ADER 26 Capital Acquisition Corporation

Item 1. Condensed Financial Statements.

The accompanying notes are an integral part of these unaudited condensed financial statements.

The accompanying notes are an integral part of these unaudited condensed financial statements.

The accompanying notes are an integral part of these unaudited condensed financial statements.

The accompanying notes are an integral part of these unaudited condensed financial statements.

26 CAPITAL ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2023

Note 1 — Organization and Business Operations

Organization and General

26 Capital Acquisition Corp. (the “Company”) is a blank check company incorporated as a Delaware corporation on August 24, 2020. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (“Business Combination”).

As of March 31, 2023, the Company had not commenced any operations. All activity for the period from August 24, 2020 (inception) through March 31, 2023 relates to the Company’s formation and the initial public offering (“IPO”), which is described below, and, since the closing of the IPO, the search for a prospective initial Business Combination. The Company will not generate any operating revenues until after the completion of a Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income on the proceeds derived from the IPO and will recognize changes in the fair value of warrant liability as other income (expense).

The Company’s sponsor is 26 Capital Holdings LLC, a Delaware limited liability company (the “Sponsor”).

Financing

The registration statement for the Company’s IPO (the “Registration Statement”) was declared effective on January 14, 2021 (the “Effective Date”). On January 20, 2021, the Company consummated the IPO of 27,500,000 units (including 3,500,000 units subject to the underwriters’ over-allotment option) (the “Units” and, with respect to the shares of common stock included in the Units being offered, the “Public Shares”), at $10.00 per Unit, generating gross proceeds of $275,000,000, which is discussed in Note 3.

Simultaneously with the closing of the IPO, the Company consummated the sale of 7,500,000 Private Placement Warrants (the “Private Placement Warrants”) at a price of $1.00 per Private Placement Warrant in a private placement to the Sponsor (“Private Placement”), generating total gross proceeds of $7,500,000.

Transaction costs amounted to $15,621,025, consisting of $5,500,000 of underwriting discount, $9,625,000 of deferred underwriting discount, and $496,025 of other offering costs.

Trust Account

Following the closing of the IPO on January 20, 2021, $275,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the IPO and the sale of the Private Placement Warrants was placed in a trust account (the “Trust Account”) and may only be invested in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”) having a maturity of 185 days or less or in money market funds meeting certain conditions of Rule 2a-7 promulgated under the Investment Company Act which are only in direct U.S. government treasury obligations. Except with respect to interest earned on the funds held in the Trust Account that may be released to the Company to pay its tax obligations, the proceeds deposited in the Trust Account will not be released from the Trust Account until the earliest of (a) the completion of the Company’s initial Business Combination, (b) the redemption of any Public Shares properly submitted in connection with a stockholder vote to amend the Company’s amended and restated certificate of incorporation, and (c) the redemption of the Company’s Public Shares if the Company is unable to complete the initial Business Combination by, as such period was extended pursuant to the Extension (as defined below), October 20, 2023 (the “Combination Period”), subject to applicable law. The proceeds deposited in the Trust Account could become subject to the claims of the Company’s creditors which would have higher priority than the claims of the Company’s public stockholders.

Initial Business Combination

The Company’s management has broad discretion with respect to the specific application of the net proceeds of the IPO and the Private Placement Warrants, although substantially all of the net proceeds are intended to be generally applied toward consummating a Business Combination (less deferred underwriting commissions).

The Company’s 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 (net of taxes payable) at the time of the signing an agreement to enter into a Business Combination. However, the Company 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 the Company will be able to successfully effect a Business Combination.

The Company will provide its public stockholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of the initial Business Combination either (i) in connection with a stockholder meeting called to approve the initial Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a proposed initial Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The stockholders will be entitled to redeem their shares for a pro rata share of the aggregate amount then on deposit in the Trust Account (initially approximately $10.00 per share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations).

If the Company is unable to complete a Business Combination within the Combination Period, the Company will redeem 100% of the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the funds held in the Trust Account and not previously released to the Company to pay its taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, subject to applicable law and as further described in registration statement, and then seek to dissolve and liquidate.

The Sponsor, officers and directors have agreed to (i) waive their redemption rights with respect to their founder shares and Public Shares in connection with the completion of the initial Business Combination, (ii) waive their redemption rights with respect to their founder shares and Public Shares in connection with a stockholder vote to approve an amendment to the Company’s amended and restated certificate of incorporation, (iii) waive their rights to liquidating distributions from the Trust Account with respect to their founder shares if the Company fails to complete the initial Business Combination within the Combination Period, and (iv) not sell any of their founder shares or Public Shares to the Company in any tender offer the Company undertakes in connection with a proposed initial Business Combination.

The Company’s Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has entered into a written letter of intent, confidentiality or similar agreement or Business Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under the Company’s indemnity of the underwriters of the IPO against certain liabilities, including liabilities under the Securities Act. However, the Company has not asked its Sponsor to reserve for such indemnification obligations, nor has the Company independently verified whether its Sponsor has sufficient funds to satisfy its indemnity obligations and believe that the Company’s Sponsor’s only assets are securities of the Company. Therefore, the Company believes it is unlikely that its Sponsor would be able to satisfy those obligations.

On October 25, 2022, the Company filed a preliminary proxy statement for a special meeting of stockholders (the “Meeting”), to, among other things, approve proposals to amend the Company’s charter and trust agreement to extend the date by which the Company would be required to consummate a business combination from January 20, 2023 to October 20, 2023 (the “Extension”). On December 20, 2022, the Extension was approved to extend the business combination period from January 20, 2023 to October 20, 2023. In connection with the Extension, 24,069,772 holders of Class A common stock elected to redeem their shares for a total of $242,864,992. After the redemption the Company has 3,430,228 Class A common stock subject to possible redemption.

In connection with the Extension, the Company has agreed to make monthly extension payments into the Trust Account in the amount of $275,000. During the three months ended March 31, 2023, the Company deposited $825,000 into the Trust Account.

Emerging Growth Company

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

Liquidity, Capital Resources and Going Concern

As of March 31, 2023, the Company had $840,653 in its operating bank account and working capital deficit of $9,884,591.

Prior to the completion of the IPO, the Company’s liquidity needs had been satisfied through a payment from the Sponsor of $25,000 (see Note 5) for the founder shares to cover certain offering costs and the loan under an unsecured promissory note from the Sponsor of $275,000 (see Note 5). The promissory note from the Sponsor was paid in full as of January 20, 2021. Subsequent to the consummation of the IPO and Private Placement, the Company’s liquidity needs have been satisfied through the proceeds from the consummation of the Private Placement not held in the Trust Account.

In addition, in order to finance transaction costs in connection with a Business Combination, the Company’s Sponsor or an affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, provide the Company Working Capital Loans, as defined below (see Note 5). On December 8, 2021, the Company received $1,500,000 from the Sponsor in a Working Capital Loan. As of March 31, 2023, $732,085 is outstanding under the loan ($1,500,000 principal balance and $767,915 adjustment for fair value of the working capital loan as of March 31, 2023).

On January 5, 2023 and March 30, 2023, the Company issued unsecured convertible promissory notes (the “Convertible Promissory Notes - Shares”) to the Sponsor, pursuant to which the Company may borrow up to an aggregate maximum amount of $2,500,000 on each Convertible Promissory Notes - Shares from the Sponsor to pay fees and expenses and for other general corporate purposes, for a total available amount of $5,000,000. Any advances under the Convertible Note shall be made at the sole discretion of the Sponsor. The Convertible Promissory Notes - Shares mature upon the earlier of (a) the satisfaction of all conditions set forth in Article 7 of the Merger and Share Acquisition Agreement (as defined below) other than those conditions set forth in Article 7 of the Merger and Share Acquisition Agreement that by their nature cannot be satisfied other than at the Closing (as defined in the Merger and Share Acquisition Agreement) (such date, the “Pre-Closing Satisfaction Date”) and (b) the date that the winding up of the Company is effective. The Convertible Promissory Notes - Shares does not bear interest. Subject to the prior receipt of stockholder approval, and provided that the Company has not deposited an amount equal to the unpaid principal of the advances outstanding under the Convertible Promissory Notes - Shares to an account designated for the benefit of the Sponsor, then upon the occurrence of the Pre-Closing Satisfaction Date, the unpaid principal amount of advances under the Convertible Promissory Notes - Shares will convert into a number of shares of Class A common stock at a conversion price per share equal to (i) portion of the principal amount of the Convertible Promissory Notes - Shares being converted divided by (ii) $2.50, rounded up to the nearest whole number; provided that the holder of the Convertible Promissory Notes - Shares shall not be entitled to receive more than 2,000,000 shares of common stock in the aggregate on account of (1) both Convertible Promissory Notes – Shares (i.e., 2,000,000 shares issuable in the aggregate in connection with both Convertible Promissory Notes – Shares) and (2) the conversion of any other note or other equity issuance made after March 30, 2023 in connection with the ongoing funding of the Company. As of March 31, 2023, $5,000,000 is outstanding under the Convertible Promissory Notes – Shares, no further borrowings are available under the Convertible Promissory Notes – Shares.

In connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that if the Company is unable to raise additional funds to alleviate liquidity needs as well as complete a Business Combination by October 20, 2023, then the Company will cease all operations except for the purpose of liquidating. The liquidity condition and date for mandatory liquidation and subsequent dissolution raise substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after October 20, 2023.

Management plans to address this uncertainty through the Business Combination as discussed under Note 7. There is no assurance that the Company’s plans to consummate the Business Combination will be successful or successful within the Combination Period.

Note 2 — Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information or footnote disclosure normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulation of the SEC for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP. In the opinion of management, the 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 months ended March 31, 2023 are not necessarily indicative of the results that may be expected through December 31, 2023 or for any future interim periods.

The accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2022, filed by the Company with the SEC on April 17, 2023.

Use of Estimates

The preparation of the unaudited condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements and expenses for the 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. A few of the more significant accounting estimates included in these unaudited condensed financial statements is the determination of the fair value of warrant liabilities, fair value of Convertible Working Capital Loan and Convertible Promissory Note - Shares.

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 did not have any cash equivalents as of March 31, 2023 and December 31, 2022.

Investments Held in Trust Account

At March 31, 2023 and December 31, 2022, the Trust Account held $35,821,284 and $34,706,732 in cash and treasury funds, respectively. All of the Company’s investments held in the Trust Account are classified as trading securities. Trading securities are presented on the condensed balance sheets at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of investments held in Trust Account are included in other income (expenses) income in the accompanying condensed statements of operations. The estimated fair values of investments held in Trust Account are determined using available market information. On December 20, 2022, the Extension was approved to extend the business combination period from January 20, 2023 to October 20, 2023. In connection with the Extension, 24,069,772 holders of Class A common stock elected to redeem their shares for a total of $242,864,992. After the redemption, the Company has 3,430,228 shares of Class A common stock subject to possible redemption.

In January 2023, we instructed Continental Stock Transfer & Trust Company, the trustee with respect to the trust account (“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 Morgan Stanley, 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.

Fair Value Measurements

Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:

In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.

The fair value of the Company’s certain assets and liabilities, which qualify as financial instruments under Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the condensed balance sheets. The fair values of cash and cash equivalents, prepaid expenses, accounts payable and accrued expenses are estimated to approximate the carrying values as of March 31, 2023 and December 31, 2022 due to the short maturities of such instruments.

The fair value of Private Placement Warrants is based on a valuation model utilizing management judgment and pricing inputs from observable and unobservable markets with less volume and transaction frequency than active markets. Significant deviations from these estimates and inputs could result in a material change in fair value. The fair value of the Private Placement Warrants is classified as Level 3. See Note 6 for additional information on assets and liabilities measured at fair value.

Convertible Working Capital Loan and Convertible Promissory Notes – Shares

The Company has have elected the fair value option to account for the Working Capital Loan and the Convertible Promissory Notes - Shares with the Sponsor as defined and more fully described in Note 5. As a result of applying the fair value option, the Company records each draw at fair value with a gain recorded to the condensed statement of operations or loss recorded to additional paid-in capital which is recognized at issuance (see Note 6), and subsequent changes in fair value are recorded as change in the fair value of unrealized gain on change in fair value of convertible notes on the condensed statements of operations. The fair value is based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s and, if applicable, an independent third-party valuation firm’s own assumption about the assumptions a market participant would use in pricing the asset or liability.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations 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 $250,000. At March 31, 2023 and December 31, 2022, the Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.

Common Stock Subject to Possible Redemption

The Company accounts for its Class A common stock subject to possible redemption in accordance with the guidance in ASC Topic 480, “Distinguishing Liabilities from Equity.” Shares of Class A common stock subject to mandatory redemption are classified as a liability instrument and are measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s Class A common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, at March 31, 2023 and December 31, 2022, shares of Class A common stock subject to possible redemption are presented at redemption value as temporary equity, outside of the stockholders’ deficit section of the Company’s condensed balance sheets.

Under ASC 480-10-S99, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying value of the security to equal the redemption value at the end of each reporting period (net of any available amounts for withdrawal to the Company for tax obligations). This method would view the end of the reporting period as if it were also the redemption date for the security. Immediately upon the closing of the IPO, the Company recognized the accretion from initial book value to redemption amount value. The change in the carrying value of redeemable Class A common stock resulted in charges against additional paid-in capital (to the extent available) and accumulated deficit.

At March 31, 2023 and December 31, 2022, the Class A common stock reflected in the condensed balance sheets is reconciled in the following table:

Net (Loss) Income Per Share of Common Stock

The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share”. Net (loss) income per common stock is computed by dividing net (loss) income by the weighted average number of shares of common stock outstanding for the period. Accretion associated with the redeemable shares of Class A common stock is excluded from earnings per share as the redemption value approximates fair value. 

The calculation of diluted (loss) income per share does not consider the effect of the warrants issued in connection with the (i) the IPO, and (ii) the private placement since the exercise of the warrants is contingent upon the occurrence of future events. The warrants are exercisable to purchase 21,250,000 shares of Class A common stock in the aggregate. As of March 31, 2023, and December 31, 2022, the Company did not have any other dilutive securities or other contracts that could, potentially, be exercised or converted into shares of common stock and then share in the earnings of the Company. As a result, diluted net (loss) income per share of common stock is the same as basic net (loss) income per common share for the periods presented.

The following table reflects the calculation of basic and diluted net (loss) income per common share (in dollars, except per share amounts): 

Offering Costs Associated with the IPO

The Company complies with the requirements of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A - “Expenses of Offering”. Offering costs consist principally of professional and registration fees incurred through the condensed balance sheet date. Offering costs are allocated to the separable financial instruments issued in the IPO based on a relative fair value basis compared to total proceeds received. Offering costs associated with warrant liabilities are expensed, and offering costs associated with the Class A common stock were charged to temporary equity and accreted to additional paid-in capital (to the extent available) and shareholders’ deficit.

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 Topic 815, “Derivatives and Hedging”. Derivative instruments are recorded at fair value on the grant date and re-valued at each reporting date, with changes in the fair value reported in the condensed statements of operations. Derivative assets and liabilities are classified on the 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 balance sheet date. The Company has determined the warrants are a derivative liability.

FASB ASC 470-20, “Debt with Conversion and Other Options,” addresses the allocation of proceeds from the issuance of convertible debt into its equity and debt components. The Company applies this guidance to allocate IPO proceeds from the Units between Class A common stock and warrants, using the residual method by allocating IPO proceeds first to fair value of the warrants and then the Class A common stock.

Income Taxes

The Company accounts for income taxes under ASC 740, “Income Taxes.” ASC 740, requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the unaudited condensed financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carryforwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. As of March 31, 2023 and December 31, 2022, the Company’s deferred tax asset had a full valuation allowance recorded against it.

ASC 740-270-25-2 requires that an annual effective tax rate be determined and such annual effective rate applied to year to date income in interim periods under ASC 740-270-30-5. The Company’s effective tax rate was (31.68)% and 0.0% for the three months ended March 31, 2023 and 2022, respectively. The effective tax rate differs from the statutory tax rate of 21% for the three months ended March 31, 2023 and 2022, due to changes in fair value in warrant liability and the valuation allowance on the deferred tax assets.

ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of March 31, 2023 and December 31, 2022. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.

The Company has identified the United States as its only “major” tax jurisdiction. The Company has been subject to income taxation by major taxing authorities since inception. These examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.

Risks and Uncertainties

Management continues to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations, cash flows and/or search for a target company, the specific impact is not readily determinable as of the date of the unaudited condensed financial statements. The unaudited condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The funds in the Company’s operating account and the Trust Account are held in banks or other financial institutions. The Company’s cash held in non-interest bearing and interest-bearing accounts would exceed any applicable Federal Deposit Insurance Corporation (“FDIC”) insurance limits. Should events, including limited liquidity, defaults, non-performance or other adverse developments occur with respect to the banks or other financial institutions that hold the Company’s funds, or that affect financial institutions or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, the Company’s liquidity may be adversely affected. For example, on March 10, 2023, the FDIC announced that Silicon Valley Bank had been closed by the California Department of Financial Protection and Innovation. Although the Company did not have any funds in Silicon Valley Bank or other institutions that have been closed, including Signature Bank and First Republic Bank, the Company cannot guarantee that the banks or other financial institutions that hold its funds will not experience similar issues.

Inflation Reduction Act of 2022

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.

Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension vote or otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax in connection with a Business Combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business Combination but issued within the same taxable year of a Business Combination) and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business Combination and in the Company’s ability to complete a Business Combination.

Litigation Regarding Merger and Share Acquisition Agreement

On February 2, 2023, the Company commenced an action against the UEC Parties (the “Delaware Action”) by filing a complaint (the “Complaint”) in the Delaware Court of Chancery (the “Delaware Court”). Specifically, the Complaint seeks a grant of specific performance ordering the UEC Parties to specifically perform their obligations under the UEI Merger and Share Acquisition Agreement, including using reasonable best efforts to consummate the UEI Business Combination in accordance with the terms of the UEI Merger and Share Acquisition Agreement.

On February 20, 2023, the UEC Parties filed an answer (the “Answer”) with affirmative defenses to the Complaint in the Delaware Action. The UEC Parties also asserted several counterclaims against the Company seeking declaratory relief for alleged breaches of the UEI Merger and Share Acquisition Agreement by the Company and recessionary damages. On March 3, 2023, the UEC Parties filed amendments to their counterclaims (the “Amended Counterclaims”) which, among other things, amends the prayer for relief set forth in the Answer to clarify that the UEC Parties seek an order terminating the UEI Merger and Share Acquisition Agreement. On March 9, 2023, the Company filed a response to the Amended Counterclaims, in which it asserted various affirmative defenses to the Amended Counterclaims. On April 24, 2023, the UEC Parties filed a motion to make additional amendments to their Amended Counterclaims, which amendments were granted by the Delaware Court on May 10, 2023, to add allegations that the Company materially breached section 6.16 of the Merger Agreement through failing to make reasonable best efforts to pursue a PIPE investment and Section 5.5 of the Merger Agreement through material omissions and misstatements in recent public filings, and that Company and the Sponsor fraudulently induced the UEC Parties into the October 15, 2021 Merger Agreement. Also, the Company Amended its Complaint on April 24, 2023 to clarify that it has an alternative claim for damages, in addition to its primary claim for specific performance of the merger agreement. The trial from July 10-14, 2023 will resolve the specific performance issue. If that trial does not fully resolve all of the Parties’ claims, a second 1-2 day trial shall occur in September 2023 to address the alternative damages remedy.

The Delaware Action is proceeding on an expedited basis in the Delaware Court. Discovery in the Delaware Action is ongoing, with a trial on the merits currently scheduled to begin on July 10, 2023.

Recent Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2020-06”), to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. As a smaller reporting company, ASU 2020-06 is effective January 1, 2024 for fiscal years beginning after December 15, 2023 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations or cash flows. The Company has not adopted this guidance as of March 31, 2023.

The Company’s management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if adopted, would have a material effect on the Company’s unaudited condensed financial statements.

Note 3 — Initial Public Offering

Pursuant to the IPO on January 20, 2021, the Company sold 27,500,000 Units (including 3,500,000 units subject to the underwriters’ over-allotment option) at a purchase price of $10.00 per Unit. Each Unit consists of one share of Class A common stock and one-half warrant to purchase one share of Class A common stock (“Public Warrant”). Each Public Warrant entitles the holder to purchase one share of Class A common stock at a price of $11.50 per share, subject to adjustment. Each Public Warrant will become exercisable on the later of 30 days after the completion of the initial Business Combination or 12 months from the closing of the IPO and will expire five years after the completion of the initial Business Combination, or earlier upon redemption or liquidation.

An aggregate of $10.00 per Unit sold in the IPO was held in the Trust Account and will be held as cash or invested in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 185 days or less or in money market funds meeting certain conditions of Rule 2a-7 promulgated under the Investment Company Act, which are only in direct U.S. government treasury obligations. As of March 31, 2023 and December 31, 2022, $35,821,284 and $34,706,732, respectively, of the IPO proceeds were held in the Trust Account.

Public Warrants  

Each whole warrant entitles the holder to purchase one share of the Company’s Class A common stock at a price of $11.50 per share, subject to adjustment as discussed herein. In addition, if (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of its initial Business Combination at an issue price or effective issue price of less than $9.20 per share of Class A common stock (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance to the Company’s Sponsor or its affiliates, without taking into account any founder shares held by the Company’s Sponsor or its affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of the initial Business Combination on the date of the consummation of the initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Company’s common stock during the 20 trading day period starting on the trading day prior to the day on which the Company consummates the initial Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, and the $18.00 per share redemption trigger price described below under “Redemption of warrants” will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price.

The warrants will become exercisable on the later of 12 months from the closing of the IPO or 30 days after the completion of its initial Business Combination and will expire five years after the completion of the Company’s initial Business Combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.

The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the shares of Class A common stock underlying the warrants is then effective and a prospectus relating thereto is current. No warrant will be exercisable, and the Company will not be obligated to issue shares of Class A common stock upon exercise of a warrant unless Class A common stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants. In no event will the Company be required to net cash settle any warrant. In the event that a registration statement is not effective for the exercised warrants, the purchaser of a unit containing such warrant will have paid the full purchase price for the unit solely for the share of Class A common stock underlying such unit.

Once the warrants become exercisable, the Company may call the Public Warrants for redemption: 

If the Company calls the warrants for redemption as described above, the management will have the option to require any holder that wishes to exercise its warrant to do so on a “cashless basis.” If the management takes advantage of this option, all holders of warrants would pay the exercise price by surrendering their warrants for that number of shares of Class A common stock equal to the quotient obtained by dividing (x) the product of the number of shares of Class A common stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” shall mean the average reported last sale price of the Class A common stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants. 

Note 4 — Private Placement

Simultaneously with the closing of the IPO, the Sponsor purchased an aggregate of 7,500,000 Private Placement Warrants at a price of $1.00 per Private Placement Warrant, for an aggregate purchase price of $7,500,000, in a private placement (the “Private Placement”).

The Private Placement Warrants are identical to the Public Warrants except that, so long as they are held by the Sponsor or its permitted transferees, (i) they will not be redeemable by the Company, (ii) they (including the Class A common stock issuable upon exercise of these warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold by the Sponsor until 30 days after the completion of the Company’s initial Business Combination, and (iii) they may be exercised by the holders on a cashless basis.

The Private Placement Warrants will be non-redeemable and exercisable on a cashless basis so long as they are held by the Sponsor or its permitted transferees. If the Private Placement Warrants are held by holders other than the Sponsor or its permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by the holders on the same basis as the Public Warrants.

The Company’s Sponsor has agreed to (i) waive its redemption rights with respect to its founder shares and Public Shares in connection with the completion of the Company’s initial Business Combination, (ii) waive its redemption rights with respect to its founder shares and Public Shares in connection with a stockholder vote to approve an amendment to the Company’s amended and restated certificate of incorporation (A) to modify the substance or timing of the Company’s obligation to offer redemption rights in connection with any proposed initial Business Combination or to redeem 100% of the Company’s Public Shares if the Company does not complete its initial Business Combination within the Combination Period or (B) with respect to any other provision relating to stockholders’ rights or pre-initial Business Combination activity, (iii) waive its rights to liquidating distributions from the Trust Account with respect to its founder shares if the Company fails to complete its initial Business Combination within the Combination Period, and (iv) not sell any of its founder shares or Public Shares to the Company in any tender offer the Company undertakes in connection with a proposed initial Business Combination. In addition, the Company’s Sponsor has agreed to vote any founder shares held by them and any Public Shares purchased during or after the IPO (including in open market and privately negotiated transactions) in favor of the Company’s initial Business Combination.

Note 5 — Related Party Transactions

Founder Shares

In August 2020, the Sponsor paid $25,000 to cover certain offering costs of the Company in consideration for 5,750,000 shares of Class B common stock. In January 2021, the Company effected a stock dividend of 0.2 shares for each founder share outstanding, resulting in an aggregate of 6,900,000 founder shares outstanding and held by the Sponsor (up to 900,000 of which are subject to forfeiture by the Sponsor if the underwriters’ over-allotment option is not exercised in full). On January 20, 2021, the Sponsor forfeited 25,000 founder shares to the extent that the over-allotment option was not exercised in full by the underwriters, resulting in an aggregate of 6,875,000 founder shares outstanding.

The Sponsor has agreed not to transfer, assign or sell its founder shares until the earlier to occur of (A) one year after the completion of the Company’s initial Business Combination or (B) subsequent to the Company’s initial Business Combination, (x) if the last sale price of the Company’s Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Company’s initial Business Combination, or (y) the date on which the Company completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of its stockholders having the right to exchange their shares of common stock for cash, securities or other property.

Promissory Note — Related Party

On August 27, 2020, the Company issued an unsecured promissory note to the Sponsor, pursuant to which the Company may borrow up to an aggregate principal amount of $300,000 to be used for a portion of the expenses of the IPO. This loan is non-interest bearing, unsecured and due at the earlier of March 31, 2021 or the closing of the IPO. The loan would be repaid upon the closing of the IPO out of offering proceeds not held in the Trust Account. On January 20, 2021, the Company repaid $275,000 to the Sponsor. The facility is no longer available to the Company. As of March 31, 2023 and December 31, 2022, there were no outstanding amounts due under the promissory note.

Convertible Working Capital Loan

In order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination does not close, the Company may use a portion of the working capital held outside the Trust Account to repay the Working Capital Loans but no proceeds from the Trust Account would be used to repay the Working Capital Loans. Up to $1,500,000 of such Working Capital Loans may be convertible into warrants at a price of $1.00 per warrant at the option of the lender. The warrants would be identical to the Private Placement Warrants, including as to exercise price, exercisability and exercise period.

On December 8, 2021, the Company received $1,500,000 from the Sponsor in a Working Capital Loan. This Working Capital Loan was valued using the fair value method. The fair value of the note as of December 8, 2021 and December 31, 2021 was $1,500,000. The fair value of the note as of March 31, 2023 and December 31, 2022 was $732,085 and $1,409,181, respectively (see Note 6).

Convertible Promissory Notes – Shares

On January 5, 2023 and March 30, 2023, the Company issued the Convertible Promissory Notes - Shares to the Sponsor, pursuant to which the Company may borrow up to an aggregate maximum amount of $2,500,000 on each Convertible Promissory Notes - Shares from the Sponsor to pay fees and expenses and for other general corporate purposes, for a total available amount of $5,000,000. Any advances under the Convertible Note shall be made at the sole discretion of the Sponsor. The Convertible Promissory Notes - Shares mature upon the earlier of (a) the satisfaction of all conditions set forth in Article 7 of the Merger and Share Acquisition Agreement other than those conditions set forth in Article 7 of the Merger and Share Acquisition Agreement that by their nature cannot be satisfied other than at the Closing (as defined in the Merger and Share Acquisition Agreement) and (b) the date that the winding up of the Company is effective. The Convertible Promissory Notes - Shares does not bear interest. Subject to the prior receipt of stockholder approval, and provided that the Company has not deposited an amount equal to the unpaid principal of the advances outstanding under the Convertible Promissory Notes - Shares to an account designated for the benefit of the Sponsor, then upon the occurrence of the Pre-Closing Satisfaction Date, the unpaid principal amount of advances under the Convertible Promissory Notes - Shares will convert into a number of shares of Class A common stock at a conversion price per share equal to (i) portion of the principal amount of the Convertible Promissory Notes - Shares being converted divided by (ii) $2.50, rounded up to the nearest whole number; provided that the holder of the Convertible Promissory Notes - Shares shall not be entitled to receive more than 2,000,000 shares of common stock in the aggregate on account of (1) both Convertible Promissory Notes – Shares (i.e., 2,000,000 shares issuable in the aggregate in connection with both Convertible Promissory Notes – Shares) and (2) the conversion of any other note or other equity issuance made after March 30, 2023 in connection with the ongoing funding of the Company. The Convertible Promissory Notes – Shares were accounted for using the fair value method, with the proceeds received in excess of fair value of each borrowing being recorded against additional paid-in capital and the change in fair value recorded at each measurement period recorded on the condensed statements of operations. The fair value of the Convertible Promissory Notes – Shares at March 31, 2023 was $2,440,294 and is reflected as such on the condensed balance sheet (See Note 6).

Administrative Service Fee

The Company has agreed to pay its Sponsor, commencing on January 14, 2021, a total of $10,000 per month for office space, utilities and secretarial and administrative support. Upon completion of the Company’s Business Combination or its liquidation, the Company will cease paying these monthly fees. For the three months ended March 31, 2023 and 2022, the Company has incurred $30,000 for these services, of which $30,000 and $10,000, respectively, are recorded on the condensed balance sheets in accounts payable and accrued expenses.

Note 6 — Recurring Fair Value Measurements

The following tables present information about the Company’s assets and liabilities that were measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022, and indicate the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

Initial Measurement — Public Warrants

The estimated fair value of the Public Warrants on January 20, 2021 was determined using Level 3 inputs. Inherent in a Monte-Carlo simulation model were assumptions related to expected stock-price volatility (pre-merger and post-merger), expected term, dividend yield and risk-free interest rate. The Company estimated the volatility of its common stock based on management’s understanding of the volatility associated with instruments of other similar entities. Significant increases (decreases) in the expected volatility in isolation would result in a significantly higher (lower) fair value measurement. The risk-free interest rate was based on the U.S. Treasury Constant Maturity similar to the expected remaining life of the warrants. The expected life of the warrants was simulated based on management assumptions regarding the timing and likelihood of completing a business combination. The dividend rate was based on the historical rate, which the Company anticipated to remain at zero. Once the warrants become exercisable, the Company may redeem the outstanding warrants when the price per common stock equals or exceeds $18.00. The assumptions used in calculating the estimated fair values represented the Company’s best estimate. However, inherent uncertainties were involved. If factors or assumptions change, the estimated fair values could be materially different.

Subsequent Measurement — Public Warrants

The Public Warrants are measured at fair value on a recurring basis. The subsequent measurement of the Public Warrants until December 31, 2022 were classified as Level 1 due to the use of an observable market quote in an active market. At March 31, 2023, the Public Warrants were transferred to a Level 2 from a Level 1 due to insufficient trade volume.

As of March 31, 2023 and December 31, 2022, the aggregate value of Public Warrants was $379,500 and $3,850,000, respectively.

Initial Measurement – Private Placement Warrants

The estimated fair value of the Private Placement Warrants on January 20, 2021 is determined using Level 3 inputs. Inherent in a Monte-Carlo simulation model are assumptions related to expected stock-price volatility (pre-merger and post-merger), expected term, dividend yield and risk-free interest rate. The Company estimates the volatility of its common stock based on management’s understanding of the volatility associated with instruments of other similar entities. Significant increases (decreases) in the expected volatility in isolation would result in a significantly higher (lower) fair value measurement. The risk-free interest rate is based on the U.S. Treasury Constant Maturity similar to the expected remaining life of the warrants. The expected life of the warrants is simulated based on management assumptions regarding the timing and likelihood of completing a business combination. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero. The assumptions used in calculating the estimated fair values represent the Company’s best estimate. However, inherent uncertainties are involved. If factors or assumptions change, the estimated fair values could be materially different. 

The following tables set forth a summary of the changes in the fair value of the warrant liability for the three months ended March 31, 2023 and 2022:

Convertible Working Capital Loan

The fair value of the option to convert the Convertible Working Capital Loan into private warrants was valued utilizing a Monte-Carlo model that values the embedded conversion feature. Inherent in a Monte-Carlo simulation model are assumptions related to expected stock-price volatility (pre-merger and post-merger), expected term, dividend yield and risk-free interest rate. The Company estimates the volatility of its common stock based on management’s understanding of the volatility associated with instruments of other similar entities. Significant increases (decreases) in the expected volatility in isolation would result in a significantly higher (lower) fair value measurement. The risk-free interest rate is based on the U.S. Treasury Constant Maturity similar to the term to conversion. The term to conversion is simulated based on management assumptions regarding the timing and likelihood of completing a business combination. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero. The assumptions used in calculating the estimated fair values represent the Company’s best estimate. However, inherent uncertainties are involved. If factors or assumptions change, the estimated fair values could be materially different.

The estimated fair value of the Convertible Working Capital Loan was based on the following significant inputs:

The following tables present the changes in the fair value of the Level 3 Convertible Working Capital Loan during the three months ended March 31, 2023 and 2022:

There were no transfers in or out of Level 3 from other levels in the fair value hierarchy during the three months ended March 31, 2023 and 2022 for the Convertible Working Capital Loan.

Convertible Promissory Notes - Shares

The fair value of the Convertible Promissory Notes - Shares into Class A shares was valued utilizing a Black Scholes model and Probability Weighted Expected Return Method (“PWERM”) to fair value the debt. The Black Scholes model is a pricing model used to determine the fair value or theoretical fair value for a call or put option based on variables such as underlying stock price, risk free rate and strike price. The Company estimates the volatility of its common stock based on management’s understanding of the volatility associated with instruments of other similar entities. Significant increases (decreases) in the expected volatility in isolation would result in a significantly higher (lower) fair value measurement. The risk-free interest rate is based on the U.S. Treasury Constant Maturity similar to the term to conversion. The term to conversion is simulated based on management assumptions regarding the timing and likelihood of completing a business combination. The assumptions used in calculating the estimated fair value represent the Company’s best estimate. However, inherent uncertainties are involved. If factors or assumptions change, the estimated fair values could be materially different.

The PWERM methodology is a multi-step process in which value is estimated based on the probability-weighted present value of various future outcomes. Management determined the range of potential future outcomes for the securities. Future security value under each scenario is estimated. Each outcome and its related security values are weighted based on the probability of the outcome occurring. The value of the security is discounted back to the valuation date using an appropriate discount rate.

The estimated fair value of the Convertible Promissory Notes–- Shares was based on the following significant inputs:

The following table presents the changes in the fair value of the Level 3 Convertible Promissory Notes - Shares during the three months ended March 31, 2023:

Note 7 — Commitments and Contingencies

Registration Rights

The holders of the founder shares, Private Placement Warrants, and warrants that may be issued upon conversion of Working Capital Loans will have registration rights to require the Company to register a sale of any of its securities held by them pursuant to a registration rights agreement signed on January 14, 2021. These holders will be entitled to make up to three demands, excluding short form registration demands, that the Company registers such securities for sale under the Securities Act. In addition, these holders will have “piggyback” registration rights to include their securities in other registration statements filed by the Company.

Underwriting Agreement

The underwriters had a 45-day option beginning January 14, 2021 to purchase up to an additional 3,600,000 Units to cover over-allotments, if any.

On January 20, 2021, the underwriters partially exercised the over-allotment option to purchase 3,500,000 Units, and paid a fixed underwriting discount in aggregate of $5,500,000. Additionally, the underwriters were entitled to a deferred underwriting discount of 3.5% of the gross proceeds of the IPO held in the Trust Account, or $9,625,000, upon the completion of the Company’s initial Business Combination subject to the terms of the underwriting agreement.

Merger and Share Acquisition Agreement

On October 15, 2021, the Company entered into an Agreement and Plan of Merger and Share Acquisition (the “Merger and Share Acquisition Agreement”) with Tiger Resort Asia Ltd., a Hong Kong private limited company (“TRA”), Tiger Resort, Leisure and Entertainment Inc., a Philippine corporation (“TRLEI”), Okada Manila International Inc., a Philippine corporation which subsequently changed its name to UE Resorts International, Inc. (“UERI”), and Project Tiger Merger Sub, Inc., a Delaware corporation (“Merger Sub” and with TRA, TRLEI, and UERI, the “UEC Parties”). On February 15, 2022, the Company and the UEC parties entered into Amendment No. 1 to the Merger and Share Acquisition Agreement. On March 30, 2022, the Company and the UEC parties entered into Amendment No. 2 to the Merger and Share Acquisition Agreement. On June 28, 2022, and September 29, 2022, the Company and TRA entered into letter agreements that waived certain termination rights under the Merger and Share Acquisition Agreement.

The Merger and Share Acquisition Agreement provides that, among other things and upon the terms and subject to the conditions thereof, the following transactions will occur (together with the other agreements and transactions contemplated by the Merger and Share Acquisition Agreement, the “Transactions”), following the Reorganization and the Subscription (each as defined below):

Prior to the Closing, TRA will effect a reorganization of parts of its business (the “Reorganization”) in accordance with the Merger and Share Acquisition Agreement. Pursuant to the Reorganization, among other matters, UERI will become a direct subsidiary of TRA, TRLEI will become a wholly owned direct subsidiary of UERI, and intercompany receivables (other than ordinary course trade receivables) due from TRLEI to TRA and certain of its affiliates will be contributed to UERI. The parties currently anticipate that the transaction will close prior to the resolution of all tax issues related to the Reorganization, which may result in UERI possessing only contractual rights over the shares of TRLEI for a period of time.

Prior to Closing, but after the redemption of certain shares of the Company, the Company will, as agent acting on behalf of its stockholders, subscribe for UERI common shares of UERI, at a price equal to their par value of 0.05 Philippine pesos, with the cash payment for such American depositary shares being deemed made by and on behalf of the applicable stockholders of the Company (the “Subscription”). In order to fund the cash payment on behalf the applicable stockholders, the Company will, prior to Closing, declare and pay a cash dividend on the shares of common stock of the Company in the amount of 0.05 Philippine pesos per share of common stock of the Company, which amount will either be paid by the Company to UERI in accordance with the Subscription Agreement or paid to holders of the Company’s shares of common stock who elect not to participate in the Subscription (but have not elected to have their shares redeemed by the Company).

The Transactions are subject to the satisfaction or waiver of certain customary closing conditions, including, among others, (a) the absence of any order by a governmental authority of competent jurisdiction preventing the consummation of the Transactions, (b) the approval of the Merger, the Subscription and related matters by the stockholders of the Company, (c) the effectiveness of the registration statement filed by UERI with the SEC in connection with the Transactions, (d) the receipt of approval for listing of UERI’s common shares on NASDAQ, (e) the completion of the Reorganization, (f) the amendment of UERI’s organizational documents in accordance with the Merger and Share Acquisition Agreement, and (g) the dividend to fund the Subscription shall have been declared, or alternative financing for the Subscription arranged.

The Merger and Share Acquisition Agreement may be terminated at any time prior to the Closing (a) by mutual written consent of the parties, (b) by either the Company or the UEC Parties in certain other circumstances set forth in the Merger and Share Acquisition Agreement, including, a breach by the other party or parties of their representations and warranties or covenants that would prevent the satisfaction of certain closing conditions, and (c) by either the Company or the UEC Parties (i) if any governmental authority shall have issued an order preventing consummation of the Transactions, (ii) in the event the Closing does not occur by July 1, 2022, and (iii) stockholders of the Company do not approve the Transactions as outlined in the Merger and Share Acquisition Agreement. On June 28, 2022, the Company and TRA entered into a letter agreement that waived certain termination rights under the Merger and Share Acquisition Agreement until October 1, 2022. On September 29, 2022, the Company and TRA entered into a letter agreement that waived certain termination rights under the Merger and Share Acquisition Agreement until October 1, 2023.

Refer to Form 8-K filings for more information on the proposed Business Combination.

Legal Proceedings

On February 2, 2023, we commenced an action against the UEC Parties (the “Delaware Action”) by filing a complaint (the “Complaint”) in the Delaware Court of Chancery (the “Delaware Court”). Specifically, the Complaint seeks a grant of specific performance ordering the UEC Parties to specifically perform their obligations under the UEI Merger and Share Acquisition Agreement, including using reasonable best efforts to consummate the UEI Business Combination in accordance with the terms of the UEI Merger and Share Acquisition Agreement.

On February 20, 2023, the UEC Parties filed an answer (the “Answer”) with affirmative defenses to the Complaint in the Delaware Action. The UEC Parties also asserted several counterclaims against the Company seeking declaratory relief for alleged breaches of the UEI Merger and Share Acquisition Agreement by the Company and recessionary damages. On March 3, 2023, the UEC Parties filed amendments to their counterclaims (the “Amended Counterclaims”) which, among other things, amends the prayer for relief set forth in the Answer to clarify that the UEC Parties seek an order terminating the UEI Merger and Share Acquisition Agreement. On March 9, 2023, we filed a response to the Amended Counterclaims, in which we asserted various affirmative defenses to the Amended Counterclaims. On April 24, 2023, the UEC Parties filed a motion to make additional amendments to their Amended Counterclaims, which amendments were granted by the Delaware Court on May 10, 2023, to add allegations that the Company materially breached section 6.16 of the Merger Agreement through failing to make reasonable best efforts to pursue a PIPE investment and Section 5.5 of the Merger Agreement through material omissions and misstatements in recent public filings, and that Company and the Sponsor fraudulently induced the UEC Parties into the October 15, 2021 Merger Agreement. Also, the Company Amended its Complaint on April 24, 2023 to clarify that it has an alternative claim for damages, in addition to its primary claim for specific performance of the merger agreement. The trial from July 10-14, 2023 will resolve the specific performance issue. If that trial does not fully resolve all of the Parties’ claims, a second 1-2 day trial shall occur in September 2023 to address the alternative damages remedy.

The Delaware Action is proceeding on an expedited basis in the Delaware Court. Discovery in the Delaware Action is ongoing, with a trial on the merits currently scheduled to begin on July 10, 2023.

We believe that our causes of action are meritorious, that the UEC Parties are obligated to perform under the UEI Merger and Share Acquisition Agreement until a decision in the Delaware Action is rendered, and that the Delaware Court will ultimately issue an order affirming the same. Further, we believe that we have meritorious defenses to the Amended Counterclaims and we plan to vigorously contest them. Litigation, however, can be uncertain and there can be no assurance that either a judgment for one or more of the UEC Parties or any other outcome in the Delaware Action would not have a material adverse effect on the Company.

Note 8 — Stockholders’ Deficit

Preferred Stock — The Company is authorized to issue a total of 1,000,000 preferred shares at par value of $0.0001 each. At March 31, 2023 and December 31, 2022, there were no shares of preferred stock issued or outstanding.

Class A Common Stock — The Company is authorized to issue a total of 100,000,000 Class A common stock at par value of $0.0001 each. As of March 31, 2023 and December 31, 2022, there were no shares of Class A common stock issued and outstanding, excluding 3,430,228 shares of Class A common stock subject to possible redemption, respectively. On December 20, 2022, the Extension was approved to extend the business combination period from January 20, 2023 to October 20, 2023. In connection with the Extension, 24,069,772 holders of Class A common stock elected to redeem their shares. After the redemption, the Company has 3,430,228 shares of Class A common stock subject to possible redemption.

Class B Common Stock — The Company is authorized to issue a total of 10,000,000 Class B common stock at par value of $0.0001 each. In August 2020, the Sponsor paid $25,000 to cover certain offering costs of the Company in consideration for 5,750,000 shares of Class B common stock. In January 2021, the Company effected a stock dividend of 0.2 shares for each founder share outstanding, resulting in an aggregate of 6,900,000 founder shares outstanding and held by the Sponsor (up to 900,000 of which were subject to forfeiture by the Sponsor if the underwriters’ over-allotment option is not exercised in full). On January 20, 2021, the Sponsor forfeited 25,000 founder shares to the extent that the over-allotment option was not exercised in full by the underwriters. As of March 31, 2023 and December 31, 2022, there were 6,875,000 Class B common stock issued and outstanding.

The Company’s initial stockholders have agreed not to transfer, assign or sell their founder shares until the earlier to occur of (A) one year after the completion of the Company’s initial Business Combination or (B) subsequent to the Company’s initial Business Combination, (x) if the last reported sale price of the Company’s Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Company’s initial Business Combination, or (y) the date on which the Company completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of its stockholders having the right to exchange their shares of common stock for cash, securities or other property.

The shares of Class B common stock will automatically convert into shares of the Company’s Class A common stock at the time of its initial Business Combination on a one-for-one basis, subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like, and subject to further adjustment as provided herein. In the case that additional shares of Class A common stock, or equity-linked securities, are issued or deemed issued in excess of the amounts offered and related to the closing of the initial Business Combination, the ratio at which shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate, on an as-converted basis, 20% of the sum of the total number of all shares of common stock outstanding upon the completion of the IPO plus all shares of Class A common stock and equity-linked securities issued or deemed issued in connection with the initial Business Combination (excluding any shares or equity-linked securities issued, or to be issued, to any seller in the initial Business Combination and any private placement-equivalent warrants issued to the Sponsor or its affiliates upon conversion of loans made to the Company).

Holders of the Class A common stock and holders of the Class B common stock will vote together as a single class on all matters submitted to a vote of the Company’s stockholders, with each share of common stock entitling the holder to one vote.