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 “Item 8. Financial Statements and Supplementary Data” of this
Annual Report on Form 10-K. Certain information contained in the discussion and analysis set forth below includes forward-looking statements.
Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including
those set forth under “Cautionary Note Regarding Forward-Looking Statements and Risk Factor Summary,” and elsewhere in this
Annual Report on Form 10-K.
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 IPO and the sale of the Private Placement Warrants (as
defined below), our capital stock, debt or a combination of cash, stock and debt.
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 warrants (the “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 and the
sale of the Private Placement Warrants, a total of $69,000,000 was placed in the Company’s Trust Account with Continental Stock
Transfer & Trust Company acting as trustee (the “Trust Account”). We incurred $4,651,705 of transaction expenses in connection
with the IPO and the sale of the Private Placement Warrants, consisting of $586,500 of cash underwriting fees, $2,518,500 of deferred
underwriting fees, and $1,546,705 of other offering costs.
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.
On September 29, 2024, the
Company entered into a business combination agreement (the “Business Combination Agreement”), dated as of September 27,
2024, with Rosey Sea Holdings Limited, a company incorporated and existing under the laws of the British Virgin Islands (“Seller”)
and the owner of 100% of the issued and outstanding capital stock of Zhong Guo Liang Tou Group Limited, a company incorporated and existing
under the laws of the British Virgin Islands (the “Target”), pursuant to which the Company will purchase from Seller the ordinary
shares of the Target in exchange for shares of Common Stock, as a result of which the Target will become a wholly owned subsidiary of
the Company. Depending on the number of shares of Common Stock that the holders elect to have the Company redeem in connection with the
proposals presented at the Company’s meeting of stockholders to approve the Business Combination Agreement and the transactions
contemplated thereby and by the related agreements and certain related matters (collectively, the “Transactions”), the Company
will issue between 40,988,000 and 47,888,000 shares of Common Stock to Seller pursuant to the Business Combination Agreement.
On October 14, 2024, the
Company issued unsecured promissory note to the Target to pay or cause to be paid, the Acquiror Transaction Expenses, as may be incurred
from time to time and as such expenses become due and payable. This loan is non-interest bearing, unsecured and repayable upon the date
on which the Company consummates its initial business transaction or, at the Company’s discretion, if funds allow. As of December
31, 2024, there was $425,013 outstanding under the promissory note.
On December 4, 2024, the Company issued an extension note to the Target
to fund the Company’s extension, which extends the period of time to complete a Business Combination to March 29, 2025. As of December
31, 2024, there was $229,770 outstanding under this note reported in Loan Payable in the accompanying audited balance sheets.
The consummation of the
Transactions is subject to the satisfaction of customary closing conditions, including the effectiveness of the registration statement
that the Company is required to file with the SEC, required Nasdaq and regulatory approvals, and the approval of the Business Combination
Agreement, the Transactions and other required shareholder proposals by the Company’s stockholders.
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,
2024 were organizational activities and those necessary to prepare for the IPO and, subsequent to the IPO, identifying a target company
for a business combination. We do not expect to generate any operating revenues until after the completion of our initial 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 in connection with searching for an appropriate target for, and completing, a business combination.
13
For the year ended December 31,
2024, we had net income of $1,375,819, which consists of change in fair value of overallotment liability of $11,135, gain on lawsuit settlements
of $295,000 and interest earned on marketable securities held in the Trust Account of $3,526,053, partially offset by formation and operating
costs of $1,709,829 and provision for income taxes of $746,540.
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, partially offset by the income tax benefit
of $226.
Liquidity and Capital Resources
For the year ended December 31,
2024, cash used in operating activities was $1,012,960. Net income of $1,375,819 was affected by the change in fair value of the overallotment
liability of $11,135, and interest earned on marketable securities held in the Trust Account of $3,526,053. Changes in operating assets
and liabilities provided $1,148,409 of cash from operating activities.
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.
As of December 31, 2024,
we had $72,752,485 of cash held in the Trust Account. Through December 31, 2024, we have withdrawn $3,338 of interest earned from the
marketable securities held in 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 a business combination. To the
extent that our capital stock or debt is used, in whole or in part, as consideration to complete a 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, 2024,
we had cash of $454 outside the Trust Account. Until consummation of a business combination, 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 consummation of a business combination. Moreover, we may need to obtain
additional financing either to complete a business combination or because we become obligated to redeem a significant number of our public
shares upon consummation of a business combination, in which case we may issue additional securities or incur debt in connection with
such business combination.
In order to fund working
capital deficiencies or finance transaction costs in connection with a business combination, the 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 we do not complete a business combination, we may use a portion of the working capital
held outside the Trust Account to repay such loaned amounts but no proceeds from the Trust Account would be used for such repayment. Such
loans may be convertible into warrants to purchase common stock of the post-business combination entity at a price of $1.00 per warrant,
at the option of the lender. These 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
2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” we have determined
that mandatory liquidation, should we not complete a business combination and an extension of our deadline to do so 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 March 29, 2025 (or June 29, 2025, if we extend the period of time to consummate a business
combination as provided in our amended and restated certificate of incorporation), 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 we will be able to consummate any business combination by March 29, 2025 (or,
if extended, June 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.
14
Off-Balance Sheet Financing Arrangements
We have no obligations,
assets or liabilities, which would be considered off-balance sheet arrangements as of December 31, 2024.
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 the sponsor. The sponsor has agreed that until the Company consummates a business combination, it will make 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 in the
IPO 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 Estimates
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 estimates as of December 31, 2024.
Recent Accounting Standards
In November 2023, the FASB
issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments
in this ASU require disclosures, on an annual and interim basis, of significant segment expenses that are regularly provided
to the chief operating officer decision maker (“CODM”), as well as the aggregate amount of other segment items included in
the reported measure of segment profit or loss. The ASU requires that a public entity disclose the title and position of the
CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding
how to allocate resources. Public entities will be required to provide all annual disclosures currently required by Topic 280 in
interim periods, and entities with a single reportable segment are required to provide all the disclosures required by the amendments
in this ASU and existing segment disclosures in Topic 280. This ASU is effective for fiscal years beginning after
December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.
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
None.
15
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure 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, 2024, 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
As required by SEC rules
and regulations implementing Section 404 of the Sarbanes-Oxley Act, our management is responsible for establishing and maintaining adequate
internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with
GAAP. Our internal control over financial reporting includes those policies and procedures that:
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect errors or misstatements in our financial statements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or
compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial
reporting at December 31, 2024. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on our assessments and those criteria,
management determined that we did not maintain effective internal control over financial reporting as of December 31, 2024, due to the
lack of segregation of duties within account processes due to limited personnel and insufficient written policies and procedures for accounting,
IT and financial reporting and record keeping.
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.
16
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 __, 2025.
Name Age Title
Jose Antonio Bengochea 33 Chief Executive Officer and Director
William Caragol 57 Chief Financial Officer and Chief Operating Officer
Brian Turner 64 Chair
Ken Hertz 65 Director
Jane Waxman 59 Director
Scott Morris 66 Director
JoseAntonio Bengochea,
Esq., is our 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. Mr. Bengochea also serves as Chief Executive Officer and Chairman of the Board of Iron Horse Acquisitions Corp.
II, a special purpose acquisition corporation, which filed its registration statement for an initial public offering in January 2025.
Given Mr. Bengochea’s extensive experience in mergers and acquisitions as well as his experience in the media and entertainment
industry, we believe Mr. Bengochea will provide valuable advice as we consider potential merger candidates.
William Caragol, our Chief Operating
Officer since inception and our Chief Financial Officer since October 2024, 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. Mr. Caragol also serves as Chief Financial Officer and Director of Iron Horse Acquisitions Corp. II,
a special purpose acquisition corporation, which filed its registration statement for an initial public offering in January 2025. Given
his financial expertise and successful career as a director and senior executive of numerous public companies, we believe Mr. Caragol
will provide valuable perspectives to executing our strategy of identifying and evaluating merger candidates.
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 was formerly the Chair
of the Audit Committee for MVIS. Since October, 2024 Mr. Turner is a director of Aesthetic Revolution, Inc. 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. . Given his financial expertise and successful career as a director and senior
executive of numerous public companies, we believe Mr. Turner will provide valuable perspectives to executing our strategy of evaluating
merger candidates.
17
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 from UCLA with a J.D. in 1984 and U.C. Berkeley in 1981 with a B.S. Given Mr. Hertz’s extensive experience in
mergers and acquisitions as well as his experience in the media and entertainment industry, we believe Mr. Hertz will provide valuable
advice as we consider potential merger candidates
Jane Waxman, our Chief Financial
Officer from inception through October 2024 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. Given Ms. Waxman’s
extensive experience as a financial executive in the media and entertainment industry, we believe Ms. Waxman will provide valuable
advice as we consider potential merger candidates
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
a Trustee Emeritus of Gonzaga University. He has served on a number of Spokane nonprofit and economic development Boards. Given his financial
expertise and successful career as a director and senior executive of several public companies, we believe Mr. Morris will provide
valuable perspectives to executing our strategy of evaluating merger candidates.
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. Each class of directors is comprised of the following members:
Class Director Name Year Term Expires
Class A Ken Hertz 2027
Class B Jane Waxman 2025
Class B Scott Morris 2025
Class C Jose Antonio Bengochea 2026
Class C Brian Turner 2026
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, 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 may be necessary or desirable.
18
Committees of the Board of Directors
Our Board has four standing
committees: an executive committee, an audit committee, a compensation committee and a nominating and corporate governance committee.
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, compensation committee and nominating and corporate
governance committee are each governed by a written charter, which charters are incorporated by reference as s 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.
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;
● 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, the audit 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 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.
19
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:
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. There
have been no material changes to the procedures by which stockholders may recommend nominees to the Board.
Compensation Committee
The members of the compensation
committee of the Board 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;
20
Code of Ethics
We have adopted a Code of
Ethics applicable to all of our directors and officers, including our principal executive officer, principal financial officer and principal
accounting officer. A copy of our Code of Ethics is incorporated by reference 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.
Insider Trading Policy
We have not adopted an insider
trading policy and procedures governing the purchase, sale, and/or other dispositions of the registrant’s securities by directors,
officers and employees, or the registrant itself, that are reasonably designed to promote compliance with insider trading laws, rules
and regulations, and any listing standards applicable to the registrant. We expect that such a policy will be adopted by the post-business
combination company in connection with a business combination transaction.
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:
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.
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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
Iron Horse Acquisitions Corp. II CEO and Chairman
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
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.
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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.
Delinquent Section 16(a) Beneficial Ownership
Reports
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.
Specific due dates have been established by the SEC, and we are required
to disclose in this Annual Report any failure to file required ownership reports by these dates. Based solely upon a review of forms filed
with the SEC and the written representations of such person, we are aware of the following: (i) the sponsor, Bengochea SPAC Sponsors I
LLC, a greater than 10% stockholder, failed to timely file a Form 3 when the registration statement on Form S-1 (File No. 333-275076)
and the registration statement on Form S-1MEF (File No. 333-276282) with respect to the IPO became effective on December 26, 2023; (ii)
the sponsor, Bengochea SPAC Sponsors I LLC, failed to timely file a Form 4 to report the purchase of 2,457,000 private warrants in a private
placement that was consummated simultaneously with the closing of the IPO on December 29, 2023; and (iii) the sponsor, Bengochea SPAC
Sponsors I LLC, failed to timely file a Form 5 within 45 days after the company’s fiscal year ended on December 31, 2023 to report
the transactions described above, which should have been reported on a Form 3 or Form 4.
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).
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After our initial business
combination, members of our management team who remain with the combined company 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. As disclosed above, the Business Combination Agreement provides that New CFI will enter into
a Consulting Agreement with each of Mr. Bengochea and Mr. Caragol, which will be effective immediately after closing of the business combination.
Mr. Bengochea and Mr. Caragol shall assist New CFI’s management, board of directors and committees in regard to (i) financial reporting,
(ii) SEC filings (iii) coordination with its auditors, (iv) governance issues, (v) investor relations, and (vi) any other activities that
are reasonably requested. In addition, they will attend all New CFI’s Board of Director meetings as an observer. The Consulting
Agreement will be for a six month term post-Closing, unless earlier terminated or extended by the parties. The consulting fee shall be
500,000 restricted shares of New CFI common stock, which shares shall be registered on a registration statement post-Closing. Any additional
compensation to be paid upon extension of the term shall be mutually agreed to by and between New CFI and each of Mr. Bengochea and Mr.
Caragol. New CFI shall reimburse each of Mr. Bengochea and Mr. Caragol for ordinary and customary expenses incurred in performing the
consulting services. Any extraordinary expenses, require consent of New CFI.
Clawback Policy
As required by the NASDAQ
rules, our Board 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 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.
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.
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(*) Less than 1%, rounded down to the nearest 0.1%
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 Shares
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 Shares.
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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 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.
There are no circumstances or arrangements under which there will be
direct transfers of membership interests of the sponsor by Bengochea Capital LLC. In October 2023, Bengochea Capital LLC entered into
Founder’s Shares and Private Warrant Purchase Agreements whereby Bengochea Capital has reserved, in the aggregate, 1,932,000 shares
of Founder Shares and 2,457,000 Private Warrants held by the sponsor to be transferred to certain individuals and funds, after the expiration
of the lock-up period.
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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE
In November 2021, we issued
5,750,000 Founder Shares to our sponsor, 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 Founder Shares for no consideration, resulting in
there being an aggregate of 2,875,000 Founder Shares outstanding. In September 2023, the initial stockholders surrendered 943,000 Founder
Shares for no consideration, resulting in there being an aggregate of 1,932,000 Founder Shares outstanding. In December 2023, we issued
an additional 32,200 Founder Shares to maintain the proportionate share of the sponsor in the Company, resulting in the sponsor holding
1,964,200 Founder Shares. 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, so that the holders would collectively own 22% of the Company’s issued and outstanding shares after the
IPO. On February 12, 2024, the remainder of the over-allotment option to purchase 115,000 Units expired and the 32,200 Founder Shares
were forfeited, resulting in the sponsor holding an aggregate of 1,932,000 Founder Shares.
The holders of our Founder
Shares, 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.