UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarter ended June 30, 2023
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from to
Commission
file number: 001-40129
ARROWROOT
ACQUISITION CORP.
(Exact
Name of Registrant as Specified in Its Charter)
Delaware | | 85-3961600 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer Identification No.) |
4553
Glencoe Ave, Suite 200
Marina
Del Rey, California 90292
(Address
of principal executive offices)
(310)
566-5966
(Issuer’s
telephone number)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Units, each consisting of one share of Class A common stock, $0.0001 par value, and one-half of one redeemable warrant | | ARRWU | | The Nasdaq Stock Market LLC |
Shares of Class A common stock included as part of the units | | ARRW | | The Nasdaq Stock Market LLC |
Redeemable warrants included as part of the units, each whole warrant exercisable for one share of Class A common stock at an exercise price of $11.50 | | ARRWW | | The Nasdaq Stock Market LLC |
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller
reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | | Smaller reporting company | ☒ |
| | Emerging growth company | ☒ |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒ No ☐
As
of August 18, 2023, there were 4,445,813 shares of Class A common stock, $0.0001 par value and 7,187,500 shares of Class B common stock,
$0.0001 par value, issued and outstanding.
ARROWROOT ACQUISITION CORP.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2023
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item
1. Interim Financial Statements
ARROWROOT ACQUISITION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
| |
June 30, 2023 | | |
December 31, 2022 | |
| |
(Unaudited) | | |
| |
ASSETS | |
| | |
| |
Current assets | |
| | |
| |
Cash | |
$ | 299,342 | | |
$ | 145,980 | |
Prepaid expenses | |
| 179,219 | | |
| 76,350 | |
Total Current Assets | |
| 478,561 | | |
| 222,330 | |
Cash and investments held in Trust Account | |
| 45,351,623 | | |
| 290,737,917 | |
TOTAL ASSETS | |
$ | 45,830,184 | | |
$ | 290,960,247 | |
LIABILITIES, CLASS A COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION AND STOCKHOLDERS’ DEFICIT | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 1,758,793 | | |
$ | 1,063,841 | |
Income tax payable | |
| 5,069 | | |
| 383,410 | |
Promissory note - related party | |
| 1,200,000 | | |
| — | |
Forward purchase agreement liability | |
| 1,500,000 | | |
| — | |
Convertible promissory notes - related party | |
| 2,140,000 | | |
| 1,500,000 | |
Total Current Liabilities | |
| 6,603,862 | | |
| 2,947,251 | |
Deferred underwriting fee payable | |
| 10,062,500 | | |
| 10,062,500 | |
Warrant liabilities | |
| 5,656,250 | | |
| 110,000 | |
Total Liabilities | |
| 22,322,612 | | |
| 13,119,751 | |
Commitments and Contingencies | |
| | | |
| | |
Class A common stock subject to possible redemption, $0.0001 par value; 4,445,813 and 28,750,000 shares issued and outstanding at approximately $10.19 and $10.10 per share redemption value at June 30, 2023 and December 31, 2022, respectively | |
| 45,292,603 | | |
| 290,317,507 | |
Stockholders’ Deficit | |
| | | |
| | |
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding | |
| — | | |
| — | |
Class A common stock, $0.0001 par value; 200,000,000 shares authorized, none issued and outstanding (excluding 4,445,813 and 28,750,000 subject to possible redemption) as of June 30, 2023 and December 31, 2022 | |
| — | | |
| — | |
Class B common stock, $0.0001 par value; 20,000,000 shares authorized; 7,187,500 shares issued and outstanding as of June 30, 2023 and December 31, 2022 | |
| 719 | | |
| 719 | |
Accumulated deficit | |
| (21,785,750 | ) | |
| (12,477,730 | ) |
Total Stockholders’ Deficit | |
| (21,785,031 | ) | |
| (12,477,011 | ) |
TOTAL LIABILITIES, CLASS A COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION AND STOCKHOLDERS’ DEFICIT | |
$ | 45,830,184 | | |
$ | 290,960,247 | |
The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements
ARROWROOT ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| |
For the Three Months Ended June 30, | | |
For the Six Months Ended June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
| | |
| | |
| | |
| |
General and administrative expenses | |
$ | 1,384,256 | | |
$ | 332,572 | | |
$ | 2,212,882 | | |
$ | 771,434 | |
Loss from operations | |
| (1,384,256 | ) | |
| (332,572 | ) | |
| (2,212,882 | ) | |
| (771,434 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other (expense) income: | |
| | | |
| | | |
| | | |
| | |
Change in fair value of warrant liabilities | |
| (2,936,250 | ) | |
| 4,506,250 | | |
| (5,546,250 | ) | |
| 10,841,250 | |
Change in fair value of forward purchase agreement | |
| (1,500,000 | ) | |
| — | | |
| (1,500,000 | ) | |
| — | |
Interest expense - promissory note | |
| (4,890 | ) | |
| — | | |
| (4,890 | ) | |
| — | |
Interest earned on cash and investments held in Trust Account | |
| 413,943 | | |
| 336,731 | | |
| 2,613,825 | | |
| 362,360 | |
Total other (expense) income | |
| (4,027,197 | ) | |
| 4,842,981 | | |
| (4,437,315 | ) | |
| 11,203,610 | |
| |
| | | |
| | | |
| | | |
| | |
(Loss) income before provision for income taxes | |
| (5,411,453 | ) | |
| 4,510,409 | | |
| (6,650,197 | ) | |
| 10,432,176 | |
Benefit from (provision for) income taxes | |
| 32,289 | | |
| (21,720 | ) | |
| (423,659 | ) | |
| (21,720 | ) |
Net (loss) income | |
$ | (5,379,164 | ) | |
$ | 4,488,689 | | |
$ | (7,073,856 | ) | |
$ | 10,410,456 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average shares outstanding, Class A common stock | |
| 4,445,813 | | |
| 28,750,000 | | |
| 12,771,004 | | |
| 28,750,000 | |
Basic and diluted net (loss) income per share, Class A common stock | |
$ | (0.46 | ) | |
$ | 0.12 | | |
$ | (0.35 | ) | |
$ | 0.29 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average shares outstanding, Class B common stock | |
| 7,187,500 | | |
| 7,187,500 | | |
| 7,187,500 | | |
| 7,187,500 | |
Basic and diluted net (loss) income per share, Class B common stock | |
$ | (0.46 | ) | |
$ | 0.12 | | |
$ | (0.35 | ) | |
$ | 0.29 | |
The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements.
ARROWROOT ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’ DEFICIT
(UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
2023
| |
Class A Common Stock | | |
Class B Common Stock | | |
Additional Paid-in | | |
Accumulated | | |
Total Stockholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
Balance – January 1, 2023 | |
| — | | |
$ | — | | |
| 7,187,500 | | |
$ | 719 | | |
$ | — | | |
$ | (12,477,730 | ) | |
$ | (12,477,011 | ) |
Accretion of Class A common Stock Subject to Redemption | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (2,355,234 | ) | |
| (2,355,234 | ) |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (1,694,692 | ) | |
| (1,694,692 | ) |
Balance – March 31, 2023 (unaudited) | |
| — | | |
| — | | |
| 7,187,500 | | |
| 719 | | |
| — | | |
| (16,527,656 | ) | |
| (16,526,937 | ) |
Accretion of Class A common Stock Subject to Redemption | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 121,070 | | |
| 121,070 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (5,379,164 | ) | |
| (5,379,164 | ) |
Balance – June 30, 2023 (unaudited) | |
| — | | |
$ | — | | |
| 7,187,500 | | |
$ | 719 | | |
$ | — | | |
$ | (21,785,750 | ) | |
$ | (21,785,031 | ) |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
2022
| |
Class A Common Stock | | |
Class B Common Stock | | |
Additional Paid-in | | |
Accumulated | | |
Total Stockholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
Balance – January 1, 2022 | |
| — | | |
$ | — | | |
| 7,187,500 | | |
$ | 719 | | |
$ | — | | |
$ | (23,181,522 | ) | |
$ | (23,180,803 | ) |
Net income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 5,921,767 | | |
| 5,921,767 | |
Balance – March 31, 2022 (unaudited) | |
| — | | |
| — | | |
| 7,187,500 | | |
| 719 | | |
| — | | |
| (17,259,755 | ) | |
| (17,259,036 | ) |
Accretion of Class A common Stock Subject to Redemption | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (63,459 | ) | |
| (63,459 | ) |
Net income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 4,488,689 | | |
| 4,488,689 | |
Balance – June 30, 2022 (unaudited) | |
| — | | |
$ | — | | |
| 7,187,500 | | |
$ | 719 | | |
$ | — | | |
$ | (12,834,525 | ) | |
$ | (12,833,806 | ) |
The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements.
ARROWROOT ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| |
For the Six Months Ended June 30, | |
| |
2023 | | |
2022 | |
Cash Flows from Operating Activities: | |
| | |
| |
Net (loss) income | |
$ | (7,073,856 | ) | |
$ | 10,410,456 | |
Adjustments to reconcile net (loss) income to net cash used in operating activities: | |
| | | |
| | |
Interest earned on investments held in Trust Account | |
| (2,613,824 | ) | |
| (362,360 | ) |
Change in fair value of warrant liabilities | |
| 5,546,250 | | |
| (10,841,250 | ) |
Change in fair value of forward purchase agreement | |
| 1,500,000 | | |
| — | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Prepaid expenses | |
| (102,869 | ) | |
| 220,962 | |
Accrued expenses | |
| 694,952 | | |
| (162,157 | ) |
Income tax payable | |
| (378,341 | ) | |
| 21,720 | |
Net cash used in operating activities | |
| (2,427,688 | ) | |
| (712,629 | ) |
| |
| | | |
| | |
Cash Flows from Investing Activities: | |
| | | |
| | |
Investment of cash in Trust Account | |
| (640,000 | ) | |
| — | |
Cash withdrawn from Trust Account for payment of franchise and income tax obligations | |
| 1,381,050 | | |
| 123,251 | |
Cash withdrawn from Trust Account in connection with redemptions | |
| 247,259,068 | | |
| — | |
Net cash provided by investing activities | |
| 248,000,118 | | |
| 123,251 | |
| |
| | | |
| | |
Cash Flows from Financing Activities: | |
| | | |
| | |
Proceeds from non-convertible promissory note – related party | |
| 1,200,000 | | |
| — | |
Proceeds from convertible first promissory note – related party | |
| — | | |
| 750,000 | |
Proceeds from convertible second promissory note – related party | |
| 640,000 | | |
| — | |
Redemption of common stock | |
| (247,259,068 | ) | |
| — | |
Net cash (used in) provided by financing activities | |
| (245,419,068 | ) | |
| 750,000 | |
| |
| | | |
| | |
Net Change in Cash | |
| 153,362 | | |
| 160,622 | |
Cash – Beginning of the period | |
| 145,980 | | |
| 262,671 | |
Cash – End of the period | |
$ | 299,342 | | |
$ | 423,293 | |
| |
| | | |
| | |
Supplementary cash flow information: | |
| | | |
| | |
Cash paid for income taxes | |
$ | 802,000 | | |
$ | — | |
The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements.
ARROWROOT ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2023
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Arrowroot Acquisition Corp. (the “Company”)
is a blank check company incorporated in Delaware on November 5, 2020. The Company was formed for the purpose of effecting a merger, capital
stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business
Combination”).
The Company is not limited to a particular industry
or sector for purposes of consummating a Business Combination. The Company is an early stage and emerging growth company and, as such,
the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of June 30, 2023, the Company had not commenced
any operations. All activity through June 30, 2023 relates to the Company’s formation, the initial public offering (“Initial
Public Offering”), which is described below, and identifying a target company for a Business Combination, including activities in
connection with the Proposed Business Combination (as defined and discussed below). The Company will not generate any operating revenues
until after the completion of a Business Combination, at the earliest. The Company generates non-operating income in the form of interest
income from the marketable securities held in the Trust Account (as defined below).
On February 28, 2023, the Company’s stockholders
held a special meeting (the “Special Meeting”) and approved and adopted an amendment to its Amended and Restated Certificate
of Incorporation to extend the period of time for which the Company is required to consummate a Business Combination from March 4, 2023
(the “Original Termination Date”) to July 6, 2023 (the “Charter Extension Date”) and to allow the Company, without
another stockholder vote, to elect to extend the Termination Date to consummate an initial Business Combination on a monthly basis for
up to seven times by an additional one month each time after the Charter Extension Date, by resolution of the Board if requested by the
Sponsor, and upon five days’ advance notice prior to the applicable Termination Date, until February 4, 2024 (each, an “Additional
Charter Extension Date”) for a total of up to eleven months after the Original Termination Date, unless the closing of an initial
Business Combination shall have occurred prior thereto (the “Extension”, such extension deadline, the “Extension Date”,
and such proposal, the “Extension Proposal”). In connection with the Extension, shareholders holding 24,304,187 shares of
the Company’s Class A common stock exercised their right to redeem such shares for a pro rata portion of the funds in the Company’s
Trust Account at a redemption price of approximately $10.17 per share. As a result, following the Special Meeting, approximately $247,259,068
in cash was removed from the Trust Account to pay such holders.
The registration statement for the Company’s
Initial Public Offering was declared effective on March 1, 2021. On March 4, 2021, the Company consummated the Initial Public Offering
of 28,750,000 units (the “Units” and, with respect to the Class A common stock included in the Units sold, the “Public
Shares”), which includes the full exercise by the underwriter of its over-allotment option in the amount of 3,750,000 Units, at
$10.00 per Unit, generating gross proceeds of $287,500,000.
Simultaneously with the closing of the Initial
Public Offering, the Company consummated the sale of 8,250,000 warrants (the “Private Placement Warrants”) at a price of $1.00
per Private Placement Warrant in a private placement to Arrowroot Acquisition LLC (the “Sponsor”), generating gross proceeds
of $8,250,000.
Transaction costs amounted to $16,392,714, consisting
of $5,750,000 in cash underwriting fees, net of reimbursements, $10,062,500 of deferred underwriting fees and $580,214 of other offering
costs.
Following the closing of the Initial Public Offering
on March 4, 2021, an amount of $287,500,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering
and the sale of the Private Placement Warrants was placed in a trust account (the “Trust Account”), located in the United
States and has been invested only in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company
Act of 1940, as amended (the “Investment Company Act”), with a maturity of 185 days or less or in any open-ended investment
company that holds itself out as a money market fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment Company
Act, as determined by the Company, until the earlier of (i) the completion of a Business Combination and (ii) the distribution of the
funds held in the Trust Account, as described below.
The Company’s management has broad discretion
with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of Private Placement Warrants,
although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There
is no assurance that the Company will be able to complete a Business Combination successfully. The Company must complete one or more initial
Business Combinations with one or more operating businesses or assets with a fair market value equal to at least 80% of the net assets
held in the Trust Account (excluding any deferred underwriting fees and taxes payable on the interest earned on the Trust Account).
The Company will only complete a Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding
voting securities of the target or otherwise acquires a controlling interest in the target business sufficient for it not to be required
to register as an investment company under the Investment Company Act.
The Company will provide the holders of the outstanding
Public Shares (the “Public Stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the
completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or
(ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct
a tender offer will be made by the Company. The Public Stockholders will be entitled to redeem their Public Shares for a pro rata portion
of the amount then in the Trust Account (initially $10.00 per Public Share, plus any pro rata interest then in the Trust Account, net
of taxes payable). There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s
warrants.
ARROWROOT ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2023
The Company will only proceed with a Business
Combination if the Company has net tangible assets of at least $5,000,001 following any related redemptions and, if the Company seeks
stockholder approval, a majority of the shares voted are voted in favor of the Business Combination. If a stockholder vote is not required
by applicable law or stock exchange listing requirements and the Company does not decide to hold a stockholder vote for business or other
reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”),
conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”) and file
tender offer documents with the SEC prior to completing a Business Combination. If, however, stockholder approval of the transaction is
required by applicable law or stock exchange listing requirements, or the Company decides to obtain stockholder approval for business
or other reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not
pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with a Business Combination, the Sponsor has
agreed to vote its Founder Shares (as defined in Note 5) and any Public Shares purchased during or after the Initial Public Offering in
favor of approving a Business Combination. Additionally, each Public Stockholder may elect to redeem their Public Shares without voting,
and if they do vote, irrespective of whether they vote for or against the proposed transaction.
Notwithstanding the foregoing, if the Company
seeks stockholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Certificate
of Incorporation provides that a Public Stockholder, together with any affiliate of such stockholder or any other person with whom such
stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate of 15% of the Public
Shares, without the prior consent of the Company.
The Sponsor has agreed (a) to waive its redemption
rights with respect to the Founder Shares and Public Shares held by it in connection with the completion of a Business Combination, (b)
to waive its liquidation rights with respect to the Founder Shares if the Company fails to complete a Business Combination by the Extension
Date and (c) not to propose an amendment to the Certificate of Incorporation (i) to modify the substance or timing of the Company’s
obligation to allow redemptions in connection with a Business Combination or to redeem 100% of its Public Shares if the Company does not
complete a Business Combination within the Combination Period (as defined below) or (ii) with respect to any other provision relating
to stockholders’ rights or pre-Business Combination activity, unless the Company provides the Public Stockholders with the opportunity
to redeem their Public Shares in conjunction with any such amendment. However, if the Sponsor acquires Public Shares in or after the Initial
Public Offering, such Public Shares will be entitled to liquidating distributions from the Trust Account if the Company fails to complete
a Business Combination within the Combination Period.
The Company has until the Extension Date to complete
a Business Combination (the “Combination Period”). If the Company has not completed a Business Combination within the Combination
Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not
more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount
then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to
pay taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares,
which redemption will completely extinguish Public Stockholders’ rights as stockholders (including the right to receive further
liquidating distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval of
the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to
the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There
will be no redemption rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if
the Company fails to complete a Business Combination within the Combination Period.
In order to protect the amounts held in the Trust
Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a third party for services rendered or
products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement,
reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per Public Share and (ii) the actual amount per Public
Share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per public Share due to reductions
in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective
target business who executed a waiver of any and all rights to monies held in the Trust Account nor will it apply to any claims under
the Company’s indemnity of the underwriter of the Initial Public Offering against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the “Securities Act”). Moreover, in the event that an executed waiver is deemed to
be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims.
The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by
endeavoring to have all vendors, service providers (except for the Company’s independent registered public accounting firm), prospective
target businesses and other entities with which the Company does business, execute agreements with the Company waiving any right, title,
interest or claim of any kind in or to monies held in the Trust Account.
Proposed Business Combination
On April 27, 2023, the Company entered into an
Agreement and Plan of Merger (the “Merger Agreement”) with ARAC Merger Sub, Inc., a Delaware corporation and a wholly owned
subsidiary of the Company (“Merger Sub”), and iLearningEngines, Inc., a Delaware corporation (“iLearningEngines”).
ARROWROOT ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2023
The Merger Agreement provides that, among other
things and upon the terms and subject to the conditions thereof, the following transactions will occur (together with the other transactions
contemplated by the Merger Agreement (the “Proposed Business Combination”):
| (i) | at
the closing of the Proposed Business Combination (the “Closing”), in accordance with the Delaware General Corporation Law,
as amended (“DGCL”), Merger Sub will merge with and into iLearningEngines, the separate corporate existence of Merger Sub
will cease and iLearningEngines will be the surviving corporation (the “Surviving Corporation”) and a wholly owned subsidiary
of the Company (the “Merger”); and |
| (ii) | as
a result of the Merger, among other things, the outstanding shares of common stock of iLearningEngines (other than shares subject to
iLearningEngines equity awards, treasury shares and dissenting shares) will be cancelled in exchange for the right to receive a number
of shares of common stock of the Surviving Corporation equal to (x) the sum of (i) the Base Purchase Price (as defined below), minus (ii)
the dollar value of the Company Incentive Amount (as defined below), plus (iii) the aggregate exercise price of the
Company Warrants (as defined in the Merger Agreement) that are issued and outstanding immediately prior to the Effective Time, minus (iv)
the aggregate amount of Note Balance (as defined in the Merger Agreement) divided by (y) $10.00. The “Base Purchase Price”
means an amount equal to $1,285,000,000. The “Company Incentive Amount” means (x) the number of shares of the Company Class
A Common Stock issuable to iLearningEngines securityholders (excluding, for the avoidance of doubt, the holders of Company Convertible
Notes) at the Closing which iLearningEngines and the Company agree, at least two (2) business days prior to the Closing, to issue to
certain private placement investors and non-redeeming stockholders (which amount will equal 82.03125% of all such shares issued to such
investors and non-redeeming stockholders, with the remainder being contributed by the Sponsor), multiplied by (y) $10.00. |
The Board of Directors of the Company (the “Board”)
has (i) approved and declared advisable the Merger Agreement and the Proposed Business Combination and (ii) resolved to recommend approval
of the Merger Agreement and related matters by the shareholders of the Company.
The Merger Agreement is subject to the satisfaction
or waiver of certain customary closing conditions, including, among others, (i) approval of the Proposed Business Combination and related
agreements and transactions by the respective shareholders of the Company and iLearningEngines, (ii) effectiveness of the registration
statement on Form S-4 to be filed by the Company in connection with the Proposed Business Combination, (iii) expiration or termination
of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, (iv) the absence of any injunction, order, statute, rule,
or regulation enjoining or prohibiting the consummation of the Merger, (v) that the Company have at least $5,000,001 of net tangible assets
upon Closing and (vi) receipt of approval for listing on Nasdaq the shares of common stock of the Surviving Corporation to be issued in
connection with the Merger.
Other conditions to the Company’s obligations
to consummate the Merger include, among others, that as of the Closing, (i) iLearningEngines shall have performed all covenants in all
material respects and (ii) no Company Material Adverse Effect (as defined in the Merger Agreement) shall have occurred between the date
of the Merger Agreement and Closing.
Other conditions to iLearningEngines’s obligations
to consummate the Merger include, among others, that as of the Closing, (i) the Company shall have performed all covenants in all material
respects (ii) no Acquiror Material Adverse Effect (as defined in the Merger Agreement) shall have occurred between the date of the Merger
Agreement and Closing and (iii) the amount of cash available in the Trust Account into which substantially all of the proceeds of the
Company’s initial public offering and private placement of its warrants have been deposited for the benefit of its public shareholders,
together with the proceeds of certain private placement investments in the Company or iLearningEngines prior to closing and subject to
the deductions and conditions set forth in the Merger Agreement, including deductions for certain the Company transaction expenses, is
at least equal to or greater than $100,000,000.
The Merger Agreement contains additional covenants,
including, among others, providing for (i) the parties to conduct their respective businesses in the ordinary course through the Closing,
(ii) the parties to not solicit, initiate any negotiations or enter into any agreements for certain alternative transactions, (iii) iLearningEngines
to prepare and deliver to the Company certain audited and unaudited consolidated financial statements of iLearningEngines, (iv) the Company
to prepare and file a registration statement on Form S-4 and take certain other actions to obtain the requisite approval of the Company
shareholders of certain proposals regarding the Proposed Business Combination and (v) the parties to use reasonable best efforts to obtain
necessary approvals from governmental agencies.
Liquidity and Going Concern
On December 29, 2021, the Company issued an unsecured
convertible promissory note (the “First Promissory Note”) with the Sponsor pursuant to which the Sponsor agreed to loan the
Company up to an aggregate principal amount of $1,500,000. Upon issuance, $750,000 was drawn down on the note with an additional $200,000
drawn down on March 17, 2022. On April 21, 2022, the Company drew down the remaining $550,000 pursuant to the terms of the First Promissory
Note. Following this draw down, the full $1,500,000 available under the First Promissory Note was outstanding. There are no remaining
funds available under the First Promissory Note for future drawdowns. As of June 30, 2023 and December 31, 2022, $1,500,000 and $1,500,000
were outstanding under this First Promissory Note, respectively.
The First Promissory Note is subject to the Sponsor’s
approval and does not bear interest. The principal balance of the note will be payable on the earliest to occur of (i) the date on which
the Company consummates its initial Business Combination or (ii) the date that the winding up of the Company is effective (such date,
the “Maturity Date”). In the event the Company consummates its initial Business Combination, the Sponsor has the option on
the Maturity Date to convert all or any portion of the principal outstanding under the First Promissory Note into that number of warrants
(“Working Capital Warrants”) equal to the portion of the principal amount of the First Promissory Note being converted divided
by $1.00, rounded up to the nearest whole number. The terms of the Working Capital Warrants, if any, would be identical to the terms
of the private placement warrants issued by the Company at the time of its initial public offering, as described in the prospectus for
the initial public offering dated March 1, 2021 and filed with the SEC, including the transfer restrictions applicable thereto. The First
Promissory Note is subject to customary events of default, the occurrence of certain of which automatically triggers the unpaid principal
balance of the First Promissory Note and all other sums payable with regard to the First Promissory Note becoming immediately due and
payable.
ARROWROOT ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2023
On February 23, 2023, the Company issued an unsecured
promissory note in the principal amount of $500,000 in favor of the Sponsor (the “Second Promissory Note”), which was funded
in full by the Sponsor upon execution of the Second Promissory Note. The Second Promissory Note is not convertible into Working Capital
Warrants or any other security pursuant to its terms. As of June 30, 2023, the Company had $500,000 outstanding balance under this Second
Promissory Note.
In connection with the approval by the Company’s
stockholders of the Extension Date at the Special Meeting, the Sponsor issued to the Company an unsecured promissory note that matures
upon the Company closing its initial Business Combination (the “Third Promissory Note”). Following the Extension Proposal
being approved, the Sponsor funded $640,000 of the Third Promissory Note. Pursuant to the terms of the Third Promissory Note, on each
Additional Charter Extension Date, the Sponsor must fund the lesser of (a) $160,000 or (b) $0.04 for each public share that is not redeemed
in connection with the Special Meeting for an aggregate deposit of up to the lesser of (x) $1,120,000 or (y) $0.28 for each public share
that is not redeemed in connection with the Special Meeting (if all seven additional monthly extensions are exercised). As of June 30,
2023, the Company had $640,000 outstanding balance under this Third Promissory Note. If the Company completes an initial Business Combination,
the Company will, at the option of the Sponsor, repay the amounts loaned under the Third Promissory Note or convert a portion or all of
the amounts loaned under such promissory note into warrants, which warrants will be identical to the private placement warrants issued
in connection with the Company’s initial public offering. If the Company does not complete an initial Business Combination by the
Extension Date, such promissory note will be repaid only from funds held outside of the Trust Account or will be forfeited, eliminated
or otherwise forgiven.
On June 13, 2023, the Company issued an unsecured
promissory note (the “Fourth Promissory Note” and together with the First Promissory Note, the Second Promissory Note and
the Third Promissory Note, the “Promissory Notes”) in the principal amount of $2,000,000 to the Sponsor, of which $700,000
was funded by the Sponsor upon execution of the Fourth Promissory Note. The Fourth Promissory Note bears interest at 15% per annum and
matures upon closing of the Company’s initial Business Combination. In the event that the Company does not consummate an initial
Business Combination, the Fourth Promissory Note will be repaid only from funds held outside of the Trust Account or will be forfeited,
eliminated or otherwise forgiven. The Fourth Promissory Note may be further drawn down from time to time prior to the Maturity Date upon
request by the Company subject to the Sponsor’s approval. The Fourth Promissory Note is subject to customary events of default,
the occurrence of certain of which automatically triggers the unpaid principal balance of the Fourth Promissory Note and all other sums
payable with regard to the Fourth Promissory Note becoming immediately due and payable.
Notwithstanding the original terms of the Promissory
Notes, the Company and iLearningEngines have agreed, pursuant to the Merger Agreement, that if the Closing occurs, the Sponsor will have
the option for the principal and interest outstanding under the Promissory Notes to be repaid in cash or convert into common stock of
the Surviving Corporation at a price per share equal to $10.00 per share at the Closing; provided, however, that to the extent the Acquiror
Transaction Expenses (as defined in the Merger Agreement) exceed $30,000,000 then the Promissory Notes will be settled by the conversion
of an amount equal to the lesser of (i) the principal and interest outstanding under the Promissory Notes and (ii) the Excess Transaction
Expenses (as defined in the Merger Agreement) into common stock of the Surviving Corporation at a price per share equal to $10.00 per
share.
As of June 30, 2023, the Company had $299,342
of cash held outside its Trust Account for use as working capital, $45,351,623 in cash held in the Trust Account to be used for a Business
Combination or to repurchase or redeem its common stock in connection therewith and working capital deficit of $6,066,281. As of June
30, 2023, $253,493 of deposit in the Trust Account represented interest income, which is available to pay the Company’s tax obligations.
As of June 30, 2023, the Company withdrew an amount of $1,381,050 to pay income and franchise taxes and approximately $247,259,068 in
connection with redemption. In order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate
of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, provide the Company working capital
loans, as defined below.
Management expects to incur significant costs
in pursuit of its acquisition plans. In order to fund working capital deficiencies or finance transaction costs in connection with a Business
Combination, the Sponsor, or certain of the Company’s officers and directors or their affiliates may, but are not obligated to,
loan the Company funds as may be required. If the Company completes a Business Combination, it would repay such loaned amounts. The Company
will be using these funds for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates,
performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with
or acquire, and structuring, negotiating and consummating the Business Combination.
In connection with the Company’s assessment
of going concern considerations in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Update
(“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,”
management has determined that if the Company is unable to raise additional funds to alleviate liquidity needs, obtain approval for an
extension of the deadline or complete a Business Combination by the Extension Date, then the Company will cease all operations except
for the purpose of liquidating. The liquidity condition and date for mandatory liquidation and subsequent dissolution raise substantial
doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets
or liabilities should the Company be required to liquidate after the Extension Date. The Company intends to complete a Business Combination
before the mandatory liquidation date or obtain approval for an extension.
NOTE 2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
In connection with the preparation of the
Company’s condensed consolidated financial statements as of and for the period ended June 30, 2023, management identified a
presentation error made in its March 31, 2023 condensed consolidated financial statements. The Company determined that the value of
the convertible promissory notes were incorrectly adjusted to fair value instead of being booked at par. As a result, there should
be a reversal of the change in value of the convertible notes as previously disclosed. The Company has determined that the
convertible notes require bifurcation under ASC 815-15-25-7. Management evaluated the conversion option contained within the
convertible notes and determined their value to be de minimis. As a result, the Company has recorded the value of the
convertible notes at par.
ARROWROOT ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2023
In accordance with SEC Staff Accounting Bulletin
No. 99, “Materiality,” and SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements”; the Company evaluated the changes and has determined that
the related impact was material to previously presented financial statements.
The impact of the restatement on the Company’s
unaudited condensed consolidated financial statements is reflected in the following table:
| |
As Previously Reported | | |
Adjustment | | |
As Restated | |
Condensed Consolidated Balance Sheet for the three
months ended March 31, 2023 (unaudited) | |
| | |
| | |
| |
| |
| | |
| | |
| |
Convertible Promissory Note – Related Party | |
$ | 257,014 | | |
$ | 1,882,986 | | |
$ | 2,140,000 | |
Additional paid in capital | |
$ | 563,136 | | |
$ | (563,136 | ) | |
$ | — | |
Accumulated deficit | |
$ | (15,207,806 | ) | |
$ | (1,319,850 | ) | |
$ | (16,527,656 | ) |
Total Liabilities | |
$ | 15,881,107 | | |
$ | 1,882,986 | | |
$ | 17,764,093 | |
Total Stockholders’ Equity (deficit) | |
$ | (14,643,951 | ) | |
$ | (1,882,986 | ) | |
$ | (16,526,937 | ) |
| |
| | | |
| | | |
| | |
Condensed Consolidated
Statement of Operations for the three months ended March 31, 2023 (unaudited) | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Change in fair value of convertible promissory notes | |
$ | 1,319,850 | | |
$ | (1,319,850 | ) | |
| - | |
Total other income (expense) | |
$ | 909,732 | | |
$ | (1,319,850 | ) | |
$ | (410,118 | ) |
Income before provision for income taxes | |
$ | 81,106 | | |
$ | (1,319,850 | ) | |
$ | (1,238,744 | ) |
Net Income (loss) | |
$ | (374,842 | ) | |
$ | (1,319,850 | ) | |
$ | (1,694,692 | ) |
| |
| | | |
| | | |
| | |
EPS: | |
| | | |
| | | |
| | |
Weighted avg shares outstanding, Class A common stock | |
| 21,188,697 | | |
| — | | |
| 21,188,697 | |
Basic and diluted net loss per share, Class A common stock | |
$ | (0.01 | ) | |
| (0.05 | ) | |
| (0.06 | ) |
| |
| | | |
| | | |
| | |
Weighted avg shares outstanding, Class B common stock | |
| 7,187,500 | | |
| — | | |
| 7,187,500 | |
Basic and diluted net loss per share, Class B common stock | |
$ | (0.01 | ) | |
| (0.05 | ) | |
| (0.06 | ) |
| |
| | | |
| | | |
| | |
Condensed Consolidated Statement of Equity for the three
months ended March 31, 2023 (unaudited) | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Proceeds received in excess of initial fair value of Convertible
Promissory Note | |
$ | 563,136 | | |
$ | (563,136 | ) | |
$ | - | |
Net Income (loss) | |
$ | (374,842 | ) | |
$ | (1,319,850 | ) | |
$ | (1,694,692 | ) |
Accretion for Class A common stock to redemption amount- APIC | |
$ | (2,355,234 | ) | |
$ | - | | |
$ | (2,355,234 | ) |
Accumulated Deficit | |
$ | (15,207,806 | ) | |
$ | (1,319,850 | ) | |
$ | (16,527,656 | ) |
Total Stockholders Equity (deficit) | |
$ | (14,643,951 | ) | |
$ | (1,882,986 | ) | |
$ | (16,526,937 | ) |
| |
| | | |
| | | |
| | |
Condensed Consolidated Statement of Cash Flows for the three
months ended March 31, 2023 (unaudited) | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Net (loss) income | |
$ | (374,842 | ) | |
$ | (1,319,850 | ) | |
$ | (1,694,692 | ) |
Change in fair value of convertible promissory note | |
$ | (1,319,850 | ) | |
$ | 1,319,850 | | |
$ | — | |
| |
| | | |
| | | |
| | |
Non Cash: | |
| | | |
| | | |
| | |
Proceeds received in excess of initial fair value of Convertible Promissory
Note – Shares at initial borrowing | |
$ | 563,136 | | |
$ | (563,136 | ) | |
$ | - | |
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain
information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed consolidated
or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the
information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion
of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal
recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods
presented.
The accompanying unaudited condensed consolidated
financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31,
2022, as filed with the SEC on March 31, 2023. The interim results for the three and six months ended June 30, 2023 are not necessarily
indicative of the results to be expected for the year ending December 31, 2023.
ARROWROOT ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2023
Principles of Consolidation
The accompanying condensed consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany balances and transactions
have been eliminated in consolidation.
Emerging Growth Company
The Company is an “emerging growth company,”
as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”),
and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that
are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting
firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation
in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive
compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts
emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that
is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered
under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company
can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but
any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that
when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging
growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison
of the Company’s unaudited condensed consolidated financial statements with another public company which is neither an emerging
growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because
of the potential differences in accounting standards used.
Use of Estimates
The preparation of the unaudited condensed consolidated
financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed
consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.
Making estimates requires management to exercise
significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances
that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near
term due to one or more future confirming events. One of the more significant accounting estimates included in these unaudited condensed
consolidated financial statements is the determination of the fair value of the warrant liabilities. Such estimates may be subject to
change as more current information becomes available and accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments
with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents
as of June 30, 2023 and December 31, 2022.
Cash and Marketable Securities held in Trust
Account
Prior to the Special Meeting, the Company’s
portfolio of investments held in Trust Account was comprised solely of U.S. government securities, within the meaning set forth in Section
2(a)(16) of the Investment Company Act, with a maturity of 185 days or less, or investments in money market funds that invest in U.S.
government securities, or a combination thereof. The Company’s investments held in the Trust Account were classified as trading
securities. Trading securities are presented on the condensed consolidated balance sheets at fair value at the end of each reporting period.
Gains and losses resulting from the change in fair value of these investments are included in interest income earned from investments
held in Trust Account in the accompanying unaudited condensed consolidated statements of operations. The estimated fair values of investments
held in the Trust Account are determined using available market information. In connection with the Special Meeting, the Company liquidated
its portfolio of investments held in the Trust Account and converted it into cash held in the Trust Account.
Offering Costs
Offering costs consisted of legal, accounting,
underwriting fees and other costs incurred through the condensed consolidated balance sheet date that are directly related to the Initial
Public Offering. Offering costs associated with warrant liabilities were expensed as incurred in the unaudited condensed consolidated
statements of operations. Offering costs associated with the Class A common stock issued were initially charged to temporary equity and
then accreted to Class A common stock subject to possible redemption upon the completion of the Initial Public Offering. Offering costs
amounted to $16,392,714, of which $760,022 was allocated to the warrant liabilities and charged to the unaudited condensed consolidated
statements of operations.
ARROWROOT ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2023
Class A Common Stock Subject to Possible
Redemption
The Company accounts for its Class A common stock
subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480, “Distinguishing
Liabilities from Equity.” Shares of Class A common stock subject to mandatory redemption are classified as a liability instrument
and are measured at redemption value. Conditionally redeemable common stock (including common stock that features redemption rights that
are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s
control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ deficit. The Company’s
Class A common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to
occurrence of uncertain future events. Accordingly, Class A common stock subject to possible redemption is presented as temporary equity,
outside of the stockholders’ deficit section of the Company’s condensed consolidated balance sheets.
The Company recognizes changes in redemption value
immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting
period. This method would view the end of the reporting period as if it were also the redemption date for the security. Increases or decreases
in the carrying amount of redeemable common stock are affected by charges against additional paid in capital and accumulated deficit.
At June 30, 2023 and December 31, 2022, the Class
A common stock subject to redemption reflected in the condensed consolidated balance sheets is reconciled in the following table:
Gross proceeds | |
$ | 287,500,000 | |
Less: | |
| | |
Proceeds allocated to Public Warrants | |
| (13,081,250 | ) |
Class A common stock issuance costs | |
| (15,632,692 | ) |
Plus: | |
| | |
Remeasurement of carrying value to redemption value | |
| 31,531,449 | |
Class A common stock subject to possible redemption at December 31, 2022 | |
| 290,317,507 | |
Less: | |
| | |
Redemption | |
| (247,259,068 | ) |
Plus: | |
| | |
Remeasurement of carrying value to redemption value | |
| 2,355,234 | |
Class A common stock subject to possible redemption at March 31, 2023 | |
| 45,413,673 | |
Less: | |
| | |
Remeasurement of carrying value to redemption value | |
| (121,070 | ) |
Class A common stock subject to possible redemption at June 30, 2023 | |
$ | 45,292,603 | |
Warrant Liabilities
The Company accounts for warrants as either equity-classified
or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance
in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing
Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers
whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480,
and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed
to the Company’s own common stock, among other conditions for equity classification. This assessment, which requires the use of
professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants
are outstanding.
For issued or modified warrants that meet
all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at
the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required
to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair
value of the warrants are recognized as a non-cash gain or loss on the unaudited condensed consolidated statements of operations. Pursuant
to the Initial Public Offering, the Company sold 28,750,000 Units, including a full exercise by the underwriter of their over-allotment
option in the amount of 3,750,000 Units, at a price of $10.00 per Unit. Each Unit consists of one share of Class A common stock and one-half
of one redeemable warrant (“Public Warrant”). The Public Warrants for periods where no observable traded price was available
were valued using a Monte Carlo simulation. The Private Placement Warrants are valued using a modified Black Scholes Option Pricing Model.
For periods subsequent to the detachment of the Public Warrants from the Units, the close price of the Public Warrant price was used as
the fair value of the Public Warrants as of each relevant date (see Note 10).
ARROWROOT ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2023
Income Taxes
The Company accounts for income taxes under ASC
740, “Income Taxes.” ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact
of differences between the unaudited condensed consolidated financial statements and tax basis of assets and liabilities and for the expected
future tax benefit to be derived from tax loss and tax credit carryforwards. ASC 740 additionally requires a valuation allowance to be
established when it is more likely than not that all or a portion of deferred tax assets will not be realized. As of June 30, 2023 and
December 31, 2022, the Company’s deferred tax asset had a full valuation allowance recorded against it.
ASC 740-270-25-2 requires that an annual
effective tax rate be determined and such annual effective rate applied to year to date income in interim periods under ASC
740-270-30-5. The Company’s effective tax rate was 0.48% and 0.21% for the three months ended June 30, 2023 and 2022,
respectively, and 6.37% and 0.21% for the six months ended June 30, 2023 and 2022, respectively The effective tax rate differs from
the statutory tax rate of 21% for the three and six months ended June 30, 2023 and 2022, due to changes in fair value in forward
purchase agreement, and warrant liability, and the valuation allowance on the deferred tax assets.
ASC 740 also clarifies the accounting for uncertainty
in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process
for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits
to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. ASC 740 also provides
guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
The Company recognizes accrued interest and penalties
related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest
and penalties as of June 30, 2023 and December 31, 2022. The Company is currently not aware of any issues under review that could result
in significant payments, accruals or material deviation from its position.
The Company has identified the United States as
its only “major” tax jurisdiction. The Company is subject to income taxation by major taxing authorities since inception.
These examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and
compliance with federal and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits
will materially change over the next twelve months.
Net (Loss) Income per Common Share
The Company complies with accounting and disclosure
requirements of FASB ASC Topic 260, “Earnings Per Share”. The Company has two classes of common stock, which are referred
to as Class A common stock and Class B common stock. Income and losses are shared pro rata between the two classes of common stock. Net
income per common stock is computed by dividing net (loss) income by the weighted average number of common stock outstanding for the period.
Accretion associated with the redeemable shares of Class A common stock is excluded from (loss) income per common share as the redemption
value approximates fair value.
The Company has not considered the effect of warrants
sold in the Initial Public Offering and private placement to purchase 22,625,000 shares of Class A common stock in the calculation of
diluted (loss) income per share, since the exercise of the warrants are contingent upon the occurrence of future events and the inclusion
of such warrants would be anti-dilutive. As of June 30, 2023 and 2022, the Company did not have any dilutive securities or other contracts
that could, potentially, be exercised or converted into common stock and then share in the earnings of the Company. As a result, diluted
net (loss) income per common share is the same as basic net (loss) income per common share for the periods presented.
The following table reflects the calculation of
basic and diluted net (loss) income per common share (in dollars, except per share amounts):
| |
For the Three Months Ended June 30, | | |
For the Six Months Ended June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
Class A | | |
Class B | | |
Class A | | |
Class B | | |
Class A | | |
Class B | | |
Class A | | |
Class B | |
Basic and diluted net (loss) income per common stock | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Numerator: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Allocation of net (loss) income, as adjusted | |
$ | (2,055,713 | ) | |
$ | (3,323,451 | ) | |
$ | 3,590,951 | | |
$ | 897,738 | | |
$ | (4,526,404 | ) | |
$ | (2,547,452 | ) | |
$ | 8,328,395 | | |
$ | 2,082,091 | |
Denominator: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Basic and diluted weighted average shares outstanding | |
| 4,445,813 | | |
| 7,187,500 | | |
| 28,750,000 | | |
| 7,187,500 | | |
| 12,771,004 | | |
| 7,187,500 | | |
| 28,750,000 | | |
| 7,187,500 | |
Basic and diluted net (loss) income per common stock | |
$ | (0.46 | ) | |
$ | (0.46 | ) | |
$ | 0.12 | | |
$ | 0.12 | | |
$ | (0.35 | ) | |
$ | (0.35 | ) | |
$ | 0.29 | | |
$ | 0.29 | |
ARROWROOT ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2023
Concentration of Credit Risk
The Company has significant cash balances at financial institutions
which throughout the year regularly exceed the federally insured limit of $250,000. Any loss incurred or a lack of access to such funds
could have a significant adverse impact on the Company’s financial condition, results of operations, and cash flows.
Fair Value of Financial Instruments
The fair value of the Company’s assets and
liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying
amounts represented in the accompanying unaudited condensed consolidated balance sheets, primarily due to their short-term nature, other
than the forward purchase agreement and warrant liabilities (see Note 10).
Recent Accounting Standards
In August 2020, the FASB issued Accounting Standards
Update (“ASU”) 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging
– Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial
instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from
convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an
entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that
are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the
requirement to use the if-converted method for all convertible instruments. As a smaller reporting company, ASU 2020-06 is effective January
1, 2024 for fiscal years beginning after December 15, 2023 and should be applied on a full or modified retrospective basis, with early
adoption permitted beginning on January 1, 2021. The Company is currently assessing the impact, if any, that ASU 2020-06 would have on
its financial position, results of operations or cash flows.
Management does not believe that any other
recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s
unaudited condensed consolidated financial statements.
NOTE 4. INITIAL PUBLIC OFFERING
Pursuant to the Initial Public Offering, the Company
sold 28,750,000 Units, including a full exercise by the underwriters of their over-allotment option in the amount of 3,750,000 Units,
at a price of $10.00 per Unit. Each Unit consists of one share of Class A common stock and one-half of one Public Warrant. Each whole
Public Warrant entitles the holder to purchase one share of Class A common stock at a price of $11.50 per share, subject to adjustment
(see Note 9).
NOTE 5. PRIVATE PLACEMENT
Simultaneously with the closing of the Initial
Public Offering, the Sponsor purchased an aggregate of 8,250,000 Private Placement Warrants, at a price of $1.00 per warrant, or $8,250,000
in the aggregate. Each Private Placement Warrant is exercisable to purchase one share of Class A common stock at an exercise price of
$11.50 per share, subject to adjustment (see Note 10). A portion of the proceeds from the Private Placement Warrants were added to the
proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination within the
Combination Period, the proceeds from the sale of the Private Placement Warrants held in the Trust Account will be used to fund the redemption
of the Public Shares (subject to the requirements of applicable law), and the Private Placement Warrants will expire worthless.
NOTE 6. RELATED PARTY TRANSACTIONS
Founder Shares
In November 2020, the Sponsor purchased 5,750,000
shares (the “Founder Shares”) of the Company’s Class B common stock for an aggregate price of $30,000. Subsequently,
in December 2020 the Company effectuated a 5-for-4 stock split, pursuant to which an additional 1,437,500 shares of Class B common stock
were issued, resulting in an aggregate of 7,187,500 Founder Shares issued and outstanding. The Founder Shares included an aggregate of
up to 937,500 Founder Shares subject to forfeiture to the extent that the underwriters’ over-allotment was not exercised in full
or in part, so that the number of Founder Shares would equal, on an as-converted basis, approximately 20% of the Company’s issued
and outstanding common stock after the Initial Public Offering. In January 2021, the Sponsor transferred 40,000 founder shares to each
of three Director nominees, none of which are subject to forfeiture in the event that the underwriters’ over-allotment option was
not exercised in full. As a result of the underwriters’ election to fully exercise their over-allotment option March 4, 2021, no
Founder Shares are currently subject to forfeiture.
ARROWROOT ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2023
The transfer of the Founders Shares to the Company’s
director nominees is in the scope of FASB ASC Topic 718, “Compensation-Stock Compensation” (“ASC 718”).
Under ASC 718, stock-based compensation associated with equity-classified awards is measured at fair value upon the grant date. The Founder
Shares were effectively transferred subject to a performance condition (i.e., the occurrence of a Business Combination). Compensation
expense related to the Founder Shares is recognized only when the performance condition is probable of occurrence under the applicable
accounting literature in this circumstance. Stock-based compensation would be recognized at the date a Business Combination is considered
probable (i.e., upon consummation of a Business Combination) in an amount equal to the number of Founders Shares times the grant date
fair value per share (unless subsequently modified).
The Sponsor has agreed, subject to limited exceptions,
not to transfer, assign or sell any of the Founder Shares until the earlier to occur of (A) one year after the completion of a Business
Combination and (B) subsequent to a Business Combination, (x) if the last reported sale price of the Class A common stock equals or exceeds
$12.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20 trading
days within any 30-trading day period commencing at least 150 days after a Business Combination, or (y) the date on which the Company
completes a liquidation, merger, capital stock exchange or other similar transaction that results in all of the Public Stockholders having
the right to exchange their shares of common stock for cash, securities or other property.
Administrative Support Agreement
The Company entered into an agreement, commencing
on March 4, 2021, through the earlier of the Company’s consummation of a Business Combination and its liquidation, to pay the Sponsor
a total of $20,000 per month for office space, secretarial, and administrative support services. For the three and six months ended June
30, 2023, the Company incurred and paid $60,000 and $120,000 in fees for these services. For the three and six months ended June 30, 2022,
the Company incurred and paid $60,000 and $120,000 in fees for these services, respectively. There were no amounts outstanding in fees
for these services at June 30, 2023, and December 31, 2022, respectively.
Promissory Notes — Related Parties
On December 21, 2020, the Sponsor issued an unsecured
promissory note to the Company (the “IPO Promissory Note”), pursuant to which the Company could borrow up to an aggregate
principal amount of $300,000. The IPO Promissory Note was non-interest bearing and payable on the earlier of (i) July 31, 2021, or (ii)
the consummation of the Initial Public Offering. The outstanding balance under the IPO Promissory Note of $149,992 was repaid at the closing
of the Initial Public Offering on March 4, 2021. No future borrowings are permitted.
Related Party Loans
In order to finance transaction costs in connection
with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may,
but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a
Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company.
Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination
does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds
held in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital
Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either
be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such
Working Capital Loans may be convertible into warrants of the post-Business Combination entity at a price of $1.00 per warrant. The warrants
would be identical to the Private Placement Warrants.
On December 29, 2021, the Company issued its First
Promissory Note with the Sponsor pursuant to which the Sponsor agreed to loan the Company up to an aggregate principal amount of $1,500,000.
The note was issued in connection with advances the Sponsor may make in the future, to the Company for working capital expenses. Upon
issuance, $750,000 was drawn down on the note with an additional $200,000 drawn down on March 17, 2022. On April 21, 2022, the Company
drew down the remaining $550,000 pursuant to the terms of the First Promissory Note. Following this draw down, the full $1,500,000 available
under the Second Promissory Note was outstanding. There are no remaining funds available under the First Promissory Note for future drawdowns.
On February 23, 2023, the Company issued an unsecured
promissory note in the principal amount of $500,000 in favor of the Sponsor (the “Second Promissory Note”), which was funded
in full by the Sponsor upon execution of the Second Promissory Note. The Second Promissory Note is not convertible into Working Capital
Warrants or any other security pursuant to its terms. As of June 30, 2023 and December 31, 2022, the Company had $500,000 and $0 outstanding
balance under this Second Promissory Note, respectively.
ARROWROOT ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2023
In connection with the approval by the Company’s
stockholders of the Extension Date at the Special Meeting, the Sponsor issued to the Company an unsecured promissory note that matures
upon the Company closing its initial Business Combination (the “Third Promissory Note”). Following the Extension Proposal
being approved, the Sponsor funded $640,000 of the Third Promissory Note. Pursuant to the terms of the Third Promissory Note, on each
Additional Charter Extension Date, the Sponsor must fund the lesser of (a) $160,000 or (b) $0.04 for each public share that is not redeemed
in connection with the Special Meeting for an aggregate deposit of up to the lesser of (x) $1,120,000 or (y) $0.28 for each public share
that is not redeemed in connection with the Special Meeting (if all seven additional monthly extensions are exercised). As of June 30,
2023, the Company had $640,000 outstanding balance under this Third Promissory Note. If the Company completes an initial Business Combination,
the Company will, at the option of the Sponsor, repay the amounts loaned under the Third Promissory Note or convert a portion or all of
the amounts loaned under such promissory note into warrants, which warrants will be identical to the private placement warrants issued
in connection with the Company’s initial public offering. If the Company does not complete an initial Business Combination by the
Extension Date, such promissory note will be repaid only from funds held outside of the Trust Account or will be forfeited, eliminated
or otherwise forgiven.
On June 13, 2023, the Company issued an unsecured
promissory note in the principal amount of $2,000,000 in favor of the Sponsor (the “Fourth Promissory Note” and together with
the First Promissory Note, the Second Promissory Note and the Third Promissory Note, the “Promissory Notes”), of which $700,000
was funded by the Sponsor upon execution of the Note. The Fourth Promissory Note bears interest at 15% per annum and matures upon closing
of the Company’s initial business combination or the date that the winding up of the Company is effective (such date, the “Maturity
Date”). The Fourth Promissory Note is not convertible into Working Capital Warrants or any other security. In the event that the
Company does not consummate an initial business combination, the Fourth Promissory Note will be repaid only from funds held outside of
the trust account established in connection with the Company’s initial public offering or will be forfeited, eliminated or otherwise
forgiven. The Fourth Promissory Note may be further drawn down from time to time prior to the Maturity Date upon request by the Company
subject to the Sponsor’s approval. The Fourth Promissory Note is subject to customary events of default, the occurrence of certain
of which automatically triggers the unpaid principal balance of the Fourth Promissory Note and all other sums payable with regard to the
Fourth Promissory Note becoming immediately due and payable. As of June 30, 2023, the Company had $700,000 outstanding balance under this
Fourth Promissory Note.
Notwithstanding the original terms the Promissory
Notes, the Company and iLearningEngines have agreed, pursuant to the Merger Agreement, that if the Closing occurs, the Sponsor will have
the option for the principal and interest outstanding under the Promissory Notes to be repaid in cash or convert into common stock of
the Surviving Corporation at a price per share equal to $10.00 per share at the Closing; provided, however, that to the extent the Acquiror
Transaction Expenses (as defined in the Merger Agreement) exceed $30,000,000, then the Promissory Notes will be settled by the conversion
of an amount equal to the lesser of (i) the principal and interest outstanding under the Promissory Notes and (ii) the Excess Transaction
Expenses (as defined in the Merger Agreement) into common stock of the Surviving Corporation at a price per share equal to $10.00 per
share.
Forward Purchase Agreement
On April 26, 2023, the
Company and Polar Multi-Strategy Master Fund, a Cayman Islands exempted company (“Polar”) entered into an agreement (“Forward
Purchase Agreement”), pursuant to which, among other things, the Company agreed to purchase up to 2,500,000 shares from Polar at
$10.77 per share (the “Initial Price”), which is $10.17 (the “Redemption Price”, plus $0.60). In exchange for
the Company’s purchase of the shares, Polar agreed to waive redemption rights on the shares that Polar owns in connection with
the Business Combination.
The Forward Purchase
Agreement provides that at the closing of the Business Combination, the Company will pre-pay Polar for the forward purchase an amount
equal to the sum of (x) the number of Class A Ordinary Shares owned by Polar on the day prior to the closing of a business combination multiplied by
the Redemption Price (the “Polar Shares”) and (y) the proceeds from Polar’s purchase of a number of Class A Ordinary Shares
of up to 2,500,000 shares less the Polar Shares (the “Prepayment Amount”).
The scheduled maturity
date of the forward transaction is one year from the closing of the Business Combination (the “Maturity Date”), except that
the Maturity Date may be accelerated if the shares trade under $2.00 for 10 out of 30 days or the shares are delisted by Nasdaq. Polar
has the right to early terminate the transaction (in whole or in part) before the Maturity Date by delivering notice to the Company.
If Polar terminates the Forward Purchase Agreement with respect to some or all of the shares prior to the Maturity Date, Polar will return
an amount to the Company equal to the number of terminated shares multiplied by the Redemption Price. The Company can terminate the Forward
Purchase Agreement prior to the redemption deadline if the Company pays Polar a $300,000 break-up fee. On the Maturity Date, the Company
may be required to make a cash payment to Polar if Polar has not terminated the Forward Purchase Agreement in full equal to the number
of shares (less any shares terminated prior to the Maturity Date) multiplied by $0.60.
ARROWROOT ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2023
NOTE 7. COMMITMENTS AND CONTINGENCIES
Risks and Uncertainties
Management continues to evaluate the impact of
the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s
financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of
the date of these unaudited condensed consolidated financial statements. Although a number of vaccines for COVID-19 have been developed
and are in the process of being deployed in certain countries, including the United States, the timing for widespread vaccination is uncertain,
and these vaccines may be less effective against new mutated strains of the virus. The impact of this coronavirus continues to evolve
and is affecting the economies of many nations, individual companies and markets in general and may continue to last for an extended period
of time. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of
this uncertainty.
In February 2022, the Russian Federation and Belarus
commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have
instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on
the world economy is not determinable as of the date of these unaudited condensed consolidated financial statements. The specific impact
on the Company’s financial condition, results of operations, and cash flows is also not determinable as of the date of these unaudited
condensed consolidated financial statements.
On August 16, 2022, the Inflation Reduction Act
of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise
tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded
foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its
shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased
at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the
fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition,
certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority
to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.
Any redemption or other repurchase that occurs
after December 31, 2022, in connection with a Business Combination, extension vote or otherwise, may be subject to the excise tax. Whether
and to what extent the Company would be subject to the excise tax in connection with a Business Combination, extension vote or otherwise
would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business
Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any “PIPE”
or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business Combination
but issued within the same taxable year of a Business Combination) and (iv) the content of regulations and other guidance from the Treasury.
In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment
of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business
Combination and in the Company’s ability to complete a Business Combination.
Registration Rights
Pursuant to a registration rights agreement entered
into on March 4, 2021, the holders of the Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of
Working Capital Loans (and any Class A common stock issuable upon the exercise of the Private Placement Warrants and warrants that may
be issued upon conversion of Working Capital Loans and upon conversion of the Founder Shares) will be entitled to registration rights
pursuant to a registration rights agreement to be signed prior to or on the effective date of the Initial Public Offering, requiring the
Company to register such securities for resale. The holders of these securities are entitled to make up to three demands, excluding short
form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights
with respect to registration statements filed subsequent to the completion of a Business Combination. The registration rights agreement
does not contain liquidated damages or other cash settlement provisions resulting from delays in registering the Company’s securities.
The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The underwriters are entitled to a deferred fee
of $0.35 per Unit, or $10,062,500 in the aggregate. The deferred fee will become payable to the underwriters from the amounts held in
the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
ARROWROOT ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2023
Merger Agreement
As described in greater detail in Note 2, on April
27, 2023, the Company entered into the Merger Agreement.
The Merger
The Merger Agreement provides that, among other
things and upon the terms and subject to the conditions thereof, the following transactions will occur (together with the other transactions
contemplated by the Merger Agreement):
(i) | at the Closing,
in accordance with the DGCL, Merger Sub will merge with and into iLearningEngines, the separate corporate existence of Merger Sub will
cease and iLearningEngines will be the surviving corporation and a wholly owned subsidiary of the Company; and |
(ii) | as a result of the Merger, among other things, the outstanding shares of common stock of iLearningEngines (other than shares subject to iLearningEngines equity awards, treasury shares and dissenting shares) will be cancelled in exchange for the right to receive a number of shares of common stock of the Surviving Corporation equal to (x) the sum of (i) the Base Purchase Price (as defined below), minus (ii) the dollar value of the Company Incentive Amount (as defined below), plus (iii) the aggregate exercise price of the Company Warrants (as defined in the Merger Agreement) that are issued and outstanding immediately prior to the Effective Time, minus (iv) the aggregate amount of Note Balance (as defined in the Company Convertible Notes (as defined in the Merger Agreement)) divided by (y) $10.00. The “Base Purchase Price” means an amount equal to $1,285,000,000. The “Company Incentive Amount” means (x) the number of shares of the Company Class A Common Stock issuable to iLearningEngines securityholders (excluding, for the avoidance of doubt, the holders of Company Convertible Notes) at the Closing which iLearningEngines and the Company agree, at least two (2) business days prior to the Closing, to issue to certain private placement investors and non-redeeming stockholders (which amount will equal 82.03125% of all such shares issued to such investors and non-redeeming stockholders, with the remainder being contributed by the Sponsor), multiplied by (y) $10.00. |
The Board has (i) approved and declared advisable
the Merger Agreement and the Proposed Business Combination and (ii) resolved to recommend approval of the Merger Agreement and related
matters by the shareholders of the Company. The consummation of the Proposed Business Combination is subject to certain conditions as
further described in the Merger Agreement.
Sponsor Support Agreement
On April 27, 2023, concurrently with the execution
of the Merger Agreement, the Company and iLearningEngines entered into an agreement (the “Sponsor Support Agreement”), pursuant
to which, among other things, in connection with the Closing, the Sponsor agreed to (i) vote all its shares of the Company common stock
in favor of the Proposed Business Combination, (ii) discharge any Excess Transaction Expenses (as defined in the Merger Agreement) by
payment in cash or elect, at the option of Sponsor, to have the Company discharge any Excess Transaction Expenses by payment in cash against
a corresponding cancellation of shares of the Company common stock held by Sponsor (or any combination thereof), (iii) loan all amounts
contemplated by the proxy statement filed by the Company on or about February 13, 2023, pursuant to which the Company stockholders approved
the extension of the deadline by which the Company must complete its Business Combination to July 6, 2023, including any amounts required
in connection with any additional extension of such deadline, (iv) contribute the Sponsor Incentive Shares (as defined in the Merger Agreement),
(v) waive any adjustment to the conversion ratio set forth in the governing documents of the Company or any other anti-dilution or similar
protection with respect to the Class B common stock of the Company, in each case, on the terms and subject to the conditions set forth
in the Sponsor Support Agreement, and (vi) agree to be bound by any restrictions on transfer set forth in the Company’s by-laws,
in each case, on the terms and subject to the conditions set forth therein.
ARROWROOT ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2023
The scheduled maturity date of the forward transaction
is one year from the Closing of the Proposed Business Combination (the “Maturity Date”), except that the Maturity Date may
be accelerated if the shares trade under $2.00 for 10 out of 30 days or the shares are delisted by Nasdaq. Polar has the right to early
terminate the transaction (in whole or in part) before the Maturity Date by delivering notice to the Company. If Polar terminates the
Forward Purchase Agreement with respect to some or all of the shares prior to the Maturity Date, Polar will return an amount to the Company
equal to the number of terminated shares multiplied by the Redemption Price. the Company can terminate the Forward Purchase Agreement
prior to the redemption deadline if the Company pays Polar a $300,000 break-up fee. On the Maturity Date, the Company may be required
to make a cash payment to Polar if Polar has not terminated the Forward Purchase Agreement in full equal to the number of shares (less
any shares terminated prior to the Maturity Date) multiplied by $0.60.
As of June 30, 2023, the value of the Forward
Purchase Agreement was $1,500,000.
NOTE 8. STOCKHOLDERS’ DEFICIT
Preferred Stock — The Company
is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designation, rights and preferences
as may be determined from time to time by the Company’s board of directors. As of June 30, 2023, and December 31, 2022, there were
no shares of preferred stock issued or outstanding.
Class A Common Stock — The
Company is authorized to issue 200,000,000 shares of Class A common stock with a par value of $0.0001 per share. Holders of Class A common
stock are entitled to one vote for each share. At June 30, 2023 and December 31, 2022, there were 4,445,813 and 28,750,000 shares of Class
A common stock issued and outstanding, which are subject to possible redemption and presented as temporary equity.
Class B Common Stock — The
Company is authorized to issue 20,000,000 shares of Class B common stock with a par value of $0.0001 per share. Holders of Class B common
stock are entitled to one vote for each share. As of June 30, 2023 and December 31, 2022, there were 7,187,500 shares of common stock
issued and outstanding.
Holders of Class A common stock and holders of
Class B common stock will vote together as a single class on all matters submitted to a vote of the Company’s stockholders except
as otherwise required by law.
The shares of Class B common stock will automatically
convert into Class A common stock upon the consummation of a Business Combination, or earlier at the option of the holder, on a one-for-one
basis, subject to adjustment. In the case that additional shares of Class A common stock or equity-linked securities are issued or deemed
issued in connection with the initial Business Combination, the number of shares of Class A common stock issuable upon conversion of all
Founder Shares will equal, in the aggregate, on an as-converted basis, 20% of the total number of shares of Class A common stock outstanding
after such conversion, including the total number of shares of Class A common stock issued, or deemed issued or issuable upon conversion
or exercise of any equity-linked securities or rights issued or deemed issued, by the Company in connection with or in relation to the
consummation of a Business Combination, excluding any shares of Class A common stock or equity-linked securities or rights exercisable
for or convertible into shares of Class A common stock issued, or to be issued, to any seller in a Business Combination and any Private
Placement Warrants issued to the Sponsor, officers or directors upon conversion of Working Capital Loans, provided that such conversion
of Founder Shares will never occur on a less than one-for-one basis.
NOTE 9. WARRANT LIABILITIES
As of June 30, 2023 and December 31, 2022, there
were 14,375,000 Public Warrants outstanding. Only whole warrants are exercisable. No fractional warrants will be issued upon
separation of the units and only whole warrants will trade. The Public Warrants will become exercisable on the later of 30
days after the completion of the initial Business Combination or 12 months from the closing of the initial public offering and will expire
five years after the completion of the initial Business Combination or earlier upon redemption or the Company’s liquidation.
The Company will not be obligated to deliver any
shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless
a registration statement under the Securities Act covering the issuance of the shares of Class A common stock underlying the warrants
is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration.
No warrant will be exercisable and the Company will not be obligated to issue shares of Class A common stock upon exercise of a warrant
unless Class A common stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities
laws of the state of residence of the registered holder of the warrants.
ARROWROOT ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2023
The Company has agreed that as soon as practicable,
but in no event later than 15 business days after the closing of a Business Combination, the Company will use its best efforts to file
with the SEC a registration statement for the registration, under the Securities Act, of the Class A common stock issuable upon exercise
of the warrants. The Company will use its best efforts to cause the same to become effective and to maintain the effectiveness of such
registration statement, and a current prospectus relating thereto, until the expiration of the warrants in accordance with the provisions
of the warrant agreement. If a registration statement covering the shares of Class A common stock issuable upon exercise of the warrants
is not effective by the sixtieth (60th) business day after the closing of a Business Combination, warrant holders may, until such time
as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration
statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption.
Notwithstanding the above, if the Company’s Class A common stock are at the time of any exercise of a warrant not listed on a national
securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities
Act, the Company may, at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis”
in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elect, it will not be required to file or maintain
in effect a registration statement, and in the event the Company does not so elect, it will use its best efforts to register or qualify
the shares under applicable blue sky laws to the extent an exemption is not available.
Once the warrants become exercisable, the Company may call the warrants
for redemption for cash:
| ● | in whole and not in part; |
| | |
| ● | at a price of $0.01 per warrant; |
| | |
| ● | upon not less than 30 days’ prior written notice of redemption to each warrant holder; and |
| | |
| ● | if, and only if, the closing price of the common stock equals or exceeds $18.00 per share (as adjusted stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period commencing after the warrants become exercisable and ending three business days before the Company sends to the notice of redemption to the warrant holders. |
If and when the warrants become redeemable by
the Company for cash, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities
for sale under all applicable state securities laws.
If the Company calls the Public Warrants for redemption,
as described above, its management will have the option to require any holder that wishes to exercise the Public Warrants to do so on
a “cashless basis,” as described in the warrant agreement. The exercise price and number of Class A common stock issuable
upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary
dividend or recapitalization, reorganization, merger or consolidation. However, except as described below, the Public Warrants will not
be adjusted for issuances of common stock at a price below its exercise price. Additionally, in no event will the Company be required
to net cash settle the Public Warrants. If the Company is unable to complete a Business Combination within the Combination Period and
the Company liquidates the funds held in the Trust Account, holders of Public Warrants will not receive any of such funds with respect
to their Public Warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with
respect to such Public Warrants. Accordingly, the Public Warrants may expire worthless.
In addition, if (x) the Company issues additional
shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of its initial
Business Combination at an issue price or effective issue price of less than $9.20 per share of Class A common stock (with such issue
price or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance
to the Sponsor or its affiliates, without taking into account any Founder Shares held by the Sponsor or such affiliates, as applicable,
prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than
60% of the total equity proceeds, and interest thereon, available for the funding of the Company’s initial Business Combination
on the date of the consummation of such initial Business Combination (net of redemptions), and (z) the volume weighted average trading
price of the Company’s Class A common stock during the 20 trading day period starting on the trading day after the day on which
the Company consummates its initial Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise
price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued
Price and the $18.00 per share redemption trigger price described above will be adjusted (to the nearest cent) to be equal to 180% of
the higher of the Market Value and the Newly Issued Price.
As of June 30, 2023 and December 31, 2022, there
were 8,250,000 Private Placement Warrants outstanding. Private Placement Warrants are identical to the Public Warrants underlying the
Units sold in the Initial Public Offering, except that the Private Placement Warrants and the Class A common stock issuable upon the exercise
of the Private Placement Warrants will not be transferable, assignable or salable until 30 days after the completion of a Business Combination,
subject to certain limited exceptions. Additionally, the Private Placement Warrants will be exercisable on a cashless basis and be non-redeemable,
except as described above, so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement
Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be
redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
ARROWROOT ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2023
NOTE 10. FAIR VALUE MEASUREMENTS
The fair value of the Company’s financial
assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale
of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the
measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of
observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions
about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities
based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1: |
Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
|
|
Level 2: |
Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. |
|
|
Level 3: |
Unobservable inputs based on assessment of the assumptions that market participants would use in pricing the asset or liability. |
At June 30, 2023, assets held in the Trust Account
were comprised of $45,351,623 in cash. At December 31, 2022, assets held in the Trust Account were comprised of $279,107,161 in U.S. Treasury
Bills and U.S. Treasury Notes and $11,338,047 in money market funds which are invested primarily in U.S. Treasury Securities and $292,710
in cash. During the period ended June 30, 2023, the Company withdrew an amount of $1,381,050 in interest income from the Trust Account
to pay franchise and income taxes and $247,259,068 in connection with redemptions.
The following table presents information about
the Company’s assets and liabilities that are measured at fair value on a recurring basis at June 30, 2023 and December 31, 2022
and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.
Description | |
Level | | |
June 30, 2023 | | |
December 31, 2022 | |
Assets: | |
| | | |
| | | |
| | |
Investments held in Trust Account | |
| 1 | | |
$ | — | | |
$ | 290,737,917 | |
| |
| | | |
| | | |
| | |
Liabilities: | |
| | | |
| | | |
| | |
Warrant Liabilities – Public Warrants | |
| 1 | | |
$ | 3,593,750 | | |
$ | 70,000 | |
Warrant Liabilities – Private Placement Warrants | |
| 3 | | |
$ | 2,062,500 | | |
$ | 40,000 | |
Forward Purchase Agreement | |
| 3 | | |
$ | 1,500,000 | | |
$ | — | |
The Warrants are accounted for as liabilities
in accordance with ASC 815-40 and are presented within warrant liabilities in the accompanying condensed consolidated balance sheets.
The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within
change in fair value of warrant liabilities in the unaudited condensed consolidated statements of operations.
The Private Placement Warrants are valued using
a Modified Black Scholes Option Pricing Model, which is considered to be a Level 3 fair value measurement. The Modified Black Scholes
model’s primary unobservable input utilized in determining the fair value of the Private Placement Warrants is the expected volatility
of the common stock. The expected volatility as of the initial public offering date was derived from observable public warrant pricing
on comparable ‘blank-check’ companies without an identified target. The expected volatility as of subsequent valuation dates
was implied from the Company’s own Public Warrant pricing. A Monte Carlo simulation methodology was used in estimating the fair
value of the public warrants for periods where no observable traded price was available, using the same expected volatility as was used
in measuring the fair value of the Private Placement Warrants. For periods subsequent to the detachment of the warrants from the
Units, the close price of the Public Warrants was used as the fair value of the Public Warrants as of each relevant date. The measurement
of the Public Warrants after the detachment of the Public Warrants from the Units is classified as Level 1 due to the use of an observable
market quote in an active market.
The Forward Purchase Agreement is measured at 2,500,000 shares at a price of $0.60 per share. This is considered to be a Level 3 fair
value measurement as the price is based on a contractual amount which is not based on an observable input that reflects quoted prices.
ARROWROOT ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2023
The key inputs into the Modified Black Scholes
model for the Level 3 Warrants were as follows:
Input | |
June 30, 2023 | | |
December 31, 2022 | |
Market price of public shares | |
$ | 10.43 | | |
$ | 10.04 | |
Risk-free rate | |
| 4.08 | % | |
| 3.94 | % |
Dividend yield | |
| 0.00 | % | |
| 0.00 | % |
Exercise price | |
$ | 11.50 | | |
$ | 11.50 | |
Volatility | |
| 0.0 | % | |
| 0.0 | % |
Term to expiration (years) | |
| 0.13 | | |
| 0.42 | |
The following tables present the changes in the
fair value of Level 3 warrant liabilities:
| |
Private Placement Warrants | |
Fair value as of January 1, 2023 | |
$ | 40,000 | |
Change in fair value | |
| 950,000 | |
Fair value as of March 31, 2023 | |
| 990,000 | |
Change in fair value | |
| 1,072,500 | |
Fair value as of June 30, 2023 | |
$ | 2,062,500 | |
| |
Private Placement Warrants | |
Fair value as of January 1, 2022 | |
$ | 4,372,500 | |
Change in fair value | |
| (2,310,000 | ) |
Fair value as of March 31, 2022 | |
| 2,062,500 | |
Change in fair value | |
| (1,642,500 | ) |
Fair value as of June 30, 2022 | |
$ | 420,000 | |
Transfers to/from Levels 1, 2 and 3 are recognized
at the end of the reporting period in which a change in valuation technique or methodology occurs. There were no transfers from a Level
3 measurement to a Level 1 during the three and six months ended June 30, 2023, and 2022.
NOTE 11. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions
that occurred after the unaudited condensed consolidated balance sheet date up to the date that the unaudited condensed consolidated financial
statements were available to be issued. Based upon this review, the Company did not identify any subsequent events, other than below,
that would have required adjustment or disclosure in the unaudited condensed consolidated financial statements.
The Board of directors of the Company, approved
a draw of an aggregate of $160,000 (the “First Extension Funds”) pursuant to the Promissory Note, dated as of March 6, 2023
(the “Extension Note”), between the Company and Arrowroot Acquisition LLC (the “Lender”), which First Extension
Funds were deposited into the Company’s Trust Account on July 6, 2023. This deposit enabled the Company to extend the date by which
it must complete its initial business combination from July 6, 2023 to August 6, 2023 (the “First Extension”). The First
Extension was the first of seven one-month extensions permitted under the Company’s amended and restated certificate of incorporation,
as amended, and provides the Company with additional time to complete its initial business combination.
The Board approved a draw of an aggregate of $160,000
(the “Second Extension Funds”) pursuant to the Extension Note, which Second Extension Funds were deposited into the Company’s
Trust Account on August 4, 2023. This deposit enables the Company to extend the date by which it must complete its initial business combination
from August 6, 2023 to September 6, 2023 (the “Second Extension”). The Second Extension is the second of seven one-month
extensions permitted under the Company’s amended and restated certificate of incorporation, as amended, and provides the Company
with additional time to complete its initial business combination.
The Extension Note does not bear interest and
matures upon closing of the Company’s initial business combination. In the event that the Company does not consummate an initial
business combination, the Extension Note will be repaid only from funds remaining outside of the Company’s trust account, if any,
or will be forfeited, eliminated, or otherwise forgiven. Up to $1,760,000 of the total principal amount of the Extension Note may
be converted, in whole or in part, at the option of the Lender into warrants of the Company at a price of $1.00 per warrant, which warrants
will be identical to the private placement warrants issued to the Lender at the time of the initial public offering of the Company.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this report quarterly report on
Form 10-Q (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Arrowroot Acquisition
Corp. References to our “management” or our “management team” refer to our officers and directors, and references
to the “Sponsor” refer to Arrowroot Acquisition LLC. The following discussion and analysis of the Company’s financial
condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the
notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below
includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act that are not historical
facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All
statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s
financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements.
Such statements include, but are not limited to, possible Business Combination, including our Proposed Business Combination, and the financing
thereof, and related matters, as well as all other statements other than statements of historical fact. Words such as “expect,”
“believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar
words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events
or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could
cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking
statements. For information identifying important factors that could cause actual results to differ materially from those anticipated
in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form 10-K filed with
the SEC on March 31, 2023. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov.
Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking
statements whether as a result of new information, future events or otherwise.
Overview
We are a blank check company formed under the
laws of the State of Delaware on November 5, 2020 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock
purchase, reorganization or similar business combination with one or more businesses. We intend to effectuate our 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.
On February 28, 2023, the Company’s
stockholders held a special meeting (the “Special Meeting”) where the date by which we have to consummate a Business Combination
(as defined below) was extended from March 4, 2023 to the Extension Date (as defined below). In connection with the extension vote, 24,304,187
Class A common stock were redeemed for an aggregate redemption amount of approximately $247,259,068. After the satisfaction of such redemptions,
the balance in our trust account (the “Trust Account”) was approximately $45,229,556.
Recent Developments
As described in greater detail in Note
1 - Description of Organization and Business Operations to the notes to the unaudited financial statements included herein under Part
I, Item 1, on April 27, 2023, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with ARAC Merger Sub,
Inc., a Delaware corporation and a wholly owned subsidiary of the Company (“Merger Sub”), and iLearningEngines, Inc., a Delaware
corporation (“iLearningEngines”).(the “Proposed Business Combination”). Unless specifically stated, this Quarterly
Report does not give effect to the Proposed Business Combination and does not contain the risks associated with the Proposed Business
Combination. The consummation of the Proposed Business Combination is subject to certain conditions as further described in the Merger
Agreement. Notwithstanding our current Proposed Business Combination, in the event that such Merger Agreement is not consummated for any
reason in the future, we may pursue an initial Business Combination opportunity in any business, industry, sector or geographical location.
We expect to continue to incur significant
costs in the pursuit of plans completing the Proposed Business Combination. We cannot assure you that our plans to complete Proposed Business
Combination, or any Business Combination will be successful.
As described in greater
detail in Note 6 – Related Party Transactions, on April 26, 2023, the Company and Polar Multi-Strategy Master Fund, a Cayman Islands
exempted company (“Polar”) entered into an agreement (“Forward Purchase Agreement”), pursuant to which, among
other things, the Company agreed to purchase up to 2,500,000 shares from Polar at $10.77 per share (the “Initial Price”),
which is $10.17 (the “Redemption Price”, plus $0.60). In exchange for the Company’s purchase of the shares, Polar agreed
to waive redemption rights on the shares that Polar owns in connection with the Business Combination.
The Forward Purchase
Agreement provides that at the closing of the Business Combination, the Company will pre-pay Polar for the forward purchase an amount
equal to sum of (x) the number of Class A Ordinary Shares owned by Polar on the day prior to the closing of a business combination multiplied
by the Redemption Price (the “Polar Shares”) and (y) the proceeds from Polar’s purchase of a number of Class A Ordinary
Shares of up to 2,500,000 shares less the Polar Shares (the “Prepayment Amount”).
The scheduled maturity
date of the forward transaction is one year from the closing of the Business Combination (the “Maturity Date”), except that
the Maturity Date may be accelerated if the shares trade under $2.00 for 10 out of 30 days or the shares are delisted by Nasdaq. Polar
has the right to early terminate the transaction (in whole or in part) before the Maturity Date by delivering notice to the Company. If
Polar terminates the Forward Purchase Agreement with respect to some or all of the shares prior to the Maturity Date, Polar will return
an amount to the Company equal to the number of terminated shares multiplied by the Redemption Price. The Company can terminate the Forward
Purchase Agreement prior to the redemption deadline if the Company pays Polar a $300,000 break-up fee. On the Maturity Date, the Company
may be required to make a cash payment to Polar if Polar has not terminated the Forward Purchase Agreement in full equal to the number
of shares (less any shares terminated prior to the Maturity Date) multiplied by $0.60.
Results of Operations
The Company was formed for the purpose of effecting
a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses
(a “Business Combination”). We have neither engaged in any operations nor generated any revenues to date. Our only activities
through June 30, 2023, were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and
identifying a target company for a Business Combination, including in connection with the Proposed 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 three months ended June 30, 2023, we had
net loss of $5,379,164, which consists of general and administrative costs of $1,384,256, provision for income taxes of $32,289 and loss
of $2,936,250 derived from changes in fair value of the warrant liabilities, loss of $1,500,000 derived from initial value of the Forward Purchase Agreement, and interest expenses on promissory note of $4,890, offset by interest income earned on investments held in the Trust
Account of $413,943.
For the three months ended June 30, 2022, we had
net income of $4,488,689, which consists of income of $4,506,250 derived from the changes in fair value of the warrant liabilities and
interest income earned on investments held in the Trust Account of $336,731, offset by general and administrative expenses of $332,572
and provision for income tax of $21,720.
For the six months ended June 30, 2023, we had
net loss of $7,073,856, which consists of general and administrative costs of $2,212,882, provision for income taxes of $423,659 and loss
of $5,546,250 derived from changes in fair value of the warrant liabilities and interest expenses on promissory note of $4,890, loss of
$1,500,000 derived from initial value of the Forward Purchase Agreement and offset by interest income earned on investments held in the Trust
Account of $2,613,825.
For the six months ended June 30, 2022, we had
net income of $10,410,456, which consists of income of $10,841,250 derived from the changes in fair value of the warrant liabilities and
interest income earned on investments held in the Trust Account of $362,360, offset by general and administrative expenses of $771,434
and provision for income tax of $21,720.
Liquidity and Capital Resources
On March 4, 2021, we consummated the Initial Public
Offering of 28,750,000 Units which includes the full exercise by the underwriter of its over-allotment option in the amount of 3,750,000
Units, at $10.00 per Unit, generating gross proceeds of $287,500,000. Simultaneously with the closing of the Initial Public Offering,
we consummated the sale of 8,250,000 Private Placement Warrants at a price of $1.00 per Private Placement Warrant in a private placement
to our Sponsor, generating gross proceeds of $8,250,000.
Following the Initial Public Offering, the full
exercise of the over-allotment option, and the sale of the Private Units, a total of $287,500,000 was placed in the Trust Account. We
incurred $16,392,714 in transaction costs related to the Initial Public Offering, consisting of $5,750,000 in cash underwriting fees,
$10,062,500 of deferred underwriting fees and $580,214 of other offering costs.
On February 28, 2023, the Company’s stockholders
held the Special Meeting and approved and adopted an amendment to its Amended and Restated Certificate of Incorporation to extend the
period of time for which the Company is required to consummate a Business Combination from March 4, 2023 (the “Original Termination
Date”) to July 6, 2023 (the “Charter Extension Date”) and to allow the Company, without another stockholder vote, to
elect to extend the Termination Date to consummate an initial Business Combination on a monthly basis for up to seven times by an additional
one month each time after the Charter Extension Date, by resolution of the Board if requested by the Sponsor, and upon five days’
advance notice prior to the applicable Termination Date, until February 4, 2024 (each, an “Additional Charter Extension Date”)
or a total of up to eleven months after the Original Termination Date, unless the closing of an initial Business Combination shall have
occurred prior thereto (the “Extension”, such extension deadline, the “Extension Date”, and such proposal, the
“Extension Proposal”). In connection with the Extension, shareholders holding 24,304,187 shares of the Company’s Class
A common stock exercised their right to redeem such shares for a pro rata portion of the funds in the Company’s Trust Account at
a redemption price of approximately $10.17 per share. As a result, following the Special Meeting, approximately $247,259,068 in cash was
removed from the Trust Account to pay such holders.
For the six months ended June 30, 2023, cash used
in operating activities was $2,427,688. Net loss of $7,073,856 was affected by income related to the change in fair value of the warrant
liabilities of $5,546,250, $1,500,000 loss related to the initial value of the Forward Purchase Agreement, and interest earned on marketable
securities held in the Trust Account of $2,613,824. Net changes in operating assets and liabilities provided $213,742 of cash for operating
activities.
For the six months ended June 30, 2022, cash used
in operating activities was $712,629. Net income of $10,410,456 was affected by income related to the change in fair value of the warrant
liabilities of $10,841,250 and interest earned on marketable securities held in trust account of $362,360. Net changes in operating assets
and liabilities provided $80,525 of cash for operating activities.
As of June 30, 2023, we had cash and marketable
securities held in the Trust Account of $45,351,623 (including $253,493 of interest) consisting of money market funds which invest primarily
in U.S. Treasury Bills with a maturity of 185 days or less. Interest income on the balance in the Trust Account may be used by us to pay
taxes. Through June 30, 2023, we withdrew an amount of $1,381,050 interest earned from the Trust Account to pay franchise and income taxes
and approximately $247,259,068 in connection with redemption.
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 June 30, 2023, we had cash of $299,342.
If we do not complete the Proposed Business Combination, then we intend to use the funds held outside the trust account primarily 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 (which we currently anticipate will be
the Proposed 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 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. Up to $1,500,000 of
such Working Capital Loans may be convertible into warrants of the post-Business Combination entity at a price of $1.00 per warrant. The
warrants would be identical to the private placement warrants.
On December 21, 2020, the Sponsor issued an unsecured promissory note
to the Company (the “IPO Promissory Note”), pursuant to which the Company may borrow up to an aggregate principal amount
of $300,000. The outstanding balance under the IPO Promissory Note of $149,992 was repaid at the closing of the initial public offering
on March 4, 2021.
On December 29, 2021, the Company issued an unsecured
promissory note (the “First Promissory Note”) in the principal amount of up to $1,500,000 to its Sponsor, of which $750,000
was funded by the Sponsor upon execution of the First Promissory Note and an additional amount of $200,000 was drawn down on March 17,
2022. On April 21, 2022, the Company drew down the remaining $550,000 pursuant to the terms of the First Promissory Note issued on December
29, 2021. Following this draw down, the full $1,500,000 available under the First Promissory Note was outstanding. There are no remaining
funds available under the First Promissory Note for future drawdowns. As of June 30, 2023 and December 31, 2022, $1,500,000 and $1,500,000
were outstanding under this First Promissory Note, respectively.
The First Promissory Note does not bear interest.
The principal balance of the First Promissory Note will be payable on the earliest to occur of (i) the date on which the Company consummates
its initial Business Combination or (ii) the date that the winding up of the Company is effective (such date, the “Maturity Date”).
In the event the Company consummates its initial Business Combination, the Sponsor has the option on the Maturity Date to convert all
or any portion of the principal outstanding under the First Promissory Note into that number of warrants (“Working Capital Warrants”)
equal to the portion of the principal amount of the First Promissory Note being converted divided by $1.00, rounded up to the nearest
whole number. The terms of the Working Capital Warrants, if any, would be identical to the terms of the private placement warrants issued
by the Company at the time of its initial public offering, as described in the prospectus for the initial public offering dated March
1, 2021 and filed with the SEC, including the transfer restrictions applicable thereto. The Promissory Notes are subject to customary
events of default, the occurrence of certain of which automatically triggers the unpaid principal balance of the Promissory Notes and
all other sums payable with regard to the Promissory Notes becoming immediately due and payable.
On February 23, 2023, the Company issued an unsecured
promissory note in the principal amount of $500,000 in favor of the Sponsor (the “Second Promissory Note”), which was funded
in full by the Sponsor upon execution of the Second Promissory Note. The Second Promissory Note is not convertible into Working Capital
Warrants or any other security pursuant to its terms. As of June 30, 2023, the Company had $500,000 outstanding balance under this Second
Promissory Note.
In connection with the approval by the Company’s
stockholders of the Extension Date at the Special Meeting, the Sponsor issued to the Company an unsecured promissory note that matures
upon the Company closing its initial Business Combination (the “Third Promissory Note”). Following the Extension Proposal
being approved, the Sponsor funded $640,000 of the Third Promissory Note. Pursuant to the terms of the Third Promissory Note, on each
Additional Charter Extension Date, the Sponsor must fund the lesser of (a) $160,000 or (b) $0.04 for each public share that is not redeemed
in connection with the Special Meeting for an aggregate deposit of up to the lesser of (x) $1,120,000 or (y) $0.28 for each public share
that is not redeemed in connection with the Special Meeting (if all seven additional monthly extensions are exercised). As of June 30,
2023, the Company had $640,000 outstanding balance under this Third Promissory Note. If the Company completes an initial Business Combination,
the Company will, at the option of the Sponsor, repay the amounts loaned under the Third Promissory Note or convert a portion or all of
the amounts loaned under such promissory note into warrants, which warrants will be identical to the private placement warrants issued
in connection with the Company’s initial public offering. If the Company does not complete an initial Business Combination by the
Extension Date, such promissory note will be repaid only from funds held outside of the Trust Account or will be forfeited, eliminated
or otherwise forgiven.
On June 13, 2023, the Company issued an unsecured
promissory note (the “Fourth Promissory Note” ” and together with the First Promissory Note, the Second Promissory Note
and the Third Promissory Note, the “Promissory Notes”) in the principal amount of $2,000,000 to the Sponsor, of which $700,000
was funded by the Sponsor upon execution of the Fourth Promissory Note. The Fourth Promissory Note bears interest at 15% per annum and
matures upon closing of the Company’s initial Business Combination In the event that the Company does not consummate an initial
Business Combination, the Fourth Promissory Note will be repaid only from funds held outside of the Trust Account or will be forfeited,
eliminated or otherwise forgiven. The Fourth Promissory Note may be further drawn down from time to time prior to the Maturity Date upon
request by the Company subject to the Sponsor’s approval. The Fourth Promissory Note is subject to customary events of default,
the occurrence of certain of which automatically triggers the unpaid principal balance of the Fourth Promissory Note and all other sums
payable with regard to the Fourth Promissory Note becoming immediately due and payable.
All of the Company’s outstanding Promissory
Notes are subject to customary events of default, the occurrence of certain of which automatically triggers the unpaid principal balance
of the Promissory Notes and all other sums payable with regard to the promissory notes becoming immediately due and payable. However,
notwithstanding the original terms the Promissory Notes, the Company and iLearningEngines have agreed, pursuant to the Merger Agreement,
that if the Closing occurs, the Sponsor will have the option for the principal and interest outstanding under the Promissory Notes to
be repaid in cash or convert into common stock of the Surviving Corporation at a price per share equal to $10.00 per share at the Closing;
provided, however, that to the extent the Acquiror Transaction Expenses (as defined in the Merger Agreement) exceed $30,000,000, then
the Promissory Notes will be settled by the conversion of an amount equal to the lesser of (i) the principal and interest outstanding
under the Promissory Notes and (ii) the Excess Transaction Expenses (as defined in the Merger Agreement) into common stock of the Surviving
Corporation at a price per share equal to $10.00 per share.
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.
Based on the foregoing, management has determined
that we do not have sufficient liquidity to meet our anticipated obligations for at least twelve months after the financial statements
are available to be issued, as such, the events and circumstances raise substantial doubt about our ability to continue as a going concern,
as discussed further below. The accompanying financial statements have been prepared on a going concern basis and do not include any adjustments
that might arise as a result of uncertainties about our ability to continue as a going concern.
Going Concern
In connection with the Company’s assessment
of going concern considerations in accordance with FASB’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures
of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that if the Company
is unable to raise additional funds to alleviate liquidity needs, obtain approval for an extension of the deadline or complete a Business
Combination by September 6, 2023 (the “Extension”) but no later than February 4, 2024, then the Company will cease all operations
except for the purpose of liquidating. The liquidity condition and date for mandatory liquidation and subsequent dissolution raise substantial
doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets
or liabilities should the Company be required to liquidate after the Extension Date.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities,
which would be considered off-balance sheet arrangements as of June 30, 2023. We do not participate in transactions that create relationships
with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established
for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements,
established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Contractual obligations
We do not have any long-term debt, capital lease
obligations, operating lease obligations or long-term liabilities, other than an agreement to pay the Sponsor a monthly fee of $20,000
for office space, utilities and secretarial and administrative support services. We began incurring these fees on March 4, 2021 and will
continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation.
The underwriters are entitled to a deferred fee
of $0.35 per Unit, or $10,062,500 in the aggregate. The deferred fee will become payable to the underwriters from the amounts held in
the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
Critical Accounting Estimates
The preparation of unaudited condensed consolidated
financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could
materially differ from those estimates. We have identified the following critical accounting policies:
Warrant Liabilities
We account for the Warrants in accordance with
the guidance contained in ASC 815-40 under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities.
Accordingly, we classify the Warrants as liabilities at their fair value and adjust the Warrants to fair value at each reporting period.
This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in
our unaudited condensed consolidated statement of operations. The Private Placement Warrants and the Public Warrants for periods where
no observable traded price was available are valued using a Monte Carlo simulation. For periods subsequent to the detachment of the Public
Warrants from the Units, the Public Warrant quoted market price was used as the fair value as of each relevant date.
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 unaudited condensed consolidated financial
statements.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
Not required
for smaller reporting companies.
Item
4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined
in Exchange Act Rule 13a–15(e) and 15d-15(e) 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 Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness
of our disclosure controls and procedures as of March 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 Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
were not effective, due solely to the material weakness in our internal control over financial reporting related to the company’s
accounting for complex financial instruments. In light of this material weakness, we performed additional analysis as deemed necessary
to ensure that our financial statements were prepared in accordance with GAAP. Notwithstanding the material weakness, management has concluded
that the financial statements included elsewhere in this Quarterly Report present fairly, in all material respects, our financial position,
results of operations and cash flows in conformity with GAAP.
Management has implemented remediation steps to
improve our internal control over financial reporting. Specifically, we expanded and improved our review process for complex securities
and related accounting standards. We have improved this process by enhancing access to accounting literature, identification of third-party
professionals with whom to consult regarding complex accounting applications and consideration of additional staff with the requisite
experience and training to supplement existing accounting professionals. The elements of our remediation plan can only be accomplished
over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
Changes in Internal Control over Financial
Reporting
There was no change in our internal control over
financial reporting (as defined in Rules 13a- 15(f) and 15d-15(f) under the Exchange Act) that occurred during the most recent fiscal
quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item
1. Legal Proceedings
None
Item
1A. Risk Factors
Factors that could cause our actual results to
differ materially from those in this report include the risk factors described in our Annual Report on Form 10-K for the period ended
December 31, 2022, which was filed with the SEC on March 31, 2023 (our “Annual Report”). As of the date of this Quarterly
Report, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K with the SEC. Additional risk
factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. This Quarterly
Report should be read in conjunction with the risk factors disclosed in our Annual Report and other reports we file with, or furnish to,
the SEC.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
On March 4, 2021, we consummated the Initial Public
Offering of 28,750,000 Units. The Units were sold at an offering price of $10.00 per unit, generating total gross proceeds of $287,500,000.
Cantor Fitzgerald & Co. acted as sole book-running of the Initial Public Offering. The securities in the offering were registered
under the Securities Act on our registration statement on Form S-1 (No. 333-252997). The SEC declared the registration statements effective
on March 1, 2021.
Simultaneously with the closing of the Initial
Public Offering, we consummated the sale of 8,250,000 Warrants at a price of $1.00 per Private Placement Warrant in a private placement
to our Sponsor, generating gross proceeds of $8,250,000. Each whole Private Placement Warrant is exercisable to purchase one share of
Class A common stock at an exercise price of $11.50 per share. The issuance of the Private Placement Warrants was made pursuant to the
exemption from registration contained in Section 4(a)(2) of the Securities Act.
On December 29, 2021, we issued the First Promissory Note in the principal
amount of up to $1,500,000 to our Sponsor, of which $750,000 was funded by the Sponsor upon execution of the First Promissory Note and
additional amounts of $200,000 and $550,000 were drawn down on March 17, 2022 and April 21, 2022, respectively, after which $1,500,000
was outstanding under the First Promissory Note. As of June 30, 2023, no amounts remained available under the First Promissory Note for
future drawdowns. The issuance of the First Promissory Note was made pursuant to the exemption from registration contained in Section
4(a)(2) of the Securities Act.
The First Promissory Note is subject to the Sponsor’s
approval and does not bear interest. The principal balance of the note will be payable on Maturity Date. Pursuant to the terms of the
First Promissory Note, in the event the Company consummates its initial Business Combination, the Sponsor has the option on the Maturity
Date to convert all or any portion of the principal outstanding under the First Promissory Note into that number of Working Capital Warrants.
However, pursuant to the Merger Agreement, we have agreed, that if the Closing occurs, the Sponsor will have the option for the principal
and interest outstanding under the First Promissory Note to be repaid in cash or convert into common stock of the Surviving Corporation
at a price per share equal to $10.00 per share at the Closing; provided, however, that to the extent the Acquiror Transaction Expenses
(as defined in the Merger Agreement) exceed $30,000,000, then the First Promissory Note will be settled by the conversion of an amount
equal to the lesser of (i) the principal and interest outstanding under the First Promissory Note and (ii) the Excess Transaction Expenses
(as defined in the Merger Agreement) into common stock of the Surviving Corporation at a price per share equal to $10.00 per share. The
First Promissory Note is subject to customary events of default, the occurrence of certain of which automatically triggers the unpaid
principal balance of the First Promissory Note and all other sums payable with regard to the Convertible Promissory Note becoming immediately
due and payable.
The Private Placement Warrants are identical to
the Public Warrants included the Units sold in the Initial Public Offering, except that the Private Placement Warrants and the Class A
common stock issuable upon the exercise of the Private Placement Warrants will not be transferable, assignable or salable until 30 days
after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants will
be exercisable on a cashless basis and be non-redeemable, except as described in Note 9 to our unaudited condensed consolidated financial
statements included in this Quarterly Report, so long as they are held by the initial purchasers or their permitted transferees. If the
Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement
Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
Of the gross proceeds received from the Initial
Public Offering, the exercise of the over-allotment option and the Private Placement Warrants, an aggregate of $287,500,000 was placed
in the Trust Account.
We paid a total of $5,750,000 in cash underwriting
fees and $580,214 for other costs and expenses related to the Initial Public Offering and incurred $10,062,500 in deferred underwriting
fees.
For a description of the use of the proceeds generated
in our Initial Public Offering, see Part I, Item 2 of this Form 10-Q.
Item
3. Defaults Upon Senior Securities
None
Item
4. Mine Safety Disclosures
None
Item
5. Other Information
None.
Item
6. Exhibits
The following exhibits are filed as part of, or
incorporated by reference into, this Quarterly Report on Form 10-Q.
No. |
|
Description
of Exhibit |
2.1 |
|
Agreement
and Plan of Merger, dated as of April 27, 2023 by and among Arrowroot Acquisition Corp., ARAC Merger Sub, Inc. and iLearningEngines,
Inc., incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No. 001-40129), filed May 2, 2023 |
3.1 |
|
Amended
and Restated Certificate of Incorporation, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-40129),
filed March 5, 2021 |
3.2 |
|
Amendment
to the Amended and Restated Certificate of Incorporation of the Company, dated March 1, 2023, incorporated by reference to Exhibit
3.1 to the Current Report on Form 8-K (File No. 001-40129), filed March 6, 2023 |
3.3 |
|
Bylaws,
incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-1 (File No. 333-25299), originally filed February
11, 2021 |
31.1* |
|
Certification
of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
31.2* |
|
Certification
of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
32.1** |
|
Certification
of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
32.2** |
|
Certification
of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
101.INS* |
|
Inline
XBRL Instance Document |
101.SCH* |
|
Inline
XBRL Taxonomy Extension Schema Document |
101.CAL* |
|
Inline
XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* |
|
Inline
XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* |
|
Inline
XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE* |
|
Inline
XBRL Taxonomy Extension Presentation Linkbase Document |
104* |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* |
Filed herewith. |
** |
Furnished herewith. |
SIGNATURES
In accordance with the requirements
of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
ARROWROOT ACQUISITION CORP. |
|
|
|
Date:
August 18, 2023 |
By: |
/s/ Matthew Safaii |
|
Name: |
Matthew Safaii |
|
Title: |
Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
|
|
Date:
August 18, 2023 |
By: |
/s/ Thomas Olivier |
|
Name: |
Thomas Olivier |
|
Title: |
Chief Financial Officer |
|
|
(Principal Financial and Accounting Officer) |
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Pursuant to the requirement set forth in Rule
13a-14(b) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and Section 1350 of Chapter 63 of Title
18 of the United States Code (18 U.S.C. §1350), Matthew Safaii, Chief Executive Officer of Arrowroot Acquisition Corp. (the “Company”),
hereby certifies that, to the best of his knowledge:
Pursuant to the requirement set forth in Rule
13a-14(b) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and Section 1350 of Chapter 63 of Title
18 of the United States Code (18 U.S.C. §1350), Thomas Olivier, President and Chief Financial Officer of Arrowroot Acquisition Corp.
(the “Company”), hereby certifies that, to the best of his knowledge: