable to consummate an initial business combination except to the extent of any funds
held outside of the Trust Account.
As of June 30, 2023, we had marketable securities
held in the Trust Account of $56,950,088 consisted of securities held in a treasury trust fund that invests in U.S. “government
securities,” within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less.
Interest income on the balance in the Trust Account may be used by us to pay taxes. Through June 30, 2023, we did not withdraw any interest
earned on the Trust Account to pay our taxes. We intend to use substantially all of the funds held in the Trust Account, to acquire a
target business and to pay our expenses relating thereto. To the extent that our capital stock is used in whole or in part as consideration
to effect a Business Combination, the remaining funds held in the Trust Account will be used as working capital to finance the operations
of the target business. Such working capital funds could be used in a variety of ways including continuing or expanding the target business’
operations, for strategic acquisitions and for marketing, research and development of existing or new products. Such funds could also
be used to repay any operating expenses or finders’ fees which we had incurred prior to the completion of our Business Combination
if the funds available to us outside of the Trust Account were insufficient to cover such expenses.
As of June 30, 2023, the Company had cash of $123,722
and a working capital deficit of $646,300 (excluding redemptions payable to public stockholders and income tax and franchise tax payable
as these amounts will be paid out of the Trust Account). On March 22, March 30, and June 28, 2023, the Sponsor provided a loan of $150,000,
$360,000 and $360,000, respectively, to be used, in part, for transaction costs related to the Business Combination. Until consummation
of the Business Combination, we intend to use the funds held outside the Trust Account 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 estimate of the costs of identifying
a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary
to do so, we may have insufficient funds available to operate our business prior to our Business Combination. 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.
In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to
repay such loaned amounts, but no proceeds from our Trust Account would be used for such repayment. The terms of such loans by our initial
shareholders, officers and directors, if any, have not been determined and no written agreements exist with respect to such loans.
The Company has incurred and expects to continue
to incur significant professional costs to remain as a publicly traded company and to incur significant transaction costs in pursuit of
the consummation of a Business Combination. If the Company is unable to complete the Business Combination because it does not have sufficient
funds available, the Company will be forced to cease operations and liquidate the Trust Account. In addition, following the Business Combination,
if cash on hand is insufficient, the Company may need to obtain additional financing in order to meet its obligations. 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,” the Company has until October 4, 2023 (or December 4, 2023, if the Company extends the time to complete a Business Combination)
to complete a Business Combination. It is uncertain that the Company will be able to consummate a Business Combination by this time. If
a Business Combination is not consummated by such date and an extension has not been requested by the Sponsor and approved by the Company’s
stockholders, there will be a mandatory liquidation and subsequent dissolution of the Company. Management has determined that the date
for liquidation and subsequent dissolution as well as liquidity concerns raise substantial doubt about the Company’s ability to
continue as a going concern. The financial statement does not include any adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities,
which would be considered off-balance sheet arrangements as of June 30, 2023. We do not participate in transactions that create relationships
with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established
for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements,
established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Contractual Obligations
Convertible Promissory Notes – Related
Party
On March 22, 2023, we issued an unsecured, non-interest
bearing promissory note in the principal amount of up to $150,000 to the Sponsor. The promissory note is payable upon the closing of the
Business Combination or the liquidation of the Company. The holder of the promissory note, in its sole discretion, may convert any or
all of the unpaid principal under the promissory note into private units of the Company, at a price of $10.00 per unit, upon consummation
of the Business Combination.
On March 30, 2023, we issued an unsecured, non-interest
bearing promissory note in the principal amount of up to $360,000 to the Sponsor. The promissory note is payable upon the closing of the
Business Combination or the liquidation of the Company. The holder of the promissory note, in its sole discretion, may convert any or
all of the unpaid principal under the promissory note into private units of the Company, at a price of $10.00 per unit, upon consummation
of the Business Combination.
On May 15, 2023, the conversion feature of
Convertible Note 1 and Convertible Note 2 was amended; the holder of the convertible promissory notes, in its sole discretion, may
convert any or all of the unpaid principal under the convertible promissory notes into shares of common stock of the Company, at a
conversion price of $10.00 per share, upon consummation of the Business Combination.
On June 28, 2023, the Company issued an
unsecured, non-interest bearing promissory note in the principal amount of $360,000 to the Sponsor (“Convertible Note
3”). Convertible Note 3 is payable upon the closing of the Business Combination or the liquidation of the Company. The holder
of the Convertible Note 3, in its sole discretion, may convert any or all of the unpaid principal under the convertible promissory
notes into shares of common stock of the Company, at a price of $10.00 per share, upon consummation of the Business Combination.
Registration Rights
The holders of our insider shares, as well as
the holders of the private units, the securities underlying the unit purchase option and any securities our insiders, officers, directors
or their affiliates may be issued in payment of working capital loans made to us (and any shares of common stock issuable upon the exercise
of the underlying private warrants and any shares of common stock issuable upon conversion of the underlying the private rights), will
be entitled to registration rights pursuant to registration rights agreement. The holders of a majority of these securities are entitled
to make up to two demands (or one demand with respect to the securities underlying the unit purchase option) that we register such securities.
The holders of the majority of the insider shares can elect to exercise these registration rights at any time commencing three months
prior to the date on which these shares of common stock are to be released from escrow. The holders of a majority of the private units
and units issued in payment of working capital loans made to us can elect to exercise these registration rights at any time commencing
on the date that we consummate our initial business combination. In addition, the holders have certain “piggy-back” registration
rights with respect to registration statements filed subsequent to our consummation of our initial business combination. We will bear
the expenses incurred in connection with the filing of any such registration statements.
Administrative Services Agreement
We have entered into an administrative services
agreement pursuant to which we will pay the Sponsor a total of $10,000 per month (subject to deferral as described herein) for office
space, utilities, secretarial and administrative support services. Upon completion of our initial business combination or our liquidation,
we will cease paying these monthly fees.
Underwriting Agreement
Pursuant to an underwriting agreement in connection
with the IPO, the underwriters were paid a cash underwriting discount of $0.25 per unit, or $2,875,000 in the aggregate, upon the closing
of the IPO and full exercise of the over-allotment option. In addition, $0.375 per unit, or $4,312,500 in the aggregate, will be payable
to the underwriters for deferred underwriting commissions. The deferred commissions will become payable to the underwriters from the amounts
held in the Trust Account solely in the event that we complete an initial business combination, subject to the terms of the underwriting
agreement.
Right of First Refusal
Subject to certain conditions, we granted Chardan,
for a period of 18 months after the date of the consummation of our initial business combination, a right of first refusal to act as a
book-running manager or placement agent, with at least 30% of the economics, for any and all future public and private equity, equity
linked and debt offerings by us or any of our successors or subsidiaries. In accordance with FINRA Rule 5110(g)(6)(A), such right of first
refusal shall not have a duration of more than three years from the commencement of sales of this offering.
Critical Accounting Policies
The preparation of unaudited condensed
consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, and income
and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the
following critical accounting policies:
Investments Held in Trust Account
As of June 30, 2023, the assets held in the Trust
Account were held in cash and U.S. Treasury securities. The Company classifies its U.S. Treasury securities as trading securities in accordance
with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 320, “Investments—Debt
and Equity Securities.” Trading securities are presented on the balance sheets at fair value at the end of each reporting period.
Gains and losses resulting from the change in fair value of these securities is included in gain on investments held in Trust Account
in the accompanying statement of operations. The estimated fair values of all assets held in the Trust Account are determined using available
market information and classified as Level 1 measurements.
Fair Value of Financial Instruments
FASB 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. FASB 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
certain assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurements and
Disclosures,” approximates the carrying amounts represented in the consolidated balance sheet. The fair values of cash and
cash equivalents, and other current assets, accrued expenses, due to sponsor are estimated to approximate the carrying values as of
June 30, 2023 and December 31, 2022 due to the short maturities of such instruments. See Note 9 to unaudited condensed
consolidated financial statements for the disclosure of the Company’s assets and liabilities that were measured at fair value
on a recurring basis.
The fair value of the Company’s certain
assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurements and Disclosures,”
approximates the carrying amounts represented in the consolidated balance sheet. The fair values of cash and cash equivalents, and other
current assets, accrued expenses, due to sponsor are estimated to approximate the carrying values as of June 30, 2023 and December 31,
2022 due to the short maturities of such instruments. See Note 9 for the disclosure of the Company’s assets and liabilities that
were measured at fair value on a recurring basis.
Convertible Promissory Note
The Company
initially accounted for its convertible promissory notes under ASC 815, “Derivatives and Hedging” and elected the fair value
option under ASC 825. Using the fair value option method, each convertible promissory note is required to be recorded at its initial fair
value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the notes are recognized
as a non-cash gain or loss on the statements of operations.
Subsequently,
the conversion feature of the convertible promissory notes was amended on May 15, 2023; the holder of the convertible promissory notes,
in its sole discretion, may convert any or all of the unpaid principal under the convertible promissory notes into common stocks of the
Company (see Note 6). As a result, the Company assessed the change in conversion feature and determined that the convertible promissory
notes should be recorded as debt (liability) at cash proceeds on the balance sheet. The Company’s assessment of the embedded conversion
feature considered the derivative scope exception guidance under ASC 815 pertaining to equity classification of contracts in an entity’s
own equity.
The Company’s assessment was also based
on ASC 470-50 – Debt Modifications and Exchanges; management determined that the amended conversion option (which is based on shares
of the Company’s common stocks) is substantially different from the original conversion option (which was based on units). Since
each unit consists of one share of common stock, one share of right convertible into one-tenth (1/10) of one share of common stock upon
the consummation of a Business Combination, the original conversion option offers at least 10% more shares of common stock (including
underlying shares from the rights conversion) than the amended conversion option. As such, a remeasurement under ASC 825 has occurred
and the previously selected fair value option is no longer applied. The convertible promissory notes were recorded as debt (liability)
at cash proceeds on the balance sheet effective May 15, 2023.
For all newly issued and unmodified convertible promissory notes, the
Company elects an early adoption of the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own
Equity (Subtopic 815-40) (“ASU 2020-06”) and accounts for newly issued s as debt (liability) on the balance sheet. The Company
considers the derivative scope exception guidance under ASC 815 pertaining to equity classification of contracts in an entity’s
own equity.
Warrants
The Company accounts for warrants (Public Warrants
or Private 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”) Accounting Standards Codification
(“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,
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 shares and whether the warrant holders
could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions
for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance
and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all
of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance.
For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded
as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated
fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The Company has elected to
account for its Public Warrants as equity and the Private Warrants as liabilities.
Common Stock Subject to Possible Redemption
We account for our common stock subject to
possible conversion in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480,
“Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as a liability
instrument and measured at fair value. Conditionally redeemable common stock (including 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, common stock is classified as stockholders’ equity. Our
common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of
uncertain future events. Accordingly, common stock subject to possible redemption is presented at redemption value as temporary
equity, outside of the stockholders’ equity section of our unaudited condensed consolidated balance sheets. We recognize
changes in redemption value immediately as they occur and adjusts the carrying value of redeemable 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 common
stock are affected by charges against additional paid in capital or accumulated deficit if additional paid in capital equals to
zero.
Net Income (Loss) Per Share
The Company complies 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, the Company first considered the undistributed income (loss) allocable to both the redeemable shares and non-redeemable
shares 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 shares. Any
re-measurement of the accretion to redemption value of the common shares subject to possible redemption was considered to be dividends
paid to the public shareholders.
Offering Costs
Offering costs were consisting principally of
underwriting, legal, accounting and other expenses incurred through the balance sheet date that are related to the IPO and were charged
to stockholders’ equity upon the completion of the IPO. The Company allocates offering costs between public shares and public rights
based on the relative fair values of public shares and public rights.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required
to make disclosures under this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed
to ensure that information required to be disclosed by us in 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.
Under the supervision and with the participation
of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation
of the effectiveness of our disclosure controls and procedures as of the fiscal quarter ended 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 principal executive officer and principal financial
and accounting officer have concluded that during the period covered by this report, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
During the quarter ended June 30, 2023, there
has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
As a smaller reporting company, we are not required
to make disclosures under this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
The following exhibits are filed as part of, or
incorporated by reference into, this Quarterly Report.
* |
Filed herewith. |
** |
Furnished herewith. This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filings of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. |
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.
|
REDWOODS ACQUISITION CORP. |
|
|
|
Date: August 21, 2023 |
By: |
/s/ Jiande Chen |
|
Name: |
Jiande Chen |
|
Title: |
Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
|
|
Date: August 21, 2023 |
By: |
/s/ Edward Cong Wang |
|
Name: |
Edward Cong Wang |
|
Title: |
Chief Financial Officer |
|
|
(Principal Accounting and Financial Officer) |
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In connection with the Quarterly Report of Redwoods
Acquisition Corp. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2023, as filed with the Securities
and Exchange Commission (the “Report”), I, Jiande Chen, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
§1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
In connection with the Quarterly Report of Redwoods
Acquisition Corp. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2023, as filed with the Securities
and Exchange Commission (the “Report”), I, Edward Cong Wang, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: