NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
JUNE 30,
2022
Note
1. Description of Organization and Business Operations and Liquidity
Sagaliam
Acquisition Corp. (the “Company”) is a blank check company incorporated in the state of Delaware on March 31, 2021. The Company
was formed for the purpose of entering into a merger, share exchange, asset acquisition, share purchase, reorganization or similar Business
Combination with one or more businesses (a “Business Combination”).
The
Company has selected December 31 as its fiscal year end.
The
Company is not limited to a particular industry or geographic region for purposes of consummating a Business Combination. The Company
is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and
emerging growth companies.
As
of June 30, 2022 and December 31, 2021, the Company had not yet commenced any operations. All activity through June 30, 2022 relates
to the Company’s formation, initial public offering (“Initial Public Offering”) and search for a business combination
target. The Company will not generate any operating revenues until its initial business combination. The registration statement for the
Company’s Initial Public Offering was declared effective on December 20, 2021. On December 23, 2021, the Company consummated the
Initial Public Offering of 11,500,000 units (the “Units” and, with respect to the Class A common stock included in the Units
sold, the “Public Shares”), at $10.00 per Unit, generating total gross proceeds of $115,000,000, which is described in Note
3.
Simultaneously
with the closing of the Initial Public Offering, the Company consummated the sale of units (the “Private Placement Units”)
at a price of $ per Private Placement Unit in a private placement to the Company’s Sponsor, Sagaliam Sponsor, LLC (the “Sponsor”),
generating gross proceeds of $4,000,000, which is described in Note 4.
Transaction
costs amounted to $8,525,729, consisting of $4,025,000 of deferred underwriting fees, $1,150,000 for the fair value of Class A shares
issued to underwriter as representative shares (see Note 6), $ for the fair value of the Founder Shares in excess of amounts
paid by anchor investors (see Note 5), and $566,109 of offering costs. The Company’s remaining cash after payment of the offering
costs is held outside of the Trust Account for working capital purposes.
Following
the closing of the Initial Public Offering on December 23, 2021, an amount of $10.10 per unit or an aggregate of $116,150,000 has been
placed in a trust account, (the “Trust Account”) and invested in U.S. government securities, within the meaning set forth
in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less or in any open-ended investment company that holds
itself out as a money market fund meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company. Except
with respect to interest earned on the funds held in the trust account that may be released to the Company to pay its franchise and income
tax obligations (less up to $150,000 of interest to pay dissolution expenses), the proceeds from this offering and the sale of the Private
Placement Units 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 within 12 months (or up to 18 months, as applicable) from the closing of this offering,
subject to applicable law. The proceeds deposited in the trust account could become subject to the claims of the Company’s creditors,
if any, which could have priority over the claims of the Company’s public stockholders.
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 a 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 portion of the amount then on deposit in the Trust Account
(initially approximately $10.10 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
shares of Class A common stock subject to redemption are recorded at a redemption value and classified as temporary equity as of the
Public Offering, in accordance with Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing
Liabilities from Equity.” In such case, the Company will proceed with a Business Combination if the Company has net tangible
assets of at least $5,000,001
upon such consummation of a Business Combination and, if the Company seeks stockholder approval, a majority of the issued and
outstanding shares voted are voted in favor of the Business Combination.
The
Company has 12 months from the closing of the Public Offering, unless such period is extended. If the Company has executed a definitive
agreement and filed a proxy statement for an initial business combination within 12 months from the closing of the Public Offering, the
period of time the Company will have to consummate an initial business combination will be automatically extended by an additional four
months to an aggregate of 16 months without additional cost. However, if the Company is not able to consummate an initial business combination
within 12 months and the Company has not entered into a definitive agreement or filed a proxy statement for an initial business combination
by such date, the Company may, by resolution of the board if requested by the sponsor, extend the time available to consummate an initial
business combination for an additional three months up to two times (for a total of 18 months to complete a business combination) by
paying into the trust account $ ($ per share in either case) on or prior to the date of the deadline. The Company will only
be able to extend the period of time to consummate a business combination by an additional three months two times (for a total of six
months) (the “Combination Period”). However, if the Company is unable to complete a Business Combination within the Combination
Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not
more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount
then on deposit in the trust account including interest earned on the funds held in the trust account and not previously released to
the Company to pay its franchise and income taxes (less up to $ of interest to pay dissolution expenses), divided by the number
of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including
the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible
following such redemption, subject to the approval of the Company’s remaining stockholders and its board of directors, dissolve
and liquidate, subject in each case to its obligations under Delaware law to provide for claims of creditors and the requirements of
other applicable law. There will be no redemption rights or liquidating distributions with respect to the Company’s Rights, which
will expire worthless if the Company fails to complete an initial business combination within the Combination Period.
The
Sponsor, officers and directors have agreed to (i) waive their redemption rights with respect to their founder shares, private placement
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, private placement shares and public shares in connection with a stockholder vote to approve an amendment
to the Company’s amended and restated certificate of incorporation, and (iii) waive their rights to liquidating distributions from
the trust account with respect to their founder shares and private placement shares if the Company fails to complete the initial business
combination within the Combination Period.
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) $10.10 per public share and (ii) the actual amount per public share held in the trust account as of the date of the
liquidation of the trust account, if less than $10.10 per share due to reductions in the value of the trust assets, 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 this offering 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 cannot assure that its Sponsor would be able to satisfy those obligations.
Liquidity,
Capital Resources, and Going Concern
As
of June 30, 2022 and December 31, 2021, the Company had $243,090 and $762,040, respectively, in its operating bank accounts, and working
capital of $19,153 and $734,422, respectively.
Until
the consummation of a Business Combination, the Company will be using the funds in operating accounts for identifying and evaluating
prospective acquisition candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting
the target business to acquire, and structuring, negotiating and consummating the Business Combination.
In
connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s
(“FASB”) Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s
Ability to Continue as a Going Concern,” the Company has until December 23, 2022 (12 months from Public Offering plus extension periods
as discussed above) to consummate the proposed Business Combination. It is uncertain that the Company will be able to consummate the
proposed Business Combination by this time. If a Business Combination is not consummated by this date, there will be a mandatory liquidation
and subsequent dissolution of the Company. Additionally, the Company may not have sufficient liquidity to fund the working capital needs
of the Company through one year from the issuance of these financial statements. Management has determined that the liquidity condition
and mandatory liquidation, should a Business Combination not occur, and potential subsequent dissolution, raises substantial doubt about
the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities
should the Company be required to liquidate after December 23, 2022. The Company intends to complete the proposed Business Combination before
the mandatory liquidation date. However, there can be no assurance that the Company will be able to consummate any Business Combination
by December 23, 2022. In addition, the Company may need to raise additional capital through loans or additional investments from its Sponsor,
stockholders, officers, directors or third parties. The Company’s officers, directors and Sponsor may, but are not obligated to,
loan the Company funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet the
Company’s working capital needs. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable
to raise additional capital, the Company may be required to take additional measures to conserve liquidity, which could include, but
not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses.
The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These
conditions raise substantial doubt about the Company’s ability to continue as a going concern through the liquidation date of December
23, 2022.
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, and/or search for a target company, the
specific impact is not readily determinable as of the date of the financial statement. The financial statement does not include any adjustments
that might result from the outcome of this uncertainty.
In February 2022, the Russian Federation and Belarus
commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have
instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on
the world economy are not determinable as of the date of these financial statements and the specific impact on the Company’s financial
condition, results of operations, and cash flows is also not determinable as of the date of these financial statements.
Note
2 – Significant Accounting Policies
The
accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles
for financial information and with the instructions to Form 10-Q. They do not include all information and footnotes required by United
States generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been
no material changes in the information disclosed in the notes to the financial statements for the fiscal year ended December 31, 2021
included in the Company’s 10-K filed with the Securities and Exchange Commission. The unaudited condensed financial statements
should be read in conjunction with those financial statements included in the Form 10-K. In the opinion of Management, all adjustments
considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for
three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31,
2022.
The
accompanying condensed statements of operations and statements of cash flows do not include comparative information for the one-day period
of March 31, 2021, as there were no income/expense or cash transactions on that date.
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 an emerging growth 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.
Use
of Estimates
The
preparation of the financial statements in conformity with U.S. GAAP requires the Company’s 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.
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
from those estimates.
Cash
and Cash Equivalents
The
Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.
The Company did not have any cash equivalents as of June 30, 2022 and December 31, 2021.
Marketable
Securities Held in Trust Account
At
June 30, 2022 and December 31, 2021, all of the assets held in the Trust Account were held in U. S. Treasury securities. 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 other income earned on marketable securities held in Trust Account in the accompanying statements of operations.
The estimated fair value of investments held in Trust Account are determined using available market information.
As
of June 30, 2022 and December 31, 2021, the Company had $116,277,311 and $116,157,019, respectively in marketable securities held in
the Trust Account.
Class
A Common Stock Subject to Possible Redemption
The
Company accounts for its common stock subject to possible redemption in accordance with the guidance in ASC 480. 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 feature redemption rights that are either within the control of the holder or subject to redemption upon
the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times,
common stock are classified as stockholders’ equity. The Company’s common stock feature certain redemption rights that are
considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. The Company recognizes
changes in redemption value immediately as they occur and adjusts the carrying value of redeemable Class A common stock to equal the
redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable Class A common stock
are affected by charges against additional paid-in capital and accumulated deficit.
As
of June 30, 2022 and December 31, 2021, 11,500,000
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
balance sheet. The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of
Class A common stock subject to possible redemption to equal the redemption value at the end of each reporting period (less a provision
of $150,000 for the payment of dissolution expenses on any aggregate interest not released by the Company to pay income and franchise
taxes).
Immediately upon the closing of
the Initial Public Offering, the Company recognized the accretion from initial book value to redemption amount value.
There were no adjustments to the
carrying value of Class A common stock subject to possible redemption for the three and six months ended June 30, 2022.
Offering
Costs Associated with the Initial Public Offering
The
Company complies with the requirements of ASC 340-10-S99-1 and SEC Staff Accounting Bulletin Topic 5A – Expenses of Offering.
Offering costs consist principally of professional and registration fees incurred through the balance sheet date that are related to
the Initial Public Offering. Offering costs directly attributable to the issuance of an equity contract to be classified in equity are
recorded as a reduction in equity. Offering costs for equity contracts that are classified as assets and liabilities are expensed immediately.
The Company incurred offering costs amounting to $8,525,729 consisting of $1,150,000 of underwriting fees, $4,025,000 of deferred underwriting
fees, $1,150,000 for underwriting related costs recognized for representative shares, $ for the fair value of the Founder Shares
in excess of amounts paid by anchor investors (see Note 5), and $566,109 of other offering costs.
Income
Taxes
The
Company accounts for income taxes under ASC 740, Income Taxes (“ASC 740”). ASC 740 requires the recognition of deferred
tax assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities
and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation
allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
ASC
740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes
a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination
by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim
period, disclosure and transition. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain
tax positions requiring recognition in the Company’s financial statements. Since the Company was incorporated on March 31, 2021,
the evaluation was performed for the 2021 and upcoming 2022 tax years which will be the only period subject to examination.
The
Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no
unrecognized tax benefits and no
amounts accrued for interest and penalties as of June 30, 2022 and December 31, 2021, respectively. The Company is currently not aware of any issues under review that
could result in significant payments, accruals or material deviation from its position.
Net
Loss per Share
The
Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share .” Income and
loses are shared pro rata between Class A common stock subject to possible redemption and non-redeemable common stock.
Non-redeemable common stock include Founder, Private Placement, and Representative Shares as these shares do not have any
redemption features. Diluted net loss per share is the same as basic net loss per share for the three months ended June 30, 2022, six months ended June 30, 2022 and
the period March 31, 2021 (inception) through December 31, 2021, respectively.
The
calculation of diluted loss per common stock does not consider the effect of the rights issued in connection with the (i) Initial Public
Offering, and (ii) the private placement that convert into 1,487,500 common stock since the conversion of the rights into common stock is contingent upon the occurrence of future events. As of June 30, 2022 and December 31, 2021, the Company did not have any dilutive
securities or other contracts that could, potentially, be exercised or converted into common stock and then shares in the earnings
of the Company. As a result, diluted net loss per common stock is the same as basic net loss per common stock for the periods presented.
The
table represents a reconciliation of the numerator and denominator used to compute basic and diluted net loss per common stock:
Summary of Basic and Diluted Net Income (Loss) per Common Share
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
Three Months Ended
June 30, 2022
| | |
Six Months
Ended
June 30, 2022
| | |
For the period March 31, 2021 (Inception) through
June 30, 2021 | |
| |
Class
A common stock | | |
Non-
redeemable
common stock | | |
Class
A common stock | | |
Non-
redeemable
common stock | | |
Class
A common stock | | |
Non-
redeemable
common stock | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Basic and diluted net loss per common stock | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Numerator: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Allocation of net loss | |
$ | (123,578 | ) | |
$ | (36,429 | ) | |
$ | (539,602 | ) | |
$ | (159,065 | ) | |
| — | | |
$ | (41,356 | ) |
Denominator: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Basic and diluted weighted average shares outstanding | |
| 11,500,000 | | |
| 3,390,000 | | |
| 11,500,000 | | |
| 3,390,000 | | |
| — | | |
| 2,500,000 | |
Basic and diluted net loss per common stock | |
$ | (0.01 | ) | |
$ | (0.01 | ) | |
$ | (0.05 | ) | |
$ | (0.05 | ) | |
| — | | |
$ | (0.02 | ) |
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 Depository Insurance Coverage of $250,000. The Company has not experienced losses on this account
and management believes the Company is not exposed to significant risks on such account.
Fair
Value of Financial Instruments
The
fair value of the Company’s financial assets and liabilities approximates the carrying amounts represented in the accompanying
balance sheet, primarily due to their short-term nature.
Recent
Accounting Standards
In
August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06,
Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s
Own Equity (Subtopic 815-40) (“ASU 2020-06”) 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. ASU 2020-06 is effective January 1, 2024 and should be applied on a full or modified retrospective basis,
with early adoption permitted beginning on January 1, 2021. The Company is currently reviewing what impact, if any, adoption will have
on the Company’s financial position, results of operations or cash flows.
Management
does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material
effect on the Company’s condensed financial statements.
Note
3 – Initial Public Offering
Pursuant
to the Initial Public Offering, the Company sold 11,500,000 Units, at a purchase price of $10.00 per Unit. Each unit consists of one
share of Class A common stock, and one right (“Public Right”). Each Public Right will entitle the holder to receive one-eighth
of one share of Class A common stock at the closing of a Business Combination.
Note
4 – Private Placement
Simultaneously
with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of Private Placement Units at a price of
$ per Private Placement Unit, for an aggregate purchase price of $. Each Private Right consists of one share of Class A
common stock (“Private Placement Share”) and one right (“Private Placement Right”).
The
Company’s Sponsor, officers and directors have agreed to (i) waive their redemption rights with respect to their Founder Shares,
Private Placement Shares and public shares in connection with the completion of the Company’s initial business combination, (ii)
waive their redemption rights with respect to their Founder Shares, Private Placement 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 redeem 100% of its public shares if the Company does not complete its initial business combination
during the Combination Period or (B) with respect to any other provision relating to stockholders’ rights or pre-initial business
combination activity and (iii) waive their rights to liquidating distributions from the trust account with respect to their Founder Shares
and Private Placement Shares if the Company fails to complete its initial business combination during the Combination Period. In addition,
the Company’s Sponsor, officers and directors have agreed to vote any Founder Shares and Private Placement Shares held by them
and any public shares purchased during or after the Proposed Public Offering (including in open market and privately negotiated transactions)
in favor of the Company’s initial business combination.
Note
5 – Related Party Transactions
Founder
Shares
On
April 5, 2021, the Company issued 2,875,000
shares of Class B common stock (the “Founder
Shares”) to the Sponsor for $25,000
in cash, or approximately $0.009
per share, in connection with formation. Thereafter,
the Sponsor transferred a total of 225,000
Founder Shares to the Company’s officers
and director nominees. The transfer of the Founder Shares to the officers and director nominees is within the scope of FASB ASC 718,
“Compensation-Stock Compensation” (“ASC 718”). Under ASC 718, stock-based compensation associated with equity-classified
awards is measured at fair value upon the grant date and expensed when earned. Shares granted to these individuals are forfeited if their
status as officer or director is terminated for any reason prior to the date of the initial business combination, and as such, there
has been no stock-based compensation expense recognized in the accompanying financial statements. The Sponsor and the Company’s
officers and director nominees will collectively own 20%
of the Company’s issued and outstanding shares after the Public Offering (assuming that none of the Sponsor and the Company’s
officers and director nominees purchase any Public Shares in the Public Offering and excluding the Private Placement Shares and Representative’s
Shares (as defined below). All share and per-share amounts have been retroactively restated
The
initial holders of the Founder Shares have agreed not to transfer, assign or sell any of the Founder Shares until the earlier of (i)
one year after the date of the consummation of the Company’s initial business combination or (ii) the date on which the Company
consummates a liquidation, merger, stock exchange or other similar transaction which results in all of its stockholders having the right
to exchange their shares of Class A common stock for cash, securities or other property. Notwithstanding the foregoing, if the closing
price of the Company’s shares of 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 150 days after the
Company’s initial business combination, the Founder Shares will no longer be subject to such transfer restrictions.
A
total of ten anchor investors each purchased an allocation of units as determined by the underwriters, in the Initial Public Offering
at the offering price of $10.00 per unit. Pursuant to such units, the anchor investors have not been granted any shareholder or other
rights in addition to those afforded to the Company’s other public shareholders. Further, the anchor investors are not required
to (i) hold any units, Class A common stock or rights they may purchase in the Initial Public Offering or thereafter for any amount of
time, (ii) vote any Class A common stock they may own at the applicable time in favor of the Business Combination or (iii) refrain from
exercising their right to redeem their public shares at the time of the Business Combination. The anchor investors will have the same
rights to the funds held in the trust account with respect to the Class A common stock underlying the units purchased in the Initial
Public Offering as the rights afforded to the Company’s other public shareholders.
Each
anchor investor entered into separate investment agreements with the Company and the Sponsor pursuant to which each anchor investor purchased
a specified number of Units for an aggregate of 990,000 Units at a purchase price of $10.00 per unit. In addition, the Sponsor sold the
ten anchor investors an aggregate of 200,000 of Founder Shares at a purchase price of $0.0029 per share. Pursuant to the investment agreements,
the anchor investors have agreed to (a) vote any Founder Shares held by them in favor of the Business Combination and (b) subject any
Founder Shares held by them the same lock-up restrictions as the Founder Shares held by the Sponsor.
The
Company estimated the fair value of the 200,000 Founder Shares attributable to the anchor investors to be worth approximately $1,635,200
or $8.176 per share. The excess of the fair value of the Founder Shares sold over the purchase price of $580 was determined to be an
offering cost in accordance with Staff Accounting Bulletin Topic 5A. Accordingly, the offering cost have been allocated to the separable
financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared to total proceeds received.
Promissory
Note – Related Party
The
Sponsor agreed to loan the Company an aggregate of up to $ to cover expenses related to the Initial Public Offering pursuant to
a promissory note (the “Promissory Note”). This unsecured loan was non-interest bearing and is payable on the earlier of
(i) December 31, 2021, or (ii) the consummation of the Initial Public Offering.
The outstanding balance under the Promissory Note was
repaid on December 23, 2021, upon the closing of the Initial Public Offering.There are not outstanding balances on the
Promissory Note as of June 30, 2022 and December 31, 2021.
Administrative
Support Agreement
The
Company has entered into an agreement with the Sponsor commencing May 1, 2021, to pay a total of 20,000 per month for officer’s
salaries, office space, secretarial and administrative services. Upon the completion of an initial Business Combination or liquidation,
the Company will cease paying these monthly fees.The fees for the three months ended June 30, 2022 and the six months ended June 30, 2022 were $60,000 and $120,000,
respectively. The fees for the period from March 31, 2021 to June 30, 2021 were $40,000. As of June 30, 2022 there were no outstanding
balances due the Sponsor.
Related
Party Loans
In
addition, in order to fund working capital deficiencies or 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 may repay
the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans could
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 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. The Working Capital Loans would either be repaid upon consummation of a Business Combination
or, at the lender’s discretion, up to 1,500,000 of such Working Capital Loans may be convertible into Units of the post Business
Combination entity at a price of $10.00 per Unit. The Units would be identical to the Private Placement Units. Except for the foregoing,
the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans.
As
of June 30, 2022 and December 31, 2021 the Company had no borrowings under the Working Capital Loans.
Note
6 – Commitments and Contingencies
Registration
and Shareholder Rights Agreement
The
holders of the Founder Shares, Private Placement Units and rights may be issued Units upon conversion of Working Capital Loans to Class
A common stock issuable upon the exercise of the Private Placement statements.
Underwriting
Agreement
The
underwriters were entitled to a cash underwriting discount of one percent (1%) of the gross proceeds of the Public Offering, or $1,150,000.
The Company has also agreed to issue to EF Hutton, the representative of underwriters, and/or its designees, 115,000 shares of the Class
A common stock (the “Representative’s shares”) upon the consummation of the offering, as compensation in connection
with the offering. Additionally, the underwriters will be entitled to a deferred underwriting discount of 3.5% of the gross proceeds
of the Public Offering upon the completion of the Company’s initial business combination. The deferred fee will become payable
to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination,
subject to the terms of the underwriting agreement.
Note
7 – Stockholder’s Equity
Class
A Common Stock – The Company is authorized to issue 100,000,000 Class A common stock with a par value of $0.0001 per share.
At June 30, 2022 and December 31, 2021, there were 515,000 Class A common stock issued and outstanding, excluding 11,500,000 Class A
common stock subject to possible redemption.
Class
B Common Stock – The Company is authorized to issue 10,000,000 Class B common stock with a par value of $0.0001 per share.
At June 30, 2022 and December 31, 2021, there were 2,875,000 Class B common stock issued and outstanding.
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 in this prospectus 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 this offering (not including the Private Placement Shares and Representative’s Shares) 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 or any units
issued to the Sponsor, its affiliates or certain of officers and directors upon conversion of working capital 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, except as required by law
or the Company’s amended and restated certificate of incorporation.
Preferred
Shares – The Company is authorized to issue 1,000,000 shares of preferred shares, par value $0.0001 per share, with such
designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors.
At June 30, 2022 and December 31, 2021, there were no preferred shares issued or outstanding.
Rights
– Each holder of a right will automatically receive one-eighth (1/8) of one share of Class A common stock upon consummation
of a Business Combination, except in cases where we are not the surviving company in a business combination or the registered holder
of a certificated right fails to tender their original rights certificate, and even if the holder of such right redeemed all shares of
Class A common stock held by it in connection with a Business Combination.
No
additional consideration will be required to be paid by a holder of Public 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 Proposed Public Offering.
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 Public Rights to receive the same per share consideration the holders of shares
of Class A common stock will receive in the transaction on an as-exchanged for Class A common stock basis, and each holder of a Public
Right will be required to affirmatively exchange its Public Rights in order to receive the 1/8 share underlying each Public Right (without
paying any additional consideration) upon consummation of a Business Combination. More specifically, the Public Rights holder will be
required to indicate its election to exchange the Public Right for the underlying shares as well as to return the original rights certificates
to the Company within a fixed period of time after which period the rights will expire worthless.
Pursuant
to the rights agreement, a rights holder may exchange rights only for a whole number of shares of Class A common stock. This means that
the Company will not issue fractional shares in connection with an exchange of rights and rights may be exchanged only in multiples of
8 rights (subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like). Fractional shares
will either be rounded down to the nearest whole share or otherwise addressed in accordance with the applicable provisions of the Delaware
General Corporation Law.
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 Public Rights will not receive any such funds with respect to their Public Rights, nor will they receive any
distribution from the Company’s assets held outside of the Trust Account with respect to such Public Rights, and the Public Rights
will expire worthless. Further, there are no contractual penalties for failure to deliver securities to holders of the Public Rights
upon consummation of a Business Combination. Additionally, in no event will the Company be required to net cash settle the rights. Accordingly,
the rights may expire worthless.
Dividends
The
Company has not paid any cash dividends on the common stock to date and does not intend to pay cash dividends prior to the completion
of the initial Business Combination.
Note
8 – Subsequent Events
The
Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statement
was issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure
in the financial statement.