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Item 2. Management’s Discussion and Analysis

2023-11-21 compared with 2023-08-21 · 57 added, 47 removed, 121 unchanged (46% of the section changed)

28 unchanged sentences

With respect to the regulation of SPACs like our company, on March 30, 2022, the SEC issued proposed rules relating to, among other items, the circumstances in which SPACs could become subject to regulation under the Investment Company Act.

To mitigate the risk that we might be deemed to be an investment company for purposes of the Investment Company Act, in December 2022 we instructed Continental, the trustee of the trust account, to liquidate the investments held in the trust account and instead to hold the funds in the trust account in an interest-bearing demand deposit account until the earlier of consummation of our initial business combination or liquidation.

This may reduce the amount of interest earned by the funds in the trust account.

As of June 30, 2023 and December 31, 2022, the funds in the trust account are held solely in an interest-bearing demand deposit account.

To mitigate the risk that we might be deemed to be an investment company for purposes of the Investment Company Act, in December 2022 we instructed Continental, the trustee of the trust account, to liquidate the marketable securities held in the trust account and instead to hold the marketable securities in the trust account in an interest-bearing demand deposit account until the earlier of consummation of our initial business combination or liquidation.

This may reduce the amount of interest earned by the marketable securities in the trust account.

As of September 30, 2023 and December 31, 2022, the marketable securities in the trust account are held solely in an interest-bearing demand deposit account.

Initial Business Combination

If we are unable to complete an initial business combination by December 28, 2023, or such earlier date as determined by the Board (the “Combination Period”), we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay taxes (less up to $100,000 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 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 stockholders and our board of directors, proceed to commence our voluntary liquidation and thereby our formal dissolution, subject in each case our obligations to provide for claims of creditors and the requirement of applicable law.

The representative of the underwriters has agreed to waive its rights to the deferred underwriting commission held in the Trust Account in the event we do 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.

If we are unable to complete an initial business combination by December 28, 2023, or such earlier date as determined by the Board (the “Combination Period”), we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the marketable securities held in the Trust Account and not previously released to us to pay taxes (less up to $100,000 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 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 stockholders and our board of directors, proceed to

commence our voluntary liquidation and thereby our formal dissolution, subject in each case our obligations to provide for claims of creditors and the requirement of applicable law.

The representative of the underwriters has agreed to waive its rights to the deferred underwriting commission held in the Trust Account in the event we do not complete a Business Combination within the Combination Period, and, in such event, such amounts will be included with the marketable securities 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 Initial Public Offering price per Unit ($10.00).

Stockholders Meeting, Trust Account Redemptions, Extension of Combination Period and Additional Trust Deposits

On December 21, 2022, the Company held a special meeting of stockholders in lieu of an annual meeting of stockholders (the “Meeting”).

At the Meeting, the Company’s stockholders approved an amendment to the Amended and Restated Certificate of Incorporation (the “Extension Amendment”) to extend the date by which the Company must consummate its initial Business Combination from December 28, 2022, or within 24 months from the closing of the Initial Public Offering, to June 28, 2023, or such earlier date as determined by the Board (the “Extension”).

On December 21, 2022, the Company held a special meeting of stockholders in lieu of an annual meeting of stockholders (the “First Meeting”).

At the First Meeting, the Company’s stockholders approved an amendment to the Amended and Restated Certificate of Incorporation (the “Extension Amendment”) to extend the date by which the Company must consummate its initial Business Combination from December 28, 2022, or within 24 months from the closing of the Initial Public Offering, to June 28, 2023, or such earlier date as determined by the Board (the “Extension”).

Also on December 21, 2022, the Company filed the Extension Amendment with the Secretary of State of the State of Delaware.

Stockholders holding 17,923,223 Public Shares exercised their right to redeem such shares for a pro rata portion of the funds in the Trust Account.

Following redemptions, the Company has 5,076,777 Public Shares outstanding.

After the satisfaction of such redemptions the balance of the Trust Account was approximately $52.1 million.

In connection with the First Meeting, stockholders holding 17,923,223 Public Shares exercised their right to redeem such shares for a pro rata portion of the marketable securities in the Trust Account

In connection with the Extension, the Sponsor agreed to deposit into the Trust Account an aggregate of $900,000 plus $300,000 for each of the three subsequent calendar months commencing on March 29, 2023.

As of June 30, 2023 and December 31, 2022, $1,800,000 was deposited into the Trust Account for the benefit of the Public Stockholders.

As of September 30, 2023 and December 31, 2022, $1,800,000 was deposited into the Trust Account for the benefit of the Public Stockholders.

The Company issued an unsecured promissory note in connection with these fundings.

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At the Second Meeting, the Company’s stockholders approved the Second Extension Amendment to extend the date by which the Company must consummate its initial Business Combination from June 28, 2023, to December 28, 2023, or such earlier date as determined by the Board.

Stockholders holding 1,747,139 Public Shares exercised their right to redeem such shares for a pro rata portion of the funds in the Trust Account.

In connection with the Second Meeting, stockholders holding 1,747,139 Public Shares exercised their right to redeem such shares for a pro rata portion of the marketable securities in the Trust Account.

Following redemptions, the Company has 3,329,638 Public Shares outstanding.

After the satisfaction of such redemptions the balance of the Trust Account was approximately $36.9 million.

After the satisfaction of such redemptions the balance of the Trust Account was approximately $35.6 million as of September 30, 2023.

Prior to the Second Meeting, the Company and the Sponsor entered into Non-Redemption Agreements with the Holders in exchange for the Holders agreeing either not to request redemption, or to reverse any previously submitted redemption demand with respect to an aggregate of 3,172,000 shares of Class A common stock of the Company sold in its Initial Public Offering, in connection with the Second Meeting to, among other things, approve the Second Extension Amendment to extend the date by which the Company must (i) consummate an initial business combination, (ii) cease all operations except for the purpose of winding up, and (iii) redeem or repurchase 100% of its Class A common stock included as part of the units sold in the IPO, from June 28, 2023 to December 28, 2023.

In consideration of the foregoing agreements, immediately prior to, and substantially concurrently with, the closing of an initial Business Combination, (i) the Sponsor (or its designees) will surrender and forfeit to the Company for no consideration the Forfeited Shares and (ii) the Company shall issue to the Holders a number of shares of Class A common stock equal to the number of Forfeited Shares.

The Company estimated the aggregate fair value of the 396,500 Class B Ordinary Shares attributable to the Holders to be $372,710 or $0.94 per share.

The excess of the fair value of the Class B Ordinary Shares was determined to be a cost associated with completing a Business Combination and a capital contribution from a related entity under SAB Topic 5T.

The Company estimated the aggregate fair value of the 396,500 shares of Class B common stock attributable to the Holders to be $372,710 or $0.94 per share.

The excess of the fair value of the shares of Class B common stock was determined to be a cost associated with completing a Business Combination and a capital contribution from a related entity under SAB Topic 5T.

Proposed Business Combination

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At the closing of the Transactions, the Company will change its name to Banzai International, Inc., and its common stock is expected to be listed on Nasdaq.

The Banzai Business Combination is expected to be consummated after the required approval by the stockholders of the Company and the satisfaction of certain other conditions described in the Merger Agreement.

Liquidity and Going Concern

As of June 30, 2023, the Company had approximately $593,000 of cash in its operating account and a working capital deficit of approximately $4.3 million (excluding the convertible promissory note – related party).

During the period ended June 30, 2023 approximately $411,000 was withdrawn from the Trust Account.

As of September 30, 2023, we had $399,511 of cash in its operating account and a working capital deficit of $7,626,337.

$2,300,000 of the total current liabilities is related to convertible promissory note-related party that is not expected to be repaid from current asset.

During the nine months ended September 30, 2023 approximately $411,200 was withdrawn from the Trust Account to pay tax obligations.

During the 9 months ended September 30, 2023, approximately $18 million was withdrawn for redemptions.

During the year ended December 31, 2022, approximately $1.1 million was withdrawn from the Trust Account to pay tax obligations.

Subsequent to the consummation of the Initial Public Offering, our liquidity has been satisfied through the net proceeds from the consummation of the Initial Public Offering and the Private Placement held outside of the Trust Account.

Additionally, during the three months ended June 30, 2023, $411,000 of the interest earned on our investments held in the Trust Account was requested and released to us in order to pay our tax obligations.

Additionally, during the nine months ended September 30, 2023, $411,200 of the interest earned on our marketable securities held in the Trust Account was requested and released to us in order to pay our tax obligations.

In addition, in order to finance transaction costs in connection with a Business Combination, our Sponsor or an affiliate of our Sponsor, or certain of our officers and directors may, but are not obligated to, provide us with Working Capital Loans.

As of June 30, 2023 and December 31, 2022, there were no Working Capital Loans outstanding, as all related party loans were done through the Extension Note referenced below.

On December 21, 2022, we issued the Extension Note to our sponsor, which provides for borrowings from time to time of up to an aggregate of $2,300,000.

Up to $500,000 of the Extension Note may be drawn and used for Working Capital Drawdowns and up to $1,800,000 of the Extension Note may be drawn and used for Extension Drawdowns.

As of December 31, 2022, there was $377,500 outstanding as a Working Capital Drawdown under the Extension Note and $900,000 outstanding as an Extension Drawdown.

The Extension Note does not bear interest and is repayable in full upon the earlier of the consummation of an initial business combination or the date the Company liquidates the trust account upon the failure to consummate an initial business combination within the requisite time period.

Upon the consummation of an initial business combination, our sponsor shall have the option, but not the obligation, to convert the principal balance of the Extension Note, in whole or in part, into that number of Converted Shares equal to the principal amount of the Extension Note so converted divided by $10.00.

As of September 30, 2023 and December 31, 2022, there were no Working Capital Loans outstanding, as all related party loans were done through the Notes referenced below.

On December 21, 2022, we issued the Note to our sponsor, which provides for borrowings from time to time of up to an aggregate of $2,300,000.

Up to $500,000 of the Note may be drawn and used for Working Capital Drawdowns and up to $1,800,000 of the Note may be drawn and used for Extension Drawdowns.

As of December 31, 2022, there was $377,500 outstanding as a Working Capital Drawdown under the Note and $900,000 outstanding as an Extension Drawdown.

The Note does not bear interest and is repayable in full upon the earlier of the consummation of an initial business combination or the date the Company liquidates the trust account upon the failure to consummate an initial business combination within the requisite time period.

Upon the consummation of an initial business combination, our sponsor shall have the option, but not the obligation, to convert the principal balance of the Note, in whole or in part, into that number of Converted Shares equal to the principal amount of the Note so converted divided by $10.00.

The terms of the Converted Shares, if issued, will be identical to the terms of our public shares, except that the Converted Shares (x) will not be registered under the Securities Act and (y) will be subject to the terms of that certain letter agreement, dated as of December 22, 2020, among our Company, our sponsor, and certain other parties thereto.

The Extension Note is subject to customary events of default, the occurrence of which automatically trigger the unpaid principal balance of the Extension Note and all other sums payable with regard to the Extension Note becoming immediately due and payable.

In December 2022, we instructed Continental to liquidate the investments held in the trust account and instead to hold the funds in the trust account in an interest-bearing demand deposit account at Morgan Stanley, with Continental continuing to act as trustee, until the earlier of the consummation of our initial business combination or our liquidation.

As a result, following the liquidation of investments in the trust account, the remaining proceeds from the initial public offering and private placement are no longer invested in U.S.

The Note is subject to customary events of default, the occurrence of which automatically trigger the unpaid principal balance of the Note and all other sums payable with regard to the Note becoming immediately due and payable.

On October 3, 2023, the Company issued the Second Note to the Sponsor, which provides for borrowings from time to time of up to an aggregate of $500,000 for working capital purposes.

The Second Note does not bear interest and is repayable in full upon the earlier of the consummation of a Business Combination or the date the Company liquidates the Trust Account established in connection with the Company’s Initial Public Offering upon the failure of the Company to consummate a Business Combination within the requisite time period.

Upon the consummation of a Business Combination, the Sponsor shall have the option, but not the obligation, to convert the principal balance of the Second Note, in whole or in part, into that number of the Converted Shares, equal to the principal amount of the Second Note so converted divided by $10.00.

In December 2022, we instructed Continental to liquidate the marketable securities held in the trust account and instead to hold the marketable securities in the trust account in an interest-bearing demand deposit account at Morgan Stanley, with Continental continuing to act as trustee, until the earlier of the consummation of our initial business combination or our liquidation.

As a result, following the liquidation of marketable securities in the trust account, the remaining proceeds from the initial public offering and private placement are no longer invested in U.S.

government securities or money market funds.

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Various social and political circumstances in the United States and around the world (including wars and other forms of conflict, including rising trade tensions between the United States and China, and other uncertainties regarding actual and potential shifts in the United States and foreign, trade, economic and other policies with other countries, terrorist acts, security operations and catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes and global health epidemics), may also contribute to increased market volatility and economic uncertainties or deterioration in the United States and worldwide.

Specifically, the continuing conflict between Russia and Ukraine, and resulting market volatility could adversely affect the Company’s ability to complete a business combination.

In response to the conflict between Russia and Ukraine, the United States and other countries have imposed sanctions or other restrictive actions against Russia.

Any of the above factors, including sanctions, export controls, tariffs, trade wars and other governmental actions, could have a material adverse effect on our ability to complete a business combination and the value of the Company’s securities.

This market volatility could adversely affect our ability to complete a Business Combination.

In response to the conflict between nations, the United States and other countries have imposed sanctions or other restrictive actions against certain countries.

Management continues to evaluate the impact of these types of risks and has concluded that while it is reasonably possible that these risks and uncertainties could have a negative effect on our Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of the accompanying unaudited condensed consolidated financial statements.

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The foregoing would mitigate a potential reduction in the cash available on hand to complete a business combination and in our ability to complete a business combination.

As of September 30, 2023, an amount of $184,436 non-cash excise tax due on the shares of Class A common stock redeemed has been captured under accumulated deficit in Unaudited Condensed Consolidated statements of Changes in Common Stock Subject to Possible Redemption and Stockholder’s Deficit.

Results of Operations

Our entire activity since inception up to June 30, 2023, was in preparation for our formation, the Initial Public Offering, and the Business Combination.

Our entire activity since inception up to September 30, 2023, was in preparation for our formation, the Initial Public Offering, searching for target, and identifying and completing the Business Combination.

We will not be generating any operating revenues until the closing and completion of our initial Business Combination.

For the three months ended June 30, 2023, we had a net loss of $734,068, which consisted of approximately $891,000 in general and administrative expenses, $372,710 for non-redemption agreement costs incurred, $50,000 in franchise tax expense and approximately $97,000 in income tax expenses, offset by approximately $484,000 in gain on investments held in the Trust Account, and approximately $189,000 in gain from the change in fair value of derivative warrant liabilities.

For the six months ended June 30, 2023, we had a net loss of $1,541,273, which consisted of approximately $1,484,000 in general and administrative expenses, $372,710 for non-redemption agreement costs incurred, approximately $377,000 in loss from the change in fair value of derivative warrant liabilities, $100,000 in franchise tax expense, and approximately $233,000 in income tax expenses, offset by approximately $1,020,000 in gain on investments held in the Trust Account.

For the three months ended June 30, 2022, we had net income of approximately $2.8 million, which consisted of approximately $2.8 million in income from the change in fair value of derivative warrant liabilities and approximately $330,000 in gain on investments held in the Trust Account, partly offset by approximately $234,000 in general and administrative expenses, approximately $65,000 in franchise tax expense and approximately $11,000 in income tax expenses.

For the six months ended June 30, 2022, we had net income of approximately $9.5 million, which consisted of approximately $9.9 million in income from the change in fair value of derivative warrant liabilities, and approximately $344,000 in gain on investments held in the Trust Account, partly offset by approximately $573,000 in general and administrative expenses, approximately $114,000 in franchise tax expense and approximately $11,000 in income tax expenses.

For the three months ended September 30, 2023, we had a net loss of $452,820, which consisted of 759,730 in general and administrative expenses, $50,000 in franchise tax expense and $10,424 in income tax expenses, offset by $1,539 of other income and $365,795 in gain on marketable securities held in the Trust Account.

For the nine months ended September 30, 2023, we had a net loss of $1,994,093, which consisted of $2,243,422 in general and administrative expenses, $372,710 for non-redemption agreement costs incurred, $377,000 in loss from the change in fair value of derivative warrant liabilities, $150,000 in franchise tax expense, and $243,374 in income tax expenses, offset by $6,315 of other income and $1,386,098 in gain on marketable securities held in the Trust Account.

For the three months ended September 30, 2022, we had net income of $1,000,959, which consisted of $1,319,500 in income from the change in fair value of derivative warrant liabilities and $1,068,641 in gain on marketable securities held in the Trust Account, partly offset by $1,118,469 in general and administrative expenses, $56,074 in franchise tax expense and approximately $212,639 in income tax expenses.

For the nine months ended September 30, 2022, we had net income of $10,521,650, which consisted of $11,195,000 in income from the change in fair value of derivative warrant liabilities, and $1,412,646 in gain on marketable securities held in the Trust Account, partly offset by $1,691,948 in general and administrative expenses, $170,345 in franchise tax expense and $223,703 in income tax expenses.

Factors That May Adversely Affect Our Results of Operations

Our results of operations and our ability to complete an initial Business Combination may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond our control.

Our business could be impacted by, among other things, downturns in the financial markets or in economic conditions, increases in oil prices, inflation, increases in interest rates, supply chain disruptions, declines in consumer confidence and spending, the ongoing effects of the COVID-19 pandemic, including resurgences and the emergence of new variants, and geopolitical instability, such as the military conflict in Ukraine and the Middle East.

We cannot at this time fully predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact our business and our ability to complete an initial Business Combination.

Contractual Obligations

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We will bear the expenses incurred in connection with the filing of any such registration statements.

The representative of the underwriters is entitled to registration rights pursuant to the Fee Reduction Agreement.

Pursuant to the Fee Reduction Agreement, as soon as practicable but no later than thirty (30) days following consummation of the Banzai Business Combination, the Company is required, at its expense, to file a registration statement on Form S-1 with the SEC to register the re-sale of the Cantor Fee Shares by the representative on customary terms for a transaction of this type.

Underwriting Agreement

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In addition, the representative of the underwriters is entitled to a deferred fee of 3.5% of the gross proceeds of the Initial Public Offering, or approximately $8.1 million.

The deferred fee will become payable to the representative of the underwriters from the amounts held in the Trust Account solely in the event that we complete a Business Combination, subject to the terms of the underwriting agreement.

Critical Accounting Policies

Under the terms of the underwriting agreement, the deferred fee would become payable to the representative of the underwriters from the amounts held in the Trust Account solely in the event that we complete a Business Combination, subject to the terms thereof.

On November 8, 2023, the representative of the underwriters entered into the Fee Reduction Agreement, pursuant to which it has agreed to forfeit $4,050,000 of the Original Deferred Fee, resulting in a remainder of $4,000,000 of Reduced Deferred Fee payable by the Company to the representative upon closing of the Banzai Business Combination.

Pursuant to the Fee Reduction Agreement, the Reduced Deferred Fee will be payable in the form of a number of Cantor Fee Shares equal to the greater of (a) 400,000 or (b) the quotient obtained by dividing (x) the Reduced Deferred Fee by (y) the dollar volume-weighted average price for the shares of Class A common stock on Nasdaq, over the five trading days immediately preceding the date of the initial filing of a resale registration statement on Form S-1, as reported by Bloomberg through its “AQR” function (as adjusted for any stock dividend, split, combination, recapitalization or other similar transaction).

The Cantor Fee Shares will be issuable following the closing of the Banzai Business Combination upon (or immediately prior to) initial filing of a resale registration statement on Form S-1 by the Company covering the Cantor Fee Shares (which the Company will be required to file as soon as practicable but no later than thirty (30) days following the closing of the Banzai Business Combination), in accordance with the terms of the Fee Reduction Agreement.

Critical Accounting Policies and Estimates

Derivative Warrant Liabilities

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Our Class A common stock features certain redemption rights that are considered to be outside of our control and subject to the occurrence of uncertain future events.

Accordingly, as of June 30, 2023 and December 31, 2022, 3,329,638 and 5,076,777 shares of Class A common stock subject to possible redemption, respectively are presented as temporary equity, outside of the stockholders’ deficit section of our condensed consolidated balance sheets.

Accordingly, as of September 30, 2023 and December 31, 2022, 3,329,638 and 5,076,777 shares of Class A common stock subject to possible redemption, respectively are presented as temporary equity, outside of the stockholders’ deficit section of our condensed consolidated balance sheets.

Under ASC 480-10-S99, we have elected to recognize changes in the redemption value immediately as they occur and adjust the carrying value of the security to equal the redemption value at the end of the reporting period.

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The changes in the carrying value of the common stock, subject to possible redemption, result in charges against additional paid-in capital (to the extent available) and accumulated deficit.

Net Income Per Common Stock

Net Income (loss) Per Common Stock

We comply with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” We have two classes of shares, which are referred to as Class A common stock and Class B common stock.

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This presentation assumes as Business Combination as the most likely outcome.

Net income per common share is calculated by dividing net income by the weighted average number of shares of common stock outstanding for the respective period.

The calculation of diluted net income per common share does not consider the effect of the warrants issued in connection with the Initial Public Offering and the Private Placement to purchase an aggregate of 18,850,000 shares of Class A common stock in the calculation of diluted income per common share, because their exercise is contingent upon future events.

Net income (loss) per common share is calculated by dividing net income by the weighted average number of shares of common stock outstanding for the respective period.

The calculation of diluted net income (loss) per common share does not consider the effect of the warrants issued in connection with the Initial Public Offering and the Private Placement to purchase an aggregate of 18,850,000 shares of Class A common stock in the calculation of diluted income per common share, because their exercise is contingent upon future events.

Accretion associated with the redeemable Class A common stock is excluded from earnings per share as the redemption value approximates fair value.

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These exemptions will apply for a period of five years following the completion of our Initial Public Offering or until we are no longer an “emerging growth company,” whichever is earlier.

Factors That May Adversely Affect Our Results of Operations

Quantitative and Qualitative Disclosures About Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis