Borealis Foods(BRLS) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed financial statements and management's analysis of the company's financial condition and operations Item 1. Unaudited Condensed Financial Statements Presents the unaudited condensed financial statements, highlighting asset decline, net loss, and going concern warning Condensed Balance Sheets Details the significant decline in total assets and widening shareholders' deficit due to share redemptions Condensed Balance Sheet Comparison | | March 31, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $20,854,048 | $179,449,742 | | Marketable securities held in Trust Account | $20,767,832 | $178,532,948 | | Cash | $64,004 | $680,792 | | Total Liabilities | $3,975,805 | $2,501,153 | | Promissory note - related party | $1,800,000 | $1,500,000 | | Total Shareholders' Deficit | ($3,889,589) | ($1,584,359) | Condensed Statements of Operations Reports an increased net loss for Q1 2023, driven by higher operating expenses despite increased dividend income Statement of Operations (Three Months Ended March 31) | | 2023 | 2022 | | :--- | :--- | :--- | | Formation and operating expenses | $2,118,542 | $565,542 | | Dividend income | $1,395,063 | $14,360 | | Net loss | ($730,167) | ($551,182) | | Basic and diluted net loss per share | ($0.04) | ($0.03) | Condensed Statements of Changes in Shareholders' (Deficit) Equity Shows a significant increase in shareholders' deficit due to net loss and share remeasurement - The shareholders' deficit worsened to $(3,889,589) as of March 31, 2023, from $(1,584,359) at the start of the year, primarily due to the net loss and remeasurement of Class A ordinary shares subject to redemption[14] Condensed Statements of Cash Flows Highlights cash used in operations, significant cash movements from trust account for share redemptions, and overall cash decrease - Cash withdrawn from the Trust Account for redemptions of Class A ordinary shares amounted to $159.34 million[17] - The company received $300,000 in proceeds from a related-party promissory note to support operations[17] - Net change in cash was a decrease of $616,788, resulting in an ending cash balance of $64,004[17] Notes to the Condensed Financial Statements Provides critical context on the company's SPAC nature, pending business combination, significant share redemptions, and going concern warning - The Company is a blank check company formed to enter into a business combination and has not commenced any operations as of March 31, 2023[20][22] - On February 23, 2023, the Company entered into a business combination agreement with Borealis Foods Inc. The transaction values Borealis at $150 million less net indebtedness[40][41] - On March 2, 2023, shareholders approved extending the business combination deadline to December 8, 2023. In connection, holders of 15,300,532 Class A shares redeemed them for approximately $159.34 million[36][42] - Management has determined that its liquidity condition and the mandatory liquidation deadline raise substantial doubt about the Company's ability to continue as a going concern[51][52] - As of March 31, 2023, the Sponsor had provided loans under an amended promissory note, with an outstanding balance of $1.8 million[118] - On April 5, 2023, the Sponsor converted 1,500,000 Class B ordinary shares into 1,500,000 Class A ordinary shares[144] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the proposed business combination, Q1 2023 net loss, and significant liquidity concerns raising going concern doubt - The company entered into a Business Combination Agreement with Borealis Foods Inc. on February 23, 2023[151] - Shareholders approved extending the business combination deadline to December 8, 2023. This led to redemptions of 15,300,532 Class A shares, totaling approximately $159.34 million and leaving about $20.3 million in the trust account[152] Results of Operations (Three Months Ended March 31) | | 2023 | 2022 | | :--- | :--- | :--- | | Net Loss | $0.73 million | $0.55 million | | Key Drivers | Operating expenses of $2.12M, offset by dividend income of $1.40M | Operating costs of $0.57M, offset by dividend income of $14,360 | - As of March 31, 2023, the company had a working capital deficiency of $3.89 million and only $0.06 million in cash outside the trust account[166] - Management has concluded that the company's liquidity condition and the December 8, 2023, deadline for a business combination raise substantial doubt about its ability to continue as a going concern[170] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is exempt from providing market risk disclosures - As a smaller reporting company, the company is not required to provide quantitative and qualitative disclosures about market risk[184] Item 4. Controls and Procedures Disclosure controls and procedures were ineffective due to a material weakness in accounting for complex financial instruments - The company's disclosure controls and procedures were deemed not effective as of March 31, 2023[186] - The ineffectiveness is due to a material weakness in internal control over financial reporting concerning the accounting for complex financial instruments[186][188] - The company plans to enhance its system of evaluating and implementing accounting standards to remediate the material weakness[188] PART II. OTHER INFORMATION This section presents other relevant information, including legal matters, risk factors, and equity security details Item 1. Legal Proceedings The company reports no legal proceedings - There are no legal proceedings to report[191] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes have occurred to the risk factors disclosed in the Annual Report on Form 10-K filed on March 31, 2023[192] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details equity issuances, IPO proceeds, and the significant impact of share redemptions on the trust account balance - The Initial Public Offering and over-allotment option exercise resulted in aggregate proceeds of $175.95 million being deposited into the Trust Account[197] - In connection with the extension vote on March 2, 2023, redemptions of 15,300,532 Class A shares for approximately $159.34 million reduced the trust account balance to about $20.3 million[198] - On April 5, 2023, the Sponsor converted 1,500,000 Class B ordinary shares into 1,500,000 Class A ordinary shares[199] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities - There are no defaults upon senior securities to report[201] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable[202] Item 5. Other Information The company reports no other information - There is no other information to report[203] Item 6. Exhibits Lists key exhibits filed with the quarterly report, including the Business Combination Agreement and officer certifications - Key exhibits filed include the Business Combination Agreement, Sponsor Support Agreement, and certifications by the Principal Executive Officer and Principal Financial Officer[205]