ITEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 Part II, 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” in this Annual Report and in the “Risk
Factors” section of our Prospectus.
Overview
We are a blank check company formed under the
laws of the State of Delaware on November 23, 2021, whose business purpose is to effect a merger, capital stock exchange, asset
acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We intend to effectuate our
initial business combination using cash from the proceeds of the initial public offering and the sale of the private placement warrants,
our capital stock, debt or a combination of cash, stock 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.
17
Results of Operations
We have neither engaged in any operations nor
generated any revenues to date. Our only activities from November 23, 2021 (inception) through December 31, 2023 were organizational
activities, those necessary to prepare for the initial public offering, and subsequent to the initial public offering, identifying a target
company for a business combination. We do not expect to generate any operating revenues until after the completion of our business combination.
We generate non-operating income in the form of interest income on marketable securities 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.
For the year ended December 31, 2023, we
had a net loss of $308,792, which consists of formation and operating costs of $309,018, offset by the income tax benefit of $226.
For the year ended December 31, 2022, we had
a net loss of $181,003, which consists of formation and operating costs.
Liquidity and Capital Resources
On December 29, 2023, we consummated our IPO
of 6,900,000 units, which includes the partial exercise by the underwriters of their over-allotment option in the amount of 800,000 units,
at $10.00 per unit, generating gross proceeds of $69,000,000. Simultaneously with the closing of the IPO, we consummated the sale of
2,457,000 Private Placement Warrants at a price of $1.00 per Private Placement Warrant, in a private placement to the sponsor, generating
gross proceeds of $2,457,000.
Following the IPO, the partial exercise of the
over-allotment option, and the sale of the Private Placement Warrants, a total of $69,000,000 was placed in the trust account. We incurred
$4,651,705 consisting of $586,500 of cash underwriting fees, $2,518,500 of deferred underwriting fees, and $1,546,705 of other offering
costs.
For the year ended December 31, 2023, cash
used in operating activities was $83,200. Net loss of $308,792 was affected by payment of office expenses made by sponsor of $269,251
and a courtesy discount on legal fees of $11,301. Changes in operating assets and liabilities used $32,358 of cash from operating activities.
For the year ended December 31, 2022, cash
used in operating activities was $0. Net loss of $181,003 was affected by payment of office expenses made by sponsor of $113,601. Changes
in operating assets and liabilities provided $67,402 of cash from operating activities.
As of December 31, 2023, we had $69,000,000
of cash held in the trust account. Through December 31, 2023, we have not withdrawn any interest earned from the trust account.
We intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on the
trust account (less income taxes payable), to complete our business combination. To the extent that our capital stock or debt is used,
in whole or in part, as consideration to complete our 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.
As of December 31, 2023, we had cash of
$656,977. We intend to use the funds held outside the trust account to fund our SEC and tax compliance and to 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, and structure, negotiate and complete a business combination.
We may need to raise additional funds in order
to meet the expenditures required for operating our business. If our estimate 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, 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.
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In order to fund working capital deficiencies
or finance transaction costs in connection with a business combination, our sponsor, or certain of our officers and directors or their
affiliates may, but are not obligated to, loan us funds as may be required. if we complete a business combination, we would repay such
loaned amounts. In the event that a 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 our trust account would be used for such repayment. Such loans may be
convertible into warrants of the post-business combination entity at a price of $1.00 per warrant, at the option of the lender. The warrants
would be identical to the private placement warrants, including as to exercise price, exercisability and exercise period.
Going Concern
In connection with the Company’s assessment
of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Update (“ASU”)
2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” we have determined
that mandatory liquidation, should a business combination not occur, and an extension not be approved by the stockholders of the Company,
and potential subsequent dissolution and the liquidity issue raise substantial doubt about the Company’s ability to continue as
a going concern through December 29, 2024, the scheduled liquidation date of the Company if it does not complete a business combination
prior to such date. Management plans to complete a business combination before the mandatory liquidation date. However, there can be
no assurance that the Company will be able to consummate any business combination by December 29, 2024. These financial statements do
not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary
should the Company be unable to continue as a going concern.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities,
which would be considered off-balance sheet arrangements as of December 31, 2023.
Contractual Obligations
We do not have any long-term debt, capital lease
obligations, operating lease obligations or long-term liabilities. We are party to an administrative services agreement with our sponsor,
Bengochea SPAC Sponsors I LLC. Our sponsor has agreed that until the Company consummates a business combination, it will make such office
space, as well as general and administrative services including utilities and administrative support, available to the Company as may
be required by the Company from time to time.
The underwriters were entitled to a deferred
underwriting discount of 3.65% of the gross proceeds of the IPO, or $2,518,500, payable upon the closing 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 we complete
a business combination, subject to the terms of the underwriting agreement.
Critical Accounting Policies
The preparation of financial statements and related
disclosures in conformity with GAAP 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 not identified any critical accounting policies
as of December 31, 2023.
19
Recent Accounting Standards
Management does not believe that any other recently
issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not required for smaller reporting companies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
This information appears following Item 15 of
this Annual Report and is included herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Dismissal of Independent Registered Public
Accounting Firm
On May 24, 2023, our Board of Directors ratified
the dismissal of Marcum LLP (the “Former Auditor”) as the Company’s independent registered public accounting firm,
effective as of May 17, 2023. The dismissal was not due to any disagreements with the Former Auditor on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure.
The reports of the Former Auditor on the Company’s
financial statements for the period from November 23, 2021 (inception) through December 31, 2021 did not contain an adverse opinion or
a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles except that the report
contained an explanatory paragraph stating that there was substantial doubt about the Company’s ability to continue as a going
concern. For the period from November 23, 2021 (inception) through the date of the Former Auditor’s termination on May 17, 2023,
there were no “disagreements” (as defined in Item 304(a)(1)(iv) of Regulation S-K and related
instructions) with the Former Auditor on any matter of accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements if not resolved to the satisfaction of the Former Auditor would have caused the Former Auditor
to make reference thereto in its reports on the financial statements for such period. During the period November 23, 2021 (inception)
through the date of the Former Auditor’s termination on May 17, 2023, there were no “reportable events” (as
defined in Item 304(a)(1)(v) of Regulation S-K).
The Company provided the Former Auditor with
a copy of the disclosure it is making herein in connection with its filing of the Prospectus (in which a substantially identical disclosure
appears), and requested that the Former Auditor furnish the Company with a copy of its letter addressed to the SEC, stating whether or
not the Former Auditor agrees with the statements related to them made by the Company. A copy of the Former Auditor’s letter to
the SEC, dated October 18, 2023, was filed with Amendment No. 2 to the Company’s Registration Statement on Form S-1 (No. 333-275076),
which Amendment No. 2 was filed with the SEC on December 22, 2023, and such copy of the Former Auditor’s letter is filed as Exhibit
16 to this Annual Report and incorporated herein by reference.
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On May 24, 2023, the Board of Directors of our
company ratified the appointment of MaloneBailey, LLP, as the Company’s new independent registered public accounting firm, effective
as of the signing of MaloneBailey, LLP’s engagement letter on May 23, 2023, to perform independent audit services on the balance
sheets of our company, as of December 31, 2022, and December 31, 2021, and the related statements of operations, changes in stockholder’s
equity, and cash flows for the year ended December 31, 2022, and for the period from November 23, 2021 (inception) through December 31,
2021.
During the period from November 23, 2021 (inception)
to the date of MaloneBailey, LLP’s engagement, May 23, 2023, we, or anyone on our behalf, did not consult with MaloneBailey, LLP
regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of
audit opinion that might be rendered with respect to the financial statements of the Company, and no written report or oral advice was
provided to the Company by MaloneBailey, LLP that was an important factor considered by the Company in reaching a decision as to any accounting,
auditing or financial reporting issue; or (ii) any matter that was the subject of a “disagreement” (as defined in Item 304(a)(1)(iv)
of Regulation S-K and the related instructions) or a “reportable event” (as that term is defined in Item 304(a)(1)(v) of Regulation
S-K).
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed
to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported
within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our
management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate
to allow timely decisions regarding required disclosure.
Under the supervision and with the participation
of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation
of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended December 31, 2023, as such term
is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal
financial and accounting officer have concluded that during the period covered by this report, our disclosure controls and procedures
were not effective at a reasonable assurance level and, accordingly, provided reasonable assurance that the information required to be
disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms.
Management’s Annual Report on Internal
Control Over Financial Reporting
This Annual Report does not include a report
of management’s assessment regarding internal control over financial reporting or an attestation report of our independent registered
public accounting firm due to a transition period established by rules of the SEC for newly public companies.
Changes in Internal Control Over Financial
Reporting
Other than the matters set forth above, there
were no changes in our internal control over financial reporting that occurred during the fourth quarter of the fiscal year covered by
this Annual Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS
THAT PREVENT INSPECTIONS
Not applicable.
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part
III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE
The following table sets forth information about our directors and
executive officers as of March 28, 2024.
Name Age Title
Jose Antonio Bengochea 32 Chief Executive Officer and Director
Brian Turner 63 Chair
Ken Hertz 64 Director
Jane Waxman 58 Chief Financial Officer and Director
William Caragol 57 Chief Operating Officer
Scott Morris 65 Director
JoseAntonio Bengochea,
Esq., is our company’s Founder and has served as our Chief Executive Officer since November 2021. Mr. Bengochea is also
a member of our Board of Directors. Mr. Bengochea is the Founder and Chief Executive Officer of Bengochea Capital LLC, an investment firm
founded in 2020 to pursue frontier asset classes and, through Mr. Bengochea’s network of connections to various industry executives
and celebrities, to examine global opportunities in media and entertainment. Bengochea Capital has been present at the Cannes Film Festival,
among other prestigious events, and was a registered media entity with the Recording Academy for the 2023 Grammy Awards and is a registered
media entity for the upcoming 2024 Grammy Awards. Prior to founding Bengochea Capital, Mr. Bengochea was a part of Sony’s Global
Business Development team in Los Angeles from 2018 to 2020. After graduating Harvard Law School and Harvard Business School with a J.D.
and M.B.A. in 2017, Mr. Bengochea worked as a corporate attorney at the law firm Jenner & Block in New York City. Mr. Bengochea also
holds an A.B. summa cum laude from Harvard University where he designed his own degree, entitled Comparative Imperial History, with a
secondary degree in Archaeology.
Brian
Turner, our Chair of the Board since inception, has served on numerous public and private companies Boards of Directors since
July 2009. Mr. Turner was the Chief Financial Officer of Coinstar Inc. from 2003 until June 2009. Prior to Coinstar, from 2001 to 2003,
he served as Senior Vice President of Operations, Chief Financial Officer, and Treasurer of Real Networks, Inc., a digital media and technology
company. Prior to Real Networks, from 1999 to 2001, Mr. Turner was employed by Bsquare Corp., a software company, where he initially served
as Senior Vice President of Operations, Chief Financial Officer, and Secretary, before being promoted to President and Chief Operating
Officer. From 1995 to 1999, Mr. Turner was Chief Financial Officer and Vice President of Administration of Radisys Corp., an embedded
software company. Mr. Turner’s experience also includes 13 years at PricewaterhouseCoopers LLP where he held several positions including
Director of Corporate Finance. Mr. Turner was formerly Chairman of the Board of Microvision, Inc. (NASDAQ: MVIS), a public company in
the lidar space, and is now Chair of the Audit Committee for MVIS. Mr. Turner has also been a director for several private companies.
Mr. Turner holds a Bachelors of Business Administration in Accounting and a Bachelors of Arts in Political Science from the University
of Washington.
Ken Hertz, a member of our Board
of Directors since inception, has served as a Senior Partner in the Los Angeles law firm of Hertz Lichtenstein Young & Polk LLP since
2007. Mr. Hertz and his partners specialize in representing talent, senior executives, entrepreneurs, agencies, and brands in entertainment,
fashion, sports, media, and technology industries. Prior to forming the firm, Mr. Hertz had been a partner in Hansen Jacobson & Teller,
since 1989. Before that, he was global head of music – business and legal affairs – for The Walt Disney Company. He is also
a principal in memBrain – an entertainment marketing and strategy consulting firm that advises a number of C-Suite executives on
their company’s entertainment related marketing strategies. memBrain has worked with Intel, McDonald’s, Hasbro, MillerCoors,
Li & Fung and Logitech. Mr. Hertz has also been an active early-stage venture investor and advisor since 1997 and is a frequent speaker
and commentator on the subjects of entertainment, marketing and convergence. He is often quoted in the New York Times, Los Angeles Times,
and Wall Street Journal, has appeared on CNBC’s monthly newsmagazine “Business Nation,” has been an instructor at UCLA’s
Anderson Graduate School of Management, Marshall School of Business, Stanford Business School, and an adjunct professor of law at USC.
He graduated UCLA with a J.D. in 1984 and U.C. Berkeley in 1981 with a B.S.
Jane Waxman, our Chief Financial
Officer and a director since inception, has extensive experience in the film entertainment industry with a diverse background in operations
and financial management. Throughout her 30-year tenure at 20th Century Fox from 1990 to 2019, she served in a variety of roles
within the finance organization. Most notably, as Executive Vice President and Deputy CFO, she was responsible for driving strategic priorities,
setting financial priorities, policies and procedures and controls for the global finance organization. In her roles, she provided financial
leadership and guidance to over 300 employees in all finance divisions including film production, theatrical, home entertainment and television
marketing and distribution, financial reporting, accounting, corporate compliance, and strategic sourcing. Before joining 20th
Century Fox, Ms. Waxman was a Senior Auditor at Ernst & Young. Ms. Waxman earned her bachelor’s degree from the University of
California, Santa Barbara. She currently also serves on the board of Jonathan Jaques Children’s Cancer Center at Miller’s
Children’s Hospital and served as sponsorship committee co-chair from 2010 to 2017.
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William Caragol, our Chief Operating
Officer since inception, has over thirty years of experience working with growth stage companies. In 2018, he founded and is the Managing
Director of Quidem LLC, a corporate strategic and financial advisory firm. Since July 2021 he has been the Chief Financial Officer of
Mainz Biomed N.V. (NASDAQ: MYNZ), a molecular genetics diagnostic company specializing in the early detection of cancer. Since 2015, Mr.
Caragol has been Chairman of the Board of Thermomedics, Inc., a privately held medical diagnostic equipment company. Since July 2021,
Mr. Caragol has served on the Board of Directors of Worksport Ltd. (NASDAQ: WKSP), a growth stage technology company. Since July 2023,
Mr. Caragol has served on the Board of Directors of Janover, Inc. (NASDAQ: JNVR), a B2B fintech marketplace company. From 2021 to 2023,
Mr. Caragol served on the Board of Directors and was Chairman of the Audit Committee of Greenbox POS (NASDAQ: GBOX) a financial technology
company leveraging proprietary blockchain security to build customized payment solutions. Mr. Caragol earned a B.S. in business administration
and accounting from Washington & Lee University and is a member of the American Institute of Certified Public Accountants.
Scott Morris, a member of our Board
of Directors since inception, has been Chairman of Avista (NYSE: AVA) since 2008. Mr. Morris started his career at AVA in 1981. From 2008
to 2019, he served as the Company’s Chief Executive Officer and served as Avista’s President from 2008 to 2018. Prior to that,
Mr. Morris was also the company’s Chief Operating Officer. His experiences include management positions in multiple industries,
including construction, customer service, and utilities. He is a graduate of Gonzaga University and received his master’s degree
from Gonzaga University in organizational leadership. He also attended the Stanford Business School Financial Management Program and the
Kidder Peabody School of Financial Management. Mr. Morris serves on the boards of McKinstry Inc. and California Water Service. He is also
on the Board of Trustees of Gonzaga University. He has served on a number of Spokane nonprofit and economic development Boards.
Strategic Advisors
Our Strategic Advisors will assist our management
team in search of suitable acquisition targets. However, they have no written advisory agreement with us. Moreover, they are not Board
members, have no fiduciary obligations to us, will not perform Board or committee functions and will not have any voting or decision-making
power. Accordingly, if any of our advisors becomes aware of a business combination which is suitable for any of the entities to which
he has fiduciary or contractual obligations (including other blank check companies), he will honor his fiduciary or contractual obligations
to present such business combination opportunity to such entity, and only present it to us if such entity rejects the opportunity. Nonetheless,
we believe them to be powerful assets whose networks, experiences, and accolades make them value-enhancing additions to our team. They
are as follows:
Kosaku Yadais the current
CEO and co-founder of Westbrook Inc., which he co-founded in 2019 alongside Will Smith, Jada Smith, and Miguel Melendez. Mr. Yada is also
a director on the board of the Smith Family Circle, the wealth office of the Smith Family and was the Founding CEO of the Smith Family
Circle; a director of the consumer products company JUST Goods, Inc.; a Managing Partner
at Dreamers VC; and the owner and operator of a private investment and holding company, The Yada Company. Prior, Mr. Yada had extensive
experience building companies and brands in Japan, having founded an early-stage VC company in Tokyo (The Sonar Group). Mr. Yada also
founded K2D in 2021, which he sold to a Japanese public entity. Mr. Yada is a graduate of Harvard University (A.B., 2007).
Miguel Melendez is Co-Founder of
Westbrook Inc. and Just Water and Partner of Three Six Zero Entertainment. Miguel has been a talent and business management executive
for over three decades and has been with the Smith Family for over 20 years. Melendez established and guided the careers of numerous recording
artists and international pop acts, including Academy Award and Grammy Award winner Jennifer Hudson, Grammy Award winning artist Robin
Thicke and Teddy Riley’s Blackstreet to name a few. Melendez began his career in New York working for Fever Records & Management
and as a road manager for pop sensation New Kids on the Block. He went on to found Melendez Entertainment Group, which joined forces with
Overbrook Entertainment founders Jada Pinkett Smith, Will Smith and James Lassiter, in 2000. Melendez’s creative partnership with
client Jada Pinkett Smith has produced a variety of successful content in both television and film including the Emmy Award winning Facebook
Watch series, Red Table Talk, the critically acclaimed TNT series Hawthorne and the Queen Latifah Talk Show for CBS.
Number and Terms of Office of Officers and
Directors
We have five directors on our Board of Directors.
Our Board of Directors is divided into three classes, each of which will generally serve for a term of three years with only one class
of directors being elected in each year. Direction elections will be held at our annual meetings of stockholders. In accordance with NASDAQ
corporate governance requirements, we are not required to hold an annual meeting until one year after our first fiscal year end following
our listing on NASDAQ.
Our officers are appointed by the Board and serve
at the discretion of the Board, rather than for specific terms of office. Our Board is authorized to appoint persons to the offices set
forth in our organizational documents as it deems appropriate. Our organizational documents provide that our officers may consist of a
Chair of the Board (if such individual is also an officer), Vice Chairman of the Board (if such individual is also an officer), Chief
Executive Officer, President, Chief Financial Officer, Chief Operating Officer, Secretary and Treasurer. Our Board of Directors, in its
discretion, may also elect one or more Vice Presidents (including Executive Vice Presidents and Senior Vice Presidents), Assistant Secretaries,
Assistant Treasurers, a Controller and such other officers as in the judgment of the Board of Directors may be necessary or desirable.
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Director Independence
Currently Brian Turner, Ken Hertz and Scott Morris
are each considered an “independent director” under the NASDAQ listing rules, which is defined generally as a person other
than an officer or employee of the company or its subsidiaries or any other individual having a relationship, which, in the opinion of
the company’s board of directors would interfere with the director’s exercise of independent judgment in carrying out the
responsibilities of a director.
Our independent directors will have regularly
scheduled meetings at which only independent directors are present.
Any affiliated transactions will be on terms no
less favorable to us than could be obtained from independent parties. The audit committee of our Board of Directors will review and approve
all affiliated transactions with any interested director abstaining from such review and approval.
Officer and Director Compensation
None of our officers or directors has or is expected
to receive any cash compensation for services rendered to us. We have agreed to pay $12,000 per month to our sponsor, Bengochea SPAC Sponsors
I LLC, pursuant to an administrative services agreement pursuant in exchange for management support, administrative, office space, and
other services, which amounts our sponsor would have discretion to use as it sees fit in connection with its operations, including, potentially,
by making payments to our Chief Executive Officer in his individual capacity because he is also the Chief Executive Officer of our sponsor.
Additionally, after our initial business combination, members of our management team who remain with us may be paid consulting, management
or other fees from the combined company (to the extent such an arrangement is negotiated with the prospective target company). For a description
of the administrative services agreement and additional details about potential post-business combination consulting, management or other
fees, see Part III, Item 11 (Executive Compensation).
Committees of the Board of Directors
Our Board of Directors has four standing committees:
an executive committee, an audit committee, a compensation committee and a nominating and corporate governance committee. Subject to phase-in
rules and a limited exception, NASDAQ rules and Rule 10A-3 of the Exchange Act require that the audit committee of a listed company be
comprised solely of independent directors, and subject to certain limited exceptions, NASDAQ rules require that the compensation committee
and nominating committee of a listed company be comprised solely of independent directors. Our audit committee, a compensation committee
and a nominating and corporate governance committee are each governed by a written charter, which charters are filed as Exhibits 99.1,
99.2, and 99.3 to this Annual Report. In addition, a copy of any or all of these charters will be provided by us without charge upon request.
The Board recently reconstituted committee membership
given the recent resignation of one of its directors, and as part of its periodic examination of its size, is currently considering whether
five directors is appropriate for the effectiveness of the Board or whether the Board should be expanded.
Executive Committee
The members of our executive committee are Ken
Hertz, Brian Turner and Jose A. Bengochea. Ken Hertz is the chair of the executive committee. The executive committee has been formed
for the purpose of broadening potential deal pipeline and sourcing targets from the networks of the executive committee members.
Audit Committee
The members of our audit committee are Brian Turner,
Scott Morris, and Ken Hertz, each of whom is an independent director under NASDAQ’s listing standards. Brian Turner is the chair
of the audit committee. The audit committee’s duties, which are specified in our Audit Committee Charter, include, but are not limited
to:
● discussing with management major risk assessment and risk management policies;
● monitoring the independence of the independent auditor;
24
● reviewing and approving all related-party transactions;
● appointing or replacing the independent auditor;
Financial Experts on Audit Committee
The audit committee will at all times be composed
exclusively of “independent directors” who are “financially literate” as defined under NASDAQ’s listing
standards. NASDAQ’s standards define “financially literate” as being able to read and understand fundamental financial
statements, including a company’s balance sheet, income statement and cash flow statement.
In addition, we must certify to NASDAQ that the
committee has, and will continue to have, at least one member who has past employment experience in finance or accounting, requisite professional
certification in accounting, or other comparable experience or background that results in the individual’s financial sophistication.
The Board of Directors has determined that each of Brian Turner and Scott Morris qualifies as an “audit committee financial expert,”
as defined under rules and regulations of the SEC.
Nominating and Corporate Governance Committee
The members of our nominating and corporate governance
committee are Scott Morris, Ken Hertz, and Brian Turner, each of whom is an independent director under NASDAQ’s listing standards.
Scott Morris serves as chair of the nominating and corporate governance committee.
The primary purposes of our nominating and corporate governance committee
will be to assist the Board in:
Guidelines for Selecting Director Nominees
The guidelines for selecting nominees, which are
specified in the Nominating and Corporate Governance Committee Charter, generally provide that person to be nominated:
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The Nominating and Corporate Governance Committee
will consider a number of qualifications relating to management and leadership experience, background and integrity and professionalism
in evaluating a person’s candidacy for membership on our Board. The Nominating and Corporate Governance Committee may require certain
skills or attributes, such as financial or accounting experience, to meet specific board needs that arise from time to time and will also
consider the overall experience and makeup of its members to obtain a broad and diverse mix of board members. The Nominating and Corporate
Governance Committee does not distinguish among nominees recommended by stockholders and other persons.
Compensation Committee
The members of the compensation committee of the
Board of Directors are Ken Hertz, Brian Turner, and Scott Morris, each of whom is an independent director under NASDAQ’s listing
standards. Ken Hertz is the chair of the compensation committee. The compensation committee’s duties, which are specified in our
Compensation Committee Charter, include, but are not limited to:
● reviewing our executive compensation policies and plans;
Code of Ethics
We have adopted a Code of Ethics applicable to
our directors, officers and employees. A copy of our Code of Ethics is filed as Exhibit 14 to this Annual Report. In addition, a copy
of the Code of Ethics will be provided by us without charge upon request. We intend to disclose any amendments to or waivers of certain
provisions of our Code of Ethics in a Current Report on Form 8-K.
Compensation Committee Interlocks and Insider
Participation
None of our officers currently serves, or in the
past year has served, as a member of the compensation committee of any entity that has one or more officers serving on our Board of Directors.
Conflicts of Interest
In general, officers and directors of a corporation
incorporated under the laws of the State of Delaware are required to present business opportunities to a corporation if:
● the corporation could financially undertake the opportunity;
● the opportunity is within the corporation’s line of business; and
Our amended and restated certificate of incorporation
provides that:
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Our officers and directors are, and may in the
future become, affiliated with other companies. In order to minimize potential conflicts of interest which may arise from such other corporate
affiliations, each of our officers and directors has contractually agreed, pursuant to a written agreement with us, until the earliest
of our execution of a definitive agreement for a business combination, our liquidation or such time as he or she ceases to be an officer
or director, to present to our company for our consideration, prior to presentation to any other entity, any suitable business opportunity
which may reasonably be required to be presented to us, subject to any fiduciary or contractual obligations he or she might have. The
foregoing agreement does not restrict our officers from becoming affiliated with other companies in the future which could take priority
over our company; however, we believe that such agreement still benefits us because our officers and directors are obligated to present
suitable business opportunities to us to the extent that none of their other fiduciary or contractual obligations require them to present
it to another entity.
The following table summarizes the pre-existing
fiduciary or contractual obligations of our officers and directors:
Name of Individual(s) Name of Affiliated Company Position at Affiliated Company
Jane Waxman None None
Avista Gonzaga University, Board of Trustees Chairman of the Board Director
Scott Lawrence Morris
McKinstry Inc. Director
California Water Service Director
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While the foregoing may limit the pool of potential
business combination candidates, we do not believe that this limitation will be material.
Investors should also be aware of the following
additional potential conflicts of interest:
For the foregoing reasons, our Board may have
a conflict of interest in determining whether a particular target business is appropriate to effect a business combination with.
To further minimize conflicts of interest, we
have agreed not to consummate an initial business combination with an entity that is affiliated with any of our officers, directors or
initial stockholders unless we have obtained an opinion from an independent investment banking firm, or another independent entity that
commonly renders valuation opinions, that the business combination is fair to our unaffiliated stockholders from a financial point of
view. We will also need to obtain the approval of a majority of our disinterested independent directors. Furthermore, in no event will
any of our initial stockholders, members of our management team or their respective affiliates be paid any compensation prior to, or for
any services they render in order to effectuate, the consummation of an initial business combination (regardless of the type of transaction
that it is) other than the payment of a total of $12,000 per month to our sponsor in exchange for management support, administrative,
office space, and other services, as well as repayment of the loan from our sponsor and reimbursement of any out-of-pocket expenses.
Limitation on Liability and Indemnification
of Officers and Directors
Our amended and restated certificate of incorporation
provides that our directors and officers will be indemnified by us to the fullest extent authorized by Delaware law as it now exists or
may in the future be amended. In addition, our amended and restated certificate of incorporation provides that our directors will not
be personally liable for monetary damages to us for breaches of their fiduciary duty as directors, unless they violated their duty of
loyalty to us or our stockholders, acted in bad faith, knowingly or intentionally violated the law, authorized unlawful payments of dividends,
unlawful stock purchases or unlawful redemptions, or derived an improper personal benefit from their actions as directors.
We have entered into agreements with our officers
and directors to provide contractual indemnification in addition to the indemnification provided for in our amended and restated certificate
of incorporation. Our bylaws also will permit us to secure insurance on behalf of any officer, director or employee for any liability
arising out of his or her actions, regardless of whether Delaware law would permit indemnification. We have purchased a policy of directors’
and officers’ liability insurance that insures our directors and officers against the cost of defense, settlement or payment of
a judgment in some circumstances and insures us against our obligations to indemnify the directors and officers.
These provisions may discourage stockholders from
bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the
likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit
us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement
and damage awards against directors and officers pursuant to these indemnification provisions. We believe that these provisions, the insurance
and the indemnity agreements are necessary to attract and retain talented and experienced directors and officers.
Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Exchange Act requires our
executive officers, directors and persons who beneficially own more than 10% of a registered class of our equity securities to file with
the SEC initial reports of ownership and reports of changes in ownership of our shares of common stock and other equity securities. These
executive officers, directors, and greater than 10% beneficial owners are required by SEC regulation to furnish us with copies of all
Section 16(a) forms filed by such reporting persons.
Based solely on our review of such forms furnished
to us and written representations from certain reporting persons, we believe that all filing requirements applicable to our executive
officers, directors and greater than 10% beneficial owners were filed in a timely manner.
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ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation
No executive officer has received any cash compensation
for services rendered to us. However, we entered into an administrative services agreement pursuant to which, commencing on the date of
the closing of our IPO and lasting for 12 months from such date of closing of our IPO, we will pay $12,000 per month to our sponsor in
exchange for management support, administrative, office space, and other services, which amounts our sponsor would have discretion to
use as it sees fit in connection with its operations, including, potentially, by making payments to our Chief Executive Officer in his
individual capacity because he is also the Chief Executive Officer of our sponsor. This arrangement would be solely pursuant to any agreements
between our Chief Executive Officer and our sponsor, to which the Company is not a party, and any such payments would not be intended
to provide our Chief Executive Officer with compensation in lieu of a salary for his service as Chief Executive Officer of the Company.
Our sponsor, officers and directors, or any affiliate of our sponsor or officers, will also be reimbursed for any out-of-pocket expenses
incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable
business combinations. There is no limit on the amount of out-of-pocket expenses reimbursable by us; provided, however, that to the extent
such expenses exceed the available proceeds not deposited in the trust account, such expenses would not be reimbursed by us unless we
consummate an initial business combination. They may also receive repayment for any loans made by them to us for working capital needs
or extending our time to consummate an initial business combination.
No other cash compensation of any kind, including
any finder’s fee, reimbursement, consulting fee or monies in respect of any payment of a loan, will be paid by us to our sponsor,
officers and directors, or any affiliate of our sponsor or officers, prior to, or in connection with any services rendered in order to
effectuate the consummation of our initial business combination (regardless of the type of transaction that it is).
After our initial business combination, members
of our management team who remain with us may be paid consulting, management or other fees from the combined company with any and all
amounts being fully disclosed to stockholders, to the extent then known, in the proxy solicitation materials furnished to our stockholders.
However, the amount of such compensation may not be known at the time of the stockholder meeting held to consider an initial business
combination, as it will be up to the directors of the post-combination business to determine executive and director compensation. In this
event, such compensation will be publicly disclosed at the time of its determination in a Current Report on Form 8-K or a periodic report,
as required by the SEC.
Clawback Policy
As required by the NASDAQ rules, our Board of
Directors has adopted a clawback policy (the “Clawback Policy”) permitting the Company to seek the recovery of incentive compensation
received by any the Company’s current and former executive officers (as determined by the Compensation Committee of the Company’s
Board of Directors in accordance with Section 10D of the Exchange Act and the rules of the Nasdaq Global Market) and such other senior
executives/employees who may from time to time be deemed subject to the Clawback Policy by the Compensation Committee (collectively, the
“Covered Executives”) during the three completed fiscal years immediately preceding the date on which the Company is required
to prepare an accounting restatement of its financial statements due to the Company’s material noncompliance with any financial
reporting requirement under the securities laws. The amount to be recovered will be the excess of the incentive compensation paid to the
Covered Executive based on the erroneous data over the incentive compensation that would have been paid to the Covered Executive had it
been based on the restated results, as determined by the Compensation Committee. If the Compensation Committee cannot determine the amount
of excess incentive compensation received by the Covered Executive directly from the information in the accounting restatement, then it
will make its determination based on a reasonable estimate of the effect of the accounting restatement. Because we do not anticipate paying
any cash compensation to our prospective Covered Executives, we do not anticipate paying any incentive compensation which could become
subject to clawback under the Clawback Policy.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information regarding
the beneficial ownership of our shares of common stock as of the date of this Annual Report by:
● each of our officers and directors; and
● all of our officers and directors as a group.
Unless otherwise indicated, we believe that all
persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.
The following table does not reflect any contractual rights the individuals below may have to ultimately receive any of the private placement
warrants owned by Bengochea SPAC Sponsors I LLC, as the private placement warrants are not exercisable within 60 days of the date of this
Annual Report on Form 10-K.
(*) Less than 1%, rounded down to the nearest 0.1%
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Our initial stockholders own approximately 22%
of the issued and outstanding shares of common stock. Because of the ownership block held by our officers, directors and initial stockholders,
such individuals may be able to effectively exercise influence over all matters requiring approval by our stockholders, including the
election of directors and approval of significant corporate transactions other than approval of our initial business combination.
All of the founder’s shares outstanding
prior to the date of our IPO have been placed in escrow with Continental Stock Transfer & Trust Company, as escrow agent, until the
earlier of 180 days after the date of the consummation of our initial business combination, or earlier if, subsequent to our initial business
combination, we consummate a liquidation, merger, stock exchange or other similar transaction which results in all of our stockholders
having the right to exchange their shares of common stock for cash, securities or other property.
During the escrow period, the holders of these
shares will not be able to sell or transfer their securities except for transfers, assignments or sales (i) among our initial stockholders
or to our initial stockholders’ members, officers, directors, consultants or their affiliates, (ii) to a holder’s stockholders
or members upon its liquidation, (iii) by bona fide gift to a member of the holder’s immediate family or to a trust, the beneficiary
of which is the holder or a member of the holder’s immediate family, for estate planning purposes, (iv) by virtue of the laws of
descent and distribution upon death, (v) pursuant to a qualified domestic relations order, (vi) to us for no value for cancellation in
connection with the consummation of our initial business combination, or (vii) in connection with the consummation of a business combination
at prices no greater than the price at which the shares were originally purchased, in each case (except for clause (vi) or with our prior
consent) where the transferee agrees to the terms of the escrow agreement and to be bound by these transfer restrictions, but will retain
all other rights as our stockholders, including, without limitation, the right to vote their shares of common stock and the right to receive
cash dividends, if declared. If dividends are declared and payable in shares of common stock, such dividends will also be placed in escrow.
If we are unable to effect a business combination and liquidate, there will be no liquidation distribution with respect to the founder’s
shares.
Our sponsor has also agreed not to transfer, assign
or sell any of the private warrants and underlying securities (except in connection with the same limited exceptions that the founder’s
shares may be transferred as described above) until after the completion of our initial business combination. In the event of a liquidation
prior to our initial business combination, the private warrants will likely be worthless.
In order to meet our working capital needs following
the consummation of our IPO, our initial stockholders, officers, directors and their affiliates may, but are not obligated to, loan us
funds, on a non-interest bearing basis, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion.
Each loan would be evidenced by a promissory note. The notes would be paid upon consummation of our initial business combination, without
interest. 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 our trust account would be used for such repayment.
Our executive officers are our “promoters,”
as that term is defined under the federal securities laws.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE
In November 2021, we issued 5,750,000 shares of
common stock to Bengochea SPAC Sponsors I LLC, for $25,000 in cash, at a purchase price of approximately $0.00435 per share, in connection
with our organization. In September 2022, the initial stockholders surrendered 2,875,000 shares of common stock, resulting in there being
an aggregate of 2,875,000 founder’s shares outstanding. In September 2023, the initial stockholders surrendered 943,000 shares of
common stock for no consideration, resulting in there being an aggregate of 1,932,000 founder’s shares outstanding shares of common
stock. Bengochea SPAC Sponsors I LLC shall subsequently transfer, in connection with the consummation of our initial business combination,
certain of such shares to our officers, directors and other individuals at the same price originally paid for such shares. Following the
expiration date for the over-allotment option exercise described in our Prospectus, our initial stockholders forfeited an aggregate of
32,200 shares of common stock in proportion to the portion of the over-allotment option that was not exercised by the underwriters in
our IPO.
The holders of our founder’s shares issued
and outstanding on the date of this Annual Report, as well as the holders of the Representative Shares, private warrants and any warrants
our initial stockholders, officers, directors or their affiliates may be issued in payment of working capital loans made to us (and all
underlying securities), will be entitled to registration rights pursuant to a registration rights agreement we entered into on December
27, 2023. The holders of a majority of these securities are entitled to make up to two demands that we register such securities. The holders
of the majority of the founder’s 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 Representative Shares,
private warrants and warrants issued in payment of working capital loans made to us (or underlying securities) can elect to exercise these
registration rights at any time after we consummate a business combination. In addition, the holders have certain “piggy-back”
registration rights with respect to registration statements filed subsequent to our consummation of a business combination. Notwithstanding
anything to the contrary, EF Hutton may only make a demand on one occasion and only during the five-year period beginning on the effective
date of the registration statement of which this Annual Report forms a part. In addition, EF Hutton may participate in a “piggy-back”
registration only during the seven-year period beginning on the effective date of the registration statement of which this Annual Report
forms a part. We will bear the expenses incurred in connection with the filing of any such registration statements.
Prior to the closing of our IPO, our sponsor agreed
to loan us up to $1,500,000 to be used for a portion of the expenses of the IPO. As of December 31, 2023, we had borrowed $557,781 (of
up to $1,500,000 available to us) which remains outstanding after a partial repayment in connection with the Private Placement under the
promissory note with our sponsor, which was used to pay a portion of the expenses of our IPO referenced in the line items above for SEC
registration fee, FINRA filing fee, any non-refundable portion of the NASDAQ listing fee not covered by EF Hutton, a portion of the legal
and audit fees and other offering expenses. This loan is non-interest bearing, unsecured and repayable upon the date on which the Company
consummates its initial business combination or, at the holder’s discretion, if funds allow. The principal balance may be prepaid
at any time.
We will pay $12,000 per month to our sponsor in
exchange for management support, administrative, office space, and other services. We will cease paying these monthly fees 12 months from
the date of the close of our IPO. See “Executive Compensation” for further information relating to this payment and
the possibility that some portion of the amount may be paid by our sponsor to our Chief Executive Officer.
We have entered into agreements with our officers
and directors to provide contractual indemnification in addition to the indemnification provided for in our amended and restated certificate
of incorporation.
Other than the foregoing payments, no compensation
or fees of any kind will be paid to our initial stockholders, members of our management team or their respective affiliates, for services