Item 7. Management’s Discussion and Analysis
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References
to the “Company”, “us”, “our”, or “we” refer to Charlton Aria Acquisition Corporation.
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our audited financial statements and related notes herein.
The following discussion
and analysis of the Company’s financial condition and results of operations should be read in conjunction with our audited financial
statements and the notes related thereto which are included in “Item 8. Financial Statements and Supplementary Data” of this
Annual Report on Form 10-K. Certain information contained in the discussion and analysis set forth below includes forward-looking statements
Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including
those set forth under “Cautionary Note Regarding Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K..
Overview
Charlton
Aria Acquisition Corporation (the “Company”) is a blank check company incorporated in the Cayman Islands on
March 22, 2024 as an exempted company with limited liability. The Company was formed for the purpose of effecting a merger,
share exchange, asset acquisition, share purchase, recapitalization, reorganization or similar business combination involving the
Company, with one or more businesses or entities (the “initial business combination”). We intend to effectuate our
initial business combination using cash from the proceeds of our IPO (as defined below), Private Placement (as defined below), and
the sale of our shares, debt or a combination of cash, equity 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 an initial business combination will be
successful.
Our
Initial Public Offering
On October 25, 2024, we consummated our IPO of 7,500,000 units (the
“Public Units”), each Public Unit consisting of one Class A ordinary share (the “Class A Ordinary Shares”) of
the Company, par value $0.0001 per share (the “Public Shares”), and one right (the “Rights”) of the Company, each
right entitling the holder to receive one-eighth of one Class A Ordinary (the “Public Rights”). The Public Units were sold
at a price of $10.00 per Unit, and the IPO generated gross proceeds of $75,000,000. Simultaneously with the closing of the IPO, we consummated
a private placement (the “Private Placement”) with ST Sponsor II Limited, our sponsor (the “sponsor”), of an aggregate
of 240,000 units (the “Private Placement Units”) at a price of $10.00 per Private Placement Unit, generating gross proceeds
to the Company of $2,400,000. Each Private Placement Unit consists of one Class A ordinary share (the “Private Placement Shares”),
and one Right (the “Private Placement Rights”). The terms and provisions of the Private Placement Shares and Private Placement
Rights in the Private Placement Units are identical to the Public Shares and Public Rights, respectively, except that, subject to certain
limited exceptions, the Private Placement Shares are subject to transfer restrictions until the consummation of the Company’s initial
business combination. On October 25, 2024, a total of $75,187,500 of the net proceeds from the IPO and the Private Placement was deposited
in a trust account (the “trust account”) established for the benefit of the Company’s Public Shareholders at a U.S.
based trust account, with Continental Stock Transfer & Trust Company, acting as trustee.
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We
also issued to Clear Street LLC, the representative of the underwriters of the IPO (the “Representative”), 75,000 Class A
Ordinary Shares as part of the underwriting compensation (the “Representative Shares”) on the closing of the IPO. The Representative
Shares are identical to the Class A Ordinary Shares included in the Units, with certain exceptions.
The
underwriters have been granted a 45-day option to purchase up to an additional 1,125,000 units offered by the Company to cover over-allotments,
if any. On November 19, 2024, the Representative exercised the Over-allotment Option in part, and purchased 1,000,000 Units (the
“Option Units”), generating gross proceeds of $10,000,000. Simultaneously with the issuance and sale of the Option Units,
the Company completed a private placement sale of 15,000 Private Placement Units (the “Additional Private Placement Units”)
to the sponsor at a purchase price of $10.00 Private Placement Units, generating gross proceeds of $150,000. The Company also issued
additional 10,000 Representative Shares to the Representative.
Since
our IPO, our sole business activity has been identifying, evaluating suitable acquisition transaction candidates and preparing for consummation
of an initial business combination. We presently have no revenue and have had losses since inception from incurring formation and operating
costs. We have relied upon the sale of our securities and loans from the sponsor and other parties to fund our operations.
In
connection with the offering of the Option Units and the sale of Additional Private Placement Units, the proceeds of $10,025,000 from
the proceeds of the offering of the Option Units and the sale of Additional Private Placement Units were placed in the trust account
established for the benefit of the Company’s public shareholders and the underwriters of the IPO, with Continental Stock Transfer
& Trust Company acting as trustee.
The
sales of the Private Placement Units issued pursuant to the exemption from registration contained in Section 4(a)(2) of
the Securities Act. No commissions were paid in connection with such sales.
Separation
of Units
On
November 25, 2024, the Company announced that holders of the Company’s Public Units may elect to separately trade the Public Shares
and Public Rights from the Public Units, commencing on or about November 26, 2024.
The Class A ordinary shares
and rights trade on the Nasdaq Global Market (“Nasdaq”) under the symbols “CHAR” and “CHARR”, respectively.
Units not separated continue to trade on Nasdaq under the symbol “CHARU.”
Cancellation
of Founder Shares
On
December 9, 2024, after the expiration of the Over-Allotment Option, pursuant to the IPO Prospectus and the founder share purchase agreement
between the Company and the sponsor, the Company and the sponsor agreed to cancel 31,250 Class B ordinary shares of the Company so that
our insiders would collectively own 20.0% of our issued and outstanding shares after the IPO. As a result, 2,125,000 founder shares remained
issued and outstanding as a result.
Results
of Operations
We have neither engaged in any operations nor generated any revenues
to date. Our only activities from March 22, 2024 (inception) to December 31, 2024 were organizational activities, those necessary to prepare
for the IPO, described below, and, after the IPO, identifying a target company for an initial business combination. We do not expect to
generate any operating revenues until after the completion of our initial business combination. We may generate non-operating income in
the form of interest income on investments held in the trust account. We incur 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 an initial
business combination.
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For the period from March
22, 2024 (inception) through December 31, 2024, we had a net income of $266,838, which consisted of dividend earned on investments held
in trust account of $657,624, interest income of $2,612, and the change in fair value of over-allotment option liability of $197,895,
which was offset by formation and operating costs of $341,598 and stock-based compensation expense of $249,695.
Liquidity
and Capital Resources
The
Company’s liquidity needs up to December 31, 2024 had been satisfied through a payment from the sponsor of $25,000 for the founder
shares to cover certain offering costs and the proceeds from the public offering and private placements.
Following the closing of the IPO and sale of the Private Placement
Units on October 25, 2024 and the exercising of over-allotment option in part on November 19, 2024, a total of $85,212,500 was placed
in the trust account, and we had $564,299 of cash held outside of the trust account, after payment of costs related to the IPO, and available
for working capital purposes. In connection with the IPO, we incurred $3,408,558 in transaction costs, consisting of $1,275,000 of underwriting
fees, $1,700,000 of deferred underwriting fees, $92,195 of the Representative Shares (as discussed below), and $341,363 of other offering
costs.
In
conjunction with the IPO and the exercising of over-allotment option in part, the Company issued to the underwriter 85,000 Class A ordinary
shares for no consideration (the “Representative Shares”). The fair value of the Representative Shares accounted for as compensation
under the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) 718, “Compensation
– Stock Compensation” (“ASC 718”) is included in the offering costs. The estimated fair value of the Representative
Shares as of the IPO date totaled $92,195.
As of December 31, 2024,
the Company had cash of $447,419 and working capital of $407,150.
For the period from March 22, 2024 (inception) through December 31,
2024, there was $171,290 of cash used in operating activities resulting from dividend earned on investments held in trust account of $657,624,
the change in fair value of over-allotment option liability of $197,895, and increase in prepaid expenses of $9,365. The changes were
offset by net income of $266,838, formation and operating costs paid by Sponsor of $127,427, stock-based compensation expense of $249,695,
the increase in accounts payable and accrued expenses of $35,884, and the increase in due to related parties of $13,750.
For
the period from March 22, 2024 (inception) through December 31, 2024, there was $85,212,500 of cash used in investing activities resulting
from the purchase of investment held in trust account.
For the period from March
22, 2024 (inception) through December 31, 2024, there was $85,831,209 of cash provided by financing activities resulting from the proceeds
of the IPO of $85,000,000 and the proceeds from the Private Placement of $2,550,000. The changes were offset by the repayment of a promissory
note to the sponsor of $273,969, the payment of the underwriter’s discount, net of reimbursement of IPO offering costs, of $1,062,500,
and the payment of IPO offering costs of $382,322.
We
intend to use the funds held outside the trust account to primarily identify and evaluate target businesses, perform business due diligence
on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their
representatives or owners, review corporate documents and material agreements of prospective target businesses, structure, negotiate
and complete an initial business combination.
In
order to fund working capital deficiencies or finance transaction costs in connection with an initial business combination, our directors, officers and the sponsor (together, the “insiders”)
or their affiliates or designees may, but are not obligated to, loan us funds as may be required. If the Company completes the initial
business combination, it would repay such loaned amounts. In the event that the initial business combination does not close, we may use
a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from the trust account would
be used for such repayment. Up to $3,000,000 of such loans (the “Working Capital Loans”) may be convertible into Units of
the Company, at a price of $10.00 per Unit (the “Working Capital Units”) at the option of the lender. As of December 31,
2024, the Company had no borrowings under the Working Capital Loans.
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We
do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However,
if our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an initial business
combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior
to our initial business combination. Moreover, we may need to obtain additional financing either to complete our initial business combination
or because we become obligated to redeem a significant number of our Public Shares upon completion of our initial business combination
in which case we may issue additional securities or incur debt in connection with such initial business combination.
Off-Balance
Sheet Financing Arrangements
We
have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of December 31, 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.
Contractual
Obligations
Registration
Rights
The
holders of the founder shares and Private Placement Units, including any Working Capital Units of those issued upon conversion of
Working Capital Loans will be entitled to registration rights pursuant to a registration rights agreement signed on October 24, 2024
by and among the Company and the insiders. The holders of these securities are entitled to make up to three demands, excluding short form demands, that the Company register
such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration
statements filed after the completion of our initial business combination and rights to require the Company to register for resale
such securities pursuant to Rule 415 under the Securities Act. The Company will bear the costs and expenses of filing any such
registration statements.
Underwriting
Agreement
We granted the underwriters
a 45-day option from the date of the IPO to purchase up to 1,125,000 additional Public Units to cover over-allotments, if any, at the
IPO price less the underwriting discounts and commissions. The underwriters had exercised
the over-allotment option in part and purchased 1,000,000 Public Units on November 19, 2024.
The
underwriters received a cash underwriting discount of $0.15 per Public Unit, or $1,275,000 in the aggregate and paid at the closing of
the IPO and the exercising of over-allotment option in part. In addition, the underwriters will be entitled to a deferred fee of $0.20
per Public Unit, or approximately $1,700,000 in the aggregate upon the consummation of an 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
its initial business combination, subject to the terms of the underwriting agreement dated October 24, 2024, by and between the Company and Clear Street LLC.
Critical
Accounting Estimates
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America
(the “US 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
expenses during the reporting period. Actual results could differ from those estimates. 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. We did not identify any critical accounting estimates.
Recent
Accounting Pronouncements
In November 2023, the
FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The
amendments in this ASU require disclosures, on an annual and interim basis, of significant segment expenses that are
regularly provided to the chief operating officer decision maker (“CODM”), as well as the aggregate amount of other
segment items included in the reported measure of segment profit or loss. The ASU requires that a public entity disclose
the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in
assessing segment performance and deciding how to allocate resources. Public entities will be required to provide all annual
disclosures currently required by Topic 280 in interim periods, and entities with a single reportable segment are required
to provide all the disclosures required by the amendments in this ASU and existing segment disclosures in Topic 280.
This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years
beginning after December 15, 2024, with early adoption permitted. We adopted this ASU for the year ended December 31, 2024 and there
was no material effect on our financial statements.
Management does not believe
that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on our financial
statements.
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Item
7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item
8. Financial Statements and Supplementary Data.
Reference
is made to Pages F-1 through F-18 comprising a portion of this Annual Report on Form 10-K.
Item
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Not
applicable.
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