Broad Capital Acquisition Corp: Q3 2024 Financial Report Analysis

Key Insights:

• Company Overview: Broad Capital Acquisition Corp (Ticker: BRAC, BRACU, BRACR) is a blank check company focused on pursuing a business combination, having completed its IPO in January 2022.
• Report Type: 10-Q/A (Amendment No. 1), for the quarter ended September 30, 2024.
• Financial Adjustments: Amendment corrects references from "marketable securities" to "cash held in trust account."
• Financial Highlights:
• Cash in operating account: $30,680 (up from $15,282 at year-end 2023).
• Working Capital Loan: $1,088,861.
• Deferred Underwriter Commission: $3,555,674.
• Interest earned: $712,832 in 2024, down from $2,088,010 in 2023.

Recommendation: Hold. The company’s proactive compliance measures and cash management strategies are commendable, but the significant reliance on future business combinations poses risks.

Financial Overview

Revenue and Profitability

Broad Capital Acquisition Corp remains in the pre-operational phase, thus lacking traditional revenue streams. The focus is on the management of capital raised during the IPO, which totaled $100 million. The company reported $712,832 in interest income for the year, a stark decline from $2,088,010 earned in 2023, indicating a changing interest landscape that could be attributed to macroeconomic conditions, such as Federal Reserve rate changes.

Expenses and Liabilities

The franchise tax expense for the nine months ended September 30, 2024, was $120,000, an increase from $50,000 in the same period of the previous year. This uptick may reflect the company’s ongoing compliance and operational costs as it prepares for a business combination. The company's working capital situation shows a loan obligation of $1,088,861 and extension loans totaling $3,323,628, suggesting that operational financing strategies must be closely monitored.

Business Combination Plans

The company is in the process of amending its Business Combination Agreement (BCA) with Openmarkets Group Pty Ltd, reducing the number of shares to be issued from 7,500,000 to 4,000,000. This reduction could affect share dilution and the overall valuation of the combined entity. There are also performance-based earnout structures in place, allowing for additional shares to be issued based on revenue milestones, which incentivizes both management and sellers to achieve robust post-merger performance.

Trust Account and Cash Management

As of September 30, 2024, the Trust Account held $20,160,402, down significantly from $50,772,949 at year-end 2023. This decrease could signal redemptions by shareholders or an increase in operational expenses. The Trust Account assets are primarily held in an interest-bearing demand deposit account, aligning with the company's compliance to avoid being classified as an unregistered investment company.

Compliance and Regulatory Concerns

The amendment to the quarterly report underscores the company’s commitment to regulatory compliance, correcting previous misstatements to avoid potential liabilities under the Investment Company Act of 1940. The company also faces an excise tax liability of $895,904 due to stock repurchases, which could affect its available liquidity and strategic options.

Comparative Market Analysis

In a competitive landscape, Broad Capital is not alone in pursuing business combinations as SPACs have faced increased scrutiny and market volatility. Compared to peers, Broad Capital's proactive adjustments and regulatory compliance positions it favorably, but the company must navigate a challenging macro environment characterized by rising interest rates, inflation pressures, and regulatory changes which could impact SPAC valuations and attractiveness.

Conclusion

Broad Capital Acquisition Corp’s Q3 2024 financial report illustrates a company committed to transparency and compliance, albeit facing significant challenges related to business combination execution and cash management. The reduced interest income and increasing tax obligations are areas of concern, while the adjusted BCA may enhance future operational prospects.

Recommendation: Hold. Investors should monitor the company’s ability to finalize a business combination while managing its liquidity and compliance effectively. The next 12 months will be critical as market conditions evolve and the company seeks to solidify its operational footing.