ENTF Enterprise 4.0 Technology Acquisition Corp - 10-K

Item 1A. Risk Factors.

As a smaller reporting company under Rule 12b-2 of the Exchange Act, we are not required to include risk factors in this Report. However, below is a partial list of material risks, uncertainties and other factors that could have a material effect on the Company and its operations:

we are a blank check company with no revenue or basis to evaluate our ability to select a suitable business target;

we may not be able to select an appropriate target business or businesses and complete our initial business combination in the prescribed time frame;

our expectations around the performance of a prospective target business or businesses may not be realized;

we may not be successful in retaining or recruiting required officers, key employees or directors following our initial business combination;

our officers and directors may have difficulties allocating their time between the Company and other businesses and may potentially have conflicts of interest with our business or in approving our initial business combination;

we may not be able to obtain additional financing to complete our initial business combination or reduce the number of shareholders requesting redemption;

we may issue our shares to investors in connection with our initial business combination at a price that is less than the prevailing market price of our shares at that time;

you may not be given the opportunity to choose the initial business target or to vote on the initial business combination;

trust account funds may not be protected against third party claims or bankruptcy;

an active market for our public securities may not develop and you will have limited liquidity and trading;

the availability to us of funds from interest income on the trust account balance may be insufficient to operate our business prior to the business combination;

our financial performance following a business combination with an entity may be negatively affected by their lack an established record of revenue, cash flows and experienced management;

there may be more competition to find an attractive target for an initial business combination, which could increase the costs associated with completing our initial business combination and may result in our inability to find a suitable target;

changes in the market for directors and officers liability insurance could make it more difficult and more expensive for us to negotiate and complete an initial business combination;

we may attempt to simultaneously complete business combinations with multiple prospective targets, which may hinder our ability to complete our initial business combination and give rise to increased costs and risks that could negatively impact our operations and profitability;

we may engage one or more of our underwriters or one of their respective affiliates to provide additional services to us after the initial public offering, which may include acting as a financial advisor in connection with an initial business combination or as placement agent in connection with a related financing transaction. Our underwriters are entitled to receive deferred underwriting commissions that will be released from the trust account only upon a completion of an initial business combination. These financial incentives may cause them to have potential conflicts of interest in rendering any such additional services to us after the initial public offering, including, for example, in connection with the sourcing and consummation of an initial business combination;

we may attempt to complete our initial business combination with a private company about which little information is available, which may result in a business combination with a company that is not as profitable as we suspected, if at all;

since our initial shareholders will lose their entire investment in us if our initial business combination is not completed (other than with respect to any public shares they may acquire during or after the initial public offering), and because our sponsor, officers and directors may profit substantially even under circumstances in which our public shareholders would experience losses in connection with their investment, a conflict of interest may arise in determining whether a particular business combination target is appropriate for our initial business combination;

changes in laws or regulations or how such laws or regulations are interpreted or applied, or a failure to comply with any laws or regulations, may adversely affect our business, including our ability to negotiate and complete our initial business combination, and results of operations;

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the value of the founder shares following completion of our initial business combination is likely to be substantially higher than the nominal price paid for them, even if the trading price of our ordinary shares at such time is substantially less than $10.35 per share;

resources could be wasted in researching acquisitions that are not completed, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business. If we have not completed our initial business combination within the required time period, our public shareholders may receive only approximately $10.35 per share, or less than such amount in certain circumstances, on the liquidation of our trust account and our warrants will expire worthless;

in March 2022, the SEC issued proposed rules relating to certain activities of SPACs. Certain of the procedures that we, a potential business combination target, or others may determine to undertake in connection with such proposals may increase our costs and the time needed to complete our initial business combination and may constrain the circumstances under which we could complete an initial business combination. The need for compliance with such proposals may cause us to liquidate the funds in the trust account or liquidate the Company at an earlier time than we might otherwise choose;

if we are deemed to be an investment company for purposes of the Investment Company Act, we would be required to institute burdensome compliance requirements and our activities would be severely restricted. As a result, in such circumstances, unless we are able to modify our activities so that we would not be deemed an investment company, we may abandon our efforts to complete an initial business combination and instead liquidate the Company;

to mitigate the risk that we might be deemed to be an investment company for purposes of the Investment Company Act, we expect that we will, on or prior to the 18-month anniversary of the effective date of our IPO Registration Statement, instruct the trustee to liquidate the investments held in the trust account and instead to hold the funds in the trust account in an interest-bearing demand deposit account until the earlier of the consummation of our initial business combination or our liquidation. As a result, following the liquidation of investments in the trust account, we would likely receive less interest on the funds held in the trust account, which would likely reduce the dollar amount our public shareholders would receive upon any redemption or liquidation of the Company;

we may not be able to complete an initial business combination with certain potential target companies if a proposed transaction with the target company may be subject to review or approval by regulatory authorities pursuant to certain U.S. or foreign laws or regulations, including the Committee on Foreign Investment in the United States;

recent increases in inflation and interest rates in the United States and elsewhere could make it more difficult for us to consummate an initial business combination;

military conflict in Ukraine or elsewhere may lead to increased price volatility for publicly traded securities, which could make it more difficult for us to consummate an initial business combination;

there is substantial doubt about our ability to continue as a “going concern”; and

We may not be able to complete a Business Combination with certain potential target companies if a proposed transaction with the target company may be subject to review or approval by regulatory authorities pursuant to certain U.S. or foreign laws or regulations. Because we and our Sponsor have certain ties to non-US entities, we may be subject to such scrutiny. Specifically, Alex Vieux, who is an advisor to the Company and one of three managing members of our Sponsor, is a French citizen. Mr. Vieux is also one of two managing members of Founder Holdings LLC, which is the managing member of Explorer Parent LLC – a member of our Sponsor. Mr. Vieux is also a joint owner of an affiliate of the Sponsor that receives administrative fees from the Company.

Furthermore, we note below the following risk factor relating to our liquidity, operations and ability to consummate an initial business combination.

We have cash accounts with Silicon Valley Bank, which was recently closed by the Federal Deposit Insurance Corporation (“FDIC”). As a result, we may not be able to access the full amount of our cash on a timely basis or at all.

On March 10, 2023, the FDIC announced that Silicon Valley Bank (“SVB”) had been closed by state regulators, at which time we held cash, cash equivalents and restricted cash of approximately $23,425 at SVB. While we have regained access to our accounts at SVB, there can be no guarantee that we will be able to transfer such funds in a timely manner, or at all. The closure of SVB or any other financial institution with which we maintain cash could adversely affect our ability to access cash balances. If we are unable to access our cash as needed, our financial position and ability to operate our business could be adversely affected.

For the complete list of risks relating to our operations, see the section titled “Risk Factors” contained in our (i) Registration Statement, (ii) Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2022, June 30, 2022 and September 30, 2022, as filed with the SEC on May 11, 2022, August 8, 2022 and November 7, 2022, respectively. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risks could arise that may also affect our business or ability to consummate an initial business combination. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Note Regarding Forward-Looking Statements

All statements other than statements of historical fact included in this Report, including, without limitation, statements in this section regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward- looking statements. When used in this Report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Report.

Overview

We are a blank check company incorporated in the Cayman Islands on May 3, 2021 formed for the purpose of effecting an initial business combination. We intend to effectuate our initial business combination using cash derived from the proceeds of our initial public offering and the sale of the placement units, our shares, debt or a combination of cash, shares and debt. We are not limited to a particular industry or sector for purposes of completing an initial business combination, although we are focusing our search within the technology industry along the trendlines set by a new wave of cloud native companies that combine artificial intelligence, intelligent automation and proprietary access to data to deliver actionable insights for enterprise businesses. We are an early stage and emerging growth company and, as such, we are subject to all of the risks associated with early stage and emerging growth companies.

We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete an initial business combination will be successful.

Results of Operations

We have neither engaged in any operations nor generated any operating revenues to date. Our only activities from inception through December 31, 2022 were organizational activities and those necessary to prepare for the initial public offering, described below, and following the initial public offering, identifying a target company for an initial business combination. We do not expect to generate any operating revenues until after the completion of our initial business combination. We generate non-operating income in the form of interest income on marketable securities held after the initial public offering. We expect that we will incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses in connection with searching for, and completing, an initial business combination.

For the year ended December 31, 2022, we had a net income of $3,737,355, which consisted of interest earned on investment held in the trust account of $4,519,538, offset by operating expenses of $782,183.

For the period from May 3, 2021 (inception) through December 31, 2021, we had a net loss of $253,198, which consisted of interest earned on investment held in the trust account of $17,160, offset by operating expenses of $270,358.

Liquidity and Capital Resources

On October 21, 2021, we consummated our initial public offering of 30,000,000 units, including 3,900,000 units issued pursuant to the partial exercise of the underwriters’ over-allotment option. Each unit consists of one public share and one-half of one redeemable warrant, with each whole warrant entitling the holder thereof to purchase one Class A ordinary share for $11.50 per share. The units were sold at a price of $10.00 per unit, generating gross proceeds of $300,000,000. Simultaneously with the closing of the initial public offering, we consummated the sale of 700,000 placement units at a price of $10.00 per placement unit in a private placement to our sponsor and the representatives, generating gross proceeds of $7,000,000.

Following the initial public offering and the sale of the placement units and the sponsor loan to the Company of $6,220,000 as of the closing date of the initial public offering, a total of $306,000,000 was placed in the trust account. We incurred transaction costs of $17,078,457, consisting of $5,220,000 of underwriting fees, and $11,280,000 of deferred underwriting fees and $578,457 of other offering costs.

For the year ended December 31, 2022, net cash used in operating activities was $530,805. Net income of $3,737,355 was affected by interest earned on marketable securities of $4,519,538. Changes in operating assets and liabilities provided $251,378 of cash from operating activities.

For the period from May 3, 2021 (inception) through December 31, 2021, net cash used in operating activities was $835,777. Net loss of $253,198 was affected by interest earned on marketable securities of $17,160. Changes in operating assets and liabilities used $565,419 of cash from operating activities.

At December 31, 2022, we had cash and marketable securities held in the Trust Account of $310,536,698. We intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on the trust account, which interest shall be net of taxes payable and excluding deferred underwriting commissions, to complete our initial business combination. We may withdraw interest from the trust account to pay taxes, if any. To the extent that our share capital or debt is used, in whole or in part, as consideration to complete an initial business combination, the remaining proceeds held in the trust account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.

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At December 31, 2022, we had cash of $135,721 held outside of the trust account. We have used and will continue to use the funds held outside the trust account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, structure, negotiate and complete an initial business combination.

To finance transaction costs in connection with an initial business combination, our sponsor or an affiliate of our sponsor or certain of the Company’s directors and officers may, but are not obligated to, loan the Company funds as may be required. If the Company completes an initial business combination, the Company will repay the working capital loans out of the proceeds of the trust account released to the Company. Otherwise, the working capital loans would be repaid only out of funds held outside the trust account. If an initial business combination does not close, the Company may use a portion of proceeds held outside the trust account to repay the working capital loans, but no proceeds held in the trust account would be used to repay the working capital loans. The working capital loans would either be repaid upon consummation of an initial business combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such working capital loans may be convertible into units of the post-business combination entity at a price of $10.00 per unit. The units would be identical to the placement units. Except for the foregoing, the terms of such working capital loans, if any, have not been determined and no written agreements exist with respect to such loans.

Going Concern

We will need to raise additional capital through loans or additional investments from our sponsor, shareholders, officers, directors, or third parties. Our officers, directors and sponsor may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs. Accordingly, we may not be able to obtain additional financing. If we are unable to raise additional capital, we 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. We cannot provide any assurance that new financing will be available to us on commercially acceptable terms, if at all. These conditions raise substantial doubt about the Company’s ability to continue as a going concern through April 21, 2023, the date that the Company will be required to cease all operations, except for the purpose of winding up, if an initial business combination is not consummated. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

Off-Balance Sheet Financing Arrangements

We have no obligations, assets or liabilities that would be considered off-balance sheet arrangements as of December 31, 2022. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.

Contractual Obligations

We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay our sponsor monthly fee of $12,500 for office space, administrative and support services. We began incurring these fees on October 19, 2021 and will continue to incur these fees monthly until the earlier of the completion of our initial business combination and our liquidation.

The underwriters were entitled to a cash underwriting discount of $0.20 per unit, or $5,220,000 in the aggregate, which was paid upon the closing of our initial public offering. In addition, the underwriters are entitled to a deferred fee of (i) $0.35 per unit of the gross proceeds of the initial 26,100,000 units sold in our initial public offering, or $9,135,000, and (ii) $0.55 per unit of the gross proceeds from the units sold pursuant to the over-allotment option, or $2,145,000. The deferred fee will become payable to the underwriters from the amounts held in the trust account if and only if the Company completes an initial business combination, subject to the terms of the underwriting agreement.

Concurrent with the closing of our initial public offering, our sponsor loaned the Company $6,220,000 to be deposited into the trust account and used to fund the redemption of public shares (as necessary). The sponsor loan is non-interest bearing and will be repaid or converted into units at a conversion price of $10.00 per unit, at the discretion of our sponsor at any time up until the consummation of an initial business combination. If the Company does not consummate an initial business combination, the Company will not repay the sponsor loan and its proceeds will be distributed to the public shareholders.

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Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have not identified any critical accounting estimates.

Factors That May Adversely Affect our Results of Operations

Our results of operations and our ability to complete an initial business combination may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond our control. Our business could be impacted by, among other things, downturns in the financial markets or in economic conditions, increases in oil prices, inflation, increases in interest rates, supply chain disruptions, declines in consumer confidence and spending, the ongoing effects of the COVID-19 pandemic, including resurgences and the emergence of new variants, and geopolitical instability, such as the military conflict in Ukraine. We cannot at this time fully predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact our business and our ability to complete initial business combination.