UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from _______ to _______
(Exact Name of Registrant as Specified in Charter)
| N/A | ||||
|
(State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
(Address of Principal Executive Offices) (Zip Code)
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
| The Stock Market LLC | ||||
| The Stock Market LLC | ||||
| The | ||||
| The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐
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).
As of November 12, 2024, there were ordinary shares (including 2,224,131 ordinary shares subject to possible redemption), $0.0001 par value issued and outstanding.
Table of Contents
i
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
EMBRACE CHANGE ACQUISITION CORP.
BALANCE SHEETS
(Unaudited)
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Marketable securities held in trust account | |
|||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | |
$ | |||||
| Due to related party | ||||||||
| Due to third party | ||||||||
| Convertible promissory note – related party | ||||||||
| Promissory note – third party | ||||||||
| Total Current Liabilities | ||||||||
| Deferred underwriter fee payable | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 6) | ||||||||
| Ordinary shares subject to possible redemption, and shares issued and outstanding at redemption value of $ per share and $ per share as of September 30, 2024 and December 31, 2023, respectively | |
|||||||
| Stockholders’ Deficit | ||||||||
| Ordinary Shares, par value $; shares authorized; (excluding 2,224,131 and 5,127,282 shares subject to redemption, respectively) issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total Stockholders’ Deficit | ( |
) | ( |
) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited financial statements.
1
EMBRACE CHANGE ACQUISITION CORP.
STATEMENTS OF OPERATIONS
(Unaudited)
| For the | For the | For the | For the | |||||||||||||
| three months ended | three months ended | nine months ended | nine months ended | |||||||||||||
| September 30, 2024 |
September 30, 2023 |
September 30, 2024 |
September 30, 2023 |
|||||||||||||
| Formation and operating costs | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Loss from operations | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other income (loss): | ||||||||||||||||
| Investment income earned on investments held in Trust Account | ||||||||||||||||
| Loss on modification of deferred underwriting commission | ( |
) | ||||||||||||||
| Interest expense | ( |
) | ( |
) | ||||||||||||
| Total other income | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Weighted average shares outstanding, basic and diluted | ||||||||||||||||
| Basic and diluted net income per ordinary share | $ | $ | $ | $ | ||||||||||||
The accompanying notes are an integral part of these unaudited financial statements.
2
EMBRACE CHANGE ACQUISITION CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024
(Unaudited)
| Additional | Total | |||||||||||||||||||
| Ordinary shares | Paid in | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
| Balance – December 31, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Amount deposited into trust account subject to redemption | - | ( |
) | ( |
) | |||||||||||||||
| Re-measurement of ordinary shares subject to redemption | - | ( |
) | ( |
) | |||||||||||||||
| Net income | - | |||||||||||||||||||
| Balance – March 31, 2024 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Re-measurement of ordinary shares subject to redemption | - | ( |
) | ( |
) | |||||||||||||||
| Net income | - | |||||||||||||||||||
| Balance – June 30, 2024 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Amount deposited into trust account subject to redemption | - | ( | ) | ( | ) | |||||||||||||||
| Re-measurement of ordinary shares subject to redemption | - | ( | ) | ( | ) | |||||||||||||||
| Net income | - | |||||||||||||||||||
| Balance – September 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The accompanying notes are an integral part of these unaudited financial statements.
3
EMBRACE CHANGE ACQUISITION CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023
(Unaudited)
| Additional | Total | |||||||||||||||||||
| Ordinary shares | Paid in | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
| Balance – December 31, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Re-measurement of ordinary shares subject to redemption | - | ( |
) | ( |
) | |||||||||||||||
| Net income | - | |||||||||||||||||||
| Balance – March 31, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Re-measurement of ordinary shares subject to redemption | - | ( |
) | ( |
) | |||||||||||||||
| Net income | - | |||||||||||||||||||
| Balance – June 30, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Re-measurement of ordinary shares subject to redemption | - | ( | ) | ( | ) | |||||||||||||||
| Accretion of offering costs to deficit | - | ( | ) | ( | ) | |||||||||||||||
| Amount deposited into trust account subject to redemption | - | ( | ) | ( | ) | |||||||||||||||
| Net income | - | |||||||||||||||||||
| Balance – September 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The accompanying notes are an integral part of these unaudited financial statements.
4
EMBRACE CHANGE ACQUISITION CORP.
STATEMENTS OF CASH FLOWS
(Unaudited)
|
For the nine months ended |
For the nine months ended |
|||||||
| Cash flow from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Investment income earned on investments held in Trust Account | ( |
) | ( |
) | ||||
| Loss on modification of deferred underwriting commission | ||||||||
| Interest expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Other receivables | ||||||||
| Prepaid expenses | ( |
) | ( |
) | ||||
| Accounts payable and accrued expenses | ||||||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| Cash flows from investing activities: | ||||||||
| Investment of cash in Trust Account | ( |
) | ( |
) | ||||
| Cash withdrawn from Trust Account in connection with redemption | ||||||||
| Net cash provided by investing activities | ||||||||
| Cash flow from financing activities: | ||||||||
| Proceeds from convertible promissory note - related party | ||||||||
| Proceeds from promissory note - third party | ||||||||
| Proceeds from related party for working capital purpose | ||||||||
| Proceeds from third party for working capital purpose | ||||||||
| Redemption of ordinary shares | ( |
) | ( |
) | ||||
| Repayment of promissory note - third party | ( |
) | ||||||
| Net cash used in financing activities | ( |
) | ( |
) | ||||
| Net change in cash | ( |
) | ||||||
| Cash at the beginning of the period | ||||||||
| Cash at the end of the period | $ | $ | ||||||
| Supplemental disclosure of non-cash financing activities: | ||||||||
| Deferred underwriting fee payable | $ | $ | ||||||
| Accretion of offering costs to deficit | $ | $ | ||||||
| Re-measurement of ordinary shares subject to redemption(1) | $ | $ | ||||||
| Extension funds attributable to ordinary shares subject to redemption | $ | $ | ||||||
| (1) |
The accompanying notes are an integral part of these unaudited financial statements.
5
EMBRACE CHANGE ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. DESCRIPTION OF ORGANIZATION, BUSINESS OPERATIONS AND GOING CONCERN
Embrace Change Acquisition Corp. (the “Company”) is a blank check company incorporated in the Cayman Islands on March 3, 2021. The Company was formed for the purpose of acquiring, engaging in a share exchange, share reconstruction and amalgamation with, purchasing all or substantially all of the assets of, entering into contractual arrangements with, or engaging in any other similar business combination with one or more businesses or entities (“Business Combination”). The Company may pursue a business combination target in any business or industry.
As of September 30, 2024, the Company had not yet commenced any operations. All activity through September 30, 2024 relates to the Company’s formation, the Initial Public Offering (as defined below) and after the Initial Public Offering, searching for a Business Combination target. The Company will not generate any operating revenues until after the completion of its Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income on cash and cash equivalents from the proceeds derived from the IPO (as defined below). The Company has selected December 31 as its fiscal year end. 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.
The Company’s sponsor is Wuren Fubao Inc., a Cayman Islands exempted company (the “Sponsor”). The registration statement for the Company’s Initial Public Offering was declared effective on August 9, 2022. On August 12, 2022, the Company consummated its Initial Public Offering of units (the “Units”, and, with respect to the ordinary shares included in the Units being offered, the “Public Shares”), including the issuance of Units as a result of the partial exercise by EF Hutton, division of Benchmark Investments, LLC (the “Representative”) of its over-allotment option (the “Over-Allotment Option”), at $ per Unit, generating gross proceeds of $
Simultaneously with the closing of the IPO, the Company consummated the private placement (“Private Placement”) with the Sponsor of
Following the closing of the Initial Public Offering on August 12, 2022, an amount of $
The Company will provide its 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, regardless of whether they vote for or against a Business Combination. The Company will proceed with a business combination only if the Company have net tangible assets of at least $
6
The shareholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially $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). The per- share amount to be distributed to shareholders who redeem their Public Shares will not be reduced by the deferred underwriting commissions the Company will pay to the underwriter. There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants. These ordinary shares were recorded at a redemption value and classified as temporary equity upon the completion of the IPO, in accordance with Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.”
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 Memorandum and Articles of Association, offer such redemption pursuant to the tender offer rules of the Securities and Exchange Commission (“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 Sponsor has agreed (a) to vote its founder shares, the ordinary shares included in the Private Units (the “Private Shares”) and any Public Shares purchased during or after the IPO in favor of a Business Combination, (b) not to propose an amendment to the Company’s Memorandum and Articles of Association with respect to the Company’s pre-Business Combination activities prior to the consummation 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; (c) not to redeem any shares (including the Ordinary shares) and Private Units (including underlying securities) 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 Memorandum and Articles of Association relating to shareholders’ rights of pre-Business Combination activity and (d) that the Ordinary shares and Private Units (including underlying securities) shall not participate in any liquidating distributions upon winding up if a Business Combination is not consummated. However, the Sponsor will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares purchased during or after the IPO if the Company fails to complete its Business Combination.
On August 9, 2023, the Company held an
extraordinary general meeting of shareholders (the “First Extraordinary General Meeting”), at which the Company’s
shareholders approved the following proposals: (a) as a special resolution, giving the Company the right to extend the date by which
the Company
7
In connection with the shareholders’ vote at the annual general meeting (“Annual General Meeting”) of shareholders held by the Company on October 20, 2023, ordinary shares were tendered for redemption, leaving ordinary shares subject to possible redemption still outstanding.
On August 12,
2024, the Company held an extraordinary general meeting of shareholders (the “Second Extraordinary General Meeting”), at
which, the Company and its Trustee signed an amendment to the investment management Trust Agreement, to give the Company the right
to extend the Combination Period twelve (12) times for an additional one (1) month each time, from August 12, 2024 to August 12,
2025 (the “Extended Date”), by depositing into the Trust Account $
In connection with the shareholders’ vote at the Second Extraordinary General Meeting held by the Company on August 12, 2024, ordinary shares were tendered for redemption, leaving ordinary shares outstanding.
On September 10, 2024, the Company deposited $
If the Company is unable to complete a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no more than five business days thereafter, redeem 100% of the outstanding 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 (net of taxes payable, if any), divided by the number of then outstanding Public Shares, which redemption will completely extinguish public shareholders’ 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 the Company’s board of directors, proceed to commence a voluntary liquidation and thereby a formal dissolution of the Company, subject in each case to its obligations to provide for claims of creditors and the requirements of applicable law. The underwriter has agreed to waive its rights to the deferred underwriting commission held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period and, in such event, such amounts will be included with the funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution will be less than the IPO price per Unit ($10.00).
The Sponsor has agreed that it will be liable to the Company, if and to the extent any claims by a vendor for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amounts in the Trust Account to below $10.25 per share, except as to any claims by a third party who executed a waiver of any and all rights to seek access to the Trust Account and except as to any claims under the Company’s indemnity of the underwriters of the IPO against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). In the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers (except for the company’s independent registered accounting firm), prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
8
Liquidity and Capital Resources
As of September 30, 2024, the Company had $
The Company’s liquidity needs prior to the
consummation of the Initial Public Offering were satisfied through the payment of $
Going Concern Consideration
The Company expects to incur significant costs in pursuit of its financing and acquisition plans. In connection with the Company’s assessment of going concern considerations in accordance with 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 unsuccessful in consummating an Initial Business Combination by August 12, 2025 (subject to the Amended Extension Payment is made as required for each monthly extension), the requirement that the Company cease all operations, redeem the Public Shares and thereafter liquidate and dissolve raises substantial doubt about the Company’s ability to continue as a going concern. The balance sheet does not include any adjustments that might result from the outcome of this uncertainty. The accompanying financial statement has been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”), which contemplate continuation of the Company as a going concern.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are presented in U.S. Dollars and conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. The interim financial statements as of September 30, 2024 and for the three and nine months ended September 30, 2024 and 2023, respectively, are unaudited. In the opinion of management, the interim financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to provide a fair statement of the results for the interim periods. The accompanying balance sheet as of December 31, 2023, is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K for fiscal the year ended December 31, 2023. The interim 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 or for any future periods.
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.
9
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such 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.
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 $
Investments Held in Trust Account
As of September 30, 2024 and December 31, 2023,
substantially all of the assets held in the Trust Account were held in U.S. Treasury Securities Money Market Funds. All of the
Company’s investments held in the Trust Account are classified as trading securities. Trading securities are presented on the
balance sheet 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 investment income earned on investments held in Trust in the accompanying
statements of operations. The estimated fair values of investments held in Trust Account are determined using available market
information. As of September 30, 2024 and December 31, 2023, the estimated fair values of investments held in Trust
Account was $
Fair Value of Financial Instruments
The 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. 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:
| ● | Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; |
10
| ● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| ● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
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 following table presents information about the Company’s assets that are measured at fair value on a recurring basis as of September 30, 2024 and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value:
|
Description |
Quoted Prices in Active Markets (Level 1) |
Significant other (Level 2) |
Significant other (Level 3) |
|||||||||
| Assets | ||||||||||||
| Marketable securities held in trust account | $ | $ | $ | |||||||||
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis as of December 31, 2023 and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value:
|
Description |
Quoted Prices in Active Markets (Level 1) |
Significant other (Level 2) |
Significant other (Level 3) |
|||||||||
| Assets | ||||||||||||
| Marketable securities held in trust account | $ | $ | $ | |||||||||
Offering Costs Associated with the Initial Public Offering
Offering costs consisted of legal, underwriting fees and other costs incurred through the Initial Public Offering that were directly related to the Initial Public Offering. With the partial exercise of the over-allotment, offering cost amounted to $
11
As discussed in Note 3, all of the ordinary shares sold as part of the Units in the Initial Public Offering contain a redemption feature which allows for the redemption of such Public Shares in connection with the Company’s liquidation, if there is a stockholder vote or tender offer in connection with the Business Combination and in connection with certain amendments to the Company’s amended and restated certificate of incorporation. In accordance with ASC 480, 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. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions of ASC 480. In connection with the shareholders’ vote at the Extraordinary General Meeting on August 9, 2023, ordinary shares were tendered for redemption. On August 14, 2023, the Company accepted a reversal request for shares. As a result, a total of ordinary shares were redeemed, leaving ordinary shares subject to possible redemption after the August 7, 2023 redemption. In connection with the Annual General Meeting held on October 20, 2023, ordinary shares were tendered for redemption, leaving ordinary shares subject to possible redemption still outstanding. In connection with the shareholders’ vote at the Extraordinary General Meeting of shareholders held by the Company on August 12, 2024, ordinary shares were redeemed, leaving ordinary shares subject to possible redemption after the August 12, 2024 redemption.
Accordingly, as of September 30, 2024 and December 31, 2023, and ordinary shares, respectively, subject to possible redemption at the redemption amount were presented at redemption value as temporary equity, outside of the stockholders’ deficit section of the Company’s balance sheets.
Income Taxes
The Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” 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.
ASC Topic 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’s management determined that the Cayman Islands is the Company’s major tax
jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax
expense. There were
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. As such, the Company’s tax provision was zero from inception to September 30, 2024.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.
Concentration of Credit Risk
Financial instruments that potentially subject
the Company to concentration of credit risk consist of a cash account in a financial institution which, at times may exceed the
Federal depository insurance coverage of $
12
Net income per share is computed by dividing net income by the weighted average number of ordinary shares outstanding for the period. The calculation of diluted income per share does not consider the effect of the warrants issued in connection with the Initial Public Offering and warrants issued as components of the Private Placement Units (the “Private Warrants”) since the exercise of the warrants are contingent upon the occurrence of future events. As a result, diluted income per share is the same as basic income per share for the periods.
The following table reflects the calculation of basic and diluted net income per ordinary share:
Schedule of Basic and Diluted Net income Per Share
|
For the September 30, 2024 |
For the September 30, 2023 |
For
the September 30, 2024 |
For the September 30, 2023 |
|||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Denominator: weighted average number of ordinary shares | ||||||||||||||||
| Basic and diluted net income per ordinary share | $ | $ | $ | $ | ||||||||||||
Risks and Uncertainties
As a result of the military action commenced in February 2022 by the Russian Federation and Belarus in the country of Ukraine and related economic sanctions, the Company’s ability to consummate a Business Combination, or the operations of a target business with which the Company ultimately consummates a Business Combination, may be materially and adversely affected. In addition, the Company’s ability to consummate a transaction may be dependent on the ability to raise equity and debt financing which may be impacted by these events, including as a result of increased market volatility, or decreased market liquidity in third-party financing being unavailable on terms acceptable to the Company or at all. The impact of this action and related sanctions on the world economy and the specific impact on the Company’s financial position, results of operations and/or ability to consummate a Business Combination are not yet determinable. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 3. INITIAL PUBLIC OFFERING
On August 12, 2022, the Company consummated its Initial Public Offering of Units (including the issuance of Units as a result of the underwriter’s partial exercise of its over-allotment option), at $ per Unit, generating gross proceeds of $
Each Unit consists of one ordinary share, one warrant and one right. Each whole warrant entitles the holder thereof to purchase one ordinary share at a price of $
As of August 12, 2022, the Company incurred offering costs of approximately $
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NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the IPO, the Company consummated the private placement (“Private Placement”) with the Sponsor of
The proceeds from the sale of the Private Units were added to the net proceeds from the Offering held in the Trust Account. The Private Units are identical to the Units sold in the Initial Public Offering, except there will be no redemption rights or liquidating distributions from the Company’s trust account with respect to the private shares, which will expire worthless if the Company does not consummate a business combination. With respect to the private warrants (“Private Warrants”), as described in Note 7, the warrant agent shall not register any transfer of private warrants until after the consummation of an initial business. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Private Units will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Private Warrants will expire worthless.
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
During the period ended December 31, 2021, the Company issued an aggregate of shares of Ordinary shares to the Sponsor for an aggregate purchase price of $
Subject to certain limited exceptions, the initial shareholders have agreed not to transfer, assign or sell their founder shares until six months after the date of the consummation of our Business Combination or earlier if, subsequent to Business Combination, the Company consummate a subsequent liquidation, merger, stock exchange or other similar transaction which results in all of the shareholders having the right to exchange their ordinary shares for cash, securities or other property.
Due to Related Party
As of September 30, 2024 and December 31, 2023, the amounts due to related party was $
Convertible Promissory Notes - Related Party
On September 8, 2023, the Company issued an unsecured promissory note (the “September 2023 Convertible Note”), effective as of September 8, 2023, in an amount of $
On each of October 10, 2023,
November 8, 2023 and December 14, 2023, the Company issued an unsecured promissory note (each is called
“October 2023 Convertible Note”, “November 2023 Convertible Note” and “December 2023
Convertible Note”, respectively, collectively with September 2023 Convertible Note were called “Convertible
Promissory Notes”) amounting to $
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As of September 30, 2024, the Company has borrowed $
As of December 31, 2023, the Company has
borrowed $
Working Capital Loans
In order to finance transaction costs in
connection with a Business Combination, the Company’s Sponsor or an affiliate of the Sponsor, or the Company’s officers
and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). Such
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 $
Office Space Provided by Sponsor
The Company currently maintain executive offices at 5186 Carroll Canyon Rd, San Diego, CA 92121. Such space was provided to the Company free of charge by the Sponsor.
NOTE 6. DUE TO THIRD PARTY
From July 2024 to September 2024, the company borrowed an aggregated
amount of $
NOTE 7. PROMISSORY NOTE - THIRD PARTY
On August 5, 2024, the Company issued an unsecured
promissory note, in an amount of $ to an unrelated third party, which are used as the extension fee and/or working capital. The
unpaid principal balance of this note bears an annual interest rate of nine point one two seven percent (
For the three and nine months ended September
30, 2024, the Company recorded $
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NOTE 8. COMMITMENTS AND CONTINGENCIES
Registration Rights
The initial shareholders and their permitted transferees can demand that the Company register the founder shares, the private units and the underlying private shares and private warrants, and the units issuable upon conversion of working capital loans and the underlying ordinary shares, warrants and rights, pursuant to a Registration Rights Agreement signed on August 9, 2022. The holders of such securities are entitled to demand that the Company register these securities at any time after consummation of a Business Combination. Notwithstanding anything to the contrary, any holder that is affiliated with an underwriter participating in the Company’s IPO may only make a demand on one occasion and only during the five-year period beginning on the effective date of the registration statement. In addition, the holders have certain “piggy-back” registration rights on registration statements filed after our consummation of a business combination; provided that any holder that is affiliated with an underwriter participating in the Company’s IPO may participate in a “piggy-back” registration only during the seven-year period beginning on the effective date of the registration statement.
The underwriters purchased the of additional Units to cover over-allotments, less the underwriting discounts and commissions.
The underwriters were entitled to a cash underwriting discount of one percent (
In addition, the Company paid the representative of the underwriters, at closing of the Initial Public Offering, % of the of the IPO shares in the Company’s ordinary shares or ordinary shares as the underwriters’ over-allotment was partially exercised.
Right of First Refusal
For a period beginning on the closing of the Company’s IPO and ending 6 months from the closing of a business combination, the Company have granted EF Hutton, division of Benchmark Investments, LLC a right of first refusal to act as sole investment banker, sole book running manager and/or sole placement agent for any and all future private or public equity, equity-linked, convertible and debt offerings during such period. In accordance with FINRA Rule 5110(g)(6)(A), such right of first refusal shall not have a duration of more than three years from the commencement of sales in the Company’s IPO.
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NOTE 9. STOCKHOLDERS’ DEFICIT
Ordinary Shares — The Company is authorized to issue ordinary shares of with a par value of $ per share. Holders of the Company’s Ordinary shares are entitled to one vote for each share.
Prior to the offering, the Company issued ordinary shares to our initial shareholders. On October 24, 2021, the Company declared a share dividend of shares for each outstanding share, resulting in an aggregate of founder shares being issued. The aggregate purchase price for the founder shares was $.
On July 1, 2022, the sponsor surrendered an aggregate of founder shares for no consideration, which surrender was effective retroactively, resulting in shares being outstanding. On August 12, 2022, as a result of the partial exercise of the Representative’s Over-Allotment Option, an aggregate of founder shares were further forfeited to the Company, which surrender was effective retroactively and resulting in shares being outstanding and held by Sponsor.
As of September 30, 2024 and December 31, 2023, there were ordinary shares issued and outstanding, excluding and ordinary shares subject to possible redemption, respectively.
Warrants — Public Warrants may only
be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Warrants. The warrants will
become exercisable
The Company may call the Warrants for redemption, in whole and not in part, at a price of $ per warrant:
| ● | at any time while the Warrants are exercisable, |
| ● | upon not less than days’ prior written notice of redemption to each Warrant holder, |
| ● | if, and only if, the reported last sale price of the ordinary share equals or exceeds $ per share, for any trading days within a -trading day period ending on the third trading day prior to the notice of redemption to Warrant holders, and |
| ● | if, and only if, there is a current registration statement in effect with respect to the ordinary share underlying such warrants at the time of redemption and for the entire -day trading period referred to above and continuing each day thereafter until the date of redemption. |
The private warrants (including the ordinary shares issuable upon exercise of the private warrants) will not be transferable, assignable or salable until 30 days after the completion of our Business Combination and they will not be redeemable by the Company so long as they are held by the initial shareholders or their permitted transferees. The initial shareholders, or their permitted transferees, have the option to exercise the private warrants on a cashless basis.
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If the Company calls the Warrants for redemption, management will have the option to require all holders that wish to exercise the Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of ordinary share issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary dividend or recapitalization, reorganization, merger, or consolidation. However, the warrants will not be adjusted for issuances of ordinary share at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the 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 respect to such warrants. Accordingly, the warrants may expire worthless.
The Company accounts for
Rights — Each holder of a right will receive one-eighth (1/8) of one ordinary share upon consummation of a Business Combination, even if the holder of such right redeemed all shares held by it in connection with a Business Combination. No fractional shares will be issued upon exchange of the rights. No additional consideration will be required to be paid by a holder of rights in order to receive its additional shares upon consummation of a Business Combination as the consideration related thereto has been included in the unit purchase price paid for by investors in the IPO. If the Company enters into a definitive agreement for a Business Combination in which the Company will not be the surviving entity, the definitive agreement will provide for the holders of rights to receive the same per share consideration the holders of the ordinary share will receive in the transaction on an as- converted into ordinary share basis and each holder of a right will be required to affirmatively convert its rights in order to receive 1/8 share underlying each right (without paying additional consideration). The shares issuable upon exchange of the rights will be freely tradable (except to the extent held by affiliates of the Company).
Additionally, in no event will the Company be required to net cash settle the rights. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of rights will not receive any of such funds with respect to their rights, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such rights. Accordingly, the rights may expire worthless.
NOTE 10. SUBSEQUENT EVENTS
On October 30, 2024, the Company received $
On October 30, 2024, the Company received a letter from Nasdaq which confirmed that the Company regained compliance on September 16, 2024 with the filing requirement in Listing Rule 5250(c), as required by the Nasdaq hearing panel’s decision dated August 14, 2024. The Company is subject to a mandatory panel monitor for a period of one year from September 16, 2024. Under the terms of the panel monitor, in the event the Company is again out of compliance with the periodic filing rule during the monitoring period, the Company will have an opportunity to request a new hearing before the panel in order to maintain its listing, rather than being granted additional time to regain compliance or being afforded an applicable cure or compliance period.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References to the “Company,” “Embrace Change,” “our,” “us” or “we” refer to Embrace change Acquisition Corp. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited interim financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward- looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other U.S. Securities and Exchange Commission (“SEC”) filings.
Overview
We are a blank check company incorporated in the Cayman Islands for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. We have not selected any specific business combination target and we have not, nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly, with any business combination target. We intend to effectuate our Business Combination using cash from the proceeds of the initial public offering (the “IPO”) and the private placement of the private placement units, the proceeds of the sale of our securities in connection with our Business Combination, our shares, debt or a combination of cash, stock and debt.
We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful.
Recent Developments
On August 9, 2023, the Company held an extraordinary general meeting of shareholders (the “Extraordinary General Meeting”), at which the Company’s shareholders approved the following proposals: (a) as a special resolution, giving the Company the right to extend the date by which the Company must consummate a business combination (the “Combination Period”) twelve (12) times for an additional one (1) month each time, from August 12, 2023 (i.e. the end of 12 months from the consummation of its initial public offering, the “Termination Date”) to August 12, 2024 (the “Extended Date”), by depositing into the trust account (the “Trust Account”) the lesser of $100,000 or $0.045 per outstanding public share for each one-month extension (the “Extension Payment”) (the “Extension Amendment Proposal”) by deleting the amended and restated memorandum and articles of association (the “Articles of Association”) in its entirety and substitute it with the second amended and restated memorandum and articles of association of the Company (the “Amended Articles of Association”); (b) as an ordinary resolution, an amendment to the investment management trust agreement dated as of August 9, 2022 between the Company and Continental Stock Transfer & Trust Company (the “Trust Agreement”), to extend the Combination Period from the Termination Date to the Extended Date, by depositing into the Trust Agreement the Extension Payment (the “Trust Agreement Amendment Proposal”); and (c) as a special resolution, an amendment to the Articles of Association to remove the net tangible asset requirement from the Articles of Association in order to expand the methods that the Company may employ so as not to become subject to the “penny stock” rules of the Securities and Exchange Commission by deleting the Articles of Association in its entirety and substitute it with the second amended and restated memorandum and articles of association of the Company (the “NTA Requirement Amendment Proposal”). In connection with the shareholders’ vote at the Extraordinary General Meeting, 1,550,710 ordinary shares were tendered for redemption. On August 14, 2023, the Company accepted a reversal request for 109,819 shares. As a result, a total of 1,440,891 ordinary shares were redeemed at a redemption price of approximately $10.68 per share, for an aggregate redemption amount of $15,385,924, leaving 5,951,964 ordinary shares subject to possible redemption outstanding after the August 2023 redemption.
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On October 20, 2023, the Company held an annual general meeting of shareholders (the “Annual General Meeting”), at which the Company’s shareholders approved to amend the Amended Articles of Association by removing the restriction of the Company to undertake a Business Combination with any entity or business based in, or with its principal or a majority of its business operations (either directly or through any subsidiaries) in, the People’s Republic of China (including Hong Kong and Macau). In connection with the Annual General Meeting, holders of 824,682 ordinary shares of the Company properly exercised their right to redeem their shares for cash at a redemption price of approximately $10.81 per share, for an aggregate redemption amount of $8,911,074, leaving 2,224,131 ordinary shares subject to possible redemption still outstanding as of September 30, 2024.
From August 2023 to March 2024, using the funds held outside the trust account and the proceeds from Convertible Promissory Notes (as described below), the Company made eight tranches of deposits of $100,000, for an aggregate of $800,000, to the Trust Account and extended the Combination Period from August 12, 2023 to April 12, 2024. The Company has the right to extend the Combination Period four (4) more times for an additional one (1) month each time, from April 12, 2024 to August 12, 2024. On August 6, 2024, the Company deposited the required extension contributions of $400,000 into the Trust Account, extending the Termination Date to August 12, 2024.
Commencing on August 9, 2022, we have agreed to pay ARC Group Limited, our sponsor’s financial advisor, a total of $10,000 per month for utilities and secretarial and administrative support. In October 2023, the Company and ARC Group Limited terminated the administrative support agreement. As of September 30, 2024, the unpaid balance of $40,000 was reflected as accrued expenses on the balance sheet.
On October 12, 2023, the Company received a written notice from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) indicating that the Company is not in compliance with Listing Rule 5450(a)(2) of The Nasdaq Global Market in connection with its listing of the Company’s ordinary shares, par value $0.001 per share, which requires the Company to maintain a minimum of 400 total holders of its ordinary shares for continued listing on The Nasdaq Global Market. The notice is only a notification of deficiency, not of imminent delisting, and has no current effect on the listing or trading of the Company’s securities on The Nasdaq Global Market. The notice states that the Company has until November 27, 2023 to submit a plan to regain compliance with Listing Rule 5450(a)(2). If Nasdaq accepts the Company’s plan, Nasdaq may grant the Company an extension of up to 180 calendar days from October 12, 2023, the date of the Notice, to evidence compliance with Listing Rule 5450(a)(2). If Nasdaq does not accept the Company’s plan, the Company will have the opportunity to appeal Nasdaq’s determination. Alternatively, the Company may consider applying for a transfer to The Nasdaq Capital Market. In order to transfer, the Company must submit an on-line transfer application, pay the $5,000 application fee, and meet The Nasdaq Capital Market’s continued listing requirements. The Company submitted a compliance plan to Nasdaq on November 27, 2023.
On December 22, 2023, the Company received a notification from Nasdaq that it was not in compliance with Nasdaq Listing Rule 5250(c)(1) as it had failed to timely file its Quarterly Report on Form 10-Q for the period ended September 30, 2023 (the “Form 10-Q”). Under the Nasdaq Listing Rules, the Company now has 60 calendar days to submit a plan to regain compliance and if the plan is accepted, Nasdaq may grant an exception of up to 180 calendar days from the Form 10-Q’s due date, or until May 20, 2024, to regain compliance. The Company later filed the Form 10-Q on March 1, 2024.
On March 4, 2024, the Company and EF Hutton entered into a Satisfaction and Discharge of Indebtedness Pursuant to Underwriting Agreement dated August 9, 2022 (the “Satisfaction and Discharge Agreement”), pursuant to which, EF Hutton agrees to revise the deferred underwriting fee of three point five percent (3.50%) of the gross proceeds of the initial public offering, or $2,587,499, to (1) $750,000 in cash on the date of the closing of the initial business combination (the “Closing”) and (2) 200,000 of registered and unrestricted shares of the Company, shall be issued and delivered to EF Hutton at the Closing.
On April 23, 2024, the Company received a delisting determination letter from the Listing Qualifications of Nasdaq advising the Company that the Company has not paid its assessed fees required by Listing Rule 5250(f). The Company subsequently paid the outstanding fee.
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On May 30, 2024, the Company received a delinquency notification letter from Nasdaq due to the Company’s non-compliance with Nasdaq Listing Rule 5250(c)(1) as a result of the Company’s failure to timely file its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2024.
On June 24, 2024, the Company received a notice from Nasdaq indicating that, unless the Company timely requests a hearing before a Nasdaq Hearings Panel (the “Panel”) by 4:00 p.m. Eastern Time on July 1, 2024, the Company’s securities (units, ordinary shares, warrants, and rights) would be subject to suspension and delisting from The Nasdaq Global Market at the opening of business on July 3, 2024, due to the Company’s non-compliance with the Minimum Holders Rule and the Reporting Rule. The Company timely requested a hearing before the Panel to appeal the Staff Determination and submitted a request for extension of stay. The suspension referenced in the Staff Determination has been stayed for a period of 15 calendar days until July 16, 2024 and the hearing has been scheduled on August 1, 2024.
On July 12, 2024, the Company submitted a written submission to Nasdaq. On July 25, 2024, the Company received a notice from Nasdaq indicating the grant of the Company’s request to extend the stay of suspension pending a hearing on August 1, 2024, and issuance of a final Panel decision. On August 1, 2024, the Company attended the Nasdaq hearing before the Panel.
On September 5, 2024, the Company received a delinquency notification letter from Nasdaq due to the Company’s non-compliance with Nasdaq Listing Rule 5250(c)(1) as a result of the Company’s failure to timely file its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2024. On September 16, 2024, the Company filed its Form 10-Q for the fiscal quarter ended June 30, 2024.
From July 2024 to September 2024, the Company borrowed $600,000 from an unrelated third party, which the Company entered into a letter of intent with for a potential business combination. These amounts are unsecured, non-interest bearing and due on demand.
On August 5, 2024, the Company borrowed $300,000 from another unrelated third party, by issuing a promissory note. The unpaid principal balance of this note bears an annual interest rate of nine point one two seven percent (9.127%) per annum. The note will be due two months after executed. On August 6, 2024, the Company received the $300,000 in full under such note. On September 10, 2024, and September 27, 2024, the Company repaid $100,000 and $150,000, respectively, to the payee, leaving $50,000 in principal unpaid as of September 30, 2024. On October 5, 2024, the remaining principal of $50,000 was due and will be payable on demand. Up to the date the financial statements were issued, the principal of $50,000 remained unpaid and past due.
For the three and nine months ended September 30, 2024, the Company recorded $3,513 in interest expenses under the promissory note - third party. As of September 30, 2024, the total outstanding under the promissory note- third party was $53,513.
On August 12, 2024, the Company held an extraordinary general meeting of shareholders (the “Second Extraordinary General Meeting”), at which, the Company and its Trustee signed an amendment to the Trust Agreement, to give the Company the right to extend the Combination Period twelve (12) times for an additional one (1) month each time, from August 12, 2024 to August 12, 2025 (the “Extended Date”), by depositing into the Trust Account $75,000 per outstanding public share for each one-month extension (the “Amended Extension Payment”), as approved by the Company’s shareholders in accordance with the Company’s Amended Articles of Association. At the Second Extraordinary General Meeting, the shareholders of the Company approved a special resolution to the Amended Articles of Association to extend the Combination Period from the Termination Date to the Extended Date and to delete words “(less up to US$50,000 of interest to pay dissolution expenses)”.
In connection with the shareholders’ vote at the Second Extraordinary General Meeting held by the Company on August 12, 2024, 2,903,151 ordinary shares were tendered for redemption, leaving 4,520,024 ordinary shares outstanding.
From January 2024 to August 2024, the Company deposited additional seven tranches of $100,000, for an aggregated of $700,000 into the Trust Account, extending the Termination Date to August 12, 2024.
On September 5, 2024, the Company received a delisting determination letter from the Listing Qualifications Department of Nasdaq advising the Company that the Company is delinquent in filing its Form 10-Q for the period ended June 30, 2024 and this matter serves as an additional basis for delisting the Company’s securities from Nasdaq. The failure to timely file the 10-Q was a violation of Nasdaq Listing Rule 5250(c)(1). The Company subsequently filed its Form 10-Q for the period ended June 30, 2024 on September 16, 2024.
On September 10, 2024, the Company deposited $75,000 into the Trust Account, extending the Termination Date to September 12, 2024. The Company has the right to extend the Combination Period eleven (11) more times for an additional one (1) month each time, from September 12, 2024 to August 12, 2025.
On October 30, 2024, the Company received a letter from Nasdaq which confirmed that the Company regained compliance on September 16, 2024 with the filing requirement in Listing Rule 5250(c), as required by the Nasdaq hearing panel’s decision dated August 14, 2024. The Company is subject to a mandatory panel monitor for a period of one year from September 16, 2024. Under the terms of the panel monitor, in the event the Company is again out of compliance with the periodic filing rule during the monitoring period, the Company will have an opportunity to request a new hearing before the panel in order to maintain its listing, rather than being granted additional time to regain compliance or being afforded an applicable cure or compliance period.
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Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities since inception have been organizational activities, those necessary to prepare for our IPO and after our IPO, searching for a business combination target. Following our IPO, we will not generate any operating revenues until after completion of our Business Combination. We will generate non-operating income in the form of interest income on cash and cash equivalents after our IPO. There has been no significant change in our financial or trading position and no material adverse change has occurred since the date of our audited financial statements. We expect that we will incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses in connection with completing a business combination.
For the three months ended September 30, 2024, we had a net income of $227,631 which consists of investment income earned on investments held in trust account of $581,984 partially offset by operating costs of $350,840 and interest expense of $3,513. For the three months ended September 30, 2023, we had a net income of $454,799, which consists of investment income earned on investments held in trust account of $942,835, partially offset by operating costs of $488,036.
For the nine months ended September 30, 2024, we had a net income of $1,212,138 which consists of investment income earned on investments held in trust account of $2,072,719 partially offset by operating costs of $478,567 and loss on modification of deferred underwriter commission of $378,501 and interest expense of $3,513. For the nine months ended September 30, 2023, we had a net income of $1,969,273 which consists of Investment income earned on investments held in trust account of $2,706,368 and operating costs of $737,095.
Liquidity and Capital Resources
On August 12, 2022, the Company consummated its initial public offering of 7,392,855 units (the “Units”, and, with respect to the ordinary shares included in the Units being offered, the “Public Shares”), including the issuance of 892,855 Units as a result of the partial exercise by EF Hutton, division of Benchmark Investments, LLC (the “Representative”) of its over-allotment option (the “Over-Allotment Option”), at $10.00 per Unit, generating gross proceeds of $73,928,550 (the “Initial Public Offering”).
Simultaneously with the closing of the IPO, the Company consummated the private placement (“Private Placement”) with the Sponsor of 373,750 units (the “Private Units”), generating total proceeds of $3,737,500.
Following the closing of the Initial Public Offering on August 12, 2022, an amount of $75,776,764 ($10.25 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and a portion of the proceeds from the sale of the Private Units was placed in a trust account (the “Trust Account”).
Transaction costs of the Initial Public Offering with the exercise of the over-allotment amounted to $3,898,030 consisting of $739,286 of up-front underwriting fees and a deferred discount of $2,587,499 and $571,245 of other costs. As of closing, $760,003 of the proceeds from the IPO was held outside of the Trust Account and is available for working capital purposes. For the year ended December 31, 2023, the Company charged $210,873 in offering cost to accumulated deficit.
As of September 30, 2024, we had cash of $13,053 on our balance sheet and a working capital deficit of $2,783,677. We intend to use the funds held outside of the Trust Account and proceeds from Convertible Promissory Notes (as described below) for identifying and evaluating prospective acquisition candidates, performing business due diligence on prospective target businesses, traveling to and from the offices, plants or similar locations of prospective target businesses, reviewing corporate documents and material agreements of prospective target businesses, selecting the target business to acquire and structuring, negotiating and consummating the Business Combination. The interest income earned on the investments in the Trust Account are unavailable to fund operating expenses.
In order to finance transaction costs in connection with a Business Combination, the Company’s Sponsor or an affiliate of the Sponsor, or the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). Such 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 $500,000 of notes may be converted upon consummation of a Business Combination into additional Private Units at a price of $10.00 per Unit. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. As of September 30, 2024 and December 31, 2023, the Company borrowed $241,112 and $90,112, respectively, which was included in convertible promissory note - related party.
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On September 8, 2023, the Company borrowed $10,000 from the Sponsor. The loan bears no interest and is repayable in full upon the consummation of the Company’s Business Combination. It is convertible at the Sponsor’s election upon the consummation of the Company’s Business Combination. Upon such election, this loan will convert, at a price of $10.00 per unit, into units identical to the private placement units issued in connection with the Company’s initial public offering.
From October 2023 to the filing of this Quarterly Report, the Company borrowed $841,112 in total from our Chief Financial Officer, in form of convertible promissory notes, for working capital and extension deposits purposes (as described in Note 5 of the Notes to the Financial Statements). These loans bear no interest and are repayable in full upon the consummation of the Company’s Business Combination. They are convertible at the CFO’s election upon the consummation of the Company’s Business Combination. Upon such election, these loans will convert, at a price of $10.00 per unit, into units identical to the private placement units issued in connection with the Company’s initial public offering.
From October 2023 to the filing of this Quarterly Report, the Company’s CFO also paid $144,060, on behalf of us, to the third-party vendors for working capital purposes. These amounts are unsecured, non-interest bearing and due on demand.
From July 2024 to September 2024, the Company borrowed $600,000 from an unrelated third party, which the Company entered into a letter of intent with for a potential business combination. These amounts are unsecured, non-interest bearing and due on demand. The Company recorded them as due to third party on the unaudited condensed balance sheet. As of September 30, 2024, the total due to third party was $600,000.
On August 5, 2024, the Company borrowed $300,000 from another unrelated third party, by issuing a promissory note. The unpaid principal balance of this note bears an annual interest rate of nine point one two seven percent (9.127%) per annum. The note will be due two months after executed. On August 6, 2024, the Company received the $300,000 in full under such note. On September 10, 2024, and September 27, 2024, the Company repaid $100,000 and $150,000, respectively, to the payee, leaving $50,000 in principal unpaid as of September 30, 2024. For the three and nine months ended September 30, 2024, the Company recorded $3,513 in interest expenses under the promissory note - third party. As of September 30, 2024, the total outstanding under the promissory note- third party was $53,513. On October 5, 2024, the remaining principal of $50,000 was due and will be payable on demand. Up to the date the financial statements were issued, the principal of $50,000 remained unpaid and past due.
Going Concern Consideration
The Company expects to incur significant costs in pursuit of its financing and acquisition plans. In connection with the Company’s assessment of going concern considerations in accordance with 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 unsuccessful in consummating an Initial Business Combination by August 12, 2025 (subject to the Amended Extension Payment is made as required for each monthly extension), the requirement that the Company cease all operations, redeem the Public Shares and thereafter liquidate and dissolve raises substantial doubt about the Company’s ability to continue as a going concern. The balance sheet does not include any adjustments that might result from the outcome of this uncertainty. The accompanying financial statement has been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”), which contemplate continuation of the Company as a going concern.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of September 30, 2024. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
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Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities. The underwriter is entitled to a deferred fee of three point five percent (3.50%) of the gross proceeds of the Offering upon closing of the Business Combination, or $2,587,499. On March 4, 2024, we and the underwriter, entered into a satisfaction and discharge of indebtedness pursuant to underwriting agreement dated August 9, 2022 (the “Satisfaction and Discharge Agreement”), pursuant to which, the underwriter agrees to revise the deferred underwriting fee of $2,587,499, to (1) $750,000 in cash on the date of the closing of the initial business combination (the “Closing”) and (2) 200,000 of registered and unrestricted shares of us, shall be issued and delivered to the underwriter at the Closing. The deferred fee will be paid in cash upon the closing of a Business Combination from the amounts held in the Trust Account, subject to the terms of the underwriting agreement.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. As of September 30, 2024, there were no critical accounting estimates.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s unaudited financial statements.
Off-Balance Sheet Arrangements; Commitments and Contractual Obligations; Quarterly Results
As of the date of this report, 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. No unaudited quarterly operating data is included in this report as we have conducted no operations to date.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company we are not required to make disclosures under this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the fiscal quarter ended September 30, 2024, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that during the period covered by this report, our disclosure controls and procedures were not effective.
Changes in Internal Control over Financial Reporting
During the fiscal quarter ended September 30, 2024, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Factors that could cause our actual results to differ materially from those in this Quarterly Report include the risk factors described in the registration statements on Form S-1 (File Nos. 333-258221 and 333-265184) for our IPO filed with the SEC. As of the date of this Quarterly Report, there have been no material changes to the previously disclosed risk factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We issued an aggregate of 1,437,500 ordinary shares to certain of our initial shareholders on April 20, 2022. We subsequently declared a share dividend of 0.50 shares for each outstanding share, resulting in 2,156,250 founder shares being outstanding. On July 1, 2022, the sponsor surrendered an aggregate of 287,500 founder shares for no consideration, which surrender was effective retroactively, resulting in 1,868,750 shares being outstanding. As a result of the partial exercise of the representative’s over-allotment option, an aggregate of 20,536 founder shares were forfeited to us, which surrender was effective retroactively and resulting in an aggregate of 1,848,214 founder shares issued and outstanding. The foregoing issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended (“Securities Act”).
On August 12, 2022, we consummated our IPO of units (the “Units”), including the issuance of 892,855 Units as a result of the partial exercise of the representative’s over-allotment option. The Units issued in the IPO were sold at an offering price of $10.00 per Unit, generating total gross proceeds of $73,928,550. EF Hutton, division of Benchmark Investments, LLC (“EF Hutton”), acted as the sole book-running manager for the IPO. US Tiger Securities, Inc. acted as the co-manager for the IPO. The securities in the IPO were registered under the Securities Act on two registration statements on Form S-1 (File Nos. 333-258221 and 333-265184) (as amended, the “Registration Statement”). The Securities and Exchange Commission declared the registration statements effective on May 16, 2022 and August 9, 2022, respectively.
Simultaneous with the consummation of the IPO, we consummated the private placement (“Private Placement”) with the sponsor of 373,750 units (the “Private Units”), generating total proceeds of $3,737,500. The Private Units are identical to the Units sold in the IPO except that the holder has agreed not to transfer, assign, or sell any of the Private Units or underlying securities (except in limited circumstances, as described in the Registration Statement) until the completion of the Company’s initial business combination. In addition, the warrants included in the Private Units are not redeemable if held by them or a permitted transferee. The sponsor was granted certain demand and piggy-back registration rights in connection with the purchase of the Private Units. The issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
On August 12, 2022, a total of $75,776,764 of the net proceeds from the IPO and the Private Placement were deposited in a trust account established for the benefit of the public shareholders. This includes $72,039,264 of the net proceeds from the IPO (which amount includes $2,587,499 of the underwriters’ deferred discount) and $3,737,500 from the Private Placement.
Transaction costs of the Initial Public Offering with the exercise of the over-allotment amounted to $3,898,030 consisting of $739,286 of up-front underwriting fees and a deferred discount of $2,587,499 and $571,245 of other costs.
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
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Item 6. Exhibits.
| * | These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing. |
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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 hereunto duly authorized.
| Dated: November 12, 2024 | EMBRACE CHANGE ACQUISITION CORP. | |
| By: | /s/ Zheng Yuan | |
| Name: | Zheng Yuan | |
| Title: |
Chief Financial Officer (Principal Financial and Accounting Officer) | |
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