FRLAU Fortune Rise Acquisition Corporation

Note 1 — Organization and Business Operation

Fortune Rise Acquisition Corporation (the “Company”) is a blank check company incorporated as a Delaware corporation on February 1, 2021. 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”). The Company has signed a non-binding Letter of Intent for the Proposed Business Combination as discussed below. The Company has selected December 31 as its fiscal year end.

As of June 30, 2023 and December 31, 2022, the Company had not commenced any operations. For the period from February 1, 2021 (inception) through June 30, 2023, the Company’s efforts have been limited to organizational activities as well as activities related to the IPO (as defined below). The Company will not generate any operating revenues until after the completion of a Business Combination, at the earliest. The Company had and will continue to generate non-operating income in the form of money market fund dividend income earned from the proceeds derived from the IPO.

The registration statement for the Company’s initial public offering (“IPO”) became effective on November 2, 2021. On November 5, 2021, the Company consummated the IPO of 9,775,000 units (including 1,275,000 units issued upon the full exercise of the over-allotment option, the “Public Units”). Each Public Unit consists of one share of Class A common stock, $0.0001 par value per share (“Class A Common Stock”), and one-half of one redeemable warrant (“Warrant”), each whole Warrant entitling the holder thereof to purchase one share of Class A Common Stock at an exercise price of $11.50 per share. The Units were sold at an offering price of $10.00 per Unit, generating gross proceeds of $97,750,000. The shares of Class A Common Stock included in the Public Units are referred to as the “public shares.”

Substantially concurrently with the closing of the IPO, the Company completed the private sale of 545,500 shares of Class A Common Stock (the “Private Placement Shares”), comprised of 505,500 shares sold to the Company’s sponsor, Fortune Rise Sponsor LLC (the “Sponsor”) and 40,000 shares sold to US Tiger Securities, Inc. (“US Tiger Securities”), and EF Hutton, a division of Benchmark Investment LLC, the representatives of the several underwriters (each, a “Representative”), at a purchase price of $10.00 per Private Placement Share, generating gross proceeds to the Company of $5,455,000. The Private Placement Shares are identical to the public shares, except that the holders have agreed not to transfer, assign or sell any of the Private Placement Shares (except to certain permitted transferees) until 30 days after the completion of the Company’s initial Business Combination.

Transaction costs for the IPO amounted to $5,822,268, consisting of $5,376,250 of underwriting fees (including $3,421,250 of deferred underwriting fees) and $446,018 of other offering costs.

The Company also issued 120,000 shares of Class A Common Stock (the “Representative Shares”) to the Representatives as part of their underwriting compensation. The Representative Shares are identical to the public shares except that the Representatives have agreed not to transfer, assign or sell any such Representative Shares until the completion of the Company’s initial Business Combination. The Representative Shares are deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following the date of the commencement of sales in the IPO pursuant to FINRA Rule 5110(e)(1). In addition, the Representatives have agreed (i) to waive their redemption rights with respect to such shares in connection with the completion of the Company’s initial Business Combination and (ii) to waive their rights to liquidating distributions from the Trust Account (as defined below) with respect to such shares if the Company fails to complete its initial Business Combination by September 5, 2023 (or up to November 5, 2023, if the Company extends the time to complete a Business Combination).

Following the closing of the IPO and the issuance and the sale of Private Placement Shares on November 5, 2021, $99,705,000 ($10.20 per Public Unit) from the net proceeds of the sale of the Public Units in the IPO and the sale of Private Placement Shares was placed in a trust account (the “Trust Account”) maintained by Wilmington Trust, National Association as a trustee and invested the proceeds in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, with a maturity of 180 days or less, or in any open-ended investment company that holds itself out as a money market fund meeting the conditions of Rule 2a-7 of the Investment Company Act of 1940, as amended (the “Investment Company Act”), as determined by the Company, until the earlier of: (a) the completion of the initial Business Combination, (b) the redemption of any public shares properly submitted in connection with a stockholder vote to amend the Company’s amended and restated certificate of incorporation (i) to modify the substance or timing of the Company’s obligation to allow redemption in connection with the initial Business Combination or to redeem 100% of the Company’s public shares if it does not complete the initial Business Combination by September 5, 2023 (or up to November 5, 2023, if the Company extends the time to complete a Business Combination) or (ii) with respect to any other provision relating to stockholders’ rights or pre-initial Business Combination activity and (c) the redemption of the Company’s public shares if it is unable to complete the Business Combination by September 5, 2023 (or up to November 5, 2023, if the Company extends the time to complete a Business Combination), subject to applicable law. The proceeds deposited in the Trust Account could become subject to the claims of the Company’s creditors, if any, which could have priority over the claims of the Company’s public stockholders.

The Company’s initial Business Combination must occur with one or more target businesses that together have an aggregate fair market value of at least 80% of the assets held in the Trust Account (excluding the deferred underwriting fee and taxes payable and interest previously released for working capital purposes on the income earned on the Trust Account) at the time of the agreement to enter into the initial Business Combination. However, 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 an interest in the target sufficient for the post-transaction company not to be required to register as an investment company under the Investment Company Act. There is no assurance that the Company will be able to complete a Business Combination successfully.

The shares of Class A Common Stock subject to redemption were recorded at a redemption value and classified as temporary equity upon the completion of the IPO, in accordance with Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” The Company will proceed with a Business Combination if the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and, if the Company seeks stockholder approval, a majority of the issued and outstanding shares voted are voted in favor of the Business Combination. The Company will have until September 5, 2023 (or up to November 5, 2023, if the Company extends the time to complete a Business Combination and payment of the extension by the Sponsor, or its affiliates), to complete the initial Business Combination (the “Combination Period”). If the Company is unable to complete the initial Business Combination within the Combination Period, the Company will: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the funds held in the Trust Account and not previously released to the Company for working capital purposes or to pay the Company’s taxes (less up to $50,000 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), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and its 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 the Business Combination within the Combination Period. The founders have entered into a letter agreement with the Company, pursuant to which they have agreed (i) to waive their redemption rights with respect to any Founder Shares (defined below), Private Placement Shares, and any public shares held by them in connection with the completion of the initial Business Combination, (ii) waive their redemption rights with respect to their Founder Shares, Private Placement Shares and public shares in connection with a stockholder vote to approve an amendment to the Company’s amended and restated certificate of incorporation (A) to modify the substance or timing of the Company’s obligation to allow redemption in connection with the initial Business Combination or to redeem 100% of the Company’s public shares if the Company does not complete its initial Business Combination by September 5, 2023 (or up to November 5, 2023, if the Company extends the time to complete a Business Combination) and payment of the extension by our Sponsor, or its affiliates), or (B) with respect to any other provision relating to stockholders’ rights or pre-initial Business Combination activity and (iii) to waive their rights to liquidating distributions from the Trust Account with respect to any Founder Shares held by them if the Company fails to complete the initial Business Combination by September 5, 2023 (or up to November 5, 2023, if the Company extends the time to complete a Business Combination and payment of the extension by our Sponsor, or its affiliates), although they will be entitled to liquidating distributions from the Trust Account with respect to any public shares they hold if the Company fails to complete the initial Business Combination within the prescribed time frame. If the Company submits its initial Business Combination to its stockholders for a vote, the Company will complete its initial Business Combination only if a majority of the outstanding shares of common stock voted are voted in favor of the initial Business Combination. In no event will the Company redeem its public shares of Class A Common Stock in an amount that would cause its net tangible assets to be less than $5,000,001. In such case, the Company would not proceed with the redemption of public shares of Class A Common Stock and the related Business Combination, and instead may search for an alternate Business Combination.

The Sponsor has agreed that it will 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 by 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 (i) $10.20 per public share or (ii) such lesser amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account due to reductions in the value of the trust assets, in each case net of the interest which may be withdrawn to pay taxes. This liability will not apply with respect to any claims by a third party who executed a waiver of any and all rights to seek access to the Trust Account and except as to any claims under the Company’s indemnity of the underwriters of the IPO 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, then the Company’s Sponsor will not be responsible to the extent of any liability for such third party claims.

Termination of Prior Proposed Business Combination

On April 26, 2022, the Company entered into an agreement and plan of merger (the “Merger Agreement”) by and among Sigma Merger Sub Inc., a Delaware corporation and its direct, wholly owned subsidiary (“Sigma Merger Sub”), Gamma Merger Sub Inc., a Delaware corporation and its direct, wholly owned subsidiary (“Gamma Merger Sub”), VCV Power Sigma, Inc., a Delaware corporation (“Sigma”), VCV Power Gamma, Inc., a Delaware corporation (“Gamma,” and, together with Sigma, “VCV Digital Technology”), and Jerry Tang, in his capacity as the representative for stockholders of VCV Digital Technology and for certain limited purposes under Section 5.13 thereunder. Pursuant to the Merger Agreement, among other things, (i) in accordance with the General Corporation Law of the State of Delaware, as amended (the “DGCL”), Sigma Merger Sub would merge with and into Sigma, with Sigma surviving the Sigma Merger as the Company’s wholly owned subsidiary, and (ii) in accordance with the DGCL, Gamma Merger Sub will merge with and into Gamma, with Gamma surviving the Gamma Merger as its wholly owned subsidiary.

On July 19, 2022, pursuant to Section 11.01(a) of the Merger Agreement, the Company and VCV Digital Technology entered into a termination agreement and mutually agreed to terminate the Merger Agreement and the transaction contemplated thereby was abandoned.

Change of Sponsor

On December 22, 2022, Water On Demand, Inc. (“WODI”) entered into a Membership Interest Purchase and Transfer Agreement with Ka Wai Cheung, Koon Lin Chan, and Koon Keung Chan (each a “Seller,” and collectively, the “Sellers”) and the Sponsor, pursuant to which WODI purchased 100 membership interests in the Sponsor from the Sellers, which constitutes 100% of the membership interests in the Sponsor. The Sponsor holds 2,343,750 shares out of 2,443,750 shares of the issued and outstanding shares of Class B Common Stock of the Company.

Non-binding Letter of Intent of the Proposed Business Combination

On January 5, 2023, the Company filed a press release which announced the signing of a non-binding Letter of Intent with WODI under which the Company proposes to acquire all the outstanding securities of WODI, based on certain material financial and business terms and conditions being met.

Extension Amendment on Business Combination

On November 4, 2022, an aggregate of $977,500 (the “First Extension Payment”) was deposited into the Company’s Trust Account for the public stockholders, representing $0.10 per public share, which enabled the Company to extend the period of time it had to consummate its initial Business Combination by three months from November 5, 2022 to February 5, 2023 (the “First Extension”).

On February 6, 2023, $977,500 (the “Second Extension Payment”) was deposited into the Trust Account, for the public stockholders, representing $0.10 per public share, which enabled the Company to extend the period of time it had to consummate its initial Business Combination by three months from February 5, 2023 to May 5, 2023 (the “Second Extension”).

On April 11, 2023, the Company filed with the Secretary of State of the State of Delaware an amendment (the “Extension Amendment”) to the Company’s amended and restated certificate of incorporation to extend the date by which the Company must consummate a Business Combination up to six times, each by an additional month, for an aggregate of six additional months (i.e., from May 5, 2023 to up to November 5, 2023) or such earlier date as determined by the board of directors. The Company’s stockholders approved the Extension Amendment at a special meeting of stockholders of the Company on April 10, 2023.

On May 5, 2023, $330,064.50 (the “Third Extension Payment”) was deposited into the Trust Account, for the public stockholders, representing $0.0625 per public share, which enabled the Company to extend the period of time it had to consummate its initial Business Combination by one month from May 5, 2023 to June 5, 2023 (the “Third Extension”).

As a result of the June 2, 2023 special meeting of stockholders of the Company, the Company filed with the Secretary of State of the State of Delaware an amendment to the Company’s amended and restated certificate of incorporation to amend the monthly extension amounts to be paid by the Sponsor (or its affiliates), to extend the period of time for the Company to consummate a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination involving the Company to be made upon the request of the Sponsor, and approval by the Company’s board of directors, from an amended price per unredeemed share of Class A common stock of $0.0625 to the lower of $100,000 or $0.05 per unredeemed share of Class A Common Stock. On June 5, 2023, $100,000 (the “Fourth Extension Payment”) was deposited into the Trust Account, for the public stockholders, representing $0.027 per public share, which enabled the Company to extend the period of time it had to consummate its initial Business Combination by one month from June 5, 2023 to July 5, 2023 (the “Fourth Extension”).

On July 5, 2023, $100,000 (the “Fifth Extension Payment”) was deposited into the Trust Account, for the public stockholders, representing $0.027 per public share, which enabled the Company to extend the period of time it had to consummate its initial Business Combination by one month from July 5, 2023 to August 5, 2023 (the “Fifth Extension”).

On August 4, 2023, $100,000 (the “Sixth Extension Payment”) was deposited into the Trust Account, for the public stockholders, representing $0.027 per public share, which enabled the Company to extend the period of time it has to consummate its initial Business Combination by one month from August 5, 2023 to September 5, 2023 (the “Sixth Extension”).

Liquidity and Going Concern

As of June 30, 2023, the Company had $187,204 in cash held outside the Trust Account available for the Company’s payment of expenses related to working capital purposes and a working capital deficit of $3,869,558. The Company has incurred and expects to continue to incur significant professional costs to remain as a publicly traded company and to incur significant transaction costs in pursuit of the consummation of a Business Combination. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses.

In connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Update (ASU) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that these conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan to address this uncertainty is through the Promissory Notes – related parties and the Working Capital Loans, as defined below (see Note 6). In addition, if the Company is unable to complete a Business Combination within the Combination Period by September 5, 2023 (or up to November 5, 2023, if the Company extends the time to complete a Business Combination), the Company’s board of directors would commence a winding up, dissolution and liquidation pursuant to the terms of the amended and restated certificate of incorporation and thereby a formal dissolution of the Company. There is no assurance that the Company’s plans to consummate a Business Combination will be successful within the Combination Period. As a result, management has determined that such additional condition also raises substantial doubt about the Company’s ability to continue as a going concern. The unaudited condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Inflation Reduction Act of 2022

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 (including redemptions) 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 stockholders 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 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.

As a result of the 6,160,048 shares of Class A common stock redeemed in April 2023 and June 2023, the Company accrued the 1% excise tax in the amount of $654,283 as a reduction of equity, as the Company is uncertain about the structure of any Business Combination and whether additional shares will be issued within the same taxable year.

Note 2 — Significant Accounting Policies

Note 3 — Investments Held in Trust Account

As of June 30, 2023 and December 31, 2022, assets held in the Trust Account were comprised of $38,787,501 and $101,942,526, respectively, in money market funds which are invested in U.S. Treasury Securities.

The following table presents information about the Company’s assets 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: 

Note 4 — Initial Public Offering

Pursuant to the IPO on November 5, 2021, the Company sold 9,775,000 Units at $10.00 per Public Unit, generating gross proceeds of $97,750,000. Each Public Unit consists of one share of the Company’s Class A Common Stock and one-half of one redeemable warrant. The Company will not issue fractional shares upon the exercise of warrants. As a result, the warrants must be exercised in multiples of one whole warrant. Each whole warrant entitles the holder thereof to purchase one share of the Company’s Class A Common Stock at a price of $11.50 per share, and only whole warrants are exercisable. The warrants will become exercisable on the later of 30 days after the completion of the Company’s initial Business Combination or 12 months from the closing of the IPO, and will expire five years after the completion of the Company’s initial Business Combination or earlier upon redemption or liquidation.

All of the 9,775,000 public shares sold as part of the Public Units in the IPO contain a redemption feature which allows for the redemption of such public shares if there is a stockholder vote or tender offer in connection with the Business Combination and in connection with certain amendments to the Company’s amended and restated certificate of incorporation, or in connection with the Company’s liquidation. In accordance with the Securities and Exchange Commission (the “SEC”) and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within the control of the Company require Class A Common Stock subject to redemption to be classified outside of permanent equity.

The Company’s redeemable Class A Common Stock is subject to the SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99. If it is probable that the equity instrument will become redeemable, the Company has the option to either accrete changes in the redemption value over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of the instrument or to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The Company has elected to recognize the changes immediately. The accretion or remeasurement is treated as a deemed dividend (i.e., a reduction to retained earnings, or in absence of retained earnings, additional paid-in capital).

As of June 30, 2023 and December 31, 2022, the Class A Common Stock reflected on the unaudited condensed balance sheets is reconciled in the following table. 

Note 5 — Private Placement

Substantially concurrently with the closing of the IPO, the Company completed the private sale of 545,500 Private Placement Shares, comprised of 505,500 shares sold to the Sponsor and 40,000 shares sold to the Representatives, at a purchase price of $10.00 per Private Placement Share, generating gross proceeds to the Company of $5,455,000. The Private Placement Shares are identical to the public shares, except that the holders have agreed not to transfer, assign or sell any of the Private Placement Shares (except to certain permitted transferees) until 30 days after the completion of the Company’s initial Business Combination.

Note 6 — Related Party Transactions

Founder and Private Placement Shares

On February 18, 2021, the Sponsor acquired 2,443,750 shares of common stock from the Company for a purchase price of $25,000. On March 2, 2021, the Company amended and restated its certificate of incorporation to divide its common stock into Class A Common Stock and Class B Common Stock without changing the total amount of the authorized capital of common stock. As a result, the Company cancelled the 2,443,750 shares of common stock held by the Sponsor and simultaneously issued 2,443,750 shares (the “Founder Shares”) of Class B common stock, par value $0.0001 per share (“Class B Common Stock”) to the Sponsor.

As of June 30, 2023 and December 31, 2022, there were 2,443,750 Founder Shares issued and outstanding. The aggregate capital contribution was $25,000, or approximately $0.01 per share.

The number of Founder Shares issued was determined based on the expectation that such Founder Shares would represent 20% of the outstanding shares upon completion of the IPO (excluding the sale of Private Placement Shares and issuance of the Representative Shares).

In November 2021, the Sponsor transferred an aggregate of 443,750 Founder Shares to the Company’s former officers, directors, secretary and their designees at the same price originally paid for such shares prior to the closing of the IPO. As a result of such transfers, US Tiger Securities, Inc., a Representative, as the designee of Mr. Lei Huang, former Chief Executive Officer who resigned on December 22, 2022, acquired 122,000 Founder Shares at the same price originally paid for such shares. Dr. Lei Xu, the Company’s former President, Ms. Yuanmei Ma, the Company’s former Chief Financial Officer, Ms. Christy Szeto, the Company’s former secretary, Dr. David Xianglin Li, Mr. Michael Daidov, and Mr. Norman Kristoff, each of the Company’s former directors collectively acquired the remaining 321,750 Founder Shares at the same price originally paid for such shares. On December 22, 2022, the Company’s officers, directors and secretary resigned from their respective positions and returned and sold a total of 343,750 Founder Shares back to the Sponsor for the original purchase price. Out of the issued and outstanding shares of Class B Common Stock, an aggregate of 100,000 shares remains owned by former management.

The sale of the Founder Shares from Sponsor to the Company’s officers, directors and secretary 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 grant date fair value of the remaining 100,000 shares, net of forfeiture of 343,750 shares, granted to the Company’s officers, directors and secretary was $716,250, or $7.16 per share. The Founders Shares were granted subject to a performance condition (i.e., the occurrence of a Business Combination). Compensation expense related to the Founders Shares is recognized only when the performance condition is probable of occurrence under the applicable accounting literature in this circumstance. As of June 30, 2023 and December 31, 2022, the Company determined that a Business Combination was not considered probable, and, therefore, no stock-based compensation expense has been recognized. 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) less the amount initially received for the purchase of the Founder Shares.

The holders of the Founder Shares have agreed not to transfer, assign or sell 50% of their Founder Shares until the earlier to occur of: (A) six months after the date of the consummation of the Company’s initial Business Combination, or (B) the date on which the closing price of the Company’s Class A Common Stock equals or exceeds $12.50 per share (as adjusted for share splits, share dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing after the Company’s initial Business Combination and the remaining 50% of the Founder Shares may not be transferred, assigned or sold until six months after the date of the consummation of the Company’s initial Business Combination, or earlier, in either case, if, subsequent to the Company’s initial Business Combination, the Company consummates a subsequent liquidation, merger, stock exchange or other similar transaction which results in all of the Company’s stockholders having the right to exchange their shares for cash, securities or other property.

On November 5, 2021, the Company completed the private sale of 505,500 shares of Class A Common Stock to the Sponsor, Fortune Rise Sponsor LLC, at a purchase price of $10.00 per Private Placement Share, generating gross proceeds to the Company of $5,055,000. The Private Placement Shares are identical to the public shares, except that the holders have agreed not to transfer, assign or sell any of the Private Placement Shares (except to certain permitted transferees) until 30 days after the completion of the Company’s initial Business Combination.

Representative Shares

The Company issued 120,000 Representative Shares to the Representatives of the underwriters for the Company’s IPO, as part of their underwriting compensation. The Representative Shares are identical to the public shares except that the Representatives have agreed not to transfer, assign or sell any such Representative Shares until the completion of the Company’s initial Business Combination. The Representative Shares are deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following the date of the commencement of sales in this offering pursuant to FINRA Rule 5110(e)(1). In addition, the Representatives have agreed (i) to waive their redemption rights with respect to such shares in connection with the completion of the Company’s initial Business Combination and (ii) to waive their rights to liquidating distributions from the Trust Account (as defined below) with respect to such shares if the Company fails to complete its initial Business Combination by September 5, 2023 (or up to November 5, 2023, if the Company extends the time to complete a Business Combination and payment of the extension by our Sponsor, or its affiliates).

Prepaid Expenses – Related Party

Effective December 1, 2022 (the “Effective Date”), Mr. J. Richard Iler, the Company’s former Principal Executive Officer, Chief Financial Officer, Secretary, and Treasurer, entered into a Consulting Agreement (the “Agreement”) with the Company and OriginClear, Inc. (OriginClear), a Nevada corporation and the parent company of the Sponsor, pursuant to which Mr. Iler received an initial payment of $50,000 and received separate payments of $25,000 monthly from January 2023 through April 2023. The term of the Agreement was for six months starting from the Effective Date, unless earlier terminated. As of June 30, 2023 and December 31, 2022, the Company prepaid to Mr. Iler under the Agreement amounted to $0 and $25,000, respectively.

Due to Related Parties

In December 2022, OriginClear advanced $50,000 to the Company for working capital. On April 17, 2023, the board of directors of the Company approved the issuance of an unsecured promissory note dated November 23, 2022 in the principal amount of $50,000 to OriginClear and the Company reclassified this $50,000 advances into a promissory note – related party. As of June 30, 2023 and December 31, 2022, balance due to OriginClear amounted to $0 and $50,000, respectively.

Promissory Notes — Related Party (Working Capital Loans)

On November 4, 2022, an aggregate of $977,500 (the “First Extension Payment”) was deposited into the Company’s Trust Account for the public stockholders, representing $0.10 per public share, which enabled the Company to extend the period of time it had to consummate its initial Business Combination by three months from November 5, 2022 to February 5, 2023 (the “First Extension”). The First Extension was the first of the two three-month extensions permitted under the Company’s amended and restated certificate of incorporation prior to its amendment in April 2023. In connection with the First Extension Payment, the Company issued unsecured promissory notes (the “First Extension Note”) to certain initial stockholders, including (i) a note of $413,750 to Mr. Koon Keung Chan, the former manager of the Sponsor of the Company who resigned on December 22, 2022, (ii) a note of $150,000 to US Tiger Securities, an existing stockholder, and (iii) a note of $170,000 to Dr. Lei Xu, the former President and Chairwoman of the Company who resigned on December 22, 2022. The three promissory notes together with the Company’s working capital fund were used to pay for the First Extension Payment. These three promissory notes totaling $733,750 were assigned to WODI as creditor on December 22, 2022.

On February 6, 2023, $977,500 (the “Second Extension Payment”) was deposited into the Trust Account, for the public stockholders, representing $0.10 per public share, which enabled the Company to extend the period of time it had to consummate its initial Business Combination by three months from February 5, 2023 to May 5, 2023 (the “Second Extension”). The Second Extension was the second and final of the two three-month extensions permitted under the Company’s amended and restated certificate of incorporation prior to its amendment in April 2023. In connection with the Second Extension Payment, the Company issued an unsecured promissory note (the “Second Extension Note”) to WODI.

On March 16, 2023, the board of directors of the Company approved the issuance of an unsecured promissory note dated March 9, 2023 in the principal amount of $75,000 (the “Note 1”) to WODI.

On April 17, 2023, the board of directors of the Company, approved the issuance of the following unsecured promissory notes (“Notes 2”):

On May 5, 2023, in connection with the Third Extension Payment, the Company issued an unsecured promissory note in the principal amount of $330,065 (the “Third Extension Note”) to WODI.

On June 5, 2023, in connection with the Fourth Extension Payment, the Company issued an unsecured promissory note in the principal amount of $100,000 (the “Fourth Extension Note”) to WODI.

The Company also issued the following unsecured promissory notes (“Notes 3”) to WODI for working capital purpose:

The First Extension Note, the Second Extension Note, the Third Extension Note, the Fourth Extension Note, Note 1, Notes 2, and Notes 3 (herein referred to as the “Notes” or the “Working Capital Loans”) are non-interest bearing and payable (subject to the waiver against trust provisions) on the earlier of (i) consummation of the Company’s initial Business Combination and (ii) the date of the liquidation of the Company. The principal balance may be prepaid at any time, at the election of the Company. The holders of the Notes have the right, but not the obligation, to convert their Notes, in whole or in part, respectively, into private shares of Class A Common Stock (the “Conversion Shares”), as described in the IPO prospectus of the Company (File Number 333-256511). The number of Conversion Shares to be received by the holders in connection with such conversion shall be an amount, up to $3,000,000, determined by dividing (x) the sum of the outstanding principal amount payable to such holders by (y) $10.00.

In order to finance transaction costs in connection with an intended initial Business Combination, the founders or an affiliate of the founders or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required. If the Company completes the initial Business Combination, it would repay such loaned amounts. Up to $3,000,000 of such loans may be convertible into working capital shares, at a price of $10.00 per share at the option of the lender. Such working capital shares would be identical to the Private Placement Shares. In the event that the initial Business Combination does not close, the Company may use a portion of the working capital held outside the Trust Account to repay such loaned amounts, but no proceeds from the Trust Account would be used for such repayment.

As of June 30, 2023 and December 31, 2022, the Company had borrowings of $3,384,735 and $733,750, respectively, under the promissory notes — related party (working capital loans).

Note 7 — Commitments & Contingencies

Risks and Uncertainties

Management is currently evaluating the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the 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 financial statements. The unaudited condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Registration Rights

The holders of the Founder Shares, Private Placement Shares and shares of common stock that may be issued upon conversion of working capital loans are entitled to registration rights pursuant to a registration rights agreement entered into in connection with the IPO, requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion into Class A Common Stock). The holders of the majority 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 the initial Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. The Company will bear the expenses incurred in connection with the filing of any such registration statements.

Underwriters Agreement

The Representatives entitled to underwriting discounts of (i) two percent (2.0%) of the gross proceeds of the IPO, or $1,955,000 in the aggregate, and paid at the closing of the IPO and (ii) will be entitled to a deferred underwriting discount of three and a half percent (3.5%) of the gross proceeds of the IPO, or approximately $3,421,250 in the aggregate, upon the consummation of a Business Combination.

Note 8 — Deferred Underwriters’ Discount

The Company is obligated to pay the underwriters a deferred underwriters’ discount equal to 3.5% of the gross proceeds of the IPO. The deferred underwriters’ discount of $3,421,250 will become payable to the Representatives from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination.

Note 9 — Stockholders’ Deficit

Preferred stock — The Company is authorized to issue 2,000,000 shares of preferred stock, par value $0.0001 per share, and with such designations, voting and other 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.

Common stock — The Company was initially authorized to issue up to 60,000,000 shares of common stock, par value $0.0001 per share. On February 19, 2021, there were 2,443,750 shares of common stock issued and outstanding. On March 2, 2021, the Company amended and restated its certificate of incorporation to divide its common stock into Class A Common Stock and Class B Common Stock, with the result that the Company is authorized to issue up to 60,000,000 shares of common stock, par value $0.0001 per share, comprised of 55,000,000 shares of Class A Common Stock and 5,000,000 shares of Class B Common Stock. In connection therewith, the Company cancelled 2,443,750 shares of common stock issued to the Sponsor and issued 2,443,750 shares of Class B Common Stock to the Sponsor.

Holders of record of Common Stock are entitled to one vote for each share held on all matters to be voted on by stockholders. The Company’s stockholders are entitled to receive ratable dividends when, as and if declared by the board of directors out of funds legally available therefor. Holders of record of the Class A Common Stock and holders of record of the Class B Common Stock will vote together as a single class on all matters submitted to a vote of the stockholders, with each share of common stock entitling the holder to one vote except as required by applicable law. The shares of Class B Common Stock will automatically convert into shares of Class A Common Stock at the closing of the Company’s initial Business Combination on a one-for-one basis, subject to adjustment pursuant to certain anti-dilution right.

Class A Common Stock — The Company is authorized to issue 55,000,000 shares of Class A Common Stock with a par value of $0.0001 per share.

In connection with the special meeting of stockholders on April 10, 2023, holders of 4,493,968 public shares of Class A common stock properly exercised their right to redeem their shares (and did not withdraw their redemption) for cash at a redemption price of approximately $10.57 per share, for an aggregate redemption amount of approximately $47,501,242.

In connection with the special meeting of stockholders on June 2, 2023, holders of 1,666,080 public shares of Class A common stock properly exercised their right to redeem their shares (and did not withdraw their redemption) for cash at a redemption price of approximately $10.76 per share, for an aggregate redemption amount of approximately $17,927,021.

As of June 30, 2023 and December 31, 2022, there were 665,500 shares of common stock issued and outstanding, excluding 3,614,952 and 9,775,000 shares of common stock, respectively, subject to possible redemption.

Class B Common Stock — The Company is authorized to issue 5,000,000 shares of Class B Common Stock with a par value of $0.0001 per share. On March 2, 2021, the Company issued 2,443,750 shares of Class B Common Stock to the founders for $25,000, so that the founders collectively owned 20% of the Company’s issued and outstanding common stock after the IPO (excluding the Private Placement Shares and the Representative Shares). As of June 30, 2023 and December 31, 2022, there were 2,443,750 shares of Class B Common Stock issued and outstanding.

Warrants — On November 5, 2021, the Company issued 4,887,500 warrants in connection with the IPO. Each whole warrant entitles the registered holder to purchase one whole share of the Company’s Class A Common Stock at a price of $11.50 per share, subject to adjustment as discussed below, at any time commencing on the later of 12 months from the closing of the IPO or 30 days after the completion of the initial Business Combination. Pursuant to the warrant agreement, a warrant holder may exercise its warrants only for a whole number of shares of Class A Common Stock. This means that only a whole warrant may be exercised at any given time by a warrant holder. No fractional warrants will be issued upon separation of the units and only whole warrants will trade. The warrants will expire five years after the completion of the Company’s initial Business Combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.

As of June 30, 2023 and December 31, 2022, 4,887,500 warrants were outstanding.

The Company has agreed that as soon as practicable, but in no event later than 30 business days, after the closing of the initial Business Combination, it will use its commercially reasonable efforts to file, and within 60 business days following its initial Business Combination to have declared effective, a registration statement for the registration, under the Securities Act, of the shares of Class A Common Stock issuable upon exercise of the warrants. The Company will use its commercially reasonable efforts 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. No warrants will be exercisable for cash unless the Company has an effective and current registration statement covering the Class A Common Stock issuable upon exercise of the warrants and a current prospectus relating to such shares of common stock. Notwithstanding the above, if the Company’s Class A Common Stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of 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 it so elect, it will not be required to file or maintain in effect a registration statement, but it will be required to use its commercially reasonable 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:

The Company accounted for the 4,887,500 warrants issued with the IPO as equity instruments in accordance with ASC 480, “Distinguishing Liabilities from Equity” and ASC 815-40, “Derivatives and Hedging: Contracts in Entity’s Own Equity.” The Company accounted for the warrant as an expense of the IPO resulting in a charge directly to stockholders’ equity. The Company estimates that the fair value of the warrants of the date of grant date is approximately $4.4 million, or $0.906 per Unit, using the Monte Carlo Model. The fair value of the warrants is estimated as of the date of grant date using the following assumptions: (1) expected volatility of 16.2%, (2) risk-free interest rate of 1.16%, (3) expected life of 5.91 years, (4) exercise price of $11.50 and (5) stock price of $9.548.

Note 10 — Income Taxes

The Company’s taxable income primarily consists of interest earned on investments held in the Trust Account.

The income tax provision (benefit) consists of the following: 

The effective tax rate is 102.4% and 0.0% for the three months ended June 30, 2023 and 2022, respectively. The effective tax rate is 57.3% and 0.0% for the six months ended June 30, 2023 and 2022, respectively.

The Company’s net deferred tax assets (liabilities) were as follows as of: 

As of June 30, 2023 and December 31, 2022, the Company had $1,916,627 and $1,056,970, respectively, of U.S. federal and state start-up and organization expenses available to offset future taxable income which do not expire. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax assets, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance.

Note 11 — Subsequent Events

In accordance with ASC 855, Subsequent Events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued, the Company has evaluated all events or transactions that occurred after the balance sheet date, up through the date was the Company issued the unaudited condensed financial statements.

Promissory Notes — Related Party (Working Capital Loans)

On July 5, 2023, $100,000 (the “Fifth Extension Payment”) was deposited into the Trust Account, for the public stockholders, representing $0.027 per public share, which enabled the Company to extend the period of time it had to consummate its initial Business Combination by one month from July 5, 2023 to August 5, 2023 (the “Fifth Extension”). The Fifth Extension was the third of the six one-month extensions permitted under the Company’s governing documents. In connection with the Fifth Extension Payment, the Company issued an unsecured promissory note (the “Fifth Extension Note”) to WODI.

On August 4, 2023, $100,000 (the “Sixth Extension Payment”) was deposited into the Trust Account, for the public stockholders, representing $0.027 per public share, which enabled the Company to extend the period of time it has to consummate its initial Business Combination by one month from August 5, 2023 to September 5, 2023 (the “Sixth Extension”). The Sixth Extension was the fourth of the six one-month extensions permitted under the Company’s governing documents. In connection with the Sixth Extension Payment, the Company issued an unsecured promissory note (the “Sixth Extension Note”) to WODI.

The Fifth Extension Note and the Sixth Extension Note are non-interest bearing and payable (subject to the waiver against trust provisions) on the earlier of (i) consummation of the Company’s initial Business Combination and (ii) the date of the liquidation of the Company. The principal balance may be prepaid at any time, at the election of the Company. The holders of the Notes have the right, but not the obligation, to convert their Notes, in whole or in part, respectively, into private shares of the Class A Common Stock (the “Conversion Shares”) of the Company, as described in the IPO prospectus of the Company (File Number 333-256511). The number of Conversion Shares to be received by the holders in connection with such conversion shall be an amount determined by dividing (x) the sum of the outstanding principal amount payable to such holders by (y) $10.00.

On July 14, 2023, the Company entered into a consulting agreement with Richard A. Brand (the “Consulting Agreement”). The Consulting Agreement provides for compensation to Mr. Brand of $10,000 per month. The Consulting Agreement provides for a term of six months, unless earlier terminated by either party upon 10 business days’ written notice.