The accompanying notes are an integral part of
these unaudited condensed financial statements.
The accompanying notes are an integral part of
these unaudited condensed financial statements.
The accompanying notes are an integral part of
these unaudited condensed financial statements.
The accompanying notes are an integral part of
these unaudited condensed financial statements.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1 — Description of Organization
and Business Operations
Redwoods Acquisition Corp. (the “Company”)
is a newly organized blank check company incorporated as a Delaware corporation on March 16, 2021. The Company was formed for the purpose
of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more
businesses or entities (“Business Combination”). The Company is not limited to a particular industry or geographic region
for purposes of consummating a Business Combination.
As of March 31, 2023, the Company had not commenced
any operations. All activities through March 31, 2023 are related to the Company’s formation, the initial public offering (“IPO”
as defined below in Note 4) and, subsequent to the IPO, identifying a target company for a Business Combination. 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 proceeds derived from the IPO. The Company has selected December 31 as its fiscal year
end.
The Company’s sponsor is Redwoods Capital
LLC, a Delaware limited liability company (the “Sponsor”).
The registration statement for the Company’s
IPO became effective on March 30, 2022. On April 4, 2022, the Company consummated the IPO of 10,000,000 units at an offering price of
$10.00 per unit (the “Public Units’), generating gross proceeds of $100,000,000. Simultaneously with the closing of the IPO,
the Company sold to the Sponsor and Chardan Capital Markets LLC (“Chardan”), in a private placement, 377,500 units and 100,000
units, respectively, at $10.00 per unit (the “Private Units”), generating total gross proceeds of $4,775,000, which is described
in Note 5.
The Company granted the underwriters a 45-day
option to purchase up to 1,500,000 additional Public Units to cover over-allotments, if any. On April 7, 2022, the underwriters exercised
the over-allotment option in full and purchased 1,500,000 Public Units at a price of $10.00 per Public Unit, generating gross proceeds
of $15,000,000. Simultaneously with the closing of the over-allotment option, the Company consummated the sale of an additional aggregate
of 52,500 Private Units with the Sponsor and Chardan at a price of $10.00 per Private Unit, generating total proceeds of $525,000.
Transaction costs amounted to $8,365,339, consisting
$2,875,000 of underwriting fees, $4,312,500 of deferred underwriting fees (payable only upon completion of a Business Combination) and
$1,177,839 of other offering costs.
Upon the closing of the IPO and the sale of Private
Units on April 4, 2022, and the exercise of the over-allotment option and the sale of the additional Private Units on April 7, 2022, a
total of $116,150,000 was placed in a trust account (the “Trust Account”) maintained by Continental Stock Transfer & Trust
Company as a trustee and will be invested only in U.S. government treasury bills with a maturity of 185 days or less or in money market
funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended (the “Investment Company Act”),
and that invest only in direct U.S. government treasury obligations. These funds will not be released until the earlier of the completion
of the initial Business Combination and the liquidation due to the Company’s failure to complete a Business Combination within the
applicable period of time. 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. In addition, interest income earned on the
funds in the Trust Account may be released to the Company to pay its income or other tax obligations. With these exceptions, expenses
incurred by the Company may be paid prior to a business combination only from the net proceeds of the IPO and private placement not held
in the Trust Account.
On March 31, 2023, the Company held a special meeting
of stockholders, at which the Company’s stockholders approved (i) an amendment to the Company’s amended and restated certificate
of incorporation (the “Extension Amendment”) and (ii) an amendment (the “Trust Amendment”) to the Investment Management
Trust Agreement, dated March 30, 2022, by and between the Company and Continental Stock Transfer & Trust Company, as trustee, extending
the date by which the Company must consummate a Business Combination from April 4, 2023 to July 4, 2023, with the ability to further extend
the deadline on a monthly basis up to five times from July 4, 2023 to December 4, 2023. In connection with the stockholders’ vote
at the special meeting, an aggregate of 6,103,350 shares with redemption value of approximately $63,169,451 (or $10.35 per share) of the
Company’s common stock were tendered for redemption.
REDWOODS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
As a result of the stockholder approval of the Extension
Amendment and the Trust Amendment, the Sponsor, or any of their respective affiliates or designees, agreed to deposit into the Trust Account
$360,000 for the initial three-month extension and $120,000 per month for each subsequent one-month extension. The extension payment(s)
will bear no interest and will be repayable by the Company to the contributors upon consummation of the Business Combination. The loans
will be forgiven by the contributors if the Company is unable to consummate the Business Combination except to the extent of any funds
held outside of the Trust Account.
Pursuant to Nasdaq listing rules, the Company’s
initial Business Combination must occur with one or more target businesses having an aggregate fair market value equal to at least 80%
of the value of the funds in the Trust account (excluding any deferred underwriting discounts and commissions and taxes payable on the
income earned on the Trust Account), which the Company refers to as the 80% test, at the time of the execution of a definitive agreement
for its initial Business Combination, although the Company may structure a Business Combination with one or more target businesses whose
fair market value significantly exceeds 80% of the trust account balance. If the Company is no longer listed on Nasdaq, it will not be
required to satisfy the 80% test. 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 sufficient for
it not to be required to register as an investment company under the Investment Company Act.
The Company will provide its 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, solely in its discretion. 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 anticipated to be $10.10 per Public Share, plus any pro
rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its franchise and income
tax obligations).
If a stockholder vote is not required by law and
the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its Amended
and Restated Certificate of Incorporation (the “Amended and Restated 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 law, or the
Company decides to obtain stockholder approval for business or legal 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. Additionally, each public stockholder may
elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction. If the Company seeks stockholder
approval in connection with a Business Combination, the Company’s Sponsor and any of the Company’s officers or directors that
may hold Insider Shares (as defined in Note 6) (the “Initial Stockholders”) and Chardan have agreed (a) to vote
their Insider Shares, the shares underlying the Private Units (“Private Shares”) and any Public Shares purchased during or
after the IPO in favor of approving a Business Combination and (b) not to convert any shares (including the Insider Shares) in connection
with a stockholder vote to approve, or sell the shares to the Company in any tender offer in connection with, a proposed Business Combination.
The Initial Stockholders and Chardan have agreed
(a) to waive their redemption rights with respect to the Insider Shares, Private Shares and Public Shares held by them in connection with
the completion of a Business Combination and (b) not to propose, or vote in favor of, an amendment to the Amended and Restated Certificate
of Incorporation that would affect the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if the
Company does not complete a Business Combination, unless the Company provides the public stockholders with the opportunity to redeem their
Public Shares in conjunction with any such amendment.
The Company has until July 4, 2023 to consummate
a Business Combination. In addition, if the Company anticipates that it may not be able to consummate a Business Combination by such date,
the Sponsor or its affiliates may extend the period of time to consummate a Business Combination five times by an additional one month
each time (for a total of 20 months to complete a Business Combination) (the “Combination Period”). In order to extend the
time available for the Company to consummate a Business Combination, the Sponsor or its affiliates or designees, within two business days
prior to the applicable deadline, must deposit into the Trust Account $120,000 for each subsequent one-month extension.
REDWOODS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
If the Company is unable to complete a Business
Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly
as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash,
equal to the aggregate amount then on deposit in the Trust Account including interest (which interest shall be net of taxes payable, and
less certain amount 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 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.
The Initial Stockholders and Chardan have agreed
to waive their liquidation rights with respect to the Insider Shares and Private Shares, as applicable, if the Company fails to complete
a Business Combination within the Combination Period. However, if any Initial Stockholder or Chardan acquires Public Shares in or after
the IPO, such Public Shares will be entitled to liquidating distributions from the Trust Account if the Company fails to complete a Business
Combination within the Combination Period. The underwriters have agreed to waive their rights to their deferred underwriting commissions
(see Note 7) held in the Trust Account in the event the Company does not complete a Business Combination within in the Combination Period
and, in such event, such amounts will be included with the other funds held in the Trust Account that will be available to fund the redemption
of the Public Shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for
distribution will be less than $10.10.
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 (excluding the Company’s
independent registered public accounting firm) for services rendered or products sold to the Company, or a prospective target business
with which the Company has entered into a written letter of intent, confidentiality or similar agreement or business combination agreement,
reduce the amount of funds in the Trust Account to below the lesser of (i) $10.10 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 $10.10 per share due to reductions
in the value of the trust assets, in each case 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 the monies held in the Trust Account (whether or not
such waiver is enforceable), nor will it apply 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, the Sponsor will not be responsible to the extent
of any liability for such third party claims.
Liquidity, Capital Resources and Going Concern
As of March 31, 2023, the Company had cash of $117,985 and a working
capital of $598,362 (excluding redemptions payable to public stockholders and income tax and franchise tax payable as the taxes will be
paid out of the Trust Account). On March 22, 2023 and March 30, 2023, the Sponsor provided a loan of $150,000 and $360,000, respectively,
to be used, in part, for transaction costs related to the Business Combination (see Note 6). The Company has until July 4, 2023 (or December
4, 2023, if the time to complete a business combination is extended as described herein) to consummate a Business Combination. It is uncertain
that the Company will be able to consummate a Business Combination by this time. If a Business Combination is not consummated by this
date, there will be a mandatory liquidation and subsequent dissolution.
The Company 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. The Company may need to obtain additional financing either to complete its Business Combination or because it
becomes obligated to redeem a significant number of public shares upon consummation of its Business Combination, in which case the Company
may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities
laws, the Company would only complete such financing simultaneously with the completion of our Business Combination. If the Company is
unable to complete its Business Combination because it does not have sufficient funds available, it will be forced to cease operations
and liquidate the Trust Account. In addition, following the Business Combination, if cash on hand is insufficient, the Company may need
to obtain additional financing in order to meet its obligations.
REDWOODS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
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”, the Company has until July
4, 2023 (or December 4, 2023, if the Company extends the time to complete a Business Combination) to complete a Business Combination.
It is uncertain that the Company will be able to consummate a Business Combination by this time. If a Business Combination is not consummated
by such date and an extension has not been requested by the Sponsor and approved by the Company’s stockholders, there will be a
mandatory liquidation and subsequent dissolution of the Company. Management has determined that the date for liquidation and subsequent
dissolution as well as liquidity concerns raise substantial doubt about the Company’s ability to continue as a going concern. The
financial statement does not include any adjustments that might result from the outcome of this uncertainty.
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 future financial position, results of its operations and/or search for a target company, there has not been a significant
impact 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 future outcome of this uncertainty.
Additionally, as a result of the military action
commenced in February 2022 by the Russian Federation and Belarus in the country of Ukraine and related economic sanctions, the Company’s
ability to consummate a Business Combination, or the operations of a target business with which the Company ultimately consummates a Business
Combination, may be materially and adversely affected. In addition, the Company’s ability to consummate a transaction may be dependent
on the ability to raise equity and debt financing which may be impacted by these events, including as a result of increased market volatility,
or decreased market liquidity in third-party financing being unavailable on terms acceptable to the Company or at all. The impact of this
action and related sanctions on the world economy and the specific impact on the Company’s financial position, results of operations
and/or ability to consummate a Business Combination are not yet determinable. The 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 domestic (i.e., U.S.) corporations and certain domestic
subsidiaries of publicly traded foreign corporations. 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. The IR Act applies only to
repurchases that occur after December 31, 2022.
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 holders, 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.
At this time, it has been determined that the IR Act
tax provisions would have an impact to the Company’s fiscal 2023 tax provision as there were redemptions by the public stockholders
in March 2023; as a result, the Company recorded $631,696 exercise tax liability as of March 31, 2023. The Company will continue to monitor
for updates to the Company’s business along with guidance issued with respect to the IR Act to determine whether any adjustments
are needed to the Company’s tax provision in future periods.
REDWOODS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 2 — Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial
statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”)
and pursuant to the rules and regulations of the SEC, and include all normal and recurring adjustments that management of the Company
considers necessary for a fair presentation of its financial position and operation results. Operating results for the three months ended
March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or any future
period. These financial statements should be read in conjunction with the Company’s 2022 Annual Report on Form 10-K as filed with
the SEC on April 10, 2023.
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 auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and
proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and 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 an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means
that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging
growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison
of the Company’s financial statements with another public company 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
In preparing these unaudited condensed financial
statements in conformity with U.S. GAAP, the Company’s management makes 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 financial statements
and the reported expenses during the reporting period.
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 unaudited condensed financial statements, which management considered in formulating its estimate, could
change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those
estimates.
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 had $117,985 and $340,962 in cash
and did not have any cash equivalents as of March 31, 2023 and December 31, 2022, respectively.
REDWOODS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Investments Held in Trust Account
As of March 31, 2023, the assets held in the Trust
Account were held in cash and U.S. Treasury securities. The Company classifies its U.S. Treasury securities as trading securities in accordance
with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 320, “Investments—Debt
and Equity Securities.” Trading securities are presented on balance sheets at fair value at the end of each reporting period. Gains
and losses resulting from the change in fair value of these securities is included in gain on investments held in Trust Account in the
accompanying statement of operations. The estimated fair values of all assets held in the Trust Account are determined using available
market information and classified as Level 1 measurements.
Offering Costs
The Company complies with the requirements of
FASB ASC Topic 340-10-S99-1, “Other Assets and Deferred Costs – SEC Materials” (“ASC 340-10-S99”) and SEC
Staff Accounting Bulletin Topic 5A, “Expenses of Offering”. Offering costs were $8,365,339 consisting principally of underwriting,
legal, accounting and other expenses that are directly related to the IPO and charged to stockholders’ equity upon the completion
of the IPO.
Income Taxes
The Company accounts for income taxes under ASC
740, “Income Taxes.” ASC 740, Income Taxes, requires the recognition of deferred tax assets and liabilities for both the expected
impact of differences between the unaudited condensed 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 carry forwards. ASC 740 additionally requires a valuation allowance to be
established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
The Company’s effective tax rate was 18.58%
and 0.00% for the three months ended March 31, 2023 and 2022, respectively. The effective tax rate differs from the statutory tax rate
of 21% for the three months ended March 31, 2023 and 2022, due to change in fair value of warrants and convertible notes and the change
in valuation of 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.
While ASC 740 identifies usage of an effective
annual tax rate for purposes of an interim provision, it does allow for estimating individual elements in the current period if they are
significant, unusual or infrequent. Computing the effective tax rate for the Company is complicated due to the potential impact of the
timing of any Business Combination expenses and the actual interest income that will be recognized during the year. The Company has taken
a position as to the calculation of income tax expense in a current period based on ASC 740-270-25-3 which states, “If an entity
is unable to estimate a part of its ordinary income (or loss) or the related tax (benefit) but is otherwise able to make a reasonable
estimate, the tax (or benefit) applicable to the item that cannot be estimated shall be reported in the interim period in which the item
is reported.” The Company believes its calculation to be a reliable estimate and allows it to properly take into account the usual
elements that can impact its annualized book income and its impact on the effective tax rate. As such, the Company is computing its taxable
income (loss) and associated income tax provision based on actual results through March 31, 2023.
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 March 31, 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.
REDWOODS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The Company has identified the United States and
the State of New York 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 Per Share
The Company complies with accounting and disclosure
requirements of FASB ASC 260, Earnings Per Share. The unaudited condensed statements of operations include a presentation of income (loss)
per redeemable share and income (loss) per non-redeemable share following the two-class method of income per share. In order to determine
the net income (loss) attributable to both the redeemable shares and non-redeemable shares, the Company first considered the undistributed
income (loss) allocable to both the redeemable shares and non-redeemable shares and the undistributed income (loss) is calculated using
the total net loss less any dividends paid. The Company then allocated the undistributed income (loss) ratably based on the weighted average
number of shares outstanding between the redeemable and non-redeemable shares. Any remeasurement of the accretion to redemption value
of the common shares subject to possible redemption was considered to be dividends paid to the public shareholders. As of March 31, 2023,
the Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into common shares
and then share in the earnings of the Company. As a result, diluted loss per share is the same as basic loss per share for the period
presented.
The net income (loss) per share presented in the
unaudited condensed statement of operations is based on the following:
| |
Three Months Ended March 31, | |
| |
2023 | | |
2022 | |
Net income (loss) | |
$ | 1,120,611 | | |
$ | (5,010 | ) |
Accretion of common stock to redemption value | |
| (1,322,195 | ) | |
| — | |
Net loss including accretion of common stock to redemption value | |
| (201,584 | ) | |
$ | (5,010 | ) |
| |
Three Months Ended March 31, 2023 | | |
Three Months Ended March 31, 2022 | |
| |
Redeemable shares | | |
Non- redeemable shares | | |
Redeemable shares | | |
Non- redeemable shares | |
Basic and diluted net income (loss) per common stock | |
| | |
| | |
| | |
| |
Numerator: | |
| | |
| | |
| | |
| |
Allocation of net loss | |
$ | (155,110 | ) | |
$ | (46,474 | ) | |
$ | — | | |
$ | (5,010 | ) |
Accretion of ordinary shares subject to possible redemption to redemption value | |
| 1,322,195 | | |
| — | | |
| — | | |
| — | |
Allocation of net income (loss) | |
$ | 1,167,085 | | |
$ | (46,474 | ) | |
$ | — | | |
$ | (5,010 | ) |
| |
| | | |
| | | |
| | | |
| | |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Basic and diluted weighted average shares outstanding | |
| 11,364,370 | | |
| 3,405,000 | | |
| — | | |
| 2,500,000 | |
Basic and diluted net income (loss) per common stock | |
$ | 0.10 | | |
$ | (0.01 | ) | |
$ | — | | |
$ | (0.00 | ) |
REDWOODS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Concentration of Credit Risk
Financial instruments that potentially subject
the Company to concentration of credit risk consist of a cash account in a financial institution and money market funds held in the Trust
Account. The Company has not experienced losses on this account and management believes the Company is not exposed to significant risks
on such account.
Fair Value of Financial Instruments
FASB ASC Topic 820 “Fair Value Measurements
and Disclosures” defines fair value, the methods used to measure fair value and the expanded disclosures about fair value measurements.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between the
buyer and the seller at the measurement date. In determining fair value, the valuation techniques consistent with the market approach,
income approach and cost approach shall be used to measure fair value. FASB ASC Topic 820 establishes a fair value hierarchy for inputs,
which represent the assumptions used by the buyer and seller in pricing the asset or liability. These inputs are further defined as observable
and unobservable inputs. Observable inputs are those that buyer and seller would use in pricing the asset or liability based on market
data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs that
the buyer and seller would use in pricing the asset or liability developed based on the best information available in the circumstances.
The fair value hierarchy is categorized into three
levels based on the inputs as follows:
Level 1 — |
Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not being applied. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment. |
Level 2 — |
Valuations based on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived principally from or corroborated by market through correlation or other means. |
Level 3 — |
Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
The fair value of the Company’s certain
assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurements and Disclosures,”
approximates the carrying amounts represented in the consolidated balance sheet. The fair values of cash and cash equivalents, and other
current assets, accrued expenses, due to sponsor are estimated to approximate the carrying values as of March 31, 2023 and December 31,
2022 due to the short maturities of such instruments. See Note 9 for the disclosure of the Company’s assets and liabilities that
were measured at fair value on a recurring basis.
Convertible
Promissory Note
The Company
accounts for their convertible promissory notes under ASC 815, “Derivatives and Hedging” (“ASC 815”). Under ASC
815-15-25, the election can be at the inception of a financial instrument to account for the instrument under the fair value option under
ASC 825. The Company has made such election for their convertible promissory notes. Using the fair value option, each convertible promissory
note is required to be recorded at its initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in
the estimated fair value of the notes are recognized as a non-cash gain or loss on the statements of operations.
Warrants
The Company accounts for warrants (Public Warrants
or Private 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 shares and whether the warrant holders
could potentially require “net cash settlement” in a circumstance outside of the Company’s control, 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 equity 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
as liabilities 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 statements of operations. The Company has elected to account
for its Public Warrants as equity and the Private Warrants as liabilities.
REDWOODS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Common Stock Subject to Possible Redemption
The Company accounts for its common stock subject
to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Common stock
subject to mandatory redemption (if any) are classified as a liability instrument and are measured at fair value. Conditionally redeemable
common stock (including common stock that feature redemption rights that is either within the control of the holder or subject to redemption
upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other
times, common stock is classified as stockholders’ equity. The Company’s common stock features certain redemption rights that
are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. The Company recognizes
changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption
value at the end of each reporting period. Increases or decreases in the carrying amount of shares of redeemable common stock are
affected by charges against additional paid in capital or accumulated deficit if additional paid in capital equals to zero.
Recent Accounting Pronouncements
In August 2020, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion
and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU
2020-06”) to simplify 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. ASU
2020-06 is effective January 1, 2024 for the Company 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 recently
issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed
financial statements.
Note 3 — Cash and Investment Held in
Trust Account
As of March 31, 2023 and December 31, 2022, investment
securities in the Company’s Trust Account consisted of $119,416,545 and $117,806,478 in cash and U.S. Treasury securities, respectively.
The following table presents information about
the Company’s assets that are measured at fair value on a recurring basis as of March 31, 2023 and indicates the fair value hierarchy
of the valuation inputs the Company utilized to determine such fair value.
| |
March 31, 2023 | | |
Quoted Prices in Active Markets (Level 1) | | |
Significant Other Observable Inputs (Level 2) | | |
Significant Other Unobservable Inputs (Level 3) | |
Assets | |
| | |
| | |
| | |
| |
Marketable securities held in Trust Account | |
$ | 119,416,545 | | |
$ | 119,416,545 | | |
| — | | |
| — | |
| |
December 31, 2022 | | |
Quoted Prices in Active Markets (Level 1) | | |
Significant Other Observable Inputs (Level 2) | | |
Significant Other Unobservable Inputs (Level 3) | |
Assets | |
| | |
| | |
| | |
| |
Marketable securities held in Trust Account | |
$ | 117,806,478 | | |
$ | 117,806,478 | | |
| — | | |
| — | |
REDWOODS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 4 — Initial Public Offering
On April 4, 2022, pursuant to its initial public
offering (the “IPO”), the Company sold 10,000,000 Public Units at $10.00 per Public Unit, generating gross proceeds of $100,000,000.
The Company granted the underwriters a 45-day option to purchase up to 1,500,000 additional Public Units to cover over-allotments, if
any. On April 7, 2022, the underwriters exercised the over-allotment option in full and purchased 1,500,000 Public Units at a price of
$10.00 per Public Unit, generating gross proceeds of $15,000,000. Each Public Unit consists of one share of common stock (“Public
Share”), one right (“Public Right”) and one redeemable warrant (“Public Warrant”). Each Public Right will
convert into one-tenth (1/10) of one share of common stock upon the consummation of a Business Combination. Each Public Warrant entitles
the holder to purchase one share of common stock at a price of $11.50 per share, subject to adjustment. The Public Warrants will become
exercisable on the later of 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 11,500,000 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 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 common stock subject to redemption to be classified outside of permanent equity.
The Company’s redeemable common stock is
subject to 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 March 31, 2023, the shares of common stock
reflected on the balance sheet are reconciled in the following table.
Gross proceeds | |
$ | 115,000,000 | |
Less: | |
| | |
Proceeds allocated to Public Warrants | |
| (9,917,024 | ) |
Proceeds allocated to Public Rights | |
| (8,744,042 | ) |
Offering costs of Public Shares | |
| (6,901,405 | ) |
Plus: | |
| | |
Accretion of carrying value to redemption value | |
| 29,388,057 | |
Class A Common stock subject to possible redemption– December 31, 2022 | |
$ | 117,361,652 | |
Plus: | |
| | |
Accretion of carrying value to redemption value – three months period ended March 31, 2023 | |
| 1,322,195 | |
Redeemed common stock payable to public stockholders | |
| (63,169,451 | ) |
Class A Common stock subject to possible redemption– March 31, 2023 | |
$ | 55,514,396 | |
REDWOODS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 5 — Private Placement
Simultaneously with the closing of the IPO, the
Sponsor and Chardan purchased an aggregate of 477,500 Private Units at a price of $10.00 per Private Unit for an aggregate purchase price
of $4,775,000 in a private placement. Simultaneously with the closing of the over-allotment option, the Company consummated the sale of
an additional aggregate of 52,500 Private Units with the Sponsor and Chardan at a price of $10.00 per Private Unit, generating total proceeds
of $525,000. The Private Units are identical to the Public Units except with respect to certain registration rights and transfer restrictions
and the private warrants, which have terms and provisions that are identical to those of the warrants being sold as part of the units
in the IPO, except that the private warrants (i) will be exercisable either for cash or on a cashless basis at the holder’s option
and (ii) will not be redeemable by the Company, in either case as long as the private warrants are held by the initial purchasers or any
of their permitted transferees. The net proceeds from the Private Units were added to the proceeds from the IPO to be 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
Units will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law), and the Private Units
and all underlying securities will expire worthless.
Note 6 — Related Party Transactions
Insider Shares
On January 4, 2022, the Company issued 2,875,000
shares of common stock (the “Insider Shares”) to the Initial Stockholders for an aggregate consideration of $25,000, or approximately
$0.009 per share. As a result of the underwriters’ full exercise of their over-allotment option on April 7, 2022, no insider shares
are currently subject to forfeiture. As of March 31, 2023, there were 2,875,000 Insider Shares issued and outstanding.
The Initial Stockholders have agreed, subject
to certain limited exceptions, not to transfer, assign or sell any of their Insider Shares until, with respect to 50% of the Insider Shares,
the earlier of six months after the consummation of a Business Combination and the date on which the closing price of the common
stock equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like)
for any 20 trading days within a 30-trading day period commencing after a Business Combination and, with respect to the remaining
50% of the Insider Shares, until the six months after the consummation of a Business Combination, or earlier, in either case, if,
subsequent to a Business Combination, the Company completes a liquidation, merger, stock exchange or other similar transaction which results
in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property.
Promissory Note — Related Party
On January 4, 2022 and February 28, 2022, the
Sponsor agreed to loan the Company up to an aggregate amount of $200,000 to be used, in part, for transaction costs incurred in connection
with the IPO (the “Promissory Notes”). The Promissory Notes were unsecured, interest-free and due on the closing the IPO.
The Company repaid the outstanding balance of $200,000 to the Sponsor on April 7 and April 8, 2022. As of March 31, 2023, the Company
had no borrowings under the Promissory Notes.
On March 22, 2023, the Company issued an unsecured, non-interest bearing
promissory note in the principal amount of $150,000 to the Sponsor (“Convertible Note 1”). On March 30, 2023, the Company
issued an unsecured, non-interest bearing promissory note in the principal amount of $360,000 to the Sponsor (“Convertible Note
2”). Both convertible promissory notes are payable upon the closing of the Business Combination or the liquidation of the Company.
The holder of the convertible promissory notes, in its sole discretion, may convert any or all of the unpaid principal under the convertible
promissory notes into Private Units of the Company, at a price of $10.00 per unit, upon consummation of the Business Combination.
REDWOODS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Related Party Loans
In addition, in order to finance transaction costs
in connection with searching for a target business or consummating an intended initial business combination, the initial stockholders,
officers, directors or their affiliates may, but are not obligated to, loan us funds as may be required. 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. Such loans would be evidenced by promissory notes.
The notes would either be paid upon consummation of our initial business combination, without interest, or, at the lender’s discretion,
up to $500,000 of the notes may be converted upon consummation of the Company’s business combination into private units at a price
of $10.00 per unit. The purchase price of these units will approximate the fair value of such units when issued. However, if it is determined,
at the time of issuance, that the fair value of such units exceeds the purchase price, the Company would record compensation expense for
the excess of the fair value of the units on the day of issuance over the purchase price in accordance with Accounting Standards
Codification (“ASC”) 718 - Compensation - Stock Compensation.
As of March 31, 2023, the Company had no borrowings
under the working capital loans.
Administrative Services Agreement
The Company entered into an agreement, commencing
on the effective date of the IPO through the earlier of the Company’s consummation of a Business Combination and its liquidation,
to pay the Sponsor a total of $10,000 per month for office space, utilities, secretarial and administrative support. However, pursuant
to the terms of such agreement, the Sponsor agreed to defer the payment of such monthly fee. Any such unpaid amount will accrue without
interest and be due and payable no later than the date of the consummation of initial Business Combination. For the three months ended
March 31, 2023 and 2022, the Company incurred $30,000 and $0, respectively, in fees for these services, of which $30,000 and $90,000 were
included in accrued expenses in the accompanying condensed unaudited balance sheets as of March 31, 2023 and December 31, 2022, respectively.
Note 7 — Commitments and
Contingencies
Registration Rights
The holders of the insider shares, the private
units, securities underlying the Unit Purchase Option and any units that may be issued upon conversion of working capital loans or extension
loans (and any securities underlying the private units or units issued upon conversion of the working capital loans or extension loans)
will be entitled to registration rights pursuant to a registration rights agreement signed on the effective date of the IPO. The holders
of a majority of these securities are entitled to make up to two demands (or one demand with respect to the securities underlying the
Unit Purchase Option) that the Company register such securities. The holders of the majority of the Insider Shares can elect to exercise
these registration rights at any time commencing three months prior to the date on which these shares of common stock are to be released
from escrow. The holders of a majority of the private units and units issued in payment of working capital loans made to us can elect
to exercise these registration rights at any time commencing on the date that the Company consummate an initial business combination.
In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent
to the consummation of an initial business combination. Furthermore, notwithstanding the foregoing, pursuant to FINRA Rule 5110, Chardan
may not exercise its demand and “piggyback” registration rights after five and seven years, respectively, after the commencement
of sales of this offering and may not exercise its demand rights on more than one occasion. The Company will bear the expenses incurred
in connection with the filing of any such registration statements.
Underwriting Agreement
Pursuant to an underwriting agreement in connection
with the IPO, the Company granted Chardan, the representative of the underwriters, a 45-day option from the date of the prospectus for
the IPO to purchase up to 1,500,000 additional Public Units to cover over-allotments, if any, at the IPO price less the underwriting
discounts and commissions. On April 7, 2022, Chardan exercised the over-allotment option in full (see Note 4).
The underwriters were paid a cash underwriting
discount of 2.5% of the gross proceeds of the IPO (including the exercise of the over-allotment option), or $2,875,000. In addition, the
underwriters will be entitled to a deferred fee of 3.75% of the gross proceeds of the IPO (including the exercise of the over-allotment
option), or $4,312,500, which will be paid upon the closing of a Business Combination from the amounts held in the Trust Account, subject
to the terms of the underwriting agreement.
REDWOODS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Unit Purchase Option
Simultaneously with the IPO (including the closing
of the over-allotment option), the Company sold to Chardan, for $100, an option (the “Unit Purchase Option”) to purchase 345,000
units exercisable at $11.50 per unit (or an aggregate exercise price of $3,967,500) commencing on the later of six months from the effective
date of the registration statement related to the IPO and the consummation of a Business Combination. The Unit Purchase Option may be
exercised for cash or on a cashless basis, at the holder’s option, and expires five years from the effective date of the registration
statement related to the IPO. The units issuable upon exercise of the Unit Purchase Option are identical to those offered in the IPO.
The Company accounts for the Unit Purchase Option, inclusive of the receipt of $100 cash payment, as an expense of the IPO resulting in
a charge directly to stockholders’ equity. The Unit Purchase Option and such units purchased pursuant to the Unit Purchase Option,
as well as the common stock underlying such units, the rights included in such units, the shares of common stock that are issuable for
the rights included in such units, the warrants included in such units, and the shares underlying such warrants, have been deemed compensation
by FINRA and are therefore subject to a 180-day lock-up pursuant to FINRA Rule 5110(e)(1). The Unit Purchase Option grants to holders
demand and “piggy back” rights for periods of five and seven years, respectively, from the effective date of the registration
statement with respect to the registration under the Securities Act of the securities directly and indirectly issuable upon
exercise of the Unit Purchase Option. The Company will bear all fees and expenses attendant to registering the securities, other than
underwriting commissions which will be paid for by the holders themselves. The exercise price and number of units issuable upon exercise
of the Unit Purchase Option may be adjusted in certain circumstances including in the event of a stock dividend, or the Company’s
recapitalization, reorganization, merger or consolidation. However, the option will not be adjusted for issuances of common stock at a
price below its exercise price.
Right of First Refusal
The Company has granted Chardan a right of first
refusal, for a period of 18 months after the date of the consummation of a Business Combination, to act as a book-running manager
or placement agent, with at least 30% of the economics, for any and all future public and private equity, equity linked and debt offerings
of the Company or any of its successors or subsidiaries.
Note 8 — Stockholders’
Equity
Common Stock — The
Company is authorized to issue 50,000,000 shares of common stock with a par value of $0.0001 per share. Holders of the common stock are
entitled to one vote for each share. At March 31, 2023, there were 3,405,000 shares of common stock issued and outstanding (excluding
11,500,000 shares subject to possible redemption).
Rights — Each holder
of a right will receive one-tenth (1/10) of one share of common stock upon consummation of a Business Combination, even if the holder
of such right redeemed all shares held by it in connection with a Business Combination. No fractional shares will be issued upon conversion
of the rights. No additional consideration will be required to be paid by a holder of rights in order to receive its additional shares
upon consummation of a Business Combination, as the consideration related thereto has been included in the unit purchase price paid for
by investors in the IPO. If the Company enters into a definitive agreement for a Business Combination in which the Company will not be
the surviving entity, the definitive agreement will provide for the holders of rights to receive the same per share consideration the
holders of the common stock will receive in the transaction on an as-converted into common stock basis and each holder of a right will
be required to affirmatively covert its rights in order to receive 1/10 share underlying each right (without paying additional consideration).
The shares issuable upon conversion of the rights will be freely tradable (except to the extent held by affiliates of the Company).
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 rights will not receive
any of such funds with respect to their rights, nor will they receive any distribution from the Company’s assets held outside of
the Trust Account with respect to such rights, and the rights will expire worthless. Further, there are no contractual penalties for failure
to deliver securities to the holders of the rights upon consummation of a Business Combination. Additionally, in no event will the Company
be required to net cash settle the rights. Accordingly, holders of the rights might not receive the shares of common stock underlying
the rights.
REDWOODS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Warrants — Each
redeemable warrant entitles the holder thereof to purchase one share of common stock at a price of $11.50 per share, subject to adjustment
as described in this prospectus. The warrants will become exercisable on the later of the completion of an initial Business Combination
and 12 months from the closing of the IPO. However, no Public Warrants will be exercisable for cash unless the Company has an effective
and current registration statement covering the issuance of the common stock issuable upon exercise of the warrants and a current prospectus
relating to such common stock. Notwithstanding the foregoing, if a registration statement covering the issuance of the common stock issuable
upon exercise of the Public Warrants is not effective within 90 days from the closing of the Company’s initial Business Combination,
warrant holders may, until such time as there is an effective registration statement and during any period when we shall have failed to
maintain an effective registration statement, exercise warrants on a cashless basis pursuant to an available exemption from registration
under the Securities Act. If an exemption from registration is not available, holders will not be able to exercise their warrants on a
cashless basis. The warrants will expire five years from the closing of the Company’s initial Business Combination at 5:00 p.m.,
New York City time or earlier redemption.
In addition, if (x) the Company issues additional
shares of common stock or equity-linked securities for capital raising purposes in connection with the closing of the Company’s
initial Business Combination at an issue price or effective issue price of less than $9.50 per share (with such issue price or effective
issue price to be determined in good faith by our board of directors), (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,
and (z) the volume weighted average trading price of the Company’s common stock during the 20 trading day period starting
on the trading day prior to the day on which the Company consummates its initial Business Combination (such price, the “Market
Price”) is below $9.50 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115%
of the Market Price, and the $16.50 per share redemption trigger price described below will be adjusted (to the nearest cent) to be equal
to 165% of the Market Value.
The Company may redeem the outstanding Public
Warrants at any time while the warrants are exercisable:
| ● | in whole and not in part; |
| | |
| ● | at a price of $0.01 per warrant; |
| | |
| ● | upon a minimum of 30 days’ prior written notice of redemption, which the Company refers to as the 30-day redemption period; |
| | |
| ● | if, and only if, the last reported sale price of the Company’s common stock equals or exceeds $16.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the to the warrant holders. |
If the Company calls the Public Warrants for redemption,
management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,”
as described in the warrant agreement. In such event, each holder would pay the exercise price by surrendering the whole warrants for
that number of shares of common stock equal to the quotient obtained by dividing (x) the product of the number of shares of common
stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value”
(defined below) by (y) the fair market value. The “fair market value” shall mean the average reported last sale price
of the common stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption
is sent to the holders of warrants.
Except as described above, no warrants will be
exercisable and the Company will not be obligated to issue common stock unless at the time a holder seeks to exercise such warrant, a
prospectus relating to the common stock issuable upon exercise of the warrants is current and the common stock have been registered or
qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. Under the terms of
the warrant agreement, the Company has agreed to use its best efforts to meet these conditions and to maintain a current prospectus relating
to the common stock issuable upon exercise of the warrants until the expiration of the warrants. However, the Company cannot assure that
it will be able to do so and, if the Company does not maintain a current prospectus relating to the common stock issuable upon exercise
of the warrants, holders will be unable to exercise their warrants and the Company will not be required to settle any such warrant exercise.
If the prospectus relating to the common stock issuable upon the exercise of the warrants is not current or if the common stock is not
qualified or exempt from qualification in the jurisdictions in which the holders of the warrants reside, the Company will not be required
to net cash settle or cash settle the warrant exercise, the warrants may have no value, the market for the warrants may be limited and
the warrants may expire worthless.
REDWOODS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The private warrants have terms and provisions
that are identical to those of the warrants being sold as part of the units in the IPO, except that the private warrants (i) will be exercisable
either for cash or on a cashless basis at the holder’s option and (ii) will not be redeemable by the Company, in either case as
long as the private warrants are held by the initial purchasers or any of their permitted transferees.
Note 9 —Fair Value Measurements
The fair value of the Company’s consolidated
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 the assessment of the assumptions that market participants would use in pricing the asset or liability. |
The following table presents information about
the Company’s liabilities that are measured at fair value on March 31, 2023 and December 31, 2022, and indicates the fair value
hierarchy of the valuation inputs the Company utilized to determine such fair value:
|
|
March 31,
2023 |
|
|
Quoted
Prices in
Active
Markets
(Level 1) |
|
|
Significant
Other
Observable
Inputs
(Level 2) |
|
|
Significant
Other
Unobservable
Inputs
(Level 3) |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability |
|
$ |
42,400 |
|
|
|
— |
|
|
|
— |
|
|
$ |
42,400 |
|
Convertible Note 1 |
|
$ |
13,930 |
|
|
|
— |
|
|
|
— |
|
|
$ |
13,930 |
|
Convertible Note 2 |
|
$ |
33,400 |
|
|
|
— |
|
|
|
— |
|
|
$ |
33,400 |
|
|
|
December 31,
2022 |
|
|
Quoted
Prices in
Active
Markets
(Level 1) |
|
|
Significant
Other
Observable
Inputs
(Level 2) |
|
|
Significant
Other
Unobservable
Inputs
(Level 3) |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability |
|
$ |
31,800 |
|
|
|
— |
|
|
|
— |
|
|
$ |
31,800 |
|
Convertible Note 1 |
|
$ |
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
— |
|
Convertible Note 2 |
|
$ |
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
— |
|
The private warrants are accounted for as liabilities
in accordance with ASC 815-40 and are presented within warrant liabilities on the balance sheet. Changes in the fair value of the warrants
are recorded in the statement of operations each period.
REDWOODS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The table below shows the change in fair value of warrant liabilities
as of March 31, 2023:
| |
Private Warrants | | |
Total | |
Fair value at January 1, 2023 | |
$ | 31,800 | | |
$ | 31,800 | |
Change in fair value | |
| 10,600 | | |
| 10,600 | |
Fair value as of March 31, 2023 | |
$ | 42,400 | | |
$ | 42,400 | |
The Company established the initial fair value
for the private warrants at $587,717 (including over-allotment) on April 4, 2022, the date of the Company’s IPO, using the Black-Scholes
model. The Company allocated the proceeds received from the sale of Private Units, first to the private warrants based on their fair values
as determined at initial measurement, with the remaining proceeds recorded as common shares subject to possible redemption, and common
shares based on their relative fair values recorded at the initial measurement date. The warrants were classified as Level 3 at the initial
measurement date due to the use of unobservable inputs.
The key inputs into the Black-Scholes model were
as follows at their measurement date:
| |
March 31,
2023 | | |
April 4, 2022 (initial measurement) | |
Exercise Price | |
$ | 11.50 | | |
$ | 11.50 | |
Underlying share price | |
$ | 10.33 | | |
$ | 8.08 | |
Expected Volatility | |
| 4.74 | % | |
| 25.62 | % |
Warrant life (years) | |
| 5.0 | | |
| 5.0 | |
Risk-free rate | |
| 3.60 | % | |
| 2.42 | % |
The fair value of the Convertible Note 1 was estimated
at the as converted value at March 31, 2023 and initial measurement date of March 22, 2023 to be $13,930 and $13,910, respectively. The
fair value of the Convertible Note 2 was estimated at the as converted value at March 31, 2023 and initial measurement date of March 30,
2023 to be $33,400 and $33,400, respectively. The binomial tree model was used for the underlying warrants based on the following key
assumptions which were unchanged as of March 31, 2023.
| |
March 30, 2023 Convertible Note 2 | | |
March 22, 2023 Convertible Note 1 | |
Strike Price | |
$ | 10.00 | | |
$ | 10.00 | |
Spot Price | |
$ | 10.28 | | |
$ | 10.26 | |
Time to maturity | |
| 0.68 | | |
| 0.70 | |
Business combination success rate | |
| 9 | % | |
| 9 | % |
Expected Volatility | |
| 5.0 | % | |
| 5.0 | % |
Expected dividend rate | |
| 0 | % | |
| 0 | % |
Risk-free rate | |
| 4.8 | % | |
| 4.7 | % |
The following table presents the changes in the fair value of the Level
3 Convertible Notes:
Fair value as of January 1, 2023 |
|
$ |
— |
|
Proceeds received through Convertible Note 1 on March 22, 2023 |
|
|
150,000 |
|
Proceeds received through Convertible Note 2 on March 30, 2023 |
|
|
360,000 |
|
Change in valuation inputs or other assumptions |
|
|
(462,670 |
) |
Fair value as of March 31, 2023 |
|
$ |
47,330 |
|
Note 10 — Subsequent Events
In accordance with ASC 855, “Subsequent
Events,” the Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that
the unaudited condensed financial statements were issued. Based on this review, the Company did not identify any subsequent events that
would have required disclosure in the unaudited condensed financial statements.