CDAQF 10-Q
Compass Digital Acquisition Corp. (CDAQF)
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)
Not applicable
(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 | ||
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, 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
As of November 13, 2024, there were Class A ordinary shares, par value $per share, and Class B ordinary shares, par value $per share, of the registrant issued and outstanding.
COMPASS DIGITAL ACQUISITION CORP.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2024
TABLE OF CONTENTS
| I |
Unless otherwise stated in this Report (as defined below), or the context otherwise requires, references to:
| ● | “2021 Annual Report” are to our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC (as defined below) on February 24, 2022; | |
| ● | “2022 Annual Report” are to our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the SEC on April 18, 2023; | |
| ● | “2023 Annual Report” are to our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the SEC on April 1, 2024; | |
| ● | “2023 EGM” are to our extraordinary general meeting of shareholders held on October 12, 2023; | |
| ● | “2023 Founder Share Conversion” are to the 600,000 Class A Ordinary Shares (as defined below) issued on October 19, 2023, following the approval of the Founder Share Amendment Proposal (as defined below) by our shareholders at the 2023 EGM, to the Sponsors (as defined below) upon the conversion of an equal number of Class B Ordinary Shares (as defined below) held by the Sponsors as Founder Shares (as defined below); | |
| ● | “2023 Non-Redemption Agreements” are to the agreements we entered into with the New Sponsor (as defined below) and unaffiliated third-party investors in exchange for such investors agreeing not to redeem an aggregate of 4,998,734 Public Shares (as defined below) in connection with the vote to approve the Charter Amendment Proposals (as defined below) at the 2023 EGM; | |
| ● | “2023 Redemptions” are to the 16,045,860 Public Shares whose holders properly exercised their right to redeem their Public Shares for cash at a redemption price of approximately $10.54 per share in connection with the approval of the Charter Amendment Proposals; | |
| ● | “2024 EGM” are to our extraordinary general meeting of shareholders in lieu of an annual general meeting of shareholders held on July 18, 2024; | |
| ● | “2024 Founder Share Conversion” are to the 2,600,000 Class A Ordinary Shares issued on July 24, 2024 in connection with the 2024 EGM, to the Sponsors upon the conversion of an equal number of Class B Ordinary Shares held by the Sponsors as Founder Shares; | |
| ● | “2024 Non-Redemption Agreements” are to the agreements we entered into with the New Sponsor and unaffiliated third-party investors in exchange for such investors agreeing not to redeem an aggregate of 2,475,000 Public Shares in connection with the vote to approve the Second Extension Amendment Proposal (as defined below) at the 2024 EGM; |
| 1 |
| ● | “2024 Redemptions” are to the 2,713,143 Public Shares whose holders properly exercised their right to redeem their Public Shares for cash at a redemption price of approximately $10.92 per share in connection with the approval of the Second Extension Amendment Proposal; | |
| ● | “2024 SPAC Rules” are to the new rules and regulations for SPACs (as defined below) adopted by the SEC on January 24, 2024, which became effective on July 1, 2024; | |
| ● | “Administrative Services Agreement” are to the Administrative Services Agreement, dated October 14, 2021, which we entered into with our Legacy Sponsor (as defined below), as assigned to our New Sponsor in connection with the Sponsor Handover (as defined below); | |
| ● | “Amended and Restated Charter” are to our Amended and Restated Memorandum and Articles of Association, as amended and currently in effect; | |
| ● | “ASC” are to the FASB (as defined below) Accounting Standards Codification; |
| ● | “ASC 480” are to FASB ASC Topic 480 “Distinguishing Liabilities from Equity”; | |
| ● | “ASC 815” are to FASB ASC Topic 815, “Derivatives and Hedging”; | |
| ● | “Board of Directors” or “Board” are to our board of directors; | |
| ● | “Business Combination” are to a merger, capital share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses; | |
| ● | “Business Combination Agreement” are to that certain Business Combination Agreement (as amended, restated or otherwise modified from time to time), dated September 5, 2024, by and among (i) the Company, (ii) the New Sponsor, (iii) upon execution of a joinder thereto, Pubco, (iv) upon execution of a joinder thereto, Merger Sub, (v) EEW, (vi) the shareholders of EEW named therein that executed and delivered the Business Combination Agreement on the signing date (together with any transferees of ordinary shares of EEW prior to the Closing that either sign a joinder agreement to become a party thereto, or that become bound thereby pursuant to the drag-along rights to be set forth in EEW’s amended organizational documents, and (vii) E.E.W. Global Holding Limited; | |
| ● | “Charter Amendment Proposals” are to the First Extension Amendment Proposal (as defined below) and the Founder Share Amendment Proposal, together; | |
| ● | “Class A Ordinary Shares” are to our Class A ordinary shares, par value $0.0001 per share; | |
| ● | “Class B Ordinary Shares” are to our Class B ordinary shares, par value $0.0001 per share; | |
| ● | “Closing” are to the closing of the transactions contemplated by the Business Combination Agreement; | |
| ● | “Combination Period” are to the potentially 42-month period, from the closing of the Initial Public Offering to December 19, 2024 or April 19, 2025 if all four (4) monthly extensions pursuant to the Second Extension Amendment Proposal are used (or such earlier date as determined by the Board) as extended by the Second Extension Amendment Proposal approved at the 2024 EGM, that we have to consummate an initial Business Combination; | |
| ● | “Company,” “our,” “we,” or “us” are to Compass Digital Acquisition Corp., a Cayman Islands exempted company; | |
| ● | “Continental” are to Continental Stock Transfer & Trust Company, our transfer agent, trustee of our Trust Account (as defined below) and warrant agent of our Public Warrants (as defined below); | |
| ● | “EEW” are to EEW Renewables Ltd, a company formed under the laws of England and Wales;
| |
| ● | “Exchange Act” are to the Securities Exchange Act of 1934, as amended; |
| 2 |
| ● | “FASB” are to the Financial Accounting Standards Board; | |
| ● | “First Extension Amendment Proposal” are to the proposal at the 2023 EGM to extend the Combination Period from October 19, 2023 to July 19, 2024 (or such earlier date as determined by the Board); | |
| ● | “Founder Share Amendment Proposal” are to the proposal at the 2023 EGM to provide for the right of a holder of Class B Ordinary Shares to convert such shares into Class A Ordinary Shares on a one-for-one basis at any time and from time to time prior to the closing of a Business Combination at the election of the holder; | |
| ● | “Founder Shares” are to the Class B Ordinary Shares initially purchased by our Initial Shareholders (as defined below) in the Private Placement (as defined below) and the Class A Ordinary Shares that (i) will be issued upon the automatic conversion of the Class B Ordinary Shares at the time of our Business Combination as described herein and (ii) were issued in connection with the 2023 Founder Share Conversion and 2024 Founder Share Conversion upon the conversion of an equal number of Class B Ordinary Shares (for the avoidance of doubt, such Class A Ordinary Shares will not be “Public Shares”); | |
| ● | “GAAP” are to the accounting principles generally accepted in the United States of America; | |
| ● | “GCG” are to YAS International, LLC (d/b/a Gupta Capital Group), an affiliate of our Legacy Sponsor; | |
| ● | “Initial Public Offering” or “IPO” are to the initial public offering that we consummated on October 19, 2021; | |
| ● | “Initial Shareholders” are to holders of our Founder Shares, including out Legacy Sponsor, prior to our Initial Public Offering; |
| ● | “Institutional Anchor Investors” are to certain institutional investors that are not affiliated with us, our Sponsors, our Prior Directors or Officers (as defined below), or any member of our Management (as defined below), that purchased our securities in connection with the Initial Public Offering; | |
| ● | “Investment Company Act” are to the Investment Company Act of 1940, as amended; | |
| ● | “IPO Promissory Note” are to that certain unsecured promissory note in the principal amount of up to $250,000 issued to an affiliate of our Legacy Sponsor on March 9, 2021; | |
| ● | “IPO Registration Statement” are to the Registration Statement on Form S-1 initially filed with the SEC on September 14, 2021, as amended, and declared effective on October 14, 2021 (File No. 333-259502); | |
| ● | “JOBS Act” are to the Jumpstart Our Business Startups Act of 2012; | |
| ● | “Legacy Sponsor” are to Compass Digital SPAC LLC, a Delaware limited liability company; | |
| ● | “Legacy Working Capital Loans” are to funds that, in order to provide working capital or finance transaction costs in connection with a Business Combination, the Initial Shareholders, Sponsors or an affiliate of the Initial Shareholders or Sponsors, or certain of our Prior Directors and Officers or current directors and officers, may, but are not obligated to, loan us; | |
| ● | “Letter Agreement” are to the Letter Agreement, dated October 14, 2021, which we entered into with our Legacy Sponsor and Prior Directors and Officers, as amended by the Letter Agreement Amendment (as defined below) and as agreed to by our current directors and officers pursuant to the Letter Agreement Joinder (as defined below); |
| 3 |
| ● | “Letter Agreement Amendment” are to the Amendment to Letter Agreement, dated as of August 31, 2023, which we entered into with our Sponsors and Prior Directors and Officers; | |
| ● | “Letter Agreement Joinder” are to the Joinder to Letter Agreement, dated as of March 29, 2024, which we entered into with our current directors and officers; | |
| ● |
“Management” or our “Management Team” are to our executive officers and directors; | |
| ● | “Merger Sub” are to a to-be-formed Cayman Islands exempted company and wholly-owned subsidiary of Pubco to be named “EEW Merger Sub”; | |
| ● | “New Sponsor” are to HCG Opportunity, LLC, a Delaware limited liability company; | |
| ● | “Ordinary Shares” are to the Class A Ordinary Shares and the Class B Ordinary Shares, together; | |
| ● | “Over-Allotment Option” are to the 45-day option we granted to the underwriters of the Initial Public Offering; | |
| ● | “Over-Allotment Units” are to units purchased by the underwriters of the Initial Public Offering upon partial exercise of the Over-Allotment Option on November 30, 2021; | |
| ● | “Polar” are to Polar Multi-Strategy Master Fund; | |
| ● | “Polar Capital Investment” are to the agreement by Polar to fund up to $1,500,000 to us, subject to funding milestones, which when reached, Polar will fund certain amounts to us if the New Sponsor requests a draw down pursuant to the Polar Subscription Agreement (as defined below); | |
| ● | “Polar Subscription Agreement” are to the Subscription Agreement, dated September 6, 2023, that we entered into with Polar and our New Sponsor; | |
| ● | “Prior Directors and Officers” are to Abidali Neemuchwala, Burhan Jaffer, Satish Gupta, Steven Freiberg, Deborah C. Hopkins and Bill Owens; |
| 4 |
| ● | “Private Placement” are to the private placement of Private Placement Warrants (as defined below) that occurred simultaneously with the closing of our Initial Public Offering; | |
| ● | “Private Placement Warrants” are to the warrants issued to our Legacy Sponsor and the underwriters of the Initial Public Offering in the Private Placement; | |
| ● | “Pubco” are to a to-be-formed Cayman Islands exempted company to be named “EEW Renewables Corp”;
| |
| ● | “Public Shares” are to the Class A Ordinary Shares sold as part of the Units (as defined below) in our Initial Public Offering (whether they were purchased in our Initial Public Offering or thereafter in the open market); | |
| ● | “Public Shareholders” are to the holders of our Public Shares, including our Sponsors, Initial Shareholders, Prior Directors and Officers and Management Team to the extent our Sponsors, Initial Shareholders, Prior Directors and Officers and and/or the members of our Management Team purchase Public Shares, provided that each Sponsors’, Initial Shareholder’s, Prior Directors’ and Officers’ and each member of our Management Team’s status as a “Public Shareholder” will only exist with respect to such Public Shares; | |
| ● | “Public Warrants” are to the redeemable warrants sold as part of the Units in our Initial Public Offering (whether they were subscribed for in our Initial Public Offering or purchased in the open market); | |
| ● | “Registration Rights Agreement” are to the Registration Rights Agreement, dated October 14, 2021, which we entered into with the Initial Shareholders and the holders party thereto, including parties of the Registration Rights Agreement Joinder (as defined below); | |
| ● | “Registration Rights Agreement Joinder” are to the joinder to the Registration Rights Agreement entered into by our New Sponsor in connection with the Sponsor Handover; | |
| ● | “Report” are to this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024; | |
| ● | “Sarbanes-Oxley Act” are to the Sarbanes-Oxley Act of 2002; | |
| ● | “SEC” are to the U.S. Securities and Exchange Commission; | |
| ● | “Second Extension Amendment Proposal” are to the proposal at the 2024 EGM to extend the Combination Period from July 19, 2024 to December 19, 2024, or April 19, 2025 if all four (4) monthly extensions pursuant to the Second Extension Amendment Proposal are used (or such earlier date as determined by the Board); | |
| ● | “Securities Act” are to the Securities Act of 1933, as amended; | |
| ● | “SPACs” are to special purpose acquisition companies; | |
| ● | “Sponsor Handover” are to the transactions contemplated by the Sponsor Purchase Agreement (as defined below), which were consummated on August 31, 2023; | |
| ● | “Sponsor Purchase Agreement” are to the Securities Purchase Agreement, effective as of August 31, 2023, into which our Sponsors entered in connection with the Sponsor Handover; | |
| ● | “Sponsors” are to our Legacy Sponsor and New Sponsor, together; | |
| ● | “Trust Account” are to the U.S.-based trust account in which an amount of $200,000,000 from the net proceeds of the sale of the Units in the Initial Public Offering and the Private Placement Warrants in the Private Placement was placed following the closing of the Initial Public Offering; | |
| ● | “Units” are to the units sold in our Initial Public Offering, which consist of one Public Share and one-third of one Public Warrant; | |
| ● | “Warrants” are to the Private Placement Warrants and the Public Warrants, together; | |
| ● | “WCL Promissory Note” are to the unsecured promissory note in the principal amount of up to $1,000,000 we issued to GCG on December 30, 2021 in connection with the Legacy Working Capital Loans; and | |
| ● | “WCL Warrants” are to the warrants to purchase Class A Ordinary Shares, which may be issued upon the conversion of any unpaid balance of the WCL Promissory Note at GCG’s option. |
| 5 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
COMPASS DIGITAL ACQUISITION CORP.
CONDENSED BALANCE SHEETS
| SEPTEMBER 30, 2024 (unaudited) | DECEMBER 31, 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Cash held in Trust Account | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES, ORDINARY SHARES SUBJECT TO POSSIBLE REDEMPTION, AND SHAREHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Polar Capital Investment payable – related party | ||||||||
Non-redemption liability | ||||||||
| WCL Promissory Note payable – Legacy Sponsor | ||||||||
| Accrued expenses | ||||||||
| Total current liabilities | ||||||||
| Derivative warrant liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 6) | ||||||||
| Class A Ordinary Shares subject to possible redemption, $ par value; and shares at $ and per share at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Shareholders’ deficit | ||||||||
| Preference shares, $ par value; shares authorized; issued or outstanding at September 30, 2024 and December 31, 2023 | ||||||||
| Class A Ordinary Shares, $
par value;
shares authorized;
and shares issued and outstanding, respectively (excluding | ||||||||
| Class B Ordinary Shares, $ par value; shares authorized; and shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ deficit | ( | ) | ( | ) | ||||
| Total Liabilities, Class A Ordinary Shares Subject to Possible Redemption, and Shareholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 6 |
COMPASS DIGITAL ACQUISITION CORP.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
For The Three September 30, 2024 | For The Three September 30, 2023 | For The Nine September 30, 2024 | For The Nine September 30, 2023 | |||||||||||||
| Operating expenses | $ | $ | $ | $ | ||||||||||||
| Non-redemption expense | ||||||||||||||||
| Administrative expenses - related party | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of derivative warrant liabilities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest earned on cash or investments held in Trust Account | ||||||||||||||||
| Gain on settlement of deferred underwriting fees attributable to Public Warrants | ||||||||||||||||
| Gain on settlement of professional legal fees | ||||||||||||||||
| Net (loss)/income | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted average shares outstanding of Class A Ordinary Shares subject to possible redemption, basic and diluted | ||||||||||||||||
| Basic and diluted net (loss)/ income per share, Class A Ordinary Shares subject to possible redemption | $ | ) | $ | $ | ) | $ | ||||||||||
| Weighted average shares outstanding of Class A non-redeemable Ordinary Shares, basic and diluted | ||||||||||||||||
| Basic and diluted net (loss)/ income per share, Class A non-redeemable Ordinary Shares | $ | ) | $ | $ | ) | $ | ||||||||||
| Weighted average shares outstanding of Class B non-redeemable Ordinary Shares, basic and diluted | ||||||||||||||||
| Basic and diluted net (loss)/ income per share, Class B non-redeemable Ordinary Shares | $ | ) | $ | $ | ) | $ | ||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 7 |
COMPASS DIGITAL ACQUISITION CORP.
CONDENSED STATEMENTS OF CHANGES SHAREHOLDERS’ DEFICIT
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024
(Unaudited)
| Ordinary Shares | Additional | Total | ||||||||||||||||||||||||||
| Class A | Class B | Paid-In | Accumulated | Shareholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance as of January 1, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Allocation of Polar Capital Investment payable proceeds to equity instrument | - | - | ||||||||||||||||||||||||||
| Accretion of Class A Ordinary Shares to redemption amount | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of March 31, 2024 (unaudited) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Capital contribution from Sponsor | - | - | ||||||||||||||||||||||||||
| Accretion of Class A Ordinary Shares to redemption amount | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance as of June 30, 2024 (unaudited) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Conversion of Class B Ordinary Shares into Class A Ordinary Shares | ( | ) | ( | ) | ||||||||||||||||||||||||
| Capital contribution from Sponsor | - | - | ||||||||||||||||||||||||||
| Allocation of Polar Capital Investment payable proceeds to equity instrument | - | - | ||||||||||||||||||||||||||
| Accretion of Class A Ordinary Shares to redemption amount | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of September 30, 2024 (unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
COMPASS DIGITAL ACQUISITION CORP.
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
(Unaudited)
| Ordinary Shares | Additional | Total | ||||||||||||||||||||||||||
| Class A | Class B | Paid-In | Accumulated | Shareholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance as of January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Accretion of Class A Ordinary Shares to redemption amount | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance as of March 31, 2023 (unaudited) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Remeasurement of Class A Ordinary Shares to redemption value | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance as of June 30, 2023 (unaudited) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Gain on settlement of deferred underwriting fees | - | - | ||||||||||||||||||||||||||
| Return of excess contribution capital to Legacy Sponsor | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Fair value of Ordinary Shares issued in satisfaction of professional legal fees | - | - | ||||||||||||||||||||||||||
| Remeasurement of Class A Ordinary Shares to redemption value | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance as of September 30, 2023 (unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 8 |
COMPASS DIGITAL ACQUISITION CORP.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 | FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||||
| Interest earned on cash or investments held in Trust Account | ( | ) | ( | ) | ||||
| Change in fair value of derivative warrant liabilities | ||||||||
| Gain on settlement of deferred underwriting fees attributable to Public Warrants | ( | ) | ||||||
| Gain on settlement of professional legal fees | ( | ) | ||||||
| Non-redemption expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Trust Account withdrawal – redemptions | ||||||||
| Net cash provided by investing activities | ||||||||
| Cash Flows from Financing Activities | ||||||||
| Redemption of Class A Ordinary Shares subject to possible redemption | ( | ) | ||||||
| Proceeds from Polar Capital Investment payable-related party | ||||||||
| Proceeds from note payable-related party | ||||||||
| Proceeds of Legacy Working Capital Loans | ||||||||
| Capital contribution from Sponsor | ||||||||
| Repayment of working capital loan from Legacy Sponsor | ( | ) | ||||||
| Return of excess contribution capital to Legacy Sponsor | ( | ) | ||||||
| Due from related party | ( | ) | ||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash - beginning of period | ||||||||
| Cash - end of period | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Allocation of Polar Capital Investment payable proceeds to equity instrument | $ | ( | ) | $ | ||||
| Deferred underwriting fees waiver | $ | $ | ( | ) | ||||
| Fair value of ordinary shares issued in satisfaction of professional legal fees | $ | $ | ( | ) | ||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 9 |
COMPASS DIGITAL ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Compass Digital Acquisition Corp. (the “Company”) is a blank check company incorporated in the Cayman Islands on March 8, 2021. The Company was formed for the purpose of effectuating a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of September 30, 2024, the Company had not yet commenced any operations. All activity for the period from March 8, 2021 (inception) through September 30, 2024 relates to the Company’s formation, the initial public offering that was consummated by the Company on October 19, 2021 (the “Initial Public Offering” or “IPO”), which is described below, and the search for a target business with which to consummate an initial Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company generates non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering and the Private Placement (as defined below). The Company has selected December 31 as its fiscal year end.
The
Company’s sponsor was originally Compass Digital SPAC LLC (the “Legacy Sponsor”), until August 31, 2023 and has been
HCG Opportunity, LLC, a Delaware limited liability company (the “New Sponsor,” together, with the Legacy Sponsor, the “Sponsors”),
since August 31, 2023 (see Note 5). The Registration Statement on Form S-1 for the Initial Public Offering, initially filed with the
Securities and Exchange Commission (the “SEC”) on September 14, 2021, as amended (File No. 333-259502), was declared effective
on October 14, 2021 (the “IPO Registration Statement”). On October 19, 2021, the Company consummated the Initial Public Offering
of units (“Units” and, with respect to the (i) Class A Ordinary Shares (as defined below) included in the Units
offered, the “Public Shares” and (ii) redeemable warrants included in the Units offered, the “Public Warrants”),
at $ per Unit, generating gross proceeds of $
Certain
institutional anchor investors that are not affiliated with the Company, the Legacy Sponsor, or the Company’s officers, directors,
or any member of the Company’s management (“Management” and such investors, the “Institutional Anchor Investors”)
purchased an aggregate of
Simultaneously
with the closing of the Initial Public Offering, the Company consummated the sale of warrants (the “Private Placement
Warrants,” and together with the Public Warrants, the “Warrants”) to the Legacy Sponsor at a price of $ per Private
Placement Warrant, generating gross proceeds of $
The Institutional Anchor Investors also purchased a portion of the equity interests of the Legacy Sponsor equivalent to Founder Shares (as defined in Note 5) from the Legacy Sponsor at the original purchase price of $ per share. The Founder Shares may be converted into Class A Ordinary Shares on a one-for-one basis at any time and from time to time prior to the closing of a Business Combination at the election of the holders and will be automatically converted into Class A Ordinary Shares at the Business Combination on a one-for-one basis, subject to adjustment as provided in its Amended and Restated Memorandum and Articles of Association (as amended and currently in effect, the “Amended and Restated Charter”).
Transaction
costs amounted to $
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COMPASS DIGITAL ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
Following
the closing of the Initial Public Offering on October 19, 2021, an amount of $
The
underwriters of the Initial Public Offering notified the Company of their intention to partially exercise the over-allotment option on
November 30, 2021 (the “Over-Allotment Option”). As such, on November 30, 2021, the Company consummated the sale of an additional
units (the “Over-Allotment Units”), at $ per Over-Allotment Unit, and the sale of an additional
Management
has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the Private Placement,
although substantially all of the net proceeds are being applied generally toward consummating a Business Combination. The Nasdaq Stock
Market LLC (“Nasdaq”) rules provide that the Business Combination must be with one or more target businesses that together
have a fair market value equal to at least
The
Company will provide its holders of the outstanding Public Shares (the “Public Shareholders”) with the opportunity to redeem
all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a shareholder meeting
called to approve the Business Combination or (ii) by means of a tender offer. In connection with a proposed Business Combination, the
Company may seek shareholder approval of a Business Combination at a meeting called for such purpose at which shareholders may seek to
redeem their shares without voting, and if they do vote, irrespective of whether they vote for or against a Business Combination. The
Company will proceed with a Business Combination only if the Company has net tangible assets of at least $
If the Company seeks shareholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Amended and Restated Charter provides that a Public Shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from seeking redemption rights with respect to more than an aggregate of % of the Public Shares without the Company’s prior written consent.
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COMPASS DIGITAL ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
The Public Shareholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account ($ per Public Share as of September 30, 2024, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations). There will be no redemption rights upon the completion of a Business Combination with respect to the Warrants. These Class A Ordinary Shares were recorded at a redemption value and classified as temporary equity upon the completion of the Initial Public Offering, in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity” (“ASC 480”).
If a shareholder vote is not required and the Company does not decide to hold a shareholder vote for business or other legal reasons, the Company will, pursuant to its Amended and Restated Charter, offer such redemption pursuant to the tender offer rules of the SEC, and file tender offer documents containing substantially the same information as would be included in a proxy statement with the SEC prior to completing a Business Combination.
The Sponsors have agreed (i) to vote their Founder Shares and any Public Shares purchased during or after the Initial Public Offering in favor of a Business Combination; (ii) not to propose an amendment to the Amended and Restated Charter with respect to the Company’s pre-Business Combination activities prior to the closing of a Business Combination unless the Company provides dissenting public shareholders with the opportunity to redeem their Public Shares in conjunction with any such amendment; (iii) not to redeem any shares (including the Founder Shares) into the right to receive cash from the Trust Account in connection with a shareholder vote to approve a Business Combination (or to sell any shares in a tender offer in connection with a Business Combination if the Company does not seek shareholder approval in connection therewith) or a vote to amend the provisions of the Amended and Restated Charter relating to shareholders’ rights of pre-Business Combination activity; and (iv) that the Founder Shares shall not participate in any liquidating distributions upon winding up if a Business Combination is not consummated. However, the Sponsors will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares purchased during or after the Initial Public Offering if the Company fails to complete its Business Combination.
If
the Company is unable to complete a Business Combination by December 19, 2024, or April 19, 2025 if all four (4) monthly extensions pursuant
to the Second Extension Amendment Proposal (as defined in Note 11) are used (the “Combination Period”), the Company will
(i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no more than ten business
days thereafter subject to lawfully available funds therefor, 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 (less taxes payable and up to $
The
Sponsors have agreed that they will be liable to the Company if and to the extent any claims by a third party (other than the 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) $ per Public Share and (ii) the actual amount per Public Share
held in the Trust Account as of the day of liquidation of the Trust Account, if less than $
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COMPASS DIGITAL ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
Sponsor Handover
On
August 30, 2023, the Legacy Sponsor and the New Sponsor entered into an agreement (the “Sponsor Purchase Agreement”), and
on August 31, 2023, the Legacy Sponsor and the New Sponsor consummated the transactions contemplated thereby (the “Sponsor Handover”).
Pursuant to the terms of the Sponsor Purchase Agreement, at the Sponsor Handover: (i) the Legacy Sponsor transferred Founder
Shares and Private Placement Warrants to the New Sponsor; (ii) New Sponsor agreed to cause the Company to pay an aggregated
amount of $
On
March 29, 2024, the Company entered into a Joinder to Letter Agreement for $
Extension of the Combination Period
At the extraordinary general meeting of shareholders called by the Company on October 19, 2023 (the “2023 EGM”), to approve proposals to amend the Amended and Restated Charter to (i) extend the date by which the Company must consummate an initial business combination from October 19, 2023 to July 19, 2024 (the “First Extension Amendment Proposal”) and (ii) to provide for the right of holders of the Company’s Class B Ordinary Shares, par value $ per share (the “Class B Ordinary Shares,” and together with the Class A Ordinary Shares, the “Ordinary Shares”), to convert such shares into Class A Ordinary Shares on a one-for-one basis at any time and from time to time prior to the closing of a Business Combination at the election of the holders (the “Founder Share Amendment Proposal” and together with the First Extension Amendment Proposal, the “Charter Amendment Proposals”).
In connection with the vote to approve the Charter Amendment Proposals, Public Shareholders holding Public Shares (after giving effect to withdrawals of redemptions) exercised their right to redeem such shares for a pro rata portion of the funds in the Trust Account (the “2023 Redemptions”). As a result, approximately $ million (approximately $ per share) was removed from the Trust Account to pay such holders.
On July 18, 2024, the Company held an extraordinary general meeting of shareholders in lieu of an annual general meeting of shareholders (the “2024 EGM”) to approve, among other things, a proposal to amend the Amended and Restated Charter to extend the date by which the Company must consummate an initial Business Combination from July 19, 2024 to December 19, 2024, and then on a monthly basis up to four (4) times until April 19, 2025 (or such earlier date as determined by the Board of Directors (the “Second Extension Amendment Proposal”).
In connection with the vote to approve the Second Extension Amendment Proposal, Public Shareholders holding Public Shares (after giving effect to withdrawals of redemptions) exercised their right to redeem such shares for a pro rata portion of the funds in the Trust Account (the “2024 Redemptions”). As a result of the 2024 Redemptions, approximately $ million (approximately $ per share) was removed from the Trust Account to pay such holders.
Founder Share Conversion
On October 19, 2023, following the approval of the Founder Share Amendment Proposal at the 2023 EGM, the Sponsors also converted an aggregate of Founder Shares on a one-for-one basis into Class A Ordinary Shares (the “2023 Founder Share Conversion”) and waived any right to receive funds from the Trust Account with respect to the Class A Ordinary Shares received upon such conversion and acknowledged that such shares will be subject to all of the restrictions applicable to the original Founder Shares under the terms of the Letter Agreement.
On July 24, 2024, in connection with the 2024 EGM and the 2024 Redemptions, the Sponsors also converted an aggregate of Founder Shares on a one-for-one basis into Class A Ordinary Shares (the “2024 Founder Share Conversion”) and waived any right to receive funds from the Trust Account with respect to the Class A Ordinary Shares received upon such conversion and acknowledged that such shares will be subject to all of the restrictions applicable to the original Founder Shares under the terms of the Letter Agreement.
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COMPASS DIGITAL ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
Business Combination Agreement
On September 5, 2024, the Company entered into a Business Combination Agreement (as amended, restated or otherwise modified from time to time, the “Business Combination Agreement”) with (i) the New Sponsor, in the capacity as the representative from and after the closing of the transactions contemplated by the Business Combination Agreement (the “Closing”) for the shareholders of the Company, (ii) upon execution of a joinder thereto, a to-be-formed Cayman Islands exempted company to be named “EEW Renewables Corp” (“Pubco”), (iii) upon execution of a joinder thereto, a to-be-formed Cayman Islands exempted company and wholly-owned subsidiary of Pubco to be named “EEW Merger Sub” (“Merger Sub”), (iv) EEW Renewables Ltd, a company formed under the laws of England and Wales (“EEW”), (v) the shareholders of EEW named therein that executed and delivered the Business Combination Agreement on the signing date (together with any transferees of ordinary shares of EEW prior to the Closing that either sign a joinder agreement to become a party thereto, or that become bound thereby pursuant to the drag-along rights to be set forth in EEW’s amended organizational documents (collectively the “Sellers”), and (vi) E.E.W. Global Holding Limited, in the capacity as the representative for the Sellers in accordance with the terms and conditions of the Business Combination Agreement.
Pursuant to the Business Combination Agreement, subject to the terms and conditions set forth therein, at the Closing, (a) Merger Sub will merge with and into the Company, with the Company continuing as the surviving entity (the “Merger”), as a result of which, (i) the Company shall become a wholly-owned subsidiary of Pubco, and (ii) each issued and outstanding security of the Company immediately prior to the Effective Time (as defined in the Business Combination Agreement) shall no longer be outstanding and shall automatically be cancelled, in exchange for the right of the holder thereof to receive a substantially equivalent security of Pubco, and (b) Pubco shall acquire all of the issued and outstanding ordinary shares of EEW from the Sellers in exchange for Pubco ordinary shares (the “Share Exchange”), all upon the terms and subject to the conditions set forth in the Business Combination Agreement and in accordance with the applicable provisions of the Companies Act (Revised) of the Cayman Islands and the laws of England and Wales (the Merger, the Share Exchange and the other transactions contemplated by the Business Combination Agreement and the ancillary documents, together, the “Transactions”), and any outstanding convertible securities of EEW will be terminated; and (c) as a result of such Transactions, the Company and EEW each will become a wholly-owned subsidiary of Pubco, and Pubco will become a publicly traded company upon the Closing.
Share Exchange and Consideration
The base consideration to be paid to the Sellers is $ (subject to increase to the extent that the Company’s unpaid transaction expenses and cash liabilities as of the Closing that the New Sponsor does not pay in cash exceeds $, and subject to decrease to the extent that the amount of EEW’s unpaid transaction expenses is more than $), and will be paid entirely in the form of newly issued ordinary shares of Pubco, par value $ per share (the “Pubco Ordinary Shares”), with each share valued at $ (such shares, the “Exchange Shares”).
In addition to the base consideration as set forth above, the Sellers will be entitled to receive up to an additional Pubco Ordinary Shares, subject to equitable adjustment for share splits, share dividends, combinations, recapitalizations and the like after the Closing, including to account for any equity securities into which such shares are exchanged or converted (the “Earnout Shares”), as additional consideration from Pubco in the event that:
(i) If during the 3-year period after the Closing (the “Earnout Period”), the volume-weighted average price for Pubco Ordinary Shares for 20 out of 30 consecutive trading days is at least: ; or
If there is a change-in-control transaction during the Earnout Period, to the extent that the express or implied price per Pubco Ordinary Share in such transaction is equal to or greater than the applicable share price targets as set forth above, the vesting of such Earnout Shares will accelerate, and the Earnout Shares will be issuable upon the closing of such transaction.
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COMPASS DIGITAL ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
Liquidity and Going Concern
As
of September 30, 2024, the Company had $
To
date, the Company’s liquidity needs have been satisfied through (i) a payment of $
Based on the foregoing, Management believes that the Company may not have sufficient working capital to meet its anticipated obligations through the earlier of the consummation of an initial Business Combination or one year from the date of the accompanying unaudited condensed financial statements. Over this period, the Company will be using these funds for paying existing accounts payable, operating costs, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.
In connection with the Company’s assessment of going concern considerations in accordance with FASB ASC Subtopic 205-40 “Presentation of Financial Statements – Going Concern,” the Company has until December 19, 2024, or April 19, 2025 if all four (4) monthly extensions pursuant to the Second Extension Amendment Proposal are used, to consummate a Business Combination. It is uncertain that the Company will be able to consummate a Business Combination by this time and the Company lacks the financial resources it needs to sustain operations for a reasonable period of time, which is considered to be one year from the date of the accompanying unaudited condensed financial statements. If a Business Combination is not consummated with the Combination Period, there will be a mandatory liquidation and subsequent dissolution of the Company. The Company cannot provide any assurance that (i) new financing will be available to it on commercially acceptable terms, if at all, or (ii) that its plans to consummate an initial Business Combination will be successful. Management has determined that the liquidity condition and mandatory liquidation should a Business Combination not occur, and potential subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern. The accompanying unaudited condensed financial statements do not include any adjustments that might result from the Company’s inability to continue as a going concern.
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COMPASS DIGITAL ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of Management, the accompanying unaudited condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected through December 31, 2024.
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the SEC on April 1, 2024.
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 independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2022, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time 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 that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Risks and Uncertainties
Various social and political circumstances in the United States and around the world (including wars and other forms of conflict, including rising trade tensions between the United States and China, and other uncertainties regarding actual and potential shifts in the United States and foreign, trade, economic and other policies with other countries, terrorist acts, security operations and catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes and global health epidemics) may contribute to increased market volatility and economic uncertainties or deterioration in the United States and worldwide. These market volatilities could adversely affect the Company’s ability to complete a Business Combination. In response to the conflict between nations, the United States and other countries have imposed sanctions or other restrictive actions against certain countries. Any of the above factors, including sanctions, export controls, tariffs, trade wars and other governmental actions, could have a material adverse effect on the Company’s ability to complete a Business Combination and the value of the Company’s securities.
Management continues to evaluate the impact of these types of risks on the industry and has concluded that while it is reasonably possible that these types of risks 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 the accompanying unaudited condensed financial statements. The accompanying unaudited condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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COMPASS DIGITAL ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
Use of Estimates
The preparation of the accompanying unaudited condensed financial statements in conformity with 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 accompanying unaudited condensed financial statements and the reported amounts of revenues and 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 accompanying unaudited condensed financial statements, which Management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The
Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.
The Company had $
Cash Held in Trust Account
At
September 30, 2024 and December 31, 2023, the Company had $
At September 30, 2024 and December 31, 2023, all of the assets held in the Trust Account were held in cash. Gains and losses resulting from the change in fair value of these investments are included in interest earned on cash or investments held in Trust Account in the accompanying unaudited condensed statements of operations.
The
Company accounts for its Ordinary Shares subject to possible redemption in accordance with the guidance in ASC 480. Ordinary Shares subject
to mandatory redemption (if any) are classified as a liability instrument and are measured at fair value. Conditionally redeemable Ordinary
Shares (including Ordinary Shares 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, Ordinary Shares are classified as shareholders’ deficit. The Ordinary Shares feature certain redemption rights that are
considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, Ordinary
Shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’ deficit
section of the accompanying condensed balance sheets. Additionally, for the three and nine months ended September 30, 2024, the Company
recorded accretion on the Class A Ordinary Shares of $
Income Taxes
The Company complies with the accounting and reporting requirements of FASB ASC Topic 740, “Income Taxes” (“ASC 740”), which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
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COMPASS DIGITAL ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of September 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 is considered to be an exempted Cayman Islands company with no connection to any other taxable jurisdiction and is presently not subject to income taxes or income tax filing requirements in the Cayman Islands or the United States. Therefore, the Company’s tax provision was zero for the period presented.
Offering Costs Associated with the Initial Public Offering
Offering costs consisted of legal, accounting, underwriting fees and other costs incurred through the accompanying condensed balance sheet dates that are directly related to the Initial Public Offering. Upon the completion of the Initial Public Offering, the offering costs were allocated using the relative fair values of the Class A Ordinary Shares and Warrants. The costs allocated to Warrants were recognized in other expenses, and those related to the Class A Ordinary Shares were charged against the carrying value of Class A Ordinary Shares. The Company complies with the requirements of the FASB ASC Topic 340-10-S99-1, “Other Assets and Deferred Costs.”
The Company complies with the accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” The Company has two classes of Ordinary Shares: Class A Ordinary Shares and Class B Ordinary Shares. (loss)/income is shared pro rata between the two classes of Ordinary Shares. Net (loss)/income per Ordinary Share is calculated by dividing the net (loss)/income by the weighted average number of Ordinary Shares outstanding for the respective period. For the three months and nine months ended September 30, 2024 and 2023, the inclusion of financial instruments in the calculation of earnings per share is contingent on a future event. As a result, diluted net (loss)/income per Ordinary Share is the same as basic net (loss)/income per Ordinary Share for the periods presented. Accretion associated with the redeemable Class A Ordinary Shares is excluded from earnings per share as the redemption value approximates fair value.
For The Three September 30, 2024 | For The Three September 30, 2023 | For The Nine September 30, 2024 | For The Nine September 30, 2023 | |||||||||||||
| Redeemable Class A Ordinary Shares | ||||||||||||||||
| Numerator: Net (loss)/income allocable to Redeemable Class A Ordinary Shares | ||||||||||||||||
| Net (loss)/ income allocable to Redeemable Class A Ordinary Shares | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Denominator: Weighted Average Share Outstanding, Redeemable Class A Ordinary Shares | ||||||||||||||||
| Basic and diluted weighted average shares outstanding, Redeemable Class A | ||||||||||||||||
| Basic and diluted net (loss)/income per share, Class A Ordinary Shares subject to possible redemption | $ | ) | $ | $ | ) | $ | ||||||||||
| Non-Redeemable Class A Ordinary Shares | ||||||||||||||||
| Numerator: Net loss allocable to non-redeemable Class A Ordinary Shares | ||||||||||||||||
| Net loss allocable to non-redeemable Class A Ordinary Shares | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Denominator: Weighted Average Non-Redeemable Class A Ordinary Shares | ||||||||||||||||
| Basic and diluted net loss per share, Class A non-redeemable Ordinary Shares | $ | ) | $ | $ | ) | $ | ||||||||||
| Non-Redeemable Class B Ordinary Shares | ||||||||||||||||
| Numerator: Net (loss)/income allocable to non-redeemable Class B Ordinary Shares | ||||||||||||||||
| Net (loss)/income allocable to non-redeemable Class B Ordinary Shares | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Denominator: Weighted Average Non-Redeemable Class B Ordinary Shares | ||||||||||||||||
| Basic and diluted net (loss)/income per share, Class B non-redeemable Ordinary Shares | $ | ) | $ | $ | ) | $ | ||||||||||
| 18 |
COMPASS DIGITAL ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
Warrant Liability
The Company accounts for its 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 and FASB ASC Topic 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 Ordinary Shares, 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 additional paid-in capital 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 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 accompanying unaudited condensed statements of operations.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC 815. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the accompanying unaudited condensed statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are accounted in the accompanying condensed balance sheets as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the condensed balance sheet date.
The Company accounts for the conversion features in the Legacy Working Capital Loans under ASC 815. The conversion features were classified as a derivative liability and the Company has determined that the fair value was immaterial at September 30, 2024 and December 31, 2023.
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution
which, at times may exceed the Federal Deposit Insurance Corporation coverage limit of $
| 19 |
COMPASS DIGITAL ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC Topic 820, “Fair Value Measurement” (“ASC 820”), approximates the carrying amounts represented in the accompanying condensed balance sheets, primarily due to their short-term nature, except for the derivative warrant liabilities (see Note 10).
The Company applies ASC 820, which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. ASC 820 defines “fair value” as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’ own assumptions based on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.
Level 1-Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities.
Level 2-Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3-Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards updates, if currently adopted, would have a material effect on the accompanying unaudited condensed financial statements.
Note 3 - INITIAL PUBLIC OFFERING
On
October 19, 2021, the Company sold Units at a purchase price of $ per Unit, generating gross proceeds of $
The Institutional Anchor Investors purchased an aggregate of Units at the offering price of $ per Unit.
The
underwriters notified the Company of their intention to partially exercise the Over-Allotment Option on November 30, 2021. As such, on
November 30, 2021, the Company consummated the sale of an additional Units, at $ per Unit, and the sale of an additional
Private Placement Warrants, at $ per Private Placement Warrant, generating total gross proceeds of $
| 20 |
COMPASS DIGITAL ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
Note 4 - PRIVATE PLACEMENT
Simultaneously
with the closing of the Initial Public Offering, the Legacy Sponsor purchased
Each Private Placement Warrant is identical to the Public Warrants, except there are no redemption rights or liquidating distributions from the Trust Account with respect to Private Placement Warrants, which will expire worthless if the Company does not consummate a Business Combination within the Combination Period.
Note 5 - RELATED PARTY TRANSACTIONS
Founder Shares
On
March 9, 2021, the Company issued an aggregate of Class B Ordinary Shares (the “Founder Shares”) to the Legacy
Sponsor for an aggregate purchase price of $
Pursuant to the Letter Agreement, the Sponsors have agreed not to transfer, assign or sell any of their Founder Shares until the earlier to occur of: (i) one year after the completion of a Business Combination or (ii) the date on which the Company completes a liquidation, merger, capital share exchange or similar transaction that results in the Company’s shareholders having the right to exchange their Ordinary Shares for cash, securities or other property. Notwithstanding the foregoing, if the last sale price of the Class A Ordinary Shares or exceeds $ per share (as adjusted for share splits, share dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 120 days after the Business Combination, the Founder Shares will be released from the lock-up.
In connection with the closing of the Initial Public Offering, the Legacy Sponsor sold equity interest of the Legacy Sponsor equivalent to Founder Shares to the Institutional Anchor Investors at the original purchase price of $ per share. The Company estimated the aggregate fair value of the Founder Shares attributable to the Institutional Anchor Investors to be $ per share. The fair value of the Founder Shares was valued based on the probability of the Company completing a Business Combination and marketability. The excess of the fair value of the Founder Shares was determined to be an offering cost in accordance with SEC Staff Accounting Bulletin Topic 5A, “Expensing of Offering” and SEC Staff Accounting Bulletin Topic 5T, “Accounting for Expenses or Liabilities Paid by Principal Stockholder(s)” (“SAB 5T”). Accordingly, the offering cost was allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared to total proceeds received. Offering costs related to the Founder Shares amounted to $, of which $ was charged to shareholders’ deficit upon the completion of the Initial Public Offering and $ was expensed to the accompanying unaudited condensed statements of operations and included in transaction costs attributable to Warrant liabilities.
| 21 |
COMPASS DIGITAL ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
In connection with the Non-Redemption Agreements (as defined in Note 6), the New Sponsor agreed to transfer to such investors an aggregate of Founder Shares held by the New Sponsor promptly following the closing of the Business Combination (but no later than two business days after the satisfaction of the requisite conditions to such transfer). The Company estimated the aggregate fair value of the Class B Ordinary Shares attributable to such investors to be $ or on a weighted average of $ per share as of October 19, 2023, which is estimated by taking into considerations the estimated probability of the consummation of a Business Combination, estimated concessions and estimated cost of carrying charges to eliminate the investor’s exposure to changes in the price of their Class B Ordinary Shares. The fair value of the Class B Ordinary Shares was determined to be an expense in accordance with SAB 5T.
In connection with the 2024 Non-Redemption Agreements (as defined in Note 6), the New Sponsor agreed to transfer a total of Founder Shares (representing the transfer for the first five months of the extension period) to the investors, promptly following the closing of the Business Combination. Additionally, the New Sponsor will transfer an additional shares for each month of extension from December 2024 through April 2025. In total, up to Founder Shares may be transferred to the investors. The Company estimated the aggregate fair value of these Founder Shares at $, or approximately $ per share on a weighted-average basis as of July 15, 2024. This estimate considers factors such as the probability of consummation of the Business Combination, estimated concessions, and the cost of carrying charges to mitigate the investors’ exposure to fluctuations in the price of the Founder Shares. The fair value of these Founder Shares was determined to be an expense in accordance with SAB 5T and classified as a liability due to the variability in the number of Founder Shares to be transferred, depending on the timing of the Business Combination.
During
the three and nine month periods ended September 30, 2024, the Sponsors made a capital contribution to the Company of $
Promissory Note - Related Party
On
March 9, 2021, the Legacy Sponsor agreed to loan the Company an aggregate of up to $
Related Party Loans
In
order to finance transaction costs in connection with a Business Combination, the Sponsors, affiliates of the Sponsors, or the Company’s
former officers and directors or current directors or officers may, but are not obligated to, loan the Company funds as may be required
(the “Legacy Working Capital Loans”). Such Legacy Working Capital Loans would be evidenced by promissory notes. The notes
would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $
As
of December 31, 2021, there was a written agreement in place for the Legacy Working Capital Loans. The Company issued an unsecured promissory
note (the “WCL Promissory Note”) in the principal amount of up to $
| 22 |
COMPASS DIGITAL ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
On
September 6, 2023, the Company entered into a subscription agreement (the “Polar Subscription Agreement”) with the New Sponsor
and Polar Multi-Strategy Master Fund (“Polar”), pursuant to which Polar agreed to fund up to $
Administrative Services Agreement
Commencing
on October 14, 2021, and until completion of the Company’s initial Business Combination or liquidation, the Company may reimburse
the Sponsors up to an aggregate amount of $
Note 6 - COMMITMENTS AND CONTINGENCIES
Registration Rights
The holders of the Founder Shares, Private Placement Warrants and any WCL Warrants (and in each case, holders of their underlying securities, as applicable) are entitled to registration rights pursuant to the Registration Rights Agreement, requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion to the Class A Ordinary Shares). The holders of the majority of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggyback” registration rights with respect to registration statements filed subsequent to the consummation of a 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. On August 31, 2023, the New Sponsor executed a joinder to the Registration Rights Agreement in connection with the Sponsor Handover.
| 23 |
COMPASS DIGITAL ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
Underwriters’ Agreement
In
connection with the Initial Public Offering, the underwriters were granted a 45-day option from the date of the prospectus to purchase
up to additional Units to cover over-allotments, if any. On November 30, 2021, the underwriters purchased an additional
Units pursuant to the partial exercise of the Over-Allotment Option. The Units upon the exercise of the Over-Allotment Option were sold
at an offering price of $ per Unit, generating aggregate additional gross proceeds of $
On
August 11, 2023 and August 14, 2023, the Company received formal confirmations from Citigroup Global Markets Inc. and J.P. Morgan Securities
LLC of their decisions to waive any entitlement they may have to their deferred underwriting fees payable held in the Trust Account with
respect to any Business Combination. Out of the release of $
Financial Advisory Agreements
The
Company entered into two financial advisory agreements in September and December 2022, respectively, with financial advisors in connection
with the Business Combinations. The Company agreed to pay success fees for signed letters of intent and any successful acquisition. Success
fees ranged from $
Non-Redemption Agreements
Between
October 9, 2023 and October 19, 2023, the Company entered into agreements with the New Sponsor and unaffiliated third-party investors
in exchange for such investors agreeing not to redeem an aggregate of Public Shares in connection with the vote to approve
the Charter Amendment Proposals at the 2023 EGM (the “2023 Non-Redemption Agreements”). In exchange for these commitments
not to redeem such Public Shares, the New Sponsor agreed to transfer to such investors an aggregate of Founder Shares held by
the New Sponsor promptly following the closing of the Business Combination (but no later than two business days after the satisfaction
of the requisite conditions to such transfer). The Company estimated the aggregate fair value of the Class B Ordinary Shares
attributable to such investors to be $
Between
July 15, 2024 and July 18, 2024, the Company entered into agreements with the New Sponsor and unaffiliated third-party investors (the
“2024 Non-Redemption Agreements”) in exchange for such investors agreeing not to redeem an aggregate of Public
Shares in connection with the vote to approve the Second Extension Amendment Proposal at the 2024 EGM. In exchange for these commitments
not to redeem such Public Shares, the New Sponsor agreed to transfer to such investors an aggregate of (i) Founder Shares for
the first five (5) months of the extension of the Combination Period from July 19, 2024 to December 19, 2024 and (ii) Founder
Shares per month, for each month of the extension of the Combination Period from December 19, 2024 until April 19, 2025, as needed. The
Founder Shares to be transferred to such investors pursuant to the 2024 Non-Redemption Agreements are held by the New Sponsor and are
to be transferred in connection with the closing of the Business Combination. In connection with its entry into the 2024 Non-Redemption
Agreements, the Company agreed that, in the event of the liquidation of the Trust Account, it will only utilize up to $
Note 7 – DERIVATIVE WARRANT LIABILITIES
The
Company issued
| 24 |
COMPASS DIGITAL ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
Public
Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Public Warrants.
The Public Warrants will become exercisable 30 days after the consummation of a Business Combination. The Public Warrants will expire
The Company will not be obligated to deliver any Class A Ordinary Shares pursuant to the exercise of a Public Warrant and will have no obligation to settle such Public Warrant exercise unless a registration statement under the Securities Act covering the issuance of the Class A Ordinary Shares issuable upon exercise of the Public Warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration. No Public Warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue any shares to holders seeking to exercise their Public Warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption from registration is available.
The Company has agreed that as soon as practicable, but in no event later than 15 business days, after the closing of a Business Combination, it will use its commercially reasonable efforts to file with the SEC a post-effective amendment to the IPO Registration Statement or a new registration statement covering the registration, under the Securities Act of the Class A Ordinary Shares issuable upon exercise of the Public Warrants. The Company will use its commercially reasonable efforts to cause such registration statement to become effective and to maintain a current prospectus relating to those Class A Ordinary Shares until the Warrants expire or are redeemed, as specified in the warrant agreement, dated October 14, 2021, that we entered into with Continental, as warrant agent (the “Warrant Agreement”). If a registration statement covering the Class A Ordinary Shares issuable upon exercise of the Warrants is not effective by the 60th business day after the closing of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption.
Redemption of Warrants when the price per Class A Ordinary Share equals or exceeds $18.00. Once the Warrants become exercisable, the Company may redeem the Warrants for redemption:
| ● | in whole and not in part; | |
| ● | at a price of $ per Public Warrant; | |
| ● | upon a minimum of 30 days’ prior written notice of redemption, which is referred to as the 30-day redemption period; and | |
| ● | if, and only if, the closing price of the Class A Ordinary Shares equals or exceeds $18.00 per share (as adjusted for share sub-divisions, share capitalizations, 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 warrant holders (the “Reference Value”). |
The Company will not redeem the Warrants as described above unless an effective registration statement under the Securities Act covering the issuance of the Class A Ordinary Shares issuable upon exercise of the Warrants is then effective and a current prospectus relating to those Class A Ordinary Shares is available throughout the 30-day redemption period. If and when the Warrants become redeemable by the Company, the Company may exercise its redemption right even if the Company is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
| 25 |
COMPASS DIGITAL ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
Redemption of Warrants when the price per Class A Ordinary Shares share equals or exceeds $10.00. Once the Warrants become exercisable, the Company may redeem the Warrants for redemption:
| ● | in whole and not in part; | |
| ● | at $ per Warrant upon a minimum of 30 days’ prior written notice of redemption, provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive the number of shares determined by reference to the table set forth under “Description of Securities - Warrants - Public Shareholders’ Warrants” in the IPO Registration Statement based on the redemption date and the “fair market value” of the Class A Ordinary Shares; | |
| ● | if, and only if, the Reference Value equals or exceeds $ per share (as adjusted for share sub-divisions, share capitalizations, reorganizations, recapitalizations and the like); and | |
| ● | if the Reference Value is less than $ per share (as adjusted for share sub-divisions, share capitalizations, reorganizations, recapitalizations and the like), the Private Placement Warrants must also concurrently be called for redemption on the same terms (except as described herein with respect to a holder’s ability to cashless exercise its warrants) as the outstanding Public Warrants, as described above. |
If and when the Public Warrants become redeemable by the Company, the Company may not exercise its redemption right if the issuance of shares of ordinary shares upon exercise of the warrants is not exempt from registration or qualification under applicable state blue sky laws or the Company is unable to effect such registration or qualification.
The exercise price and number of Class A Ordinary Shares issuable upon exercise of the Warrants may be adjusted in certain circumstances including in the event of a share dividend, or recapitalization, reorganization, merger or consolidation. Additionally, in no event will the Company be required to net cash settle the Public Warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of Warrants will not receive any of such funds with respect to their Warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such Warrants. Accordingly, the Warrants may expire worthless. If the Company calls the Public Warrants for redemption, Management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the Warrant Agreement. The exercise price and number of Ordinary Shares issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation.
In
addition, if (i) the Company issues additional Class A Ordinary Shares or equity-linked securities for capital raising purposes in connection
with the closing of its initial Business Combination at an issue price or effective issue price of less than $ per share of Class
A Ordinary Shares (with such issue price or effective issue price to be determined in good faith by the Board of Directors and, in the
case of any such issuance to the Sponsors or its affiliates, without taking into account any Founder Shares held by the Sponsors or such
affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (ii) the aggregate gross proceeds from such
issuances represent more than
The Private Placement Warrants are identical to the Public Warrants included in the Units sold in the Initial Public Offering, except that the Private Placement Warrants are not and the Ordinary Shares issuable upon the exercise of the Private Placement Warrants are not transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants are exercisable on a cashless basis and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants are redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
| 26 |
COMPASS DIGITAL ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
Note 8 - CLASS A ORDINARY SHARES SUBJECT TO POSSIBLE REDEMPTION
The Class A Ordinary Shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of future events. The Company is authorized to issue Class A Ordinary Shares with a par value of $ per share. Holders of the Class A Ordinary Shares are entitled to one vote for each share. As of September 30, 2024 and December 31, 2023, there were and Class A Ordinary Shares outstanding, respectively, of which and , respectively, were subject to possible redemption and classified outside of permanent equity in the Company’s condensed balance sheets.
The reconciliation of Class A Ordinary Shares subject to possible redemption is as follows.
| Class A Ordinary Shares subject to possible redemption at December 31, 2022 | $ | |||
| Plus: | ||||
| Accretion of Class A Ordinary Shares to redemption value | ||||
| Class A Ordinary Shares subject to possible redemption at March 31, 2023 | ||||
| Plus: | ||||
| Accretion of Class A Ordinary Shares to redemption value | ||||
| Class A Ordinary Shares subject to possible redemption at June 30, 2023 | ||||
| Plus: | ||||
| Accretion of Class A Ordinary Shares to redemption value | ||||
| Class A Ordinary Shares subject to possible redemption at September 30, 2023 | ||||
| Plus: | ||||
| Accretion of Class A Ordinary Shares to redemption value | ||||
| Less: | ||||
| Redemption of Class A Ordinary Shares | ( | ) | ||
| Class A Ordinary Shares subject to possible redemption at December 31, 2023 | ||||
| Plus: | ||||
| Accretion of Class A Ordinary Shares to redemption value | ||||
| Class A Ordinary Shares subject to possible redemption at March 31, 2024 | ||||
| Plus: | ||||
| Accretion of Class A Ordinary Shares to redemption value | ||||
| Class A Ordinary Shares subject to possible redemption at June 30, 2024 | ||||
| Plus: | ||||
| Accretion of Class A Ordinary Shares to redemption value | ||||
| Less: | ||||
| Redemption of Class A Ordinary Shares | ( | ) | ||
| Class A Ordinary Shares subject to possible redemption at September 30, 2024 | $ |
NOTE 9 – SHAREHOLDERS’ DEFICIT
Preference Shares
The
Company is authorized to issue
Class A Ordinary Shares
The
Company is authorized to issue up to Class A Ordinary Shares, $ par value per share.
Class B Ordinary Shares
The
Company is authorized to issue up to Class B Ordinary Shares, $ par value per share.
| 27 |
COMPASS DIGITAL ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
The
Class B Ordinary Shares may be converted into Class A Ordinary Shares on a one-for-one basis at any time and from time to time prior
to the closing of a Business Combination at the election of the holders and will be automatically converted into Class A Ordinary Shares
at the time of the Business Combination on a one-for-one basis, subject to adjustment for share splits, share dividends, reorganizations,
recapitalizations and the like. In the case that additional Class A Ordinary Shares, or equity linked securities, are issued or deemed
issued in excess of the amounts offered in the Initial Public Offering and related to the closing of a Business Combination, the ratio
at which Class B Ordinary Shares shall convert into Class A Ordinary Shares will be adjusted (unless the holders of a majority of the
outstanding Class B Ordinary Shares agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the
number of Class A Ordinary Shares issuable upon conversion of all Class B Ordinary Shares will equal, in the aggregate, on an as converted
basis,
The Company may issue additional ordinary or preference shares to complete its Business Combination or under an employee incentive plan after completion of its Business Combination.
Note 10 - FAIR VALUE MEASUREMENTS
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis at September 30, 2024, and December 31, 2023, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| Description | Level | September 30, 2024 | Level | December 31, 2023 | ||||||||
| Liabilities: | ||||||||||||
| Private Placement Warrants (1) | Level 2 | $ | Level 2 | $ | ||||||||
| Public Warrants (1) | Level 1 | $ | Level 2 | $ | ||||||||
| Polar Capital Investment Payable | Level 3 | $ | Level 3 | $ | ||||||||
| (1) |
Warrants
The Warrants are accounted for as liabilities pursuant to ASC 815-40 and are measured at fair value as of each reporting date. Changes in the fair value of the Warrants are recorded in the accompanying unaudited condensed statements of operations at the end of each period. Transfers to/from Levels 1, 2 and 3 are recognized at the beginning of the reporting period in which a change in valuation technique or methodology occurs. The Warrants are accounted for as liabilities in accordance with ASC 815-40, and are presented within warrant liabilities on the accompanying condensed balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liabilities in the accompanying unaudited condensed statements of operations.
| 28 |
COMPASS DIGITAL ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
Upon consummation of the Initial Public Offering on October 19, 2021, the Warrants were classified as Level 3 due to unobservable inputs used in the initial valuation. On December 9, 2021, the Public Warrants surpassed the 52-day threshold waiting period to be publicly traded in accordance with the IPO Registration Statement. Once publicly traded, the observable input qualifies the liability for treatment as a Level 1 liability. The estimated fair value of the Public Warrants was transferred from a Level 1 measurement to a Level 2 measurement due to lack of trading activity as of December 31, 2023. The Public Warrants had a significant trading volume during the quarter ended September 30, 2024 and were transferred from a Level 2 measurement to a Level 1 measurement. As the transfer of Private Placement Warrants to anyone outside of a small group of individuals who are permitted transferees would result in the Private Placement Warrants having substantially the same terms as the Public Warrants, the Company determined that the fair value of each Private Placement Warrant is equivalent to that of each Public Warrant, with an insignificant adjustment for short-term marketability restrictions. As such, the Private Placement Warrants were classified as Level 2 as it references the price of Public Warrants.
The following table presents the changes in the fair value of warrant liabilities:
| Private Placement | Public | Warrant Liabilities | ||||||||||
| Fair value as of December 31, 2023 | $ | $ | $ | |||||||||
| Change in fair value (1) | ||||||||||||
| Fair value as of March 31, 2024 | ||||||||||||
| Change in fair value (1) | ( | ) | ( | ) | ( | ) | ||||||
| Fair value as of June 30, 2024 | ||||||||||||
| Change in fair value (1) | ||||||||||||
| Fair value as of September 30, 2024 | $ | $ | $ | |||||||||
| (1) |
Note 11 - SUBSEQUENT EVENTS
The Company evaluated events that have occurred after the condensed balance sheet date up through the date the accompanying unaudited condensed financial statements were issued. Based upon the review, Management did not identify any subsequent events, other than those listed below, that would have required adjustment or disclosure in the accompanying unaudited condensed financial statements.
On October 15, 2024, the Company received a letter from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) stating that the staff of Nasdaq (“Staff”) has determined that: the Company’s securities would be delisted from Nasdaq, trading of the Company’s Class A Ordinary Shares, Warrants, and Units would be suspended at the opening of business on October 22, 2024, and a Form 25-NSE will be filed with the SEC, which will remove the Company’s securities from listing and registration on Nasdaq pursuant to the 36-Month Requirement. Since the Company failed to complete its initial business combination by October 14, 2024, the Company did not comply with the 36-Month Requirement, and its securities were suspended at the opening of business on October 22, 2024 and are now subject to delisting from Nasdaq.
| 29 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Report including, without limitation, statements under this Item regarding our financial position, business strategy and the plans and objectives of Management for future operations, are forward-looking statements. When used in this Report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or our Management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of our Management, as well as assumptions made by, and information currently available to, our Management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto included in this Report under “Item 1. Financial Statements”.
Overview
We are a blank check company incorporated in the Cayman Islands on March 8, 2021, formed for the purpose of effectuating a Business Combination. We are an early stage and emerging growth company and, as such, are subject to all of the risks associated with early stage and emerging growth companies.
We will not generate any operating revenues until after the completion of our initial Business Combination, at the earliest. We will generate non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering and the Private Placement.
We completed our Initial Public Offering of 20,000,000 Units, each Unit consisting of one Public Share and one-third of one Public Warrant, at $10.00 per Unit on October 19, 2021.
Certain Institutional Anchor Investors that are not affiliated with us, the Legacy Sponsor, our directors, officers, or any member of our Management purchased an aggregate of 20,000,000 Units. The Units were sold at an offering price of $10.00 per Unit, generating gross proceeds of $200 million.
Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 4,666,667 Private Placement Warrants at a price of $1.50 per Private Placement Warrant to our Legacy Sponsor in the Private Placement, generating gross proceeds of $7 million. Concurrently with the closing of the Private Placement, the Institutional Anchor Investors paid the Legacy Sponsor $280,000 for the transfer of an aggregate of 186,667 Private Placement Warrants, which transfer will take place upon the closing of the initial Business Combination.
The Institutional Anchor Investors also purchased equity interests of the Legacy Sponsor equivalent to 1,547,727 Founder Shares from the Legacy Sponsor at the original purchase price of $0.004 per share. Following the approval of the Founder Share Amendment Proposal at the 2023 EGM, the Founder Shares may be converted into Class A Ordinary Shares at any time at the election of a holder of Founder Shares or at the time of our initial Business Combination on a one-for-one basis, subject to adjustment as provided in the Amended and Restated Charter.
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Following the closing of our Initial Public Offering on October 19, 2021, an amount of $200,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in our Initial Public Offering and the Private Placement was placed in the Trust Account located in the United States and shall be invested only in U.S. government treasury obligations 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, which invest only in direct U.S. government treasury obligations, as determined by us. On October 19, 2023, we instructed Continental to liquidate the investments held in the Trust Account and instead to hold the funds in the Trust Account in an interest-bearing demand deposit account at Citibank, N.A., with Continental continuing to act as trustee, until the earlier of the consummation of the initial Business Combination or our liquidation. As a result, following the liquidation of investments in the Trust Account, the remaining proceeds from the Initial Public Offering and Private Placement are no longer invested in U.S. government securities or money market funds invested in U.S. government securities.
The underwriters of the Initial Public Offering notified us of their intention to partially exercise the Over-Allotment Option on November 30, 2021. As such, on November 30, 2021, we consummated the sale of an additional (i) 1,240,488 Over-Allotment Units, at $10.00 per Over-Allotment Unit, and (ii) 165,398 Private Placement Warrants, at $1.50 per Private Placement Warrant, generating total gross proceeds of $12,404,880 and $248,097, respectively. The underwriters forfeited the balance of the Over-Allotment Option. A total of $12,404,880 of the net proceeds was deposited into the Trust Account, bringing the aggregate proceeds deposited into the Trust Account in connection with our Initial Public Offering to $212,404,880. We incurred additional offering costs of $682,268 in connection with the Over-Allotment Option (of which $434,171 was for deferred underwriting fees). On August 11, 2023 and August 14, 2023, the underwriters informed us of their decision to waive their rights to the deferred underwriting commission held in the Trust Account.
Our Management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. Nasdaq rules provide that the Business Combination must be with one or more target businesses that together have a fair market value equal to at least 80% of the balance in the Trust Account (less any taxes payable on interest earned on the Trust Account) at the time of the signing a definitive agreement to enter a Business Combination. We will only complete a Business Combination if the post-Business Combination company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. There is no assurance that we will be able to successfully effect a Business Combination.
We will provide the Public Shareholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a shareholder meeting called to approve the Business Combination or (ii) by means of a tender offer. In connection with a proposed Business Combination, we may seek shareholder approval of a Business Combination at a meeting called for such purpose at which Public Shareholders may seek to redeem their Public Shares without voting, and if they do vote, irrespective of whether they vote for or against a Business Combination. We will proceed with a Business Combination only if we have net tangible assets of at least $5,000,001 either immediately prior to or upon such closing of a Business Combination and, if we seek shareholder approval, a majority of the outstanding shares voted are voted in favor of the Business Combination.
If we seek shareholder approval of a Business Combination and do not conduct redemptions pursuant to the tender offer rules, our Amended and Restated Charter provides that a Public Shareholder, together with any affiliate of such Public Shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights with respect to more than an aggregate of 15% of the Public Shares without our prior written consent.
In connection with such vote, the Public Shareholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account ($11.01 per share as of September 30, 2024, net of taxes paid and payable). There will be no redemption rights upon the completion of a Business Combination with respect to Warrants. These Class A Ordinary Shares have been recorded at a redemption value and classified as temporary equity upon the completion of the Initial Public Offering, in accordance with ASC 480.
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If a shareholder vote is not required and we do not decide to hold a shareholder vote for business or other legal reasons, we will, pursuant to our Amended and Restated Charter, offer such redemption pursuant to the tender offer rules of the SEC, and file tender offer documents containing substantially the same information as would be included in a proxy statement with the SEC prior to completing a Business Combination.
Each of our Sponsors has agreed (i) to vote its Founder Shares and any Public Shares purchased during or after the Initial Public Offering in favor of a Business Combination; (ii) not to propose an amendment to our Amended and Restated Charter with respect to our pre-Business Combination activities prior to the closing of a Business Combination unless we provide dissenting Public Shareholders with the opportunity to redeem their Public Shares in conjunction with any such amendment; (iii) not to redeem any Ordinary Shares (including the Founder Shares) into the right to receive cash from the Trust Account in connection with a shareholder vote to approve a Business Combination (or to sell any Ordinary Shares in a tender offer in connection with a Business Combination if we do not seek shareholder approval in connection therewith) or a vote to amend the provisions of our Amended and Restated Charter relating to shareholders’ rights of pre-Business Combination activity; and (iv) that the Founder Shares shall not participate in any liquidating distributions upon winding up if a Business Combination is not consummated. However, the Sponsors will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares purchased during or after the Initial Public Offering if we fail to complete our Business Combination.
If we are unable to complete a Business Combination by December 19, 2024, or April 19, 2025 if all four (4) monthly extensions pursuant to the Second Extension Amendment Proposal are used, the end of the Combination Period, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no 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 us to pay taxes (less up to $50,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish Public Shareholder’s rights as shareholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining shareholders and our Board of Directors, proceed to commence a voluntary liquidation and thereby a formal dissolution of our Company, subject in each case to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of applicable law. 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 $11.01 per Public Share (as of September 30, 2024).
As of September 30, 2024 and December 31, 2023, we held cash of $33,544 and $44,046, respectively, and current liabilities of $5,537,087 and $860,274, respectively. Further, we expect to continue to incur significant costs in the pursuit of our initial Business Combination. We cannot assure you that our plans to complete an initial Business Combination will be successful.
On January 24, 2024, the SEC adopted the 2024 SPAC Rules, which became effective on July 1, 2024. The 2024 SPAC Rules require, among other matters, (i) additional disclosures relating to SPAC business combination transactions; (ii) additional disclosures relating to dilution and to conflicts of interest involving sponsors and their affiliates in both SPAC initial public offerings and business combination transactions; (iii) additional disclosures regarding projections included in SEC filings in connection with proposed business combination transactions; and (iv) the requirement that both the SPAC and its target company be co-registrants for business combination registration statements. In addition, the SEC’s adopting release provided guidance describing circumstances in which a SPAC could become subject to regulation under the Investment Company Act, including its duration, asset composition, business purpose, and the activities of the SPAC and its management team in furtherance of such goals. The 2024 SPAC Rules may materially affect our ability to negotiate and complete our initial Business Combination and may increase the costs and time related thereto.
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Sponsor Handover
On August 30, 2023, the Legacy Sponsor and the New Sponsor entered into the Sponsor Purchase Agreement, and on August 31, 2023, the Legacy Sponsor and the New Sponsor consummated the Sponsor Handover. Pursuant to the terms of the Sponsor Purchase Agreement, at the Sponsor Handover: (i) the Legacy Sponsor transferred 3,093,036 Founder Shares and 4,645,398 Private Placement Warrants to the New Sponsor; (ii) New Sponsor agreed to cause us to pay an aggregated amount of $300,000 in cash consideration upon closing of the Business Combination at the Legacy Sponsor’s direction to entities or accounts as directed by the Legacy Sponsor (including the repayment of the $125,000 balance of the note payable to the Legacy Sponsor); (iii) New Sponsor entered into the Registration Rights Agreement Joinder; (iv) the Legacy Sponsor assigned the Administrative Services Agreement to the New Sponsor; (v) all Prior Directors and Officers resigned, and Daniel J. Hennessy, Thomas D. Hennessy, Anna Brunelle, Kirk Hovde, Matt Schindel and M. Joseph Beck were appointed as directors and Thomas D. Hennessy and Nick Geeza were appointed as our Chief Executive Officer and our Chief Financial Officer, respectively; and (vi) we entered into the Letter Agreement Amendment with the Legacy Sponsor, the New Sponsor and the Prior Directors and Officers, pursuant to which the New Sponsor became a party to the Letter Agreement and all Founder Shares and Private Placement Warrants transferred to the New Sponsor remain subject to the terms of the Letter Agreement. Immediately following the Sponsor Handover, the Legacy Sponsor retained 2,217,086 Founder Shares and 186,667 Private Placement Warrants, which Private Placement Warrants will be transferred to the Institutional Anchor Investors upon the closing of the initial Business Combination.
On March 29, 2024, we entered into the Letter Agreement Joinder for $110,000 with each of our current directors and officers, which is effective as of the Sponsor Handover on August 31, 2023.
Extension of Our Combination Period
We initially had until October 19, 2023, or 24 months from the closing of the Initial Public Offering, to consummate our initial Business Combination. On October 19, 2023, we held the 2023 EGM, at which our shareholders approved the Charter Amendment Proposals. In connection with the vote to approve the Charter Amendment Proposals, Public Shareholders holding 16,045,860 Public Shares (after giving effect to withdrawals of redemptions) exercised their right to redeem such shares for a pro rata portion of the funds in the Trust Account. As a result of the 2023 Redemptions, approximately $169.1 million (approximately $10.54 per share) was removed from the Trust Account to pay such holders.
Founder Share Conversion
On October 19, 2023, following the approval of the Founder Share Amendment Proposal at the 2023 EGM, we issued an aggregate of 600,000 Class A Ordinary Shares to the Sponsors upon the conversion of an equal number of Class B Ordinary Shares held by the Sponsors as Founder Shares. The 600,000 Class A Ordinary Shares issued in connection with the 2023 Founder Share Conversion are subject to the same restrictions as applied to the Class B Ordinary Shares before the 2023 Founder Share Conversion, including the Sponsors’ agreement not to transfer, assign or sell any of its Founder Shares until the earlier to occur of: (i) one year after the completion of a Business Combination or (ii) the date on which we complete a liquidation, merger, capital share exchange or similar transaction that results in our shareholders having the right to exchange their Ordinary Shares for cash, securities or other property. Notwithstanding the foregoing, if the last reported sale price of the Class A Ordinary Shares equals or exceeds $12.00 per share (as adjusted for share splits, share dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Business Combination, the Founder Shares will be released from the lock-up.
Recent Developments
Between July 15, 2024 and July 18, 2024, we entered into the 2024 Non-Redemption Agreements with the New Sponsor and unaffiliated third-party investors in exchange for such investors agreeing not to redeem an aggregate of 2,475,000 Public Shares in connection with the vote to approve the Second Extension Amendment Proposal at the 2024 EGM. In exchange for these commitments not to redeem the such Public Shares, the New Sponsor agreed to transfer to such investors an aggregate of (i) 412,498 Founder Shares for the first five (5) months of the extension of the Combination Period from July 19, 2024 to December 19, 2024 and (ii) 82,498 Founder Shares per month, for each month of the extension of the Combination Period from December 19, 2024 until April 19, 2025, as needed. The Founder Shares to be transferred to such investors pursuant to the 2024 Non-Redemption Agreements are held by the New Sponsor and are to be transferred in connection with the closing of the Business Combination. In connection with our entry into the 2024 Non-Redemption Agreements, we agreed that, in the event of the liquidation of the Trust Account, we will only utilize up to $50,000 of funds from the accrued interest of the Trust Account to pay any dissolution expenses if we do not effect a Business Combination prior to the end of the Combination Period.
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On July 18, 2024, we held the 2024 EGM to approve, among other things, the Second Extension Amendment Proposal. In connection with the vote to approve the Second Extension Amendment Proposal, Public Shareholders holding 2,713,143 Public Shares (after giving effect to withdrawals of redemptions) exercised their right to redeem such shares for a pro rata portion of the funds in the Trust Account. As a result of the 2024 Redemptions, approximately $29.6 million (approximately $10.92 per share) was removed from the Trust Account to pay such holders.
On July 24, 2024, in connection with the 2024 EGM and the 2024 Redemptions, the Sponsors also converted an aggregate of 2,600,000 Founder Shares on a one-for-one basis into Class A Ordinary Shares and waived any right to receive funds from the Trust Account with respect to the Class A Ordinary Shares received upon such conversion and acknowledged that such shares will be subject to all of the restrictions applicable to the original Founder Shares under the terms of the Letter Agreement.
On September 5, 2024, we entered into the Business Combination Agreement with the New Sponsor, in the capacity as the representative from and after the Closing for the shareholders of the Company, (ii) upon execution of a joinder thereto, Pubco, (iii) upon execution of a joinder thereto, Merger Sub, (iv) EEW, (v) the Sellers, and (vi) E.E.W. Global Holding Limited, in the capacity as the representative for the Sellers in accordance with the terms and conditions of the Business Combination Agreement.
Pursuant to the Business Combination Agreement, subject to the terms and conditions set forth therein, at the Closing, (a) Merger Sub will merge with and into the Company, with the Company continuing as the surviving entity, as a result of which, (i) the Company shall become a wholly-owned subsidiary of Pubco, and (ii) each issued and outstanding security of the Company immediately prior to the Effective Time (as defined in the Business Combination Agreement) shall no longer be outstanding and shall automatically be cancelled, in exchange for the right of the holder thereof to receive a substantially equivalent security of Pubco, and (b) Pubco shall acquire all of the issued and outstanding ordinary shares of EEW from the Sellers in exchange for Pubco ordinary shares, all upon the terms and subject to the conditions set forth in the Business Combination Agreement and in accordance with the applicable provisions of the Companies Act (Revised) of the Cayman Islands and the laws of England and Wales, and any outstanding convertible securities of EEW will be terminated; and (c) as a result of such Transactions, the Company and EEW each will become a wholly-owned subsidiary of Pubco, and Pubco will become a publicly traded company upon the Closing.
Results of Operations
Our entire activity from inception up to September 30, 2024 relates to our formation, Initial Public Offering, and the search for a target business with which to consummate an initial Business Combination. We will not be generating any operating revenues until the closing and completion of our initial Business Combination, at the earliest. We generate non-operating income in the form of interest income on cash and cash equivalents or investments from the proceeds derived from the Initial Public Offering and Private Placement, which are partially offset by operating expenses and related party administrative expenses. We 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.
For the three months ended September 30, 2024, we had a net loss of $4,568,210, consisting of $4,944,155 loss from operations, all of which were operating expenses, including $30,000 of administrative expenses with related party, $4,076,270 in non-redemption expense and a change in fair value of derivative warrant liabilities of $13,103, offset by interest earned on cash held in the Trust Account of $389,048.
For the nine months ended September 30, 2024, we had a net loss of $4,205,940, consisting of $5,727,957 loss from operations, all of which were operating expenses, including $90,000 of administrative expenses with related party, $4,076,270 in non-redemption expense and a change in fair value of derivative warrant liabilities of $138,182, offset by interest earned on cash held in the Trust Account of $1,660,199.
For the three months ended September 30, 2023, we had net income of $2,009,138, consisting of $594,934 loss from operations, and a loss due to a change in fair value of derivative warrant liabilities of $850,533 and offset by interest earned on marketable securities held in the Trust Account of $2,856,382, gain on settlement of professional legal fees of $351,409 and gain on settlement of deferred underwriting fees of $246,814.
For the nine months ended September 30, 2023, we had net income of $5,410,558, consisting of $1,246,968 loss from operations, and a loss due to a change in fair value of derivative warrant liabilities of $1,670,094 and offset by interest earned on marketable securities held in the Trust Account of $7,729,397, gain on settlement of professional legal fees of $351,409 and gain on settlement of deferred underwriting fees of $246,814.
Factors That May Adversely Affect Our Results of Operations
Our results of operations and our ability to complete an initial Business Combination may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond our control. Our business could be impacted by, among other things, downturns in the financial markets or in economic conditions, increases in oil prices, inflation, increases in interest rates, supply chain disruptions, declines in consumer confidence and spending, public health considerations, and geopolitical instability, such as the military conflicts in Ukraine and the Middle East. We cannot at this time predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact our business and our ability to complete an initial Business Combination.
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Liquidity, Capital Resources and Going Concern
As of September 30, 2024, we had $33,544 in our operating bank account and a working capital deficit of $5,479,910. To date, our liquidity needs have been satisfied through (i) a payment of $25,000 from the Legacy Sponsor to cover certain expenses on our behalf in exchange for the issuance of the Founder Shares, (ii) a loan of approximately $195,000 pursuant to the IPO Promissory Note issued to an affiliate of the Legacy Sponsor, (iii) the net proceeds from the consummation of the Private Placement not held in the Trust Account, (iv) the Polar Capital Investment and (v) the Legacy Working Capital Loans. We fully repaid the IPO Promissory Note on October 19, 2021. No additional borrowing is available under the IPO Promissory Note.
In order to finance transaction costs in connection with a Business Combination, the Sponsors, affiliates of the Sponsors, or the Prior Officers and Directors or current directors or officers may, but are not obligated to, provide us the Legacy Working Capital Loans. On December 30, 2021, we issued the WCL Promissory Note, an unsecured promissory note in the principal amount of up to $1,000,000 to GCG, an affiliate of our Legacy Sponsor. The WCL Promissory Note bears no interest and is repayable in full upon consummation of the initial Business Combination. GCG has the option to convert any unpaid balance of the WCL Promissory Note into WCL Warrants to purchase one share of Class A Ordinary Shares equal to the principal amount of the WCL Promissory Note so converted divided by $1.50. The terms of any such WCL Warrants will be identical to the terms of the Private Placement Warrants. As of September 30, 2024 and December 31, 2023, we have borrowed an aggregate of $125,000 under the WCL Promissory Note.
On September 6, 2023, we entered into the Polar Subscription Agreement with Polar and the New Sponsor, pursuant to which Polar agreed to make the Polar Capital Investment to us of up to $1,500,000. As of September 30, 2024, we had drawn $1,250,000 under the Polar Capital Investment that was fair valued at $227,273. For more information on the Polar Subscription Agreement and Polar Capital Investment, see “Investor Subscription Agreement” below.
On October 19, 2023, we instructed Continental to liquidate the investments held in the Trust Account and instead to hold the funds in the Trust Account in an interest-bearing demand deposit account at Citibank, N.A., with Continental continuing to act as trustee, until the earlier of the consummation of our initial Business Combination or our liquidation. As a result, following the liquidation of investments in the Trust Account, the remaining proceeds from the Initial Public Offering and Private Placement are no longer invested in U.S. government securities or money market funds invested in U.S. government securities.
Based on the foregoing, we believe that we may not have sufficient working capital to meet our needs through the consummation of a Business Combination. Over this period, we will be using these funds for paying existing accounts payable, operating costs, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.
In connection with our assessment of going concern considerations in accordance with FASB Accounting Standards Update Topic 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” we have until December 19, 2024, or April 19, 2025 if all four (4) monthly extensions pursuant to the Second Extension Amendment Proposal are used, to consummate a Business Combination. It is uncertain that we will be able to consummate a Business Combination by this time and lack the financial resources to sustain operations for a reasonable period of time, which is considered to be one year from the issuance date of the unaudited condensed financial statements included in this Report under “Item 1. Financial Statements”. If a Business Combination is not consummated by this date, there will be a mandatory liquidation and subsequent dissolution of our Company. We cannot provide any assurance that (i) new financing will be available to us on commercially acceptable terms, if at all, or (ii) that our plans to consummate an initial Business Combination will be successful. We have determined that the liquidity condition and mandatory liquidation should a Business Combination not occur, and potential subsequent dissolution raises substantial doubt about our ability to continue as a going concern. The unaudited condensed financial statements and notes thereto included in this Report under “Item 1. Financial Statements” do not include any adjustments that might result from our inability to continue as a going concern.
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Off-Balance Sheet Arrangements, Commitments and Contractual Obligations
As of September 30, 2024 and December 31, 2023, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations other than obligations disclosed herein.
Administrative Services Agreement
Commencing on October 14, 2021, and until completion of our initial Business Combination or liquidation, we may reimburse our Sponsors up to an aggregate amount of $10,000 per month for office space and secretarial and administrative support pursuant to the Administrative Services Agreement. Per the Administrative Services Agreement, it is at our option as to whether or not to pay this administrative fee. There was $90,000 and $70,000 accrued and paid, respectively, for the nine months ended September 30, 2024 and 2023, respectively. The Legacy Sponsor assigned the Administrative Services Agreement with to the New Sponsor on August 31, 2023 in connection with the Sponsor Handover.
Registration Rights
The holders of the Founder Shares, Private Placement Warrants and any WCL Warrants (and in each case holders of their underlying securities, as applicable) are entitled to registration rights pursuant to the Registration Rights Agreement, requiring us to register such securities for resale (in the case of the Founder Shares, only after conversion to our Class A Ordinary Shares). The holders of the majority 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 the consummation of a Business Combination and rights to require us to register for resale such securities pursuant to Rule 415 under the Securities Act. We will bear the expenses incurred in connection with the filing of any such registration statements. On August 31, 2023, the New Sponsor executed the Registration Rights Agreement Joinder in connection with the Sponsor Handover.
Underwriting Agreement
In connection with the Initial Public Offering, the underwriters were granted the Over-Allotment Option to purchase up to 3,000,000 Over-Allotment Units, if any. On November 30, 2021, the underwriters purchased an additional 1,240,488 Over-Allotment Units pursuant to the partial exercise of the Over-Allotment Option. The Over-Allotment Units were sold at an offering price of $10.00 per Over-Allotment Unit, generating aggregate additional gross proceeds of $12,404,880 to us.
The underwriters of the Initial Public Offering were entitled to a cash underwriting discount of 2.00% of the gross proceeds of the Initial Public Offering, or $4,000,000 (or $4,600,000 if the Over-Allotment Option was exercised in full). In addition, the underwriters were entitled to a deferred fee of three and half percent (3.50%) of the gross proceeds of the Initial Public Offering, or $7,000,000 (or $8,050,000 if the Over-Allotment Option was exercised in full). The deferred fees were to become payable to the underwriters from the amounts held in the Trust Account solely in the event that we complete a Business Combination, subject to the terms of the underwriting agreement we entered into in connection with the Initial Public Offering.
On August 11, 2023 and August 14, 2023, we received formal confirmations from Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, informing us of their decisions to waive any entitlement they may have to their deferred underwriting fees payable held in the Trust Account with respect to any Business Combination. Out of the release of $7,434,171 deferred underwriting fees, $7,187,357 was charged against accumulated deficit in the condensed balance sheet as of September 30, 2024 included in this Report under “Item 1. Financial Statements”.
Financial Advisory Agreements
We entered into two financial advisory agreements in September and December 2022, respectively, with financial advisors in connection with our Business Combinations. We agreed to pay success fees for signed letters of intent and any successful acquisition. Success fees range from $50,000 to $1,250,000. We also agreed to reimburse the financial advisors for all reasonable and documented expenses, subject to limitations and prior written consent of us. Both agreements were terminated in August 2023, and no expense was incurred or outstanding as of September 30, 2024.
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Investor Subscription Agreement
On September 6, 2023, we entered into the Polar Subscription Agreement with the New Sponsor and Polar, pursuant to which Polar agreed to fund up to $1,500,000 to us, subject to certain funding milestones. Once we have reached a defined milestone, upon on at least five (5) calendar days’ prior written notice, the New Sponsor may require a drawdown against Polar’s capital commitment in order to meet the Sponsor’s commitment to us under a drawdown request. As of September 30, 2024, we had drawn $1,250,000 on the Polar Capital Investment that was fair valued at $227,273. The Polar Capital Investment will be repaid to Polar by us upon the closing of an initial Business Combination. Polar may elect to receive such repayment (i) in cash or (ii) in Class A Ordinary Shares at a rate of one Class A Ordinary Share for each ten dollars of the Polar Capital Investment. In the event we liquidate without consummating a Business Combination, any amounts remaining in our cash accounts (excluding the Trust Account) will be paid by us to Polar within five (5) calendar days of the liquidation, and such amounts will be the sole recourse for Polar.
Letter Agreement
Our Sponsors, former and current directors and officers have entered into the Letter Agreement with us, pursuant to which, they have waived their rights to liquidating distributions from the Trust Account with respect to any Founder Shares held by them if we fail to complete our initial Business Combination within the Combination Period. However, if they acquire Public Shares in or after the Initial Public Offering, they will be entitled to liquidating distributions from the Trust Account with respect to such Public Shares if we fail to complete our initial Business Combination within the Combination Period.
Additionally, pursuant to the Letter Agreement, our Sponsors, former and current directors and officers will not propose any amendment to our Amended and Restated Charter (i) to modify the substance or timing of our obligation to allow redemption in connection with our initial Business Combination or to redeem 100% of our Public Shares if we do not complete our initial Business Combination within the Combination Period or (ii) with respect to any other material provisions relating to shareholders’ rights or pre-initial Business Combination activity, unless we provide our Public Shareholders with the opportunity to redeem their Public Shares upon approval of any such amendment 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 us to pay our taxes, divided by the number of then outstanding Public Shares.
Non-Redemption Agreements
Between October 9, 2023 and October 19, 2023, we entered into the 2023 Non-Redemption Agreements with the New Sponsor and unaffiliated third-party investors in exchange for such investors agreeing not to redeem an aggregate of 4,998,734 Public Shares in connection with the vote to approve the Charter Amendment Proposals at the 2023 EGM. In exchange for these commitments not to redeem such Public Shares, the New Sponsor agreed to transfer to such investors an aggregate of 749,810 Founder Shares held by the New Sponsor promptly following the closing of the Business Combination (but no later than two business days after the satisfaction of the requisite conditions to such transfer).
We estimated the aggregate fair value of the 749,810 Class B Ordinary Shares attributable to such investors to be $3,444,008 or on a weighted average of $4.59 per share, as of October 19, 2023, which is estimated by taking into consideration the estimated probability of the consummation of a Business Combination, estimated concessions and estimated cost of carrying charges to eliminate the investors’ exposure to changes in the price of their Class B Ordinary Shares. The fair value of the Class B Ordinary Shares was determined to be an expense in accordance with SEC Staff Accounting Bulletin Topic 5T, “Accounting for Expenses or Liabilities Paid by Principal Stockholder(s).”
Between July 15, 2024 and July 18, 2024, the Company entered into the 2024 Non-Redemption Agreements with the New Sponsor and unaffiliated third-party investors in exchange for such investors agreeing not to redeem an aggregate of 2,475,000 Public Shares in connection with the vote to approve the Second Extension Amendment Proposal at the 2024 EGM. In exchange for these commitments not to redeem such Public Shares, the New Sponsor agreed to transfer to such investors an aggregate of (i) 412,498 Founder Shares for the first five (5) months of the extension of the Combination Period from July 19, 2024 to December 19, 2024 and (ii) 82,498 Founder Shares per month, for each month of the extension of the Combination Period from December 19, 2024 until April 19, 2025, as needed. The Founder Shares to be transferred to such investors pursuant to the 2024 Non-Redemption Agreements are held by the New Sponsor and are to be transferred in connection with the closing of the Business Combination. In connection with its entry into the 2024 Non-Redemption Agreements, the Company agreed that, in the event of the liquidation of the Trust Account, it will only utilize up to $50,000 of funds from the accrued interest of the Trust Account to pay any dissolution expenses if it does not effect a Business Combination prior to the end of the Combination Period.
The Company estimated the aggregate fair value of these 742,490 Founder Shares at $4,076,270, or approximately $5.49 per share on a weighted-average basis as of July 15, 2024. This estimate considers factors such as the probability of consummation of the Business Combination, estimated concessions, and the cost of carrying charges to mitigate the investors’ exposure to fluctuations in the price of the Founder Shares. The fair value of these Founder Shares was determined to be an expense in accordance with SAB 5T and classified as a liability due to the variability in the number of Founder Shares to be transferred, depending on the timing of the Business Combination.
Critical Accounting Estimates
This section is based on our unaudited condensed financial statements and notes thereto included in this Report under “Item 1. Financial Statements”, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to fair value of financial instruments and accrued expenses. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company does not have any critical accounting estimates.
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Emerging Growth Company
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by 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 independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have 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, we, 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 our financial statements with another public company, which is neither an emerging growth company nor an emerging growth company that 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 financial statements in conformity with 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 revenues and 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, the actual results could differ significantly from those estimates.
Critical Accounting Policies
We have identified the following as our critical accounting policies:
Net Income (Loss) Per Ordinary Share
We comply with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” We have two classes of Ordinary Shares: Class A Ordinary Shares and Class B Ordinary Shares. Income is shared pro rata between the two classes of Ordinary Shares. Net income per Ordinary Share is calculated by dividing the net income by the weighted average of Ordinary Shares outstanding for the respective period. We did not consider the effect of the Warrants issued in connection with the Initial Public Offering and the Private Placement to purchase an aggregate of 1,240,488 Ordinary Shares in the calculation of diluted income per share because their exercise is contingent upon future events. Accretion associated with the redeemable Class A Ordinary Shares is excluded from earnings per share as the redemption value approximates fair value.
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Warrant Liability
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 and 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 our own Ordinary Shares, 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 additional paid-in capital 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 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 of the unaudited condensed financial statements included in this Report under “Item 1. Financial Statements.”
Class A Ordinary Shares Subject to Redemption
We account for our Ordinary Shares subject to possible redemption in accordance with the guidance in ASC 480. Ordinary Shares subject to mandatory redemption (if any) are classified as a liability instrument and are measured at fair value. Conditionally redeemable Ordinary Shares (including Ordinary Shares 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 our control) are classified as temporary equity. At all other times, Ordinary Shares are classified as shareholders’ deficit. Our Ordinary Shares feature certain redemption rights that are considered to be outside of our control and subject to the occurrence of uncertain future events. Accordingly, Ordinary Shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’ deficit section of the condensed balance sheets of the financial statements included in this Report under “Part I. Item 1. Financial Statements.”
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to Management, including our Chief Executive Officer and Chief Financial Officer (together, the “Certifying Officers”), or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our Management, including our Certifying Officers, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officers concluded that our disclosure controls and procedures were effective as of the end of the quarterly period ended September 30, 2024.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
We previously identified a material weakness in our internal control over financial reporting. The material weakness was related to the recording of a contingent fee commitment due to a third-party service provider during the period ended December 31, 2022. We remediated this material weakness through the enhancement of our processes to identify and appropriately apply applicable accounting requirements. We also utilized the services of third-party professionals with whom we consult regarding complex accounting applications. This approach helps to better evaluate and understand the nuances of the complex accounting standards that apply to our financial statements.
Changes in Internal Control over Financial Reporting
There have been no changes to our internal control over financial reporting during the quarterly period ended September 30, 2024 that 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.
To the knowledge of our Management, there is no material litigation currently pending or contemplated against us, any of our officers or directors in their capacity as such or against any of our property.
Item 1A. Risk Factors.
As a smaller reporting company under Rule 12b-2 of the Exchange Act, we are not required to include risk factors in this Report. For additional risks relating to our operations, other than as set forth below, see the section titled “Risk Factors” contained in our (i) IPO Registration Statement, (ii) 2021 Annual Report, (iii) 2022 Annual Report, (iv) 2023 Annual Report, (v) Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 as filed with the SEC on May 5, 2022, (vi) Definitive Proxy Statement on Schedule 14A, as filed with the SEC on June 24, 2024, as supplemented and (vii) Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024 as filed with the SEC on August 14, 2024. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risks could arise that may also affect our business or ability to consummate an initial Business Combination. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.
Since we did not consummate our initial Business Combination within 36 months of the effectiveness of our IPO Registration Statement, the trading of our securities on Nasdaq has been suspended and our securities will be delisted from Nasdaq, which may have a material adverse effect on the trading of our securities and our ability to consummate an initial Business Combination.
Our IPO Registration Statement was declared effective by the SEC on October 14, 2021 and our securities are currently listed on the Nasdaq Global Market. Pursuant to our Amended and Restated Charter, we have until December 19, 2024, and then on a monthly basis up to four (4) times until April 19, 2025 (or such shorter period of time as determined by our Board) to consummate our initial Business Combination. Nasdaq’s rules and guidance currently provide that SPACs (such as us) must satisfy certain listing conditions, including that a SPAC must complete one or more Business Combinations meeting certain conditions within 36 months of the effectiveness of its initial public offering registration statement (the “36-Month Requirement”). If a SPAC does not meet the 36-Month Requirement, it will receive a Staff Delisting Determination from Nasdaq which, among other things, informs the SPAC that (i) its securities will be suspended as of a date certain; (ii) it has a right to request review of the Staff Delisting Determination by a Hearings Panel; and (iii) a timely request for such review will stay the suspension and delisting action pending the issuance of a written decision of the Hearings Panel. The Hearings Panel may, where it deems appropriate, grant an exception to the continued listing standards for a period not to exceed 180 days from the date of the Staff Delisting Determination. The basis for the Staff Delisting Determination may be cured if, for example, a SPAC completes an initial Business Combination during the period of the stay.
On October 15, 2024, the Company received a letter from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) stating that the staff of Nasdaq (“Staff”) has determined that: the Company’s securities would be delisted from Nasdaq, trading of the Company’s Class A Ordinary Shares, Warrants, and Units would be suspended at the opening of business on October 22, 2024, and a Form 25-NSE will be filed with the SEC, which will remove the Company’s securities from listing and registration on Nasdaq pursuant to the 36-Month Requirement. Since the Company failed to complete its initial business combination by October 14, 2024, the Company did not comply with the 36-Month Requirement, and its securities were suspended at the opening of business on October 22, 2024 and are now subject to delisting from Nasdaq.
The Company remains a reporting entity under the Exchange Act, ensuring continued disclosure of financial and operational information.
Our securities are currently quoted on an over-the-counter market and we may face significant material adverse consequences, including:
| ● | our ability to complete an initial Business Combination; | |
| ● | a limited availability of market quotations for our securities; | |
| ● | reduced liquidity for our securities; | |
| ● | a determination that our Class A Ordinary Shares is a “penny stock,” which will require brokers trading in our Class A Ordinary Shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; | |
| ● | a limited amount of news and analyst coverage; and | |
| ● | a decreased ability to issue additional securities or obtain additional financing in the future. |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
There were no sales of unregistered securities during the quarterly period covered by the Report. However, on July 24, 2024, we issued an aggregate of 2,600,000 Class A Ordinary Shares to the New Sponsor, upon the conversion of an equal number of Class B Ordinary Shares held by the New Sponsor in the 2024 Founder Share Conversion. For more information on the 2024 Founder Share Conversion, see “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Use of Proceeds
For a description of the use of proceeds generated in our Initial Public Offering and Private Placement, see Part II, Item 2 of our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021, as filed with the SEC on November 23, 2021. There has been no material change in the planned use of proceeds from our Initial Public Offering and Private Placement as described in the IPO Registration Statement. The specific investments in our Trust Account may change from time to time.
On October 19, 2023, we instructed Continental to liquidate the investments held in the Trust Account and instead to hold the funds in the Trust Account in an interest-bearing demand deposit account at Citibank, N.A., with Continental continuing to act as trustee, until the earlier of the consummation of our initial Business Combination or our liquidation. As a result, following the liquidation of investments in the Trust Account, the remaining proceeds from the Initial Public Offering and Private Placement are no longer invested in U.S. government securities or money market funds invested in U.S. government securities.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On July 18, 2024, we held the 2024 EGM and our shareholders approved, among other things, the Second Extension Amendment Proposal, which extended the date by which we must consummate a Business Combination from December 19, 2024, or April 19, 2025 if all four (4) monthly extensions pursuant to the Second Extension Amendment Proposal are used (or such earlier date as determined by the Board). In connection with the vote to approve the Second Extension Amendment Proposal, Public Shareholders holding 2,713,143 Public Shares properly exercised their right to redeem such shares for a pro rata portion of the funds in the Trust Account. We paid cash in the aggregate amount of $29.6 million, or approximately $10.92 per share, to such redeeming Public Shareholders in the 2024 Redemptions.
There were no such repurchases of our equity securities by us or an affiliate during the quarterly period covered by this Report.
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Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Trading Arrangements
During
the quarterly period ended September 30, 2024, none of our directors or officers (as defined in Rule 16a-1(f) promulgated under the Exchange
Act)
Additional Information
None.
Item 6. Exhibits.
The following exhibits are filed as part of, or incorporated by reference into, this Report.
| * | Filed herewith. |
| ** | Furnished herewith. |
| (1) | Incorporated by reference to the Company’s Current Report on Form 8-K, as filed with the SEC on September 11, 2024. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
| Compass Digital Acquisition Corp. | ||
| Date: November 14, 2024 | By: | /s/ Thomas D. Hennessy |
| Name: | Thomas D. Hennessy | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: November 14, 2024 | By: | /s/ Nicholas Geeza |
| Name: | Nicholas Geeza | |
| Title: | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
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