RELATED PARTY TRANSACTIONS	3 Months Ended
Mar. 31, 2024
Related Party Transactions [Abstract]
RELATED PARTY TRANSACTIONS	NOTE 5. RELATED PARTY TRANSACTIONS Founder Shares On March 4, 2021, the Sponsor paid an aggregate of $25,000 to cover certain expenses on behalf of the Company in exchange for the issuance of 5,031,250 shares of Class B common stock (the “Founder Shares”). The outstanding Founder Shares included an aggregate of up to 656,250 shares of Class B common stock subject to forfeiture by the Sponsor to the extent that the underwriter’s over-allotment option was not exercised in full or in part, so that the Sponsor would own, on an as-converted basis, 20% of the Company’s issued and outstanding shares after the Initial Public Offering (assuming the Sponsor did not purchase any Public Shares in the Initial Public Offering). The underwriter partially exercised its over-allotment option on August 20, 2021 and forfeited the remainder of the option; thus, 520,875 Founder Shares were forfeited by the Sponsor. A total of ten anchor investors purchased 14,402,000 Units in the Initial Public Offering at the offering price of $10.00 per Unit; seven anchor investors purchased 1,732,500 Units in the Initial Public Offering at the offering price of $10.00 per Unit, and such allocations were determined by the underwriter; one anchor investor purchased 1,400,000 Units in the Initial Public Offering at the offering price of $10.00 per unit; and two anchor investors purchased 437,500 Units in the Initial Public Offering at the offering price of $10.00 per Unit. In connection with the purchase of such Units, the anchor investors have not been granted any stockholder or other rights in addition to those afforded to the Company’s other public stockholders. Further, the anchor investors are not required to (i) hold any Units, Class A common stock or warrants they may purchase in the Initial Public Offering or thereafter for any amount of time, (ii) vote any Class A common stock they may own at the applicable time in favor of the Business Combination or (iii) refrain from exercising their right to redeem their Public Shares at the time of the Business Combination. The anchor investors will have the same rights to the funds held in the Trust Account with respect to the Class A common stock underlying the Units they purchased in the Initial Public Offering as the rights afforded to the Company’s other public stockholders. Each anchor investor has entered into separate investment agreements with the Company and the Sponsor pursuant to which each anchor investor purchased a specified number of Founder Shares, or an aggregate of 830,000 Founder Shares, from the Sponsor for $0.005 per share, or an aggregate purchase price of $4,150 at the closing of the Initial Public Offering, which was subject to such anchor investor’s acquisition of 100% of the Units allocated to it by the underwriter in the Initial Public Offering. Pursuant to the investment agreements, the anchor investors have agreed to (a) vote any Founder Shares held by them in favor of the Business Combination and (b) subject any Founder Shares held by them to the same lock-up restrictions as the Founder Shares held by the Sponsor and independent directors. The Company estimated the fair value of the Founder Shares attributable to the anchor investors to be $4,714,400 or $5.68 per share. The excess of the fair value of the Founder Shares sold over the purchase price of $4,150 (or $0.005 per share) was determined to be an offering cost in accordance with Staff Accounting Bulletin Topic 5A. Accordingly, the offering costs were allocated to the separable financial instruments issued in the Initial Public Offering in proportion to the amount allocated to the Class A common stock and Public Warrants, compared to total proceeds received. Offering costs allocated to derivative warrant liabilities were expensed immediately in the statement of operations. Offering costs allocated to the Public Shares were charged to temporary equity upon the completion of the Initial Public Offering. Promissory Notes - Related Party and Convertible Promissory Notes - related party, net of debt discount Second Promissory Note On October 11, 2022, the Company issued an unsecured Second Promissory Note (the “Second Promissory Note”) to the Sponsor, pursuant to which the Company could borrow up to $1,000,000 from the Second Promissory Note at a 6% interest rate on or before October 11, 2024 to cover, among other things, expenses related to a business combination. As of March 31, 2024 the Company has $1,000,000 of principal outstanding on the Note and has accrued and unpaid interest of $75,156 (see discussions below related to the Sponsor Debt Conversion Agreement). In connection with the Merger Agreement (see Note 1) entered into on August 23, 2023, the Company and its Sponsor entered into an agreement (the “Sponsor Debt Conversion Agreement” or “Convertible Promissory Note”), pursuant to which, the Sponsor has agreed to cancel and release the outstanding indebtedness under the Second Promissory Note in exchange for and in consideration of, the issuance to the Sponsor by the Company of 100,000 shares of Class A common stock in connection with the closing of the Business Combination. The outstanding indebtedness of the Second Promissory Note includes its original principal amount of up to $1,000,000 including accrued but unpaid interest, fees, expenses and other amounts payable to the Second Promissory Note. The Sponsor Debt Conversion Agreement is contingent and effective upon the closing of the Merger. In accordance with ASC 470-50-40-10, a modification or an exchange of debt that adds or eliminates a substantive conversion option as of the conversion date is considered substantial and require extinguishment accounting, noting pursuant to 470-20-40-7 that a conversion feature must be considered at least reasonably possible of being exercised to be considered substantive. The Company determined the conversion feature did meet the criteria to be considered substantive and the Sponsor Debt Conversion Agreement was deemed to be an extinguishment under ASC 470. The Sponsor Debt Conversion Agreement was entered into with a related party and as a result, the Company recorded a deemed contribution resulting from debt extinguishment for $115,200 in the consolidated statements of changes in stockholders’ deficit. On February 22, 2024, the Company entered into an additional Sponsorship Debt Conversion Agreement under which the Sponsor agreed to cancel and release the $68,909 of accrued and unpaid interest on the Note (“Outstanding Interest”) and the Company and Sponsor agreed to the issuance of an additional 6,890 shares of Class A common stock to reflect the settlement of the Outstanding Interest on the Note as of the date of the closing of the Merger. The Company treated the Sponsor Debt Conversion as a debt extinguishment. The modified debt was recorded at the reacquisition price, which equals the fair value on February 22, 2024 of $1,053,508. The net carrying value of the original debt at the extinguishment date was determined to be $997,857. The Company recorded a debt discount in the amount of $55,651 which is amortized to interest expense over the remaining life of the Note. The Note and the Sponsor Debt Conversion Agreement have been entered into with the Sponsor which has been identified as a Related Party. Therefore the Company recorded a deemed contribution resulting from the debt extinguishment in the condensed consolidated statement of changes in stockholders’ deficit of $15,401 as of March 31, 2024. The Company evaluated the embedded feature within the Sponsor Debt Conversion Agreement in accordance with ASC 815-15 and determined that the embedded feature is a derivative and therefore will be separately measured at fair value, with subsequent changes in fair value recognized in the unaudited consolidated statements of operations. Management used a scenario-based analysis to estimate the fair value of the derivative liability on February 22, 2024. The original value of the derivative liability was recorded as a debt discount to the Convertible Promissory Note and the debt discount is amortized as non-cash interest expense over the life of the Convertible Promissory Note. The fair value of the derivative liability at inception of the Sponsor Debt Conversion Agreement on February 22, 2024 was $198,381. At March 31, 2024 and December 31, 2023, the fair value of the derivative liability was $185,554 and $79,027, respectively. The Company recorded a net loss of $106,527 and $0 on the change in fair value of the derivative liability during the three months ended March 31, 2024 and 2023, respectively. Interest expense during the three months ended March 31, 2024 and 2023 was $40,306 and $14,202, respectively which was comprised of debt discount amortization of $25,347 and $0, respectively and coupon interest of $14,959 and $14,202, respectively. The unamortized debt discount as of March 31, 2024 was $46,536. December 2023 Revolving Promissory Note On December 22, 2023, the Company issued a Revolving Credit Promissory Note (the “December 2023 Revolving Promissory Note”) to the Sponsor, pursuant to which the Company could borrow up to $400,000 from the Revolving Promissory Note at a 12% interest rate on or before March 15, 2024 to cover, among other things, expenses related to the Business Combination. On each of December 22, 2023, and December 23, 2023, the Company borrowed $75,000, and $75,000, respectively, bringing total borrowings to $150,000 as of December 31, 2023. On January 22, 2024, the Company drew down $100,000 against the December 2023 Revolving Promissory Note and on February 2, 2024, the Company drew down $40,000 against the December 2023 Revolving Promissory Note, bringing total borrowings to $290,000 (see discussions below related to the Sponsor Debt Conversion Agreement). In connection with the Merger Agreement (see Note 1) entered into on August 23, 2023, the Company and its Sponsor entered into an agreement on February 22, 2024 (the "December 2023 Sponsor Debt Conversion Agreement" or "December 2023 Convertible Promissory Note"), pursuant to which, the Sponsor has agreed to cancel and release the outstanding indebtedness under the December 2023 Revolving Promissory Note in exchange for and in consideration of, the issuance to the Sponsor by the Company of 29,444 shares of Class A common stock at the Merger Closing. The outstanding indebtedness of the December 2023 Revolving Promissory Note includes its original principal amount outstanding on February 22, 2024 of $290,000 including accrued but unpaid interest, fees, expenses and other amounts payable to the December 2023 Revolving Promissory Note as of February 22, 2024 which totaled $4,440, for total outstanding indebtedness of $294,440. The December 2023 Sponsor Debt Conversion Agreement is contingent and effective upon the closing of the Merger. In accordance with ASC 470-50-40-10, a modification or an exchange of debt that adds or eliminates a substantive conversion option as of the conversion date is considered substantial and requires extinguishment accounting, noting pursuant to ASC 470-20-40-7 that a conversion feature must be considered at least reasonably possible of being exercised to be considered substantive. The Company determined the conversion feature did meet the criteria to be considered substantive and the Sponsor Debt Conversion Agreement was deemed to be an extinguishment under ASC 470, bringing the outstanding balance under the December 2023 Revolving Promissory Note to $0 at March 31, 2024. The reacquisition price of the modified debt (the "December 2023 Convertible Promissory Note") on February 22, 2024 was $290,200. The December 2023 Sponsor Debt Conversion Agreement was entered into with a related party and as a result, the Company recorded a deemed contribution resulting from debt extinguishment for $4,240 in the condensed consolidated statements of changes in stockholders’ deficit as of March 31, 2024. The Company evaluated the embedded feature within the December 2023 Sponsor Debt Conversion Agreement in accordance with ASC 815-15 and determined the embedded feature is a derivative and therefore will be separately measured at fair value, with subsequent changes in fair value recognized in the unaudited condensed consolidated statements of operations. Management used a scenario-based analysis to estimate the fair value of the derivative liability at inception. The original value of the derivative liability was recorded as a debt discount to the December 2023 Convertible Promissory Note and the debt discount is amortized as non-cash interest expense over the life of the December 2023 Convertible Promissory Note. The fair value of the derivative liability at inception of the December 2023 Sponsor Debt Conversion Agreement on February 22, 2024 was $54,648. The Company considered the guidance within ASC 470-50-40-13 such that the difference between the carrying value of the old debt at its extinguishment date and the reacquisition price of the modified debt, or $4,240, represents an additional discount on the reacquired debt that should be reflected through interest expense during the period to bring the new debt to its principal value at maturity. At March 31, 2024 and December 31, 2023, the fair value of the derivative liability was $51,115 and $0, respectively. The Company recorded a gain of $3,533 on the change in fair value of the derivative liability during the three months ended March 31, 2024. Additionally, the Company recorded a debt discount in the amount of $54,648 during the three months ended March 31, 2024. The debt discount is being amortized to interest expense over the life of the December 2023 Convertible Promissory Note, which is through March 15, 2024. Amounts amortized to interest expense were $58,888 for the three months ended March 31, 2024, reflecting $4,240 of interest expense to amortize the debt to its principal value and $54,648 for the full amortization of the discount through the maturity date. The unamortized debt discount as of March 31, 2024 was $0. February 2024 Revolving Promissory Note On February 12, 2024, the Company issued a Revolving Credit Promissory Note (the “February 2024 Revolving Promissory Note”) to the Sponsor, pursuant to which the Company could borrow up to $492,000 from the Revolving Promissory Note at a 12% interest rate on or before March 15, 2024 to cover, among other things, expenses related to a business combination. On the issuance date, the Company drew down $492,000 under the February 2024 Revolving Promissory Note, bringing total principal borrowings to $492,000 as of March 31, 2024. In connection with the Merger Agreement (see Note 1) entered into on August 23, 2023, the Company and its Sponsor entered into an agreement on February 22, 2024 (the "February 2024 Sponsor Debt Conversion Agreement" or "February 2024 Convertible Promissory Note"), pursuant to which, the Sponsor has agreed to cancel and release the outstanding indebtedness under the February 2024 Revolving Promissory Note in exchange for and in consideration of, the issuance to the Sponsor by the Company of 49,280 shares of Class A common stock at the Merger Closing. The outstanding indebtedness of the February 2024 Revolving Promissory Note includes its original principal amount outstanding on February 22, 2024 of $492,000 including accrued but unpaid interest, fees, expenses and other amounts payable to the February 2024 Revolving Promissory Note as of February 22, 2024 which totaled $280, for total outstanding indebtedness of $492,280. The February 2024 Sponsor Debt Conversion Agreement is contingent and effective upon the closing of the Merger. In accordance with ASC 470-50-40-10, a modification or an exchange of debt that adds or eliminates a substantive conversion option as of the conversion date is considered substantial and requires extinguishment accounting, noting pursuant to ASC 470-20-40-7 that a conversion feature must be considered at least reasonably possible of being exercised to be considered substantive. The Company determined the conversion feature did meet the criteria to be considered substantive and the Sponsor Debt Conversion Agreement was deemed to be an extinguishment under ASC 470, bringing the outstanding balance under the February 2024 Revolving Promissory Note to $0 at March 31, 2024. The reacquisition price of the modified debt (the "February 2024 Convertible Promissory Note") on February 22, 2024 was $485,704. The February 2024 Sponsor Debt Conversion Agreement was entered into with a related party and as a result, the Company recorded a deemed contribution resulting from debt extinguishment for $6,576 in the consolidated statements of changes in stockholders’ deficit as of March 31, 2024. The Company evaluated the embedded feature within the February 2024 Sponsor Debt Conversion Agreement in accordance with ASC 815-15 and determined the embedded feature is a derivative and therefore will be separately measured at fair value, with subsequent changes in fair value recognized in the unaudited condensed consolidated statements of operations. Management used a scenario-based analysis to estimate the fair value of the derivative liability at inception. The original value of the derivative liability was recorded as a debt discount to the February 2024 Convertible Promissory Note and the debt discount is amortized as non-cash interest expense over the life of the February 2024 Convertible Promissory Note. The fair value of the derivative liability at inception of the February 2024 Sponsor Debt Conversion Agreement on February 22, 2024 was $91,880. The Company considered the guidance within ASC 470-50-40-13 such that the difference between the carrying value of the old debt at its extinguishment date and the reacquisition price of the modified debt, or $6,576, represents an additional discount on the reacquired debt that should be reflected through interest expense during the period to bring the new debt to its principal value at maturity. At March 31, 2024 and December 31, 2023, the fair value of the derivative liability was $85,966 and $0, respectively. The Company recorded a gain of $5,914 on the change in fair value of the derivative liability during the three months ended March 31, 2024. Additionally, the Company recorded a debt discount in the amount of $91,880 during the three months ended March 31, 2024. The debt discount is being amortized to interest expense over the life of the February 2024 Convertible Promissory Note, which is through March 15, 2024. Amounts amortized to interest expense were $98,456 for the three months ended March 31, 2024, reflecting $6,576 of interest expense to amortize the debt to its principal value and $91,880 for the full amortization of the discount through the maturity date. The unamortized debt discount as of March 31, 2024 was $0. The Company recognized deemed contributions totaling $26,217 for the debt extinguishments of all three of the promissory notes described above. Administrative Support Agreement The Company entered into an agreement to pay the Sponsor a total of $10,000 per month for administrative, financial and support services. As of July 1, 2022, the administrative support agreement was discontinued and it was agreed between the Company and the Sponsor that no further payments were to be made. However, the Sponsor continued to perform the administrative support services for the Company and as such, the Company recognized a deemed dividend of $10,000 per month, related to these services. For the three months ended March 31, 2024, the Company recognized a deemed dividend of $30,000 and this is included as a deemed capital contribution within the accompanying unaudited condensed consolidated statement of changes in stockholders' deficit. Related Party Loans In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, loan the Company additional funds as may be required (“Working Capital Loans”). If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds held in the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination is not completed, the Company may use a portion of the proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into warrants at a price of $1.00 per warrant. The warrants would be identical to the Private Placement Warrants. As of March 31, 2024 and December 31, 2023, there were no working capital loans outstanding.

RELATED PARTY TRANSACTIONS

3 Months Ended

Mar. 31, 2024

NOTE 5. RELATED PARTY TRANSACTIONS

Founder Shares

On March 4, 2021, the Sponsor paid an aggregate of $25,000 to cover certain expenses on behalf of the Company in exchange for the issuance of 5,031,250 shares of Class B common stock (the “Founder Shares”). The outstanding Founder Shares included an aggregate of up to 656,250 shares of Class B common stock subject to forfeiture by the Sponsor to the extent that the underwriter’s over-allotment option was not exercised in full or in part, so that the Sponsor would own, on an as-converted basis, 20% of the Company’s issued and outstanding shares after the Initial Public Offering (assuming the Sponsor did not purchase any Public Shares in the Initial Public Offering). The underwriter partially exercised its over-allotment option on August 20, 2021 and forfeited the remainder of the option; thus, 520,875 Founder Shares were forfeited by the Sponsor.

A total of ten anchor investors purchased 14,402,000 Units in the Initial Public Offering at the offering price of $10.00 per Unit; seven anchor investors purchased 1,732,500 Units in the Initial Public Offering at the offering price of $10.00 per Unit, and such allocations were determined by the underwriter; one anchor investor purchased 1,400,000 Units in the Initial Public Offering at the offering price of $10.00 per unit; and two anchor investors purchased 437,500 Units in the Initial Public Offering at the offering price of $10.00 per Unit. In connection with the purchase of such Units, the anchor investors have not been granted any stockholder or other rights in addition to those afforded to the Company’s other public stockholders. Further, the anchor investors are not required to (i) hold any Units, Class A common stock or warrants they may purchase in the Initial Public Offering or thereafter for any amount of time, (ii) vote any Class A common stock they may own at the applicable time in favor of the Business Combination or (iii) refrain from exercising their right to redeem their Public Shares at the time of the Business Combination. The anchor investors will have the same rights to the funds held in the Trust Account with respect to the Class A common stock underlying the Units they purchased in the Initial Public Offering as the rights afforded to the Company’s other public stockholders.

Each anchor investor has entered into separate investment agreements with the Company and the Sponsor pursuant to which each anchor investor purchased a specified number of Founder Shares, or an aggregate of 830,000 Founder Shares, from the Sponsor for $0.005 per share, or an aggregate purchase price of $4,150 at the closing of the Initial Public Offering, which was subject to such anchor investor’s acquisition of 100% of the Units allocated to it by the underwriter in the Initial Public Offering. Pursuant to the investment agreements, the anchor investors have agreed to (a) vote any Founder Shares held by them in favor of the Business Combination and (b) subject any Founder Shares held by them to the same lock-up restrictions as the Founder Shares held by the Sponsor and independent directors.

The Company estimated the fair value of the Founder Shares attributable to the anchor investors to be $4,714,400 or $5.68 per share. The excess of the fair value of the Founder Shares sold over the purchase price of $4,150 (or $0.005 per share) was determined to be an offering cost in accordance with Staff Accounting Bulletin Topic 5A. Accordingly, the offering costs were allocated to the separable financial instruments issued in the Initial Public Offering in proportion to the amount allocated to the Class A common stock and Public Warrants, compared to total proceeds received. Offering costs allocated to derivative warrant liabilities were expensed immediately in the statement of operations. Offering costs allocated to the Public Shares were charged to temporary equity upon the completion of the Initial Public Offering.

Promissory Notes - Related Party and Convertible Promissory Notes - related party, net of debt discount

Second Promissory Note

On October 11, 2022, the Company issued an unsecured Second Promissory Note (the “Second Promissory Note”) to the Sponsor, pursuant to which the Company could borrow up to $1,000,000 from the Second Promissory Note at a 6% interest rate on or before October 11, 2024 to cover, among other things, expenses related to a business combination. As of March 31, 2024 the Company has $1,000,000 of principal outstanding on the Note and has accrued and unpaid interest of $75,156 (see discussions below related to the Sponsor Debt Conversion Agreement).

In connection with the Merger Agreement (see Note 1) entered into on August 23, 2023, the Company and its Sponsor entered into an agreement (the “Sponsor Debt Conversion Agreement” or “Convertible Promissory Note”), pursuant to which, the Sponsor has agreed to cancel and release the outstanding indebtedness under the Second Promissory Note in exchange for and in consideration of, the issuance to the Sponsor by the Company of 100,000 shares of Class A common stock in connection with the closing of the Business Combination. The outstanding indebtedness of the Second Promissory Note includes its original principal amount of up to $1,000,000 including accrued but unpaid interest, fees, expenses and other amounts payable to the Second Promissory Note. The Sponsor Debt Conversion Agreement is contingent and effective upon the closing of the Merger. In accordance with ASC 470-50-40-10, a modification or an exchange of debt that adds or eliminates a substantive conversion option as of the conversion date is considered substantial and require extinguishment accounting, noting pursuant to 470-20-40-7 that a conversion feature must be considered at least reasonably possible of being exercised to be considered substantive. The Company determined the conversion feature did meet the criteria to be considered substantive and the Sponsor Debt Conversion Agreement was deemed to be an extinguishment under ASC 470. The Sponsor Debt Conversion Agreement was entered into with a related party and as a result, the Company recorded a deemed contribution resulting from debt extinguishment for $115,200 in the consolidated statements of changes in stockholders’ deficit.

On February 22, 2024, the Company entered into an additional Sponsorship Debt Conversion Agreement under which the Sponsor agreed to cancel and release the $68,909 of accrued and unpaid interest on the Note (“Outstanding Interest”) and the Company and Sponsor agreed to the issuance of an additional 6,890 shares of Class A common stock to reflect the settlement of the Outstanding Interest on the Note as of the date of the closing of the Merger.

The Company treated the Sponsor Debt Conversion as a debt extinguishment. The modified debt was recorded at the reacquisition price, which equals the fair value on February 22, 2024 of $1,053,508. The net carrying value of the original debt at the extinguishment date was determined to be $997,857. The Company recorded a debt discount in the amount of $55,651 which is amortized to interest expense over the remaining life of the Note. The Note and the Sponsor Debt Conversion Agreement have been entered into with the Sponsor which has been identified as a Related Party. Therefore the Company recorded a deemed contribution resulting from the debt extinguishment in the condensed consolidated statement of changes in stockholders’ deficit of $15,401 as of March 31, 2024.

The Company evaluated the embedded feature within the Sponsor Debt Conversion Agreement in accordance with ASC 815-15 and determined that the embedded feature is a derivative and therefore will be separately measured at fair value, with subsequent changes in fair value recognized in the unaudited consolidated statements of operations.

Management used a scenario-based analysis to estimate the fair value of the derivative liability on February 22, 2024. The original value of the derivative liability was recorded as a debt discount to the Convertible Promissory Note and the debt discount is amortized as non-cash interest expense over the life of the Convertible Promissory Note. The fair value of the derivative liability at inception of the Sponsor Debt Conversion Agreement on February 22, 2024 was $198,381.

At March 31, 2024 and December 31, 2023, the fair value of the derivative liability was $185,554 and $79,027, respectively. The Company recorded a net loss of $106,527 and $0 on the change in fair value of the derivative liability during the three months ended March 31, 2024 and 2023, respectively. Interest expense during the three months ended March 31, 2024 and 2023 was $40,306 and $14,202, respectively which was comprised of debt discount amortization of $25,347 and $0, respectively and coupon interest of $14,959 and $14,202, respectively. The unamortized debt discount as of March 31, 2024 was $46,536.

December 2023 Revolving Promissory Note

On December 22, 2023, the Company issued a Revolving Credit Promissory Note (the “December 2023 Revolving Promissory Note”) to the Sponsor, pursuant to which the Company could borrow up to $400,000 from the Revolving Promissory Note at a 12% interest rate on or before March 15, 2024 to cover, among other things, expenses related to the Business Combination. On each of December 22, 2023, and December 23, 2023, the Company borrowed $75,000, and $75,000, respectively, bringing total borrowings to $150,000 as of December 31, 2023. On January 22, 2024, the Company drew down $100,000 against the December 2023 Revolving Promissory Note and on February 2, 2024, the Company drew down $40,000 against the December 2023 Revolving Promissory Note, bringing total borrowings to $290,000 (see discussions below related to the Sponsor Debt Conversion Agreement).

In connection with the Merger Agreement (see Note 1) entered into on August 23, 2023, the Company and its Sponsor entered into an agreement on February 22, 2024 (the "December 2023 Sponsor Debt Conversion Agreement" or "December 2023 Convertible Promissory Note"), pursuant to which, the Sponsor has agreed to cancel and release the outstanding indebtedness under the December 2023 Revolving Promissory Note in exchange for and in consideration of, the issuance to the Sponsor by the Company of 29,444 shares of Class A common stock at the Merger Closing. The outstanding indebtedness of the December 2023 Revolving Promissory Note includes its original principal amount outstanding on February 22, 2024 of $290,000 including accrued but unpaid interest, fees, expenses and other amounts payable to the December 2023 Revolving Promissory Note as of February 22, 2024 which totaled $4,440, for total outstanding indebtedness of $294,440. The December 2023 Sponsor Debt Conversion Agreement is contingent and effective upon the closing of the Merger. In accordance with ASC 470-50-40-10, a modification or an exchange of debt that adds or eliminates a substantive conversion option as of the conversion date is considered substantial and requires extinguishment accounting, noting pursuant to ASC 470-20-40-7 that a conversion feature must be considered at least reasonably possible of being exercised to be considered substantive. The Company determined the conversion feature did meet the criteria to be considered substantive and the Sponsor Debt Conversion Agreement was deemed to be an extinguishment under ASC 470, bringing the outstanding balance under the December 2023 Revolving Promissory Note to $0 at March 31, 2024. The reacquisition price of the modified debt (the "December 2023 Convertible Promissory Note") on February 22, 2024 was $290,200. The December 2023 Sponsor Debt Conversion Agreement was entered into with a related party and as a result, the Company recorded a deemed contribution resulting from debt extinguishment for $4,240 in the condensed consolidated statements of changes in stockholders’ deficit as of March 31, 2024.

The Company evaluated the embedded feature within the December 2023 Sponsor Debt Conversion Agreement in accordance with ASC 815-15 and determined the embedded feature is a derivative and therefore will be separately measured at fair value, with subsequent changes in fair value recognized in the unaudited condensed consolidated statements of operations.

Management used a scenario-based analysis to estimate the fair value of the derivative liability at inception. The original value of the derivative liability was recorded as a debt discount to the December 2023 Convertible Promissory Note and the debt discount is amortized as non-cash interest expense over the life of the December 2023 Convertible Promissory Note. The fair value of the derivative liability at inception of the December 2023 Sponsor Debt Conversion Agreement on February 22, 2024 was $54,648.

The Company considered the guidance within ASC 470-50-40-13 such that the difference between the carrying value of the old debt at its extinguishment date and the reacquisition price of the modified debt, or $4,240, represents an additional discount on the reacquired debt that should be reflected through interest expense during the period to bring the new debt to its principal value at maturity. At March 31, 2024 and December 31, 2023, the fair value of the derivative liability was $51,115 and $0, respectively. The Company recorded a gain of $3,533 on the change in fair value of the derivative liability during the three months ended March 31, 2024. Additionally, the Company recorded a debt discount in the amount of $54,648 during the three months ended March 31, 2024.

The debt discount is being amortized to interest expense over the life of the December 2023 Convertible Promissory Note, which is through March 15, 2024. Amounts amortized to interest expense were $58,888 for the three months ended March 31, 2024, reflecting $4,240 of interest expense to amortize the debt to its principal value and $54,648 for the full amortization of the discount through the maturity date. The unamortized debt discount as of March 31, 2024 was $0.

February 2024 Revolving Promissory Note

On February 12, 2024, the Company issued a Revolving Credit Promissory Note (the “February 2024 Revolving Promissory Note”) to the Sponsor, pursuant to which the Company could borrow up to $492,000 from the Revolving Promissory Note at a 12% interest rate on or before March 15, 2024 to cover, among other things, expenses related to a business combination. On the issuance date, the Company drew down $492,000 under the February 2024 Revolving Promissory Note, bringing total principal borrowings to $492,000 as of March 31, 2024.

In connection with the Merger Agreement (see Note 1) entered into on August 23, 2023, the Company and its Sponsor entered into an agreement on February 22, 2024 (the "February 2024 Sponsor Debt Conversion Agreement" or "February 2024 Convertible Promissory Note"), pursuant to which, the Sponsor has agreed to cancel and release the outstanding indebtedness under the February 2024 Revolving Promissory Note in exchange for and in consideration of, the issuance to the Sponsor by the Company of 49,280 shares of Class A common stock at the Merger Closing. The outstanding indebtedness of the February 2024 Revolving Promissory Note includes its original principal amount outstanding on February 22, 2024 of $492,000 including accrued but unpaid interest, fees, expenses and other amounts payable to the February 2024 Revolving Promissory Note as of February 22, 2024 which totaled $280, for total outstanding indebtedness of $492,280. The February 2024 Sponsor Debt Conversion Agreement is contingent and effective upon the closing of the Merger. In accordance with ASC 470-50-40-10, a modification or an exchange of debt that adds or eliminates a substantive conversion option as of the conversion date is considered substantial and requires extinguishment accounting, noting pursuant to ASC 470-20-40-7 that a conversion feature must be considered at least reasonably possible of being exercised to be considered substantive. The Company determined the conversion feature did meet the criteria to be considered substantive and the Sponsor Debt Conversion Agreement was deemed to be an extinguishment under ASC 470, bringing the outstanding balance under the February 2024 Revolving Promissory Note to $0 at March 31, 2024. The reacquisition price of the modified debt (the "February 2024 Convertible Promissory Note") on February 22, 2024 was $485,704. The February 2024 Sponsor Debt Conversion Agreement was entered into with a related party and as a result, the Company recorded a deemed contribution resulting from debt extinguishment for $6,576 in the consolidated statements of changes in stockholders’ deficit as of March 31, 2024.

The Company evaluated the embedded feature within the February 2024 Sponsor Debt Conversion Agreement in accordance with ASC 815-15 and determined the embedded feature is a derivative and therefore will be separately measured at fair value, with subsequent changes in fair value recognized in the unaudited condensed consolidated statements of operations.

Management used a scenario-based analysis to estimate the fair value of the derivative liability at inception. The original value of the derivative liability was recorded as a debt discount to the February 2024 Convertible Promissory Note and the debt discount is amortized as non-cash interest expense over the life of the February 2024 Convertible Promissory Note. The fair value of the derivative liability at inception of the February 2024 Sponsor Debt Conversion Agreement on February 22, 2024 was $91,880.

The Company considered the guidance within ASC 470-50-40-13 such that the difference between the carrying value of the old debt at its extinguishment date and the reacquisition price of the modified debt, or $6,576, represents an additional discount on the reacquired debt that should be reflected through interest expense during the period to bring the new debt to its principal value at maturity. At March 31, 2024 and December 31, 2023, the fair value of the derivative liability was $85,966 and $0, respectively. The Company recorded a gain of $5,914 on the change in fair value of the derivative liability during the three months ended March 31, 2024. Additionally, the Company recorded a debt discount in the amount of $91,880 during the three months ended March 31, 2024.

The debt discount is being amortized to interest expense over the life of the February 2024 Convertible Promissory Note, which is through March 15, 2024. Amounts amortized to interest expense were $98,456 for the three months ended March 31, 2024, reflecting $6,576 of interest expense to amortize the debt to its principal value and $91,880 for the full amortization of the discount through the maturity date. The unamortized debt discount as of March 31, 2024 was $0.

The Company recognized deemed contributions totaling $26,217 for the debt extinguishments of all three of the promissory notes described above.

Administrative Support Agreement

The Company entered into an agreement to pay the Sponsor a total of $10,000 per month for administrative, financial and support services. As of July 1, 2022, the administrative support agreement was discontinued and it was agreed between the Company and the Sponsor that no further payments were to be made. However, the Sponsor continued to perform the administrative support services for the Company and as such, the Company recognized a deemed dividend of $10,000 per month, related to these services. For the three months ended March 31, 2024, the Company recognized a deemed dividend of $30,000 and this is included as a deemed capital contribution within the accompanying unaudited condensed consolidated statement of changes in stockholders' deficit.

Related Party Loans

In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, loan the Company additional funds as may be required (“Working Capital Loans”). If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds held in the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination is not completed, the Company may use a portion of the proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into warrants at a price of $1.00 per warrant. The warrants would be identical to the Private Placement Warrants. As of March 31, 2024 and December 31, 2023, there were no working capital loans outstanding.

- Definition

The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Topic 946
-SubTopic 20
-Name Accounting Standards Codification
-Section 50
-Paragraph 2
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147480990/946-20-50-2

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Topic 946
-SubTopic 20
-Name Accounting Standards Codification
-Section 50
-Paragraph 5
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147480990/946-20-50-5

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Topic 946
-SubTopic 20
-Name Accounting Standards Codification
-Section 50
-Paragraph 6
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147480990/946-20-50-6

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Topic 946
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-Publisher FASB
-URI https://asc.fasb.org/1943274/2147477968/946-235-50-2

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Topic 946
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-Publisher FASB
-URI https://asc.fasb.org/1943274/2147477968/946-235-50-2

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Topic 850
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-URI https://asc.fasb.org/1943274/2147483326/850-10-50-1

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Topic 946
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-Subparagraph (SX 210.6-07(2)(g)(3))
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-URI https://asc.fasb.org/1943274/2147479134/946-220-S99-1

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
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Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Topic 946
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-Paragraph 1
-Subparagraph (SX 210.6-07(2)(e))
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147479134/946-220-S99-1

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Topic 850
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-URI https://asc.fasb.org/850/tableOfContent

Reference 11: http://www.xbrl.org/2003/role/disclosureRef
-Topic 850
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Reference 12: http://www.xbrl.org/2003/role/disclosureRef
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Reference 13: http://www.xbrl.org/2003/role/disclosureRef
-Topic 850
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 1
-Subparagraph (b)
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147483326/850-10-50-1

+ Details

SEP Acquisition Corp. 10-Q