UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
For the transition period from _________ to _________
Commission
File Number
| (Exact name of registrant as specified in its charter) |
| (State
or other jurisdiction of incorporation or organization) |
(IRS
Employer Identification No.) |
| (Address of principal executive offices and zip code) |
| (Registrant’s telephone number, including area code) |
| N/A |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The Stock Market, LLC | ||||
| The Stock Market, LLC | ||||
| The Stock Market, LLC |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was
required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| Large accelerated filer ☐ | Accelerated filer ☐ |
| |
Smaller reporting
company |
| Emerging growth
company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of August 15, 2022, there were shares of common stock, $0.0001 par value, were issued and outstanding.
SPK ACQUISITION CORP.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2022
TABLE OF CONTENTS
| Page | ||
| PART 1 – FINANCIAL INFORMATION | 3 | |
| Item 1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) | |
| Condensed Consolidated Balance Sheets | 3 | |
| Condensed Consolidated Statements of Operations | 4 | |
| Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) | 5 | |
| Condensed Consolidated Statements of Cash Flows | 6 | |
| Notes to Unaudited Condensed Consolidated Financial Statements | 7 | |
| Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 17 |
| Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 20 |
| Item 4. | CONTROLS AND PROCEDURES | 20 |
| PART II – OTHER INFORMATION | ||
| Item 1. | LEGAL PROCEEDINGS | 21 |
| Item 1A. | RISK FACTORS | 21 |
| Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 21 |
| Item 3. | DEFAULTS UPON SENIOR SECURITIES | 21 |
| Item 4. | MINE SAFETY DISCLOSURES | 21 |
| Item 5. | OTHER INFORMATION | 21 |
| Item 6. | EXHIBITS | 22 |
| SIGNATURES | 23 | |
2
PART 1 –– CONDENSED CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
SPK ACQUISITION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
| June
30, 2022 | December 31,
2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Marketable securities held in trust account | ||||||||
| Total current assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Due to related party | ||||||||
| Franchise taxes payable | ||||||||
| Deferred underwriting fee payable | ||||||||
| Total current liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| Redeemable Common Stock | ||||||||
| Common stock subject to possible redemption, $ par value, shares at redemption value of $ and $10.00 per share as of June 30, 2022 and December 31, 2021, respectively | ||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Common Stock; $ par value; shares authorized; shares issued and outstanding (excluding shares subject to possible redemption) | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
SPK
ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||
| General and administrative | $ | $ | $ | $ | ||||||||||||||
| Franchise tax | ||||||||||||||||||
| Total expenses | ||||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| OTHER INCOME | ||||||||||||||||||
| Interest income | ||||||||||||||||||
| Total other income | ||||||||||||||||||
| Income taxes provision | ||||||||||||||||||
| NET INCOME ( LOSS) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Basic and diluted weighted average shares outstanding of redeemable common stock | ||||||||||||||||||
| Basic and diluted net income (loss) per share outstanding of redeemable common stock | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||
| Basic and diluted weighted average shares outstanding of non-redeemable common stock | ||||||||||||||||||
| Basic and diluted net loss per share of non-redeemable common stock | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
SPK
ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS
OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
| Common Stock | Additional Paid-In | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
| Balance as of January 1, 2022 | $ | $ | ( |
) | $ | ( |
) | |||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||
| Balance as of March 31 , 2022 | $ | $ | ( |
) | $ | ( |
) | |||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||
| Subsequent measurement of common stock subject to redemption (interest earned on trust account) | — | ( |
) | ( |
) | |||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Common stock | Additional | Total | ||||||||||||||||||
| Paid-In | Accumulated | Stockholders’ | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
| Balance as of January 1, 2021 | $ | $ | $ | $ | ||||||||||||||||
| Issuance of common stock to Sponsor | ||||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | ( |
) | $ | ||||||||||||||
| Sale of public units in initial public offering | ||||||||||||||||||||
| Issuance of shares to underwriter | ||||||||||||||||||||
| Sale of private units to insiders | ||||||||||||||||||||
| Underwriter’s compensation | — | ( |
) | ( |
) | |||||||||||||||
| Initial measurement of Common Stock Subject to Redemption under ASC 480-10-S99 against additional paid-in capital | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
| Offering costs | — | ( |
) | ( |
) | |||||||||||||||
| Deduction for increase of carrying value of redeemable shares | — | ( |
) | ( |
) | ( |
) | |||||||||||||
| Allocation of offering costs to common stock subject to redemption | — | |||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
SPK
ACQUISITION CORP.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2022 | For the Six Months Ended June 30, 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Interest earned in trust account | ( | ) | ||||||
| Due to related party | ( | ) | ||||||
| Prepaid expenses and other assets | ||||||||
| Accounts payable accrued expenses | ||||||||
| Franchise tax Payable | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Cash remitted to Trust Account | ( | ) | ||||||
| Proceeds from Trust Account to pay franchise tax | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from issuance of insider shares to the initial stockholders | ||||||||
| Proceeds from issuance of promissory note to related party | ||||||||
| Proceeds from sale of private units | ||||||||
| Proceeds from initial public offering | ||||||||
| Payment of underwriter compensation | ( | ) | ||||||
| Payment of offering costs | ( | ) | ||||||
| Repayment of promissory note | ( | |||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash | ( | ) | ||||||
| Cash, beginning of the period | ||||||||
| Cash, end of the period | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash remitted to Trust Account for term extension | $ | $ | ||||||
| Deferred underwriting compensation | $ | $ | ||||||
| Representative shares issued and charged to offering costs | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
SPK
ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 — Organization and Business Operation
SPK Acquisition Corp. (the “Company”) is a newly organized blank check company incorporated pursuant to the General Corporation Law of the State of Delaware on December 31, 2020 that was formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (the “initial business combination”). The Company’s efforts to identify a prospective target business will not be limited to a particular industry or geographic region, although the Company intends to focus on operating businesses in the sectors of telecommunications, media, and technology (“TMT”) in Asia. The Company did not any specific business combination target with respect to the initial business combination.
On February 11, 2022, SPK entered into a Merger Agreement (the “Merger Agreement”) by and among Varian Biopharmaceuticals, Inc., a Florida corporation (“Varian”), SPK, and SPK Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of SPK (“Merger Sub”). These entities had not commenced any operations as of June 30, 2022. Pursuant to the terms of the Merger Agreement, a business combination between SPK and Varian will be effected through the merger of Merger Sub with and into Varian with Varian surviving the merger as a wholly owned subsidiary of SPK (the “Merger”).
As of June 30, 2022, the Company had not commenced any operations. All activity through June 30, 2022 relates to the Company’s formation and initial public offering (the “Initial Public Offering”), which is described below, and, since the offering, the search for a prospective Initial Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income earned on investments from the proceeds derived from the Initial Public Offering. The registration statement for the Company’s Initial Public Offering was declared effective on June 7, 2021. On June 10, 2021, the Company consummated the Initial Public Offering of units (the “Units”) with respect to the Common Stock (the “Common Stock”) included in the Units being offered (the “Public Shares”) at $.00 per Unit generating gross proceeds of $50,000,000, which is discussed in Note 3.
Simultaneously
with the closing of the Initial Public Offering, the Company consummated the sale of
On July 20, 2021, the underwriters notified the Company of their intention to partially exercise their over-allotment option. On July 22, 2021, the Company consummated the sale of an additional 91,196 Units, at $10.00 per Unit, and the sale of an additional 1,824 Private Placement Units, at $10.00 per Private Placement Unit, generating total gross proceeds of $930,200.
Offering
costs for the Initial Public Offering and underwriters’ partial exercise of the over-allotment option amounted to $3,211,839, consisting
of $
Following
the closing of the Initial Public Offering on June 10, 2021, an amount of $
The
Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering
and the sale of the Private Units, although substantially all of the net proceeds are intended to be applied generally toward consummating
a Business Combination. The Company’s initial Business Combination must be with one or more target businesses that together have
a fair market value equal to at least
7
The Company will provide its holders of the outstanding Public Shares with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a 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 $10.00 per share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations). The per-share amount to be distributed to stockholders who redeem their shares will not be reduced by the deferred underwriting commission the Company will pay to the underwriters (as discussed in Note 6).
All of the Public Shares contain a redemption feature which allows for the redemption of such Public Shares in connection with the Company’s liquidation, if there is a shareholder vote or tender offer in connection with the Company’s Business Combination and in connection with certain amendments to the Company’s amended and restated certificate of incorporation (the “Certificate of Incorporation”). In accordance with the rules of the U.S. Securities and Exchange Commission (the “SEC”) and its guidance on redeemable equity instruments, which has been codified in Accounting Standards Codification (“ASC”) 480-10-S99, redemption provisions not solely within the control of a company require ordinary shares subject to redemption to be classified outside of permanent equity. Given that the Public Shares will be issued with other freestanding instruments (i.e., public rights), the initial carrying value of the Public Shares classified as temporary equity will be the allocated proceeds determined in accordance with ASC 470-20. The Public Shares are subject to ASC 480-10-S99. If it is probable that the equity instrument will become redeemable, the Company has the option to either (i) accrete changes in the redemption value over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of the instrument or (ii) recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The Company has elected to recognize the changes immediately. The accretion or remeasurement will be treated as a deemed dividend (i.e., a reduction to retained earnings, or in absence of retained earnings, additional paid-in capital).
Redemptions of the Company’s Public Shares may be subject to the satisfaction of conditions, including minimum cash conditions, pursuant to an agreement relating to the Company’s Business Combination. If the Company seeks shareholder approval of the Business Combination, the Company will proceed with a Business Combination if a majority of the shares voted are voted in favor of the Business Combination, or such other vote as required by law or share exchange rule. If a shareholder vote is not required by applicable law or share exchange listing requirements and the Company does not decide to hold a shareholder vote for business or other reasons, the Company will, pursuant to its Certificate of Incorporation, conduct the redemptions pursuant to the tender offer rules of the SEC and file tender offer documents with the SEC prior to completing a Business Combination. If, however, shareholder approval of the transaction is required by applicable law or share exchange listing requirements, or the Company decides to obtain shareholder approval for business or other reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks shareholder approval in connection with a Business Combination, the Sponsor has agreed to vote its Founder Shares (as defined in Note 5) and any Public Shares purchased during or after the Initial Public Offering in favor of approving a Business Combination. Additionally, each Public Stockholder may elect to redeem their Public Shares without voting, and if they do vote, irrespective of whether they vote for or against the proposed transaction.
Notwithstanding the above, if the Company seeks stockholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Amended and Restated Certificate of Incorporation provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate of 20% or more of the Public Shares, without the prior consent of the Company.
The Sponsor has agreed to waive its liquidation rights with respect to the Private Shares if the Company fails to complete a Business Combination within the Combination Period. However, if the Sponsor or any of its respective affiliates acquire Public Shares after the Initial Public Offering, such Public Shares will be entitled to liquidating distributions from the Trust Account if the Company fails to complete a Business Combination within the Combination Period. The underwriters have agreed to waive their rights to their deferred underwriting commission (see Note 6) held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period and, in such event, such amounts will be included with the other funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution will be less than the Initial Public Offering price per Unit ($10.00).
8
In order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a vendor for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amounts in the Trust Account to below the lesser of (i) $10.00 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 $10.00 per Public 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 who executed a waiver of any and all rights to the monies held in the Trust Account nor will it apply to any claims under the Company’s indemnity of the underwriters of Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
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 taxes, 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 the Company’s board of directors, dissolve and liquidate, subject in the case of clauses (ii) and (iii) to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
On February 11, 2022, SPK entered into a Merger Agreement by and among Varian , SPK, and SPK Merger Sub, Inc. Pursuant to the terms of the Merger Agreement, a business combination between SPK and Varian will be effected through the merger of Merger Sub with and into Varian with Varian surviving the merger as a wholly owned subsidiary of SPK. The board of directors of SPK has (i) approved and declared advisable the Merger Agreement, the Additional Agreements (as defined in the Merger Agreement) and the transactions contemplated thereby and (ii) resolved to recommend approval of the Merger Agreement and related transactions by the stockholders of SPK.
On March 1, 2022, SPK filed Form S-4 Registration Statement with the SEC regarding the proposed Merger between SPK and Varian.
On April 25, 2022 and June 17, the Company filed Form S-4A containing Amendment No. 1 and Amendment No. 2, respectively, to the Registration Statement to address comments SPK received from the SEC regarding the Registration Statement.
On June 6, 2022, pursuant to the Merger Agreement, Varian remitted a cash payment of $509,120 to the Trust Account for the cost to extend the time for SPK to complete the Business Combination by three months until September 10, 2022.
On June 17, 2022, the Company filed Amendment No. 2 to the Current Report on Form 8-K/A regarding non-reliance on previously issued financial statements and restated the Company’s balance sheet as of June 10, 2021.
Risks and Uncertainties
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic which continues to spread throughout the United States and the world. As of the date the financial statements were issued, there was considerable uncertainty around the expected duration of this pandemic. Management continues to evaluate the impact of the COVID-19 pandemic and the Company has concluded that while it is reasonably possible that COVID-19 could have a negative effect on completing the Proposed Public Offering and subsequently identifying a target company for a Business Combination, the specific impact is not readily determinable as of the date of the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Going Concern and Liquidity
As
of June 30, 2022, the Company had $
9
Until the consummation of a Business Combination, the Company will be using funds held outside of the Trust Account for paying existing accounts payable, identifying and evaluating prospective acquisition candidates, performing business due diligence on prospective target businesses, traveling to and from the offices, plants or similar locations of prospective target businesses, reviewing corporate documents and material agreements of prospective target businesses, selecting the target business to acquire and structuring, negotiating and consummating the business combination. If the Company’s estimates of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, the Company may have insufficient funds available to operate its business prior to a Business Combination.
These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern one year from the date the financial statement is issued. The financial statement does not include any adjustments that might result from its inability to consummate a Business Combination or its inability to continue as a going concern.
Note 2 — Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are presented in U.S. Dollars and in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries as outlined in Note 1 where the Company has the ability to exercise control. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the period ended December 31, 2021, as filed with the SEC on March 31, 2022. The interim results for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any future periods.
Emerging Growth Company Status
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (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 shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company that is neither an emerging growth company nor an emerging growth company that 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 financial statements in conformity with 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. Accordingly, the actual results could differ significantly from those estimates.
10
Cash and Cash Equivalents
The
Company considers cash equivalents to be highly liquid investments with a maturity at the date of purchase of three months or less. The
Company had cash of $
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 $
Investments Held in Trust Account
At
June 30, 2022, substantially all of the assets held in the Trust Account are comprised of investments in money market funds that
invest in U.S. government 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 interest earned on marketable
securities held in Trust Account in the accompanying condensed statements of operations. The estimated fair values of investments
held in Trust Account are determined using available market information. Trust Account
activities during six months ended June 30, 2022 included interest income of $
Offering Costs
Offering
costs were $
Offering
costs related to the underwriters’ partial exercise of their over-allotment option totaled $
Common stock subject to possible redemption
The Company accounts for its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Shares of common stock subject to mandatory redemption (if any) is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features 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) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, at June 30, 2022, shares of common stock subject to possible redemption is presented as temporary equity, outside of the stockholders’ equity section of the Company’s balance sheet. The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable ordinary shares to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable ordinary shares are affected by charges against additional paid-in capital and accumulated deficit if additional paid in capital equals to zero.
The Company complies with accounting and disclosure requirements of FASB ASC 260, Earnings Per Share. In order to determine the net income (loss) attributable to both the redeemable shares and non-redeemable shares, the Company first considered the undistributed income (loss) allocable to both the redeemable shares and non-redeemable shares and the undistributed income (loss) is calculated using the total net loss less any dividends paid. We then allocated the undistributed income (loss) ratably based on the weighted average number of shares outstanding between the redeemable and non-redeemable shares. Any remeasurement of the accretion to redemption value of the common shares subject to possible redemption was considered to be dividends paid to the public shareholders. As of June 30, 2022, the Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into ordinary shares and then share in the earnings of the Company. As a result, diluted loss per share is the same as basic loss per share for the period presented.
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The net income (loss) per share presented in the statement of operations is based on the following:
| For the three months ended | For the six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Accretion of temporary equity to redemption value | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net loss including accretion of temporary equity to redemption value | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| For the three months ended June 30, 2022 | For the three months ended June 30,2021 | |||||||||||||||
| Redeemable shares |
Non-redeemable shares |
Redeemable shares |
Non-redeemable shares | |||||||||||||
| Basic and Diluted net income (loss) per share: | ||||||||||||||||
| Numerators: | ||||||||||||||||
| Allocation of net losses included accretion | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Accretion of temporary equity to redemption value | ||||||||||||||||
| Allocation of net income (loss) | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | ||||||
| Denominators: | ||||||||||||||||
| Weighted-average shares outstanding | ||||||||||||||||
| Basic and diluted net income (loss) per share | $ | ( |
) | ( |
) | $ | $ | ( |
) | |||||||
| For the six months ended June 30, 2022 | For
the six months ended June
30, 2021 | |||||||||||||||
| Redeemable shares |
Non-redeemable shares |
Redeemable shares |
Non-redeemable shares | |||||||||||||
| Basic and Diluted net income (loss) per share: | ||||||||||||||||
| Numerators: | ||||||||||||||||
| Allocation of net losses included accretion | $ | ( |
) | $ | ( |
) | $ | ( |
$ | ( |
) | |||||
| Accretion of temporary equity to redemption value | ||||||||||||||||
| Allocation of net income (loss) | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | ||||||
| Denominators: | ||||||||||||||||
| Weighted-average shares outstanding | ||||||||||||||||
| Basic and diluted net income (loss) per share | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | ||||||
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature.
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. Deferred tax assets were offset entirely by a valuation allowance as of June 30, 2022.
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.
The Company may be subject to potential examination by federal, state and city taxing authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal, state and city tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months. The Company is subject to income tax examinations by major taxing authorities since inception.
Recent Accounting Pronouncements
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 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
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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 for fiscal years beginning after December 15, 2023, and should be applied on a full or modified retrospective basis. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted ASU 2020-06 effective January 1, 2021. The adoption of ASU 2020-06 did not have a material impact on the Company’s financial statement.
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statement.
Note 3 — Public Offering
Pursuant
to the Initial Public Offering , the Company sold units at a price of $ per unit (the “public units”) for
gross proceeds of $
Note 4 — Private Placement
Concurrently
with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of
On
July 20, 2021, the underwriters notified the Company of their intention to partially exercise their over-allotment. On July 22, 2021,
the Company consummated the sale of an additional Private Placement Units, at $ per Private Placement Unit for an aggregate
purchase price of $
Note 5 — Related Party Transactions
Founder Shares
Pursuant to a subscription agreement dated January 28, 2021, the Company issued 1,437,500 shares of common stock to the Sponsor for $25,000, or approximately $0.017 per share (“insider shares”). The 1,437,500 founder shares held or controlled by the insiders include an aggregate of up to 187,500 shares subject to forfeiture to the extent that the underwriters’ over-allotment option is not exercised in full or in part. Since the underwriters did not exercise the over-allotment option in full, on July 22, 2021, 164,701 founder shares were forfeited for no consideration. Accordingly, there were founder shares outstanding as of June 30, 2022.
Sponsor Promissory Note
On
February 10, 2021, the Company issued an unsecured promissory note to the Sponsor, pursuant to which the Company may borrow up to an
aggregate principal amount of $
Additionally,
if the funds held outside the trust account after the consummation of the initial public offering are insufficient to meet the Company’s
working capital needs, the Company’s Sponsor or their affiliates may, but are not obligated to loan the Company funds, from time
to time or at any time in an amount they deem reasonable at their sole discretion. Each loan would be evidenced by a promissory note.
The notes would either be paid upon consummation of the Company’s initial business combination without interest, or at the discretion
of the holder up to $
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Related Party Extension Loans
As discussed in Note 1, the Company may extend the period of time to consummate a Business Combination up to two times, each by an additional three months (for a total of 15 months to complete a Business Combination). In order to extend the time available for the Company to consummate a Business Combination, the Sponsor or its affiliates or designees must deposit into the Trust Account $500,000, or $575,000 if the underwriters’ over-allotment option is exercised in full ($0.10 per Public Share in either case, or an aggregate of $1,000,000 (or $1,150,000 if the over-allotment option is exercised in full)), on or prior to the date of the applicable deadline, for each three month extension. Any such payments would be made in the form of a non-interest bearing, unsecured promissory note. Such notes would either be paid upon consummation of a Business Combination, or, at the relevant insider’s discretion, converted upon consummation of a Business Combination into additional Private Units at a price of $10.00 per Private Unit. The Sponsor and its affiliates or designees are not obligated to fund the Trust Account to extend the time for the Company to complete a Business Combination. As of June 30, 2022, there were no amounts outstanding under this arrangement.
Other
As of June 30,
2022 and December 31, 2021, the Company had a balance due to related party of $
Note 6 — Commitments and Contingencies
Registration Rights
Pursuant to a registration rights agreement entered into on January 28, 2021, the holders of the Founder Shares, the Private Units, and any shares that may be issued in payment of Working Capital Loans (and all underlying securities) will be entitled to registration rights pursuant to a registration rights agreement requiring the Company to register such securities for resale. The holders of a majority of these securities are entitled to make up to two demands that the Company register such securities. The holders of the majority of the Founders Shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these shares of common stock are to be released from escrow. The holders of a majority of the Private Units (and underlying securities) and securities issued in payment of Working Capital Loans can elect to exercise these registration rights at any time commencing on the date that the Company consummates a Business Combination. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the consummation of a Business Combination. Notwithstanding the foregoing, Chardan may not exercise its demand and “piggyback” registration rights after five (5) and seven (7) years, respectively, after the effective date of the Initial Public Offering and may not exercise its demand rights on more than one occasion. The registration rights agreement does not contain liquidating damages or other cash settlement provisions resulting from delays in registering the Company’s securities. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Risks and Uncertainties
Management is currently evaluating the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the pandemic 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 these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Legal Fees
The Company has agreed to pay its counsel $50,000 upon closing of the initial business combination. In the event that no business combination is completed, no amounts will be due.
Underwriter’s Agreement
The Company granted the underwriters a 45-day option from the final prospectus relating to the Initial Public Offering to purchase up to 750,000 additional Units to cover over-allotments, if any, at the Initial Public Offering price less the underwriting discounts and commissions.
On July 20, 2021, the underwriters notified the Company of their intention to partially exercise their over-allotment option. On July 22, 2021, the Company consummated the sale of an additional 91,196 Units, at $10.00 per Unit.
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On January 21, 2021, the Company entered into an agreement with an underwriter who acted as lead managing underwriter of the Initial Public Offering. Pursuant to this agreement, in addition to the above noted compensation, the Company issued to the underwriter shares of its common stock valued at $10.00 per share in an amount equal to 0.5% of the gross proceeds of the offering.
The underwriters were paid a cash underwriting discount of $0.20 per unit, or $1,018,240 in the aggregate at the closing of the Initial Public Offering (which includes amounts related to the partial exercise of the over-allotment option). In addition, the underwriters are entitled to a deferred underwriting commissions of $0.35 per unit, or $1,527,358 in the aggregate from the closing of the Initial Public Offering (which includes amounts related to the partial exercise of the over-allotment option). 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.
Representative Shares
In June and July 2021, the Company issued to the designees of the underwriter 25,456 shares of common stock (the “Representative Shares”). The Company accounted for the Representative Shares as an offering cost of the Initial Public Offering, with a corresponding credit to shareholders’ equity. The Company estimated the fair value of the Representative Shares to be $10.00 per share ($254,560 in the aggregate) based upon the price of the Public Shares sold at the IPO. The holders of the Representative Shares have agreed not to transfer, assign, or sell any such shares until the completion of a Business Combination. In addition, the holders have agreed (i) to waive their conversion rights (or right to participate in any tender offer) with respect to such shares in connection with the completion of a Business Combination and (ii) to waive their rights to liquidating distributions from the Trust Account with respect to such shares if the Company fails to complete a Business Combination within the Combination Period.
The Representative Shares have been deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following the effective date of the registration statement related to the Initial Public Offering pursuant to FINRA Rule 5110(e)(1). Pursuant to FINRA Rule 5110(e)(1), these securities will not be the subject of any hedging, short sale, derivative, put or call transaction that would result in the economic disposition of the securities by any person for a period of 180 days immediately following the effective date of the registration statements related to the Initial Public Offering, nor may they be sold, transferred, assigned, pledged or hypothecated for a period of 180 days immediately following the effective date of the registration statements related to the Initial Public Offering except to any underwriter and selected dealer participating in the Initial Public Offering and their officers or partners, associated persons or affiliates.
Right of First Refusal
The Company has granted the underwriter, subject to certain conditions for a period of 18 months after the date of the consummation of the initial business combination, a right of first refusal to act as a co-manager or placement agent, with at least 25% of the economics, for any and all future public and private equity and debt offerings. The duration of such right of first refusal is limited not more than three years by certain regulatory rules.
Note 7 — Stockholders’ Deficit
Common Stock
The Company is authorized to issue shares of common stock with a par value of $ per share. As of June 30, 2022, there were shares issued and outstanding (excluding 5,091,196 shares subject to possible redemption), after giving effect to the forfeiture of 164,701 shares to the Company by the Sponsor for no consideration since the underwriters’ 45-day over-allotment option was not exercised in full, so that the Sponsor owns 20% of the Company’s issued and outstanding Common Stock after the Initial Public Offering.
Common Stock Subject to Possible Redemption
As of June 30, 2022, there were common shares subject to possible redemption are presented at redemption value of $per share as temporary equity, outside of the shareholders’ equity section of the Company’s balance sheet (see Note 2).
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Rights
Except in cases where the Company is not the surviving Company in a business combination, the holders of the rights will automatically receive 1/10 of a share of common stock upon consummation of the Company’s initial business combination. In the event the Company will not be the surviving company upon completion of the initial business combination, each holder of a right will be required to affirmatively convert his, her or its rights in order to receive the 1/10 of a share underlying each right upon consummation of the business combination. The Company will not issue fractional shares in connection with an exchange of rights. 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. As of June 30, 2022, no rights had been issued.
Note 8 — Fair Value Measurements
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
| Level 1: | Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. | |
| Level 2: | Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. | |
| Level 3: | Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability. | |
At June 30, 2022, assets held in the Trust Account were entirely comprised of marketable securities.
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis at June 30, 2022 and December 31, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.
| June 30, 2022 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||||||
| Assets | ||||||||||||||||
| Marketable Securities in the Trust Account | ||||||||||||||||
| December 31, 2021 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||||||
| Assets | ||||||||||||||||
| Marketable Securities in the Trust Account | ||||||||||||||||
Note 9 — Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to August 15, 2022 were available to be issued. Other than described below, the Company did not identify any other subsequent events that would have required adjustment or disclosure in the unaudited condensed financial statements.
On July 13, 2022, the Company filed a Form 10-K/A Amendment No. 1 to its Annual Report to amend its Annual Report on Form 10-K for the year ended December 31, 2021, restating Note 9 and Note 10 to the financial statements to update their conclusion to restate the Form 8-K IPO closing balance sheet.
On August 1, 2022, the Company filed a preliminary proxy statement for general meeting of stockholders to consider and vote on proposals to amend the Company’s Charter and Trust agreement, and allow the Board to extend the date to business combination from September 10, 2022 to December 10, 2022. On August 8, 2022, the Company received a letter from the SEC in relation to this filing.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this report (this “Quarterly Report”) to “we,” “us” or the “Company” refer to SPK Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to SPK Acquisition, LLC The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s final prospectus for its Initial Public Offering (as defined below) filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s filings with the SEC can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries where the Company has the ability to exercise control. All significant intercompany balances and transactions have been eliminated in consolidation. Activities in relation to the noncontrolling interest are not considered to be significant and are, therefore, not presented in the accompanying unaudited condense consolidated financial statements.
Overview
We are a blank check company incorporated on December 31, 2020, as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We consummated our IPO on June 10, 2021. Our primary purpose was to locate a suitable target for an initial business combination.
We intend to use the cash proceeds from our IPO and the Private Placement, as well as additional issuances, if any, of our capital stock, debt or a combination of cash, stock and debt to complete the business combination.
We have incurred and expect to continue to incur significant costs in the pursuit of our initial business combination. We cannot assure you that our plans to raise capital or to complete our initial business combination will be successful.
As of June 30, 2022, a total of $51,428,661 (inclusive of interest earned) of the net proceeds from the IPO (including the partial exercise of the over-allotment option) and the Private Placement were in a trust account established for the benefit of the our public shareholders. The trust fund account is invested in money market funds that invest in U.S. government securities and the income earned on those investments is also for the benefit of our public shareholders.
Our management has broad discretion with respect to the specific application of the net proceeds of IPO and the Private Placement, although substantially all of the net proceeds are intended to be applied generally towards consummating a business combination.
Results of Operations
As of June 30, 2022, we had not commenced any operations. All activity for the period from December 31, 2020 (inception) through the year ended June 30, 2022 relates to our formation and IPO, and, since the completion of the IPO, searching for a target to consummate a business combination. We will not generate any operating revenues until after the completion of a business combination, at the earliest. We will generate non-operating income in the form of interest income from the proceeds derived from the IPO and placed in the trust account.
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For the quarter ended June 30, 2022, we had a net loss of $152,162, which consisted of loss of approximately $190,107 primarily derived from general and administrative expenses of $182,007, offset by $37,945 interest income earned on marketable securities from our trust account. For the six months ended June 30, 2022, we had a net loss of $592,765, which consisted of loss of approximately $631,422 primarily derived from general and administrative expenses of $615,522, offset by $38,657 interest income earned on marketable securities from our trust account.
Liquidity and Capital Resources
As of June 30, 2022, we (i) had cash outside our trust account of $52,269, available for working capital needs, and (ii) $51,428,661 held in the trust account, inclusive of interest earned. All cash held in the trust account is generally unavailable for our use, prior to an initial business combination.
On June 10, 2021, we consummated the IPO of the Units at $10.00 per Unit, generating gross proceeds of $50,000,000. Simultaneously with the consummation of the IPO, we consummated the Private Placement with our Sponsor of 205,000 Private Units at a price of $10.00 per Private Unit, generating total proceeds of $2,050,000. On July 20, 2021, the underwriters partially exercised the over-allotment option and purchased an additional 91,196 Units at a price of $10.00 per unit resulting in total gross proceeds of $911,960. Simultaneously with the sale of the additional Units, the Company consummated the sale of an additional 1,824 Private Units at $10.00 per additional Private Unit, generating additional gross proceeds of $18,240. A total of $50,911,960 of the net proceeds from the sale of Units in the IPO (including the over-allotment option units) and the Private Placement, were placed in a trust account established for the benefit of the Company’s public shareholders at J.P. Morgan Chase Bank, N.A. maintained by Continental Stock Transfer & Trust Company, acting as trustee.
For the six months ended June 30, 2022, there was $239,592 of cash used in operating activities.
We intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on the trust account (excluding the deferred underwriters’ discount) to complete our initial business combination. We may withdraw interest to pay our taxes and liquidation expenses if we are unsuccessful in completing a business combination. For the quarter ended June 30, 2022, we withdrew $30,633 of the total interest earned in the trust account to pay for our 2021 franchise tax. Our annual income tax obligations will depend on the amount of interest and other income earned on the amounts held in the trust account reduced by our operating expenses and franchise taxes. We expect the interest earned on the amount in the trust account will be sufficient to pay our income taxes, if we choose to use such funds to do so. To the extent that our equity or debt is used, in whole or in part, as consideration to complete our initial business combination, the remaining proceeds held in the trust account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
Further, our Sponsor, officers and directors or their respective affiliates may, but are not obligated to, provide Working Capital Loans. If we complete a business combination, we would repay the Working Capital Loans. In the event that a business combination does not close, we 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. Such Working Capital Loans would be evidenced by promissory notes. The notes would either be repaid upon consummation of a business combination, without interest, or, at the lender’s discretion. As of June 30, 2022, no Working Capital Loans have been issued.
If our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a business combination are more than the actual amount held outside of the trust account, we may have insufficient funds available to operate our business prior to our business combination. Moreover, we may need to obtain additional financing either to complete our business combination or because we become obligated to redeem a significant number of our public shares upon consummation of our business combination, in which case we may issue additional securities or incur debt in connection with such business combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our business combination. If we are unable to complete our business combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the trust account. In addition, following our business combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of June 30, 2022. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
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Contractual Obligations
As of June 30, 2022, we did not have any long-term debt, capital or operating lease obligations.
The underwriters are entitled to a deferred fee of $0.30 per Unit, or $1,527,358.
Legal counsel is entitled to a payment of $50,000 upon the closing of a business combination. If no business combination is completed, no amounts will be due.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Common Stock Subject to Possible Redemption
We account for our ordinary shares subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that features redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, common stock are classified as shareholders’ equity. Our common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, common stock subject to possible redemption is presented as temporary equity, outside of the shareholders’ equity section of our condensed balance sheets.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock are affected by charges against additional paid in capital and accumulated deficit.
Net Income (Loss) per Share
The Company complies with accounting and disclosure requirements of FASB ASC 260, Earnings Per Share. In order to determine the net income (loss) attributable to both the redeemable shares and non-redeemable shares, the Company first considered the undistributed income (loss) allocable to both the redeemable shares and non-redeemable shares and the undistributed income (loss) is calculated using the total net loss less any dividends paid. We then allocated the undistributed income (loss) ratably based on the weighted average number of shares outstanding between the redeemable and non-redeemable shares. Any re-measurement of the accretion to redemption value of the common shares subject to possible redemption was considered to be dividends paid to the public shareholders.
Offering Costs
Offering costs were consisting principally of underwriting, legal, accounting and other expenses incurred through the balance sheet date that are related to the IPO and were charged to stockholders’ equity upon the completion of the IPO. The Company allocates offering costs between public shares and public rights based on the relative fair values of public shares and public rights.
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 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
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amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is for fiscal years beginning after December 15, 2023, and should be applied on a full or modified retrospective basis. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted ASU 2020-06 effective January 1, 2021. The adoption of ASU 2020-06 did not have a material impact on the Company’s financial statement.
Our management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
JOBS Act
The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” under the JOBS Act and are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company,” we choose to rely on such exemptions we may not be required to, among other things, (i) provide an independent registered public accounting firm’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the independent registered public accounting firm’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of this offering or until we are no longer an “emerging growth company,” whichever is earlier.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company we are not required to make disclosures under this Item.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2022. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were not effective as of June 30, 2022, due to a previously reported material weakness in our internal control over financial reporting related to the Company’s accounting for redeemable common stock. As a result, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. generally accepted accounting principles. A result of the material weakness is that the Form 8-K that included the closing audited balance sheet needs to be amended. Management believes that the financial statements included in this Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the period presented.
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Changes in Internal Control Over Financial Reporting
There were changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the period which had the beneficial effect of mitigating the material weakness in our internal controls over financial reporting as identified and reported in our Form 10-Q for the quarter ended September 30, 2021. In order to address this material weakness in our internal controls, the Company replaced its financial consultant responsible for preparing the Company’s internal financial statements with a new financial consultant. Since our new financial consultant has joined, our internal controls have experienced a significant improvement in quality and speed of preparation, beginning with our fiscal year 2021 Form 10-K filing.
As
previously disclosed, management has identified a material weakness in internal controls related to the accounting for our complex financial
instruments, including redeemable equity instruments as describe above, that contributed to the conclusion that the Form 8-K that included
the closing audited balance sheet needs to be amended. In light of the material weakness identified, although we have processes to identify
and appropriately apply applicable accounting requirements, we plan to continue to enhance our processes to identify and appropriately
apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply
to our financial statements. Our plans at this time include providing enhanced access to accounting literature, research materials and
documents and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting
applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives
will ultimately have the intended effects
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report:
| * | Filed herewith. |
| ** | Furnished herewith. This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filings of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SPK Acquisition Corp. | ||
| Date: August 15, 2022 | By: | /s/ Sophie Ye Tao |
| Sophie Ye Tao | ||
| Chief Executive Officer (Principal Executive Officer) | ||
| Date: August 15, 2022 | By: | /s/ Philip Chun-Hun Kwan |
| Philip Chun-Hun Kwan | ||
| Chief Financial Officer (Principal Financial and Accounting Officer) |
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