UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended:
Or
For the transition period from to
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
(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: | ||
The | ||||
The | ||||
The |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
As at the date hereof August 12, 2024,
TABLE OF CONTENTS
i
PART I – FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements.
ACRI CAPITAL ACQUISITION CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2024 | December 31, 2023 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Cash | $ | $ | ||||||
Prepaid expenses | ||||||||
Total Current Assets | ||||||||
Investments held in Trust Account | ||||||||
Total Assets | $ | $ | ||||||
Liabilities, Temporary Equity, and Stockholders’ Deficit | ||||||||
Accrued expenses | $ | $ | ||||||
Franchise tax payable | ||||||||
Income tax payable | ||||||||
Excise tax payable | ||||||||
Promissory notes - related party | ||||||||
Total Current Liabilities | ||||||||
Deferred tax liability | ||||||||
Deferred underwriter’s discount | ||||||||
Total Liabilities | ||||||||
Commitments and Contingencies | ||||||||
Common stock subject to possible redemption, | ||||||||
Stockholders’ Deficit: | ||||||||
Preferred stock, $ | ||||||||
Class A common stock, $ | ||||||||
Class B common stock, $ | ||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
Total Liabilities, Temporary Equity, and Stockholders’ Deficit | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
ACRI CAPITAL ACQUISITION CORPORATION
CONDENSED COSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months | For the three months | For the six months | For the six months | |||||||||||||
ended | ended | ended | ended | |||||||||||||
June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |||||||||||||
Formation and operating costs | $ | $ | $ | $ | ||||||||||||
Franchise tax expenses | ||||||||||||||||
Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Other income | ||||||||||||||||
Interest earned on investment held in Trust Account | ||||||||||||||||
Income (loss) before income taxes | ( | ) | ||||||||||||||
Income taxes provision | ||||||||||||||||
Net income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
$ | $ | $ | $ | |||||||||||||
$ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
ACRI CAPITAL ACQUISITION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(Unaudited)
Preferred Stock | Common Stock | Additional | Total | |||||||||||||||||||||||||||||||||
Class A | Class B | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||||||||
Balance as of December 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
Reduction of deferred underwriter’s discount | - | - | - | |||||||||||||||||||||||||||||||||
Accretion of carrying value to redemption value | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
Net income | - | - | - | |||||||||||||||||||||||||||||||||
Balance as of March 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
Accretion of carrying value to redemption value | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
Excise tax accrual | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
Balance as of June 30, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional | Total | |||||||||||||||||||||||||||||||||
Class A | Class B | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||||||||
Balance as of December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
Accretion of carrying value to redemption value | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
Excise tax accrual | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
Net income | - | - | - | |||||||||||||||||||||||||||||||||
Balance as of March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
Accretion of carrying value to redemption value | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
Net income | - | - | - | |||||||||||||||||||||||||||||||||
Balance as of June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
ACRI CAPITAL ACQUISITION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months | For the six months | |||||||
ended | ended | |||||||
June 30, 2024 | June 30, 2023 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net Income (loss) | $ | ( | ) | $ | ||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Interest earned on investment held in Trust Account | ( | ) | ( | ) | ||||
Deferred taxes | ( | ) | ( | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses | ( | ) | ||||||
Accrued expenses | ( | ) | ||||||
Franchise tax payable | ( | ) | ( | ) | ||||
Income taxes payable | ( | ) | ||||||
Net Cash Used in Operating Activities | ( | ) | ( | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Purchase of investment held in trust account | ( | ) | ||||||
Sale of investment held in trust account | ||||||||
Net Cash Provided by Investing Activities | ||||||||
Cash Flows from Financing Activities: | ||||||||
Proceeds from promissory notes to related party | ||||||||
Redemption of Class A Common Stock | ( | ) | ( | ) | ||||
Net Cash Used in Financing Activities | ( | ) | ( | ) | ||||
Net Change in Cash | ( | ) | ( | ) | ||||
Cash, beginning of the period | ||||||||
Cash, end of the period | $ | $ | ||||||
Non-cash Financing Activities: | ||||||||
Reduction of deferred underwriter’s discount | $ | $ | ||||||
Accretion of carrying value to redemption value | $ | $ | ||||||
Excise tax accrual on redemption of Class A common stock | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
ACRI
CAPITAL ACQUISITION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(Unaudited)
Note 1 — Organization and Business Operation
Acri Capital Acquisition Corporation (the “Company”) is a newly organized blank check company incorporated as a Delaware corporation on January 7, 2022. The Company was formed for the purpose of entering into a merger, capital stock exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses (the “Business Combination”). The Company has entered into agreement with Merger target. The Company has selected December 31 as its fiscal year end.
On November 13, 2023, the Company incorporated Acri Capital Merger Sub I Inc, (“Purchaser” or “Pubco”), and Acri Capital Merger Sub II Inc, (“Merger Sub”), each a Delaware corporation and wholly owned subsidiary of the Company. As of June 30, 2024, there has been no activity in Merger Sub I and Merger Sub II.
As of June 30, 2024 and December 31, 2023, the Company had not commenced any operations. For the six months ended June 30, 2024 and 2023, the Company’s efforts have been limited to organizational activities as well as activities related to the initial public offering (the “IPO”). 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
registration statement for the Company’s IPO became effective on June 9, 2022. On June 14, 2022, the Company consummated the IPO
of
Substantially
concurrently with the closing of the IPO, the Company completed the sale of
Transaction
costs amounted to $
The
Company’s initial Business Combination must occur with one or more target businesses that together have an aggregate fair market
value of at least
5
Following
the closing of the IPO, $
On
February 8, 2023, the Company held a special meeting of stockholders (the “Special Meeting”). At the Special Meeting,
the stockholders of the Company approved the proposal to amend Company’s amended and restated certificate of incorporation
(“Charter”) to amend the amount of monthly deposit (each, a “Monthly Extension Payment”) required to be deposited
in the trust account (the “Trust Account”) from $
In
connection with the votes to approve the Extension Amendment Proposal,
Following
the Special Meeting, the Sponsor deposited four monthly payments into the Trust Account to extend the Business Combination deadline to
July 14, 2023 of $
On
July 11 2023, the Company held another special meeting of stockholders (the “Special Meeting II”), at which the stockholders
of the Company approved, among others, the proposal to amend the Charter to allow the Company until July 14, 2023 to consummate
an initial Business Combination, and, without another stockholder vote, to elect to extend Business Combination deadline on a monthly
basis for up to nine (9) times, up to April 14, 2024, by depositing $
6
In connection with the Special Meeting II, the stockholders also approved the proposal to amend the Charter to remove the restriction of Company to undertake an initial Business Combination with any entity with its principal business operations or is headquartered in China (including Hong Kong and Macau).
Pursuant
to the Second Amended Charter, the Company may extend the Business Combination deadline on monthly basis from July 14, 2023 to up to
nine times by depositing $
On
April 9, 2024, the Company held a special meeting of stockholders (the “Special Meeting III”), at which the stockholders
of the Company approved, among other things, the proposal to amend the then-effective Company Charter to allow the Company until April
14, 2024 to consummate the Business Combination, and, without another stockholder vote, to elect to extend the deadline to complete a
Business Combination (the “Combination Deadline”) on a monthly basis for up to nine (9) times, up to January 14, 2025,
by depositing the lesser of (i) $
Pursuant to the Third Amended Charter, the Company
may extend the Combination Deadline on a monthly basis from April 14, 2024 for up to nine times, up to January 14, 2025, by depositing
$
On February 18, 2024, the Company entered into a business combination agreement (as amended from time to time, the “BCA”), by and among the Company, Purchaser, Merger Sub and Foxx Development Inc., a Texas corporation (“Foxx”), where, pursuant to the agreement: (a) the Company will merge with and into PubCo, with PubCo as the surviving entity (the “Reincorporation Merger”); (b) Foxx will merge with and into Merger Sub, with Merger Sub surviving as a wholly-owned subsidiary of PubCo (the “Acquisition Merger”).
On
May 31, 2024, ACAC, PubCo, Merger Sub, and Foxx entered into an amendment to the Business Combination Agreement (the “BCA Amendment”).
Pursuant to the BCA Amendment, ACAC, PubCo, Merger Sub, and Foxx agreed to revise the lock-up provision, which shall now provide that,
each Pre-Closing Company Stockholder (as defined in the Business Combination Agreement) who holds more than
Total
outstanding notes related to extension amounted to $
The
shares of Class A common stock subject to redemption will be recorded at a redemption value and classified as temporary equity upon the
completion of the IPO, in accordance with the Financial Accounting Standard Board (“FASB”) Accounting Standards Codification
(“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” In such case, the Company will consummate a
Business Combination and, solely if the Company has net tangible assets of at least $
If
the Company is unable to complete the initial Business Combination within the Combination Period, the Company will: (i) cease all
operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days
thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust
Account including interest earned on the funds held in the Trust Account and not previously released to the Company to pay the Company’s
taxes (less up to $
7
There
will be no redemption rights or liquidating distributions with respect to the Company’s Warrants, which will expire worthless if
the Company fails to complete the Business Combination within the Combination Period. The Sponsor, directors and officers of the Company
(the “founders”) have entered into a letter agreement with the Company, pursuant to which they have agreed (i) to waive
their redemption rights with respect to any Founder Shares (as defined in Note 6) and any Public Shares held by them in connection
with the completion of the initial Business Combination, (ii) waive their redemption rights with respect to their Founder Shares
and Public Shares in connection with a stockholder vote to approve an amendment to the Company’s amended and restated certificate
of incorporation (A) to modify the substance or timing of the Company’s obligation to allow redemption in connection with
the initial Business Combination or to redeem
The
Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party for services rendered or products
sold to the Company, or by a prospective target business with which the Company has discussed entering into a transaction agreement,
reduce the amount of funds in the Trust Account to below (i) $
However, the Company has not asked the Sponsor to reserve for such indemnification obligations, nor has the Company independently verified whether the Sponsor has sufficient funds to satisfy their indemnity obligations and believe that the Sponsor’s only assets are securities of the Company. Therefore, the Company cannot assure that its Sponsor would be able to satisfy those obligations. None of the officers or directors will indemnify the Company for claims by third parties including, without limitation, claims by vendors and prospective target businesses.
Liquidity and Going Concern
As
of June 30, 2024, the Company had cash of $
In addition, under the Company’s
Second Amended Charter provides that the Company will need to complete initial Business Combination by July 14, 2023, which may be
extended up to nine (9) times by an additional one month each time until April 14, 2024. On April 9, 2024, the Company
held a special meeting of stockholders, at which the stockholders of the Company approved, among others, the proposal to amend the
Amended and Restated Investment Management Trust Agreement, dated June 9, 2022, as amended on July 12, 2023 and April
10, 2024, by and between the Company and Wilmington Trust, National Association, acting as trustee, to extend the liquidation
date from July 14, 2023 to April 14, 2024, and further extended by up to nine (9) one-month extensions, up to
January 14, 2025. As of the date of the report, the Company has extended to September 14, 2024 by depositing five extension payments.
If the Company is unable to complete a Business Combination within the Combination Period, the Company may seek approval from its
stockholders holding no less than
There is no assurance that the Company’s plans to consummate a Business Combination will be successful within the Combination Period and that the Company will obtain enough votes to extend the Combination Period. As a result, management has determined that such additional condition also raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statement does not include any adjustments that might result from the outcome of this uncertainty.
8
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 (“US GAAP”) and pursuant to the rules and regulations of the SEC, and include all normal and recurring adjustments that management of the Company considers necessary for a fair presentation of its financial position and operation results. Interim results are not necessarily indicative of results to be expected for any other interim period or for the full year.
Emerging Growth Company Status
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a 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 of 1934, as amended (the “Exchange Act”)) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such 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
The preparation of unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Cash
The
Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.
The Company had $
9
Investments held in Trust Account
At June
30, 2024 and December 31, 2023, we had $
All of the Company’s investments held in the Trust Account are classified as trading securities. Trading securities are presented on the consolidated balance sheets at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of investments held in Trust Account are accounted as interest income in the statement of operations.
Fair Value of Financial Instruments
ASC Topic 820 “Fair Value Measurements and Disclosures” defines fair value, the methods used to measure fair value and the expanded disclosures about fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between the buyer and the seller at the measurement date. In determining fair value, the valuation techniques consistent with the market approach, income approach and cost approach shall be used to measure fair value. ASC Topic 820 establishes a fair value hierarchy for inputs, which represent the assumptions used by the buyer and seller in pricing the asset or liability. These inputs are further defined as observable and unobservable inputs. Observable inputs are those that buyer and seller would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs that the buyer and seller would use in pricing the asset or liability developed based on the best information available in the circumstances.
The fair value hierarchy is categorized into three levels based on the inputs as follows:
● | Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not being applied. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment. |
● | Level 2 - Valuations based on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived principally from or corroborated by market through correlation or other means. |
● | Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature.
Warrants
The Company accounts for Warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB ASC 480, 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 shares of Class A common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the Warrants are outstanding.
10
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.
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 are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the
Company’s control) are classified as temporary equity. At all other times, common stock are classified as stockholders’
equity. The Company’s Public Shares feature certain redemption rights that are considered to be outside of the Company’s
control and subject to occurrence of uncertain future events. Accordingly, as of June 30, 2024, common stock subject to
possible redemption are presented at redemption value of $
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 $
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 common stock and non-redeemable common stock and the undistributed income (loss) is calculated using the total net loss less any dividends paid. The Company then allocated the undistributed income (loss) ratably based on the weighted average number of shares outstanding between the redeemable and non-redeemable common stock. Any remeasurement of the accretion to redemption value of the common stock subject to possible redemption was considered to be dividends paid to the public stockholders. As of June 30, 2024 and December 31, 2023, the Company has not considered the effect of the Warrants sold in the IPO and private placement in the calculation of diluted net income (loss) per share, since the exercise of the Warrants is contingent upon the occurrence of future events and the inclusion of such Warrants would be anti-dilutive and the Company did not have any other dilutive securities and other contracts that could, potentially, be exercised or converted into common stock and then share in the earnings of the Company. As a result, diluted income (loss) per share is the same as basic income (loss) per share for the periods presented.
For the Three Months Ended | For the Three Months Ended | |||||||
June 30, | June 30, | |||||||
2024 | 2023 | |||||||
Net income (loss) | $ | ( | ) | $ | ||||
Accretion of carrying value to redemption value | ( | ) | ( | ) | ||||
Net loss including accretion of carrying value to redemption value | $ | ( | ) | $ | ( | ) |
11
For the Three Months Ended | For Three Months Ended | |||||||||||||||
June 30, 2024 | June 30, 2023 | |||||||||||||||
Non- | Non- | |||||||||||||||
Redeemable | Redeemable | Redeemable | Redeemable | |||||||||||||
Common | Common | Common | Common | |||||||||||||
Stock | Stock | Stock | Stock | |||||||||||||
Basic and diluted net income/(loss) per share: | ||||||||||||||||
Numerators: | ||||||||||||||||
Allocation of net loss including carrying value to redemption value | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Accretion of carrying value to redemption value | ||||||||||||||||
Allocation of net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Denominators: | ||||||||||||||||
Weighted-average shares outstanding | ||||||||||||||||
$ | $ | ( | ) | $ | $ | ( | ) |
For the Six Months Ended | For the Six Months Ended | |||||||
June 30, | June 30, | |||||||
2024 | 2023 | |||||||
Net income (loss) | $ | ( | ) | $ | ||||
Accretion of carrying value to redemption value | ( | ) | ( | ) | ||||
Net loss including accretion of carrying value to redemption value | $ | ( | ) | $ | ( | ) |
For the Six Months Ended | For Six Months Ended | |||||||||||||||
June 30, 2024 | June 30, 2023 | |||||||||||||||
Non- | Non- | |||||||||||||||
Redeemable | Redeemable | Redeemable | Redeemable | |||||||||||||
Common | Common | Common | Common | |||||||||||||
Stock | Stock | Stock | Stock | |||||||||||||
Basic and diluted net income/(loss) per share: | ||||||||||||||||
Numerators: | ||||||||||||||||
Allocation of net loss including carrying value to redemption value | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Accretion of carrying value to redemption value | ||||||||||||||||
Allocation of net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Denominators: | ||||||||||||||||
Weighted-average shares outstanding | ||||||||||||||||
$ | $ | ( | ) | $ | $ | ( | ) |
12
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. The Company has not experienced losses
on this account and management believes the Company is not exposed to significant risks on such account. As of June 30, 2024, approximately
$
Income Taxes
The Company accounts for income taxes under ASC 740 Income Taxes (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were unrecognized tax benefit and no amounts accrued for interest and penalties as of June 30, 2024 and December 31, 2023. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
The Company has identified the United States as its only major tax jurisdiction.
The Company may be subject to potential examination by federal and state taxing authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
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, 2024.
Excise Tax
On
August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (H.R. 5376) (the “IRA”), which, among
other things, imposes a
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
13
As a result of the
During the second quarter, the IRS issued final regulations with respect to the timing and payment of the excise tax. Pursuant to those regulations, the Company would need to file a return and remit payment for any liability incurred during the period from January 1, 2023 to December 31, 2023 on or before October 31, 2024.
The Company is currently evaluating its options with
respect to payment of this obligation. If the Company is unable to pay its obligation in full. It will be subject to additional interest
and penalties which are currently estimated at
Recent Accounting Pronouncements
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. The Company evaluated the potential impact of adopting this new guidance on its unaudited consolidated financial statements and related disclosures and believe that the adoption of this ASU did not have a material effect on the Company’s financial statements.
Note 3 — Investments Held in Trust Account
As
of June 30, 2024 and December 31, 2023, assets held in the Trust Account were comprised of $
Description | Level | June 30, 2024 | ||||
Assets: | ||||||
Trust Account – U.S. Treasury Securities Money Market Fund | 1 | $ |
Description | Level | December 31, 2023 | ||||
Assets: | ||||||
Trust Account – U.S. Treasury Securities Money Market Fund | 1 | $ |
Note 4 — Initial Public Offering
Pursuant
to the IPO, the Company sold
14
All
of the
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, | As of December 31, | |||||||
2024 | 2023 | |||||||
Gross proceeds | $ | $ | ||||||
Less: | ||||||||
Proceeds allocated to Public Warrants | ( | ) | ( | ) | ||||
Offering costs of Public Shares | ( | ) | ( | ) | ||||
Redemption | ( | ) | ( | ) | ||||
Plus: | ||||||||
Accretion of carrying value to redemption value | ||||||||
Common stock subject to possible redemption | $ | $ |
Note 5 — Private Placement
Substantially
concurrently with the closing of the IPO on June 14, 2022, the Company completed the sale of
Note 6 — Related Party Transactions
Founder Shares
On
February 4, 2022, the Sponsor acquired
The
number of Founder Shares issued was determined based on the expectation that such Founder Shares would represent
15
The Founder Shares are identical to the Public Shares. However, the founders have agreed (A) to vote their Founder Shares in favor of any proposed Business Combination, (B) not to propose, or vote in favor of, prior to and unrelated to an initial Business Combination, an amendment to the Company’s certificate of incorporation that would affect the substance or timing of the Company’s redemption obligation to redeem all Public Shares if the Company cannot complete an initial Business Combination within the Combination Period, unless the Company provides public stockholders an opportunity to redeem their Public Shares in conjunction with any such amendment, (C) not to redeem any shares, including Founder Shares and Public Shares into the right to receive cash from the Trust Account in connection with a stockholder vote to approve the Company’s proposed initial Business Combination or sell any shares to us in any tender offer in connection with the Company’s proposed initial Business Combination, and (D) that the Founder Shares shall not participate in any liquidating distribution upon winding up if a Business Combination is not consummated.
The
founder has agreed not to transfer, assign or sell its Founder Shares until the earlier to occur of: (A) six months after the
completion of the Company’s initial Business Combination, or (B) the date on which the Company completes a liquidation, merger,
stock exchange or other similar transaction that results in all of the public stockholders having the right to exchange their shares
of common stock for cash, securities or other property, and (C) the date on which the last reported sale price of the Company’s
Class A common stock equals or exceeds $
Promissory Note — Related Party
On
January 20, 2022, the Sponsor has agreed to loan the Company up to $
In connection with the Monthly Extension Payment
discussed in Note 1, the Company issued four unsecured promissory notes of $
On December 5, 2023, the Sponsor has agreed to
loan the Company up to $
Balance
of Promissory Notes – related party amounted to $
16
Related Party Loans
In
addition, in order to finance transaction costs in connection with an intended initial Business Combination, the Sponsor, or an affiliate
of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may
be required. If the Company completes the initial Business Combination, it would repay such loaned amounts. 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. Up to $
As of June 30, 2024 and December 31, 2023, the Company had no borrowings under the working capital loans.
Administrative Services Fees
The
Company has agreed, commencing on the effective date of the Prospectus, to pay the Sponsor the monthly fee of an aggregate of $
Note 7 — Commitments & Contingencies
Registration Rights
The holders of the Founder Shares and Private Warrants and Warrants issuable upon the conversion of certain working capital loans will be entitled to registration rights pursuant to a registration rights agreement signed on June 9, 2022 requiring the Company to register such securities for resale. The holders of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of the Company’s initial Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The
underwriters of the IPO (the “underwriters”) exercised the option to purchase an additional
The
Company paid an underwriting discount of
On
February 23, 2024, the Company” entered into certain Amendment (the “UA Amendment”) to the Underwriting Agreement,
dated June 9, 2022 with the underwriters. Pursuant to the terms of the UA Amendment, the underwriters and the Company have agreed to
amend the Underwriting Agreement to replace the existing deferred underwriting fee under the Underwriting Agreement from $
17
Right of First Refusal
For
a period of twelve (12) months from the closing of a Business Combination the Company shall give underwriter a right of first refusal
to act as lead left bookrunner and lead left manager and/or lead left placement agent with at least seventy-five percent (
Note 8 — Stockholders’ Deficit
Preferred
Stock — The Company is authorized to issue
Class
A Common Stock — The Company is authorized to issue
Class B
Common Stock — The Company is authorized to issue
The Class B common stock will automatically convert into shares of the Class A common stock at the time of the Business Combination, or at any time prior thereto at the option of the holder, on a one-for-one basis, subject to adjustment pursuant to certain anti-dilution right.
Warrants — On
June 14, 2022, the Company issued
Each
whole Warrant entitles the registered holder to purchase one whole share of the Company’s Class A common stock at a price of $
The Company has agreed that as soon as practicable, but in no event later than 30 business days, after the closing of the Business Combination, it will use its reasonable best efforts to file, and within 60 business days following the Business Combination to have declared effective, a registration statement for the registration, under the Securities Act, of the shares of Class A common stock issuable upon exercise of the Warrants. The Company will use its reasonable best efforts to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the Warrants in accordance with the provisions of the warrant agreement. No Warrants will be exercisable for cash unless the Company has an effective and current registration statement covering the Class A common stock issuable upon exercise of the Warrants and a current prospectus relating to such shares of common stock. Notwithstanding the above, if the Company’s Class A common stock is at the time of any exercise of a Warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Warrants who exercise their Warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event it so elect, it will not be required to file or maintain in effect a registration statement, but it will be required to use its reasonable best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
18
In
addition, if (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes
in connection with the closing of the Business Combination at an issue price or effective issue price (the “Newly Issued Price”)
of less than $
The
Company may call the Warrants for redemption, in whole and not in part, at a price of $
● | in whole and not in part; |
● | upon not less than |
● | if, and only if, the reported last sale price of the Class A common stock equals or exceeds $ |
The
Company accounted for the
As
of June 30, 2024 and December 31, 2023,
Note 9 — Income Taxes
As of June 30, 2024 and December 31, 2023, the
Company’s deferred tax asset had a full valuation allowance recorded against it. The effective tax rate for the three months ended
June 30, 2024 and 2023 were (
Note 10 — Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date through the date the financial statement is issued. The Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statement other than events below.
On July 11, 2024, an aggregate of $
In connection with the July Monthly Extension
Payment, the Company issued an unsecured promissory note of $
On August 12, 2024, an aggregate of $
In connection with the August
Monthly Extension Payment, the Company issued an unsecured promissory note of $
19
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Acri Capital Acquisition Corporation. References to our “management” or our “management team” refer to our officers and directors, references to the “sponsor” refer to Acri Capital Sponsor LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements. See “Cautionary Note Concerning Forward-Looking Statements.”
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and variations thereof and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Prospectus. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a blank check company incorporated as a Delaware corporation on January 7, 2022, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (a “Business Combination”). We are actively searching and identifying suitable Business Combination target. We intend to effectuate our Business Combination using cash derived from the proceeds of our initial public offering (the “IPO”) and the sale of warrants (the “Private Placement Warrants”) in a private placement (the “Private Placement”) to the Company’s sponsor Acri Capital Sponsor LLC (the “Sponsor”), potential additional shares, debt or a combination of cash, shares and debt.
We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful.
On June 14, 2022, the Company consummated the IPO of 8,625,000 units (the “Units”) (including 1,125,000 Units issued upon the full exercise of the over-allotment option). Each Unit consists of one share of Class A common stock, $0.0001 par value per share (the “Public Shares”), and one-half of one redeemable warrant, each whole Warrant entitling the holder thereof to purchase one share of Class A common stock (the “Class A common stock”) at an exercise price of $11.50 per share. The Units were sold at an offering price of $10.00 per Unit, generating gross proceeds of $86,250,000 on June 14, 2022.
20
Business Combination with Foxx
On February 18, 2024, we entered into a business combination agreement (as amended from time to time, the “Business Combination Agreement”), by and among us, Acri Capital Merger Sub I Inc., a Delaware corporation and our wholly-owned subsidiary (“Purchaser”, or “PubCo” upon and following the Business Combination), Acri Capital Merger Sub II Inc., a Delaware corporation and wholly-owned subsidiary of Purchaser (“Merger Sub”, together with us and the Purchaser, the “Purchaser Parties”), and Foxx Development Inc., a Texas corporation (“Foxx”), pursuant to which (i) Parent will merger with and into Purchaser (the “Reincorporation Merger”), and (ii) Foxx will merge with and into Merger Sub, with Merger Sub surviving as a wholly-owned subsidiary of Purchaser (the “Acquisition Merger”). The Reincorporation Merger, the Acquisition Merger, and other transactions contemplated under the Business Combination Agreement, are collectively referred to as the “Foxx Business Combination”. Following consummation of the Foxx Business Combination (the “Closing”), Purchaser will become a publicly traded company.
On May 31, 2024, ACAC, PubCo, Merger Sub, and Foxx entered into an amendment to the Business Combination Agreement (the “BCA Amendment”). Pursuant to the BCA Amendment, ACAC, PubCo, Merger Sub, and Foxx agreed to revise the lock-up provision, which shall now provide that, each Pre-Closing Company Stockholder (as defined in the Business Combination Agreement) who holds more than 5% of issued and outstanding shares of common stock of Foxx (“Foxx Common Stock”) immediately prior to closing of the Business Combination (the “Closing”) except the Pre-Closing Company Stockholders who hold Foxx Common Stock issuable upon the conversion of certain convertible notes of Foxx, the Sponsor, and affiliates of the foregoing, will, subject to certain customary exceptions, agree not to sell any share of common stock of the PubCo (“PubCo Common Stock”) held by them until the earlier to occur of: (A) six months after the Closing, or (B) the date on which the last reported sale price of the PubCo Common Stock equals or exceeds $12.00 per share (as adjusted for share splits, share dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing after the Closing, or earlier, in any case, if subsequent to the Closing, the PubCo completes a subsequent liquidation, merger, stock exchange or other similar transaction that results in all of ACAC’s stockholders having the right to exchange their shares for cash, securities or other property.
Additional Information about the Transaction and Where to Find It
The Business Combination has been approved by the boards of directors of ACAC, PubCo and Foxx, and will be submitted to stockholders of ACAC and the stockholders of Foxx for their approval. ACAC started mailing of a definitive proxy statement and other relevant documents to its stockholders on August 1, 2024, and the record date established for voting on the proposed transaction was on July 19. 2024. The special meeting of the stockholders of ACAC is scheduled to be held on August 27, 2024. ACAC stockholders are urged to read the definitive proxy statement/prospectus included in the Registration Statement on Form F-4 (File No. 333- 280613) that was filed publicly by the Purchaser and declared effective by the SEC on July 29, 2024. ACAC stockholders will also be able to obtain a free copy of the definitive proxy statement/prospectus, as well as other filings containing information about ACAC, without charge, at the SEC’s website (www.sec.gov).
Special Meeting III and Extension Notes
On April 9, 2024, the Company held a special meeting of stockholders (the “Special Meeting III”), at which the stockholders of the Company approved, among other things, the proposal to amend the then-effective Company Charter to allow the Company until April 14, 2024 to consummate the Business Combination, and, without another stockholder vote, to elect to extend the deadline to complete a Business Combination (the “Combination Deadline”) on a monthly basis for up to nine (9) times, up to January 14, 2025, by depositing the lesser of (i) $50,000 and (ii) $0.033 for each public share into the Trust Account. Upon the stockholders’ approval, on April 10, 2024, the Company filed a certificate of amendment to the Charter which became effective upon filing (the Charter upon the amendment, the “Third Amended Charter”). In connection with the Special Meeting III, 1,439,666 shares of Class A common stock of the Company were redeemed and cancelled.
Pursuant to the Third Amended Charter, the Company may extend the Combination Deadline on a monthly basis from April 14, 2024 for up to nine times, up to January 14, 2025, by depositing $50,000 each month into the Trust Account. Following the Special Meeting III, the Sponsor deposited four monthly payments, and Foxx deposited one monthly payment into the Trust Account to extend the Combination Deadline to September 14, 2024. The five monthly payments were evidenced by four promissory notes issued by the Company to the Sponsor and one promissory note issued by the Company to Foxx, each in the principal amount of $50,000.
21
Working Capital Note
The Sponsor or an affiliate of the Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. Any such loans would be on an interest-free basis and would be repaid only from funds held outside the trust account or from funds released to us upon completion of the Business Combination. We may issue such working capital notes to the Sponsor, officers, directors, of their affiliates, evidencing the terms of such loans.
On December 5, 2023 and June 11, 2024, respectively, the Company issued an unsecured promissory note of $500,000 (collectively, the “Working Capital Notes”) to the Sponsor. The proceeds of the Working Capital Notes, which may be drawn down from time to time until the Company consummates its initial business combination, and will be used as general working capital purposes.
The Working Capital Notes are non-interest bearing and payable (subject to the waiver against trust provisions) on the earlier of (i) consummation of the Company’s initial business combination and (ii) the date of the liquidation of the Company. The principal balance may be prepaid at any time, at the election of the Company. The holder of the Working Capital Notes has the right, but not the obligation, to convert the Working Capital Notes, in whole or in part, respectively, into private placement warrants of the Company, as described in the prospectus of the Company (File Number 333-263477), by providing the Company with written notice of its intention to convert the Working Capital Notes at least two business days prior to the closing of the Company’s initial business combination. The number of Warrants to be received by the holder in connection with such conversion shall be an amount determined by dividing (x) the sum of the outstanding principal amount payable to the holder, by (y) $1.00.
The issuance of the Working Capital Notes were made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended.
Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard
On July 23, 2024, the Company received a letter (the “ Letter ”) from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“ Nasdaq ”) that, for the last 30 consecutive business days, the Market Value of Listed Securities (“MVLS”) for the Company was below the $35 million minimum MVLS requirement for continued listing on the Nasdaq Capital Market (the “Capital Market”) under Nasdaq Listing Rule 5550(b)(2) (the “ MVLS Rule ”). The Letter is only a notification of deficiency, not of imminent delisting, and has no current effect on the listing or trading of the Company’s securities.
In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company will have 180 calendar days, or until January 20, 2025 (the “Compliance Period”), to regain compliance with the MVLS Rule. To regain compliance with the MVLS Rule, the MVLS for the Company must be at least $35 million for a minimum of 10 consecutive business days at any time during this Compliance Period. If the Company regains compliance with the MVLS Rule, Nasdaq will provide the Company with written confirmation and will close the matter.
If the Company does not regain compliance with the MVLS Rule by the Compliance Date, Nasdaq will provide written notification that its securities will be subject to delisting. In the event of such notification, the Nasdaq rules permit the Company an opportunity to appeal Nasdaq’s determination.
The Company is monitoring its MVLS and is evaluating options to regain compliance with the MVLS Rule. However, there can be no assurance that the Company will be able to regain or maintain compliance with Nasdaq listing standards.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues to date except the preparation and completion of the IPO and the search for a target candidate following the consummation of the IPO. Our only activities from inception through June 30, 2024 were organizational activities and those necessary to prepare for the IPO and search for a target candidate. We do not expect to generate any operating revenues until after the completion of the Business Combination. We expect to generate non-operating income in the form of interest income on marketable securities held after the IPO. We expect that we will incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses in connection with searching for, and completing, the Business Combination.
For the three months ended June 30, 2024 and 2023, we had net loss of $245,297 and net income of $90,945, respectively, mainly from income on our investment less our formation and operating costs and tax expenses. For the six months ended June 30, 2024 and 2023, we had net loss of $142,648 and net income of $454,603, respectively, mainly from income on our investment less our formation and operating costs and tax expenses.
22
Liquidity and Capital Resources
The Company’s liquidity needs up to June 30, 2024 had been satisfied through initial payment from the Sponsor of $25,000, proceeds from the Private Placement of $5,240,000, and loan from sponsor of $2,503,327.
On June 14, 2022, we consummated the IPO of 8,625,000 Public Units at a price of $10.00 per unit (including 1,125,000 units issued upon the fully exercise of the over-allotment option), generating gross proceeds of $86,250,000. Simultaneously with the closing of the IPO and exercise of the over-allotment option in full by the underwriters, we consummated the sale of 5,240,000 warrants as Private Warrants, at a price of $1.00 per warrant, with each warrant entitling the registered holder to purchase one share of the Company’s Class A common stock at a price of $11.50 per share, generating gross proceeds of $5,240,000. Following the closings of the IPO and the sales of the Private Warrants on June 14, 2022, a total of $87,975,000 (or $10.20 per share) was placed in the Trust Account.
As of June 30, 2024, the Company had cash of $4,665 and a working capital deficit of $3,346,481 (excluding taxes payable which will be paid out from Trust).
On February 8, 2023, in connection with the Special Meeting I, 4,981,306 shares of Class A common stock of the Company were rendered for redemption at $10.33 per share. On July 11, 2023, in connection with the Special Meeting II, 388,644 shares of Class A common stock of the Company were redeemed and cancelled at $10.82 per share. On May 9, 2024, in connection with the New Extension Amendment Proposal, 1,439,666 shares of Class A common stock of the Company were redeemed and cancelled at $11.24 per share, resulting in approximately $21.2 million remaining in the Trust Account as of June 30, 2024.
We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account, excluding deferred underwriting commissions, to complete the Business Combination. We may withdraw interest from the Trust Account to pay taxes, if any. To the extent that our share capital or debt is used, in whole or in part, as consideration to complete the Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, structure, negotiate and complete the Business Combination.
In order to fund working capital deficiencies or finance transaction costs in connection with the Business Combination, the Sponsor or an affiliate of the Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If the Company completes the Business Combination, it would repay such loaned amounts. In the event that the 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 the Trust Account would be used for such repayment. Up to $3,000,000 of such loans may be convertible into warrant, at a price of $1.00 per warrant at the option of the lender.
23
We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to the Business Combination. Moreover, we may need to obtain additional financing either to complete the Business Combination or because we become obligated to redeem a significant number of our Public Shares upon completion of the Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination.
Pursuant to the Third Amended Charter, the Company may extend the Combination Deadline on a monthly basis from April 14, 2024 for up to nine times, up to January 14, 2025, by depositing $50,000 each month into the Trust Account. As of the date of this report, between July 12, 2023 and March 12, 2024, an aggregate of $675,000 of extension payments, or nine monthly extension payments of $75,000, were deposited into the Trust Account, which enabled the Company to extend the period of time it has to consummate the Business Combination on a monthly basis from July 14, 2023 to April 14, 2024. Following the Special Meeting III, the Sponsor deposited four monthly payments, and Foxx deposited one monthly payment, into the Trust Account, to extend the Combination Deadline to September 14, 2024. The five monthly payments were evidenced by four promissory notes issued by the Company to the Sponsor and one promissory note issued by the Company to Foxx (the “Foxx Note”), each in the principal amount of $50,000.
In connection with each monthly extension payments, the Company issued unsecured promissory notes (each an “Extension Note”) to the Sponsor.
Each of the Extension Notes is non-interest bearing and payable (subject to the waiver against trust provisions) on the earlier of (i) consummation of the Business Combination and (ii) the date of the liquidation of the Company. The principal balance may be prepaid at any time, at the election of the Company. The holder of the Extension Notes has the right, but not the obligation, to convert each Extension Note, in whole or in part, respectively, into Private Warrants of the Company, as described in the Prospectus, by providing the Company with written notice of its intention to convert the Extension Notes at least two business days prior to the closing of the Business Combination. The number of Private Warrants to be received by the holder in connection with such conversion shall be an amount determined by dividing (x) the sum of the outstanding principal amount payable to the holder, by (y) $1.00.
The Foxx Note is non-interest bearing and payable (subject to the waiver against trust provisions) on the earlier of (i) consummation of the Company’s initial business combination, and (ii) the date of the liquidation of the Company. The principal balance may be prepaid at any time, at the election of the Company. The Foxx Note is not convertible into any securities of the Company.
If we are unable to complete the Business Combination by the Combination Deadline, we may seek approval from our stockholders holding no less than 65% or more of the votes to approve to extend the Combination Deadline, and if we fail to obtain approval from our stockholders for such extension or we do not seek such extension, the Company will cease all operations.
As a result, management has determined that such additional condition also raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities that would be considered off-balance sheet arrangements as of June 30, 2024. 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.
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Contractual Obligations
As of June 30, 2024 and December 31, 2023, we do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities.
The holders of the Founder Shares, the Private Warrants, and any warrants that may be issued upon conversion of working capital loans (and any underlying securities) will be entitled to registration rights pursuant to a registration rights agreement entered into in connection with the IPO. The holders of these securities are entitled to make up to three demands, excluding short form demands, that we register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to our completion of the Business Combination. We will bear the expenses incurred in connection with the filing of any such registration statements.
Critical Accounting Policies and Estimates
In preparing the financial statements in conformity with U.S. GAAP, 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 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 financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, actual results may differ from these estimates. We have identified the following critical accounting policies and estimates:
Investments held in Trust Account
At June 30, 2024 and December 31, 2023, $21,214,423 and $36,672,846 of the assets held in the Trust Account, respectively, were held in money market funds, which are invested in short term U.S. Treasury securities.
The Company classifies its U.S. Treasury and equivalent securities as held-to-maturity in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 320 “Investments — Debt and Equity Securities.” Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. Held-to-maturity treasury securities are recorded at amortized cost on the accompanying balance sheet and adjusted for the amortization or accretion of premiums or discounts.
Offering Costs
The Company complies with the requirements of 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 consisting principally of underwriting, legal, accounting and other expenses that are directly related to the IPO and charged to shareholders’ equity upon the completion of the IPO.
Warrants
We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 “Distinguishing Liabilities from Equity” (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether they meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
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For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. We determined that upon further review of the proposed form of warrant agreement, management concluded that the warrants included in the units issued in the IPO pursuant to the warrant agreement qualify for equity accounting treatment.
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 are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s Public Shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, as of June 30, 2024, common stock subject to possible redemption are presented at redemption value of $11.58 per share as temporary equity, outside of the shareholders’ equity section of the Company’s balance sheet. 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 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 common stock and non-redeemable common stock and the undistributed income (loss) is calculated using the total net loss less any dividends paid. The Company then allocated the undistributed income (loss) ratably based on the weighted average number of shares outstanding between the redeemable and non-redeemable common stock. Any remeasurement of the accretion to redemption value of the common stock subject to possible redemption was considered to be dividends paid to the public stockholders.
Recent Accounting Pronouncements
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. We evaluated the potential impact of adopting this new guidance on our unaudited consolidated financial statements and related disclosures and believe that the adoption of this ASU did not have a material effect on our financial statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Report, is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our current chief executive officer (who also serves as our chief financial officer) (our “Certifying Officer”), the effectiveness of our disclosure controls and procedures as of June 30, 2024, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our chief executive officer and chief financial officer concluded that during the period covered by this report, our disclosure controls and procedures were not effective due to presence of material weaknesses in internal control over financial reporting.
This Quarterly Report on Form 10-Q does not include an attestation report of internal controls from our independent registered public accounting firm due to our status as an emerging growth company under the JOBS Act.
(b) Changes in Internal Control over Financial Reporting
Except as set forth in Item 4(a) above, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter covered by this report that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings and no material legal proceedings have been threatened by us or, to the best of our knowledge, against us.
ITEM 1A. RISK FACTORS
Not required.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
On June 14, 2022, simultaneously with the closing of the IPO, the Company completed the Private Placement of 5,240,000 Private Placement Warrants to the Company’s sponsor, at a purchase price of $1.00 per Private Placement Warrant, generating gross proceeds to the Company of $5,240,000.
The information of the Extension Notes and the Working Capital Note contained under Item 2 of Part I above is incorporated herein by reference in response to this item.
The above sales were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. No commissions were paid in connection with such sales.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.
On August 12, 2024, an aggregate of $50,000 (the “August Monthly Extension Payment”) was deposited into the trust account of the Company for the public shareholders, which enabled the Company to extend the period of time it has to consummate its initial business combination by one month from August 14, 2024 to September 14, 2024. The Extension is the fifth of the nine one-month extensions permitted under the Company’s governing documents.
In connection with the August Monthly Extension Payment, the Company issued an unsecured promissory note of $50,000 to Foxx Development Inc (the “Foxx Note”). The Foxx Note is non-interest bearing and payable (subject to the waiver against trust provisions) on the earlier of (i) consummation of the Company’s initial business combination and (ii) the date of the liquidation of the Company. The principal balance may be prepaid at any time, at the election of the Company. The Foxx Note is not convertible into any securities of the Company.
The issuance of the Foxx Note was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended.
A copy of the Foxx Note is attached as Exhibit 10.6 to this this Quarterly Report on Form 10-Q. The disclosures set forth in this Item 5 are intended to be summaries only and are qualified in their entirety by reference to the Foxx Note.
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ITEM 6. EXHIBITS
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
* | Filed herewith. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Acri Capital Acquisition Corporation | ||
Date: August 14, 2024 | By: | /s/ “Joy” Yi Hua |
“Joy” Yi Hua | ||
Chief
Executive Officer & Chief Financial Officer | ||
(Principal
Executive Officer and Principal Financial and Accounting Officer) |
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