The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our audited financial statements
and the notes related thereto, which are included in "Item 8. Financial
Statements and Supplementary Data" of this Annual Report on Form 10-K. Certain
information contained in the discussion and analysis set forth below includes
forward-looking statements. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of many factors,
including those set forth under "Special Note Regarding Forward-Looking
Statements," "Item 1A. Risk Factors," and elsewhere in this Annual Report on
Form 10-K.
Overview
We are a blank check company formed under the laws of the State of Delaware on
February 12, 2021 for the purpose of effectuating a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or other similar
business combination with one or more businesses. We intend to effectuate our
business combination using cash from the proceeds of our Initial Public Offering
of 17,250,000 Units (which included the full exercise by the underwriter of its
over-allotment option in the amount of 2,250,000 Units, at $10.00 per Unit), the
sale of the Private Placement Warrants, our capital stock, debt, or a
combination of cash, stock, and debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete a business
combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from February 12, 2021 (inception) through December 31, 2022
were organizational activities, those necessary to prepare for the Initial
Public Offering, described below, and, after that, identifying a target company
for a business combination. We do not expect to generate any operating revenues
until after the completion of our business combination. We generate
non-operating income in the form of interest income on marketable securities
held in the Trust Account. We incur expenses as a result of being a public
company (for legal, financial reporting, accounting and auditing compliance), as
well as for due diligence expenses.
For the year ended December 31, 2022, we had a net income of $5,796,203, which
consisted of interest earned on marketable securities held in the Trust Account
of $2,441,515 and the change in fair value of warrant liabilities of $5,053,016,
offset by formation and operating costs of $1,173,551 and provision for income
taxes of $524,777.
For the period from February 12, 2021 (inception) through December 31, 2021, we
had a net income of $3,732,702, which consisted of interest earned on marketable
securities held in the Trust Account of $6,512 and the change in fair value of
warrant liability of $4,907,984, offset by formation and operational costs of
$852,175 and transaction costs allocated to warrants associated with the Initial
Public Offering of $329,619.
Liquidity, Capital Resources, Results of Operations, and Going Concern
Liquidity
On February 15, 2021, the Sponsor purchased 4,312,500 Founder Shares for an
aggregate price of $25,000. At the time of the purchase, the Founder Shares
included an aggregate of up to 562,500 shares 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 collectively own, on an
as-converted basis, 20% of our issued and outstanding shares after the Initial
Public Offering (assuming the Sponsor did not purchase any Public Shares in the
Initial Public Offering). As a result of the underwriters' election to fully
exercise their over-allotment option on July 1, 2021 (as discussed below),
562,500 Founder Shares are no longer subject to forfeiture.
On June 11, 2021, we completed the Initial Public Offering of 15,000,000 Units,
at $10.00 per Unit, generating gross proceeds of $150,000,000. Simultaneously
with the closing of the Initial Public Offering, we completed the sale of
5,250,000 Private Placement Warrants at a price of $1.00 per Private Placement
Warrant in a private placement to the Sponsor, generating gross proceeds of
$5,250,000.
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On July 1, 2021, in connection with the underwriters' exercise of their
over-allotment option in full, we consummated the sale of an additional
2,250,000 Units at a price of $10.00 per Unit, generating total gross proceeds
of $22,500,000. In addition, we also consummated the sale of an additional
450,000 Private Placement Warrants at $1.00 per warrant, generating total gross
proceeds of $450,000.
Following the Initial Public Offering, the full exercise of the over-allotment
option and the sale of the Private Placement Warrants, a total of $172,500,000
was placed in the Trust Account. We incurred $9,947,799 in Initial Public
Offering related costs, including $3,450,000 of underwriting fees, $6,037,500 of
deferred underwriting fees payable upon completion of an initial business
combination, and $460,299 of other costs.
For the year ended December 31, 2022, cash used in operating activities was
$645,887. Net income of $5,796,203 was affected by interest earned on marketable
securities held in the Trust Account of $2,441,515, the change in fair value of
warrant liabilities of $5,053,016 and income taxes payable of $524,777. Changes
in operating assets and liabilities used $527,664 of cash for operating
activities.
For the period from February 12, 2021 (inception) through December 31, 2021,
cash used in operating activities was $973,475. Net income of $3,732,702 was
affected by interest earned on marketable securities held in the Trust Account
of $6,512, a change in fair value of warrant liabilities of $4,907,984, and
Initial Public Offering transaction costs allocable to warrants of $329,619.
Changes in operating assets and liabilities used $121,300 of cash for operating
activities.
As of December 31, 2022, we had marketable securities held in the Trust Account
of $174,948,027 (including $2,448,027 of interest income) consisting of money
market funds, which are invested primarily in U.S. Treasury Securities. Interest
income on the balance in the Trust Account may be used by us to pay franchise
taxes and any other Permitted Withdrawals. In the fiscal year ended December 31,
2022, we did not withdraw any amount from the Trust Account.
As of December 31, 2021, we had marketable securities held in the Trust Account
of $172,506,512 (including $6,512 of interest income) consisting of money market
funds, which were invested primarily in U.S. Treasury Securities. In the fiscal
year ended December 31, 2021, we withdrew $1,240,000 from the Trust Account for
working capital purposes, which was the result of an overfunding of the Trust
Account. See "Item 1. Business - Company History - Initial Public Offering" for
more information.
We intend to use substantially all of the funds held in the Trust Account,
including any amounts representing interest earned on the Trust Account (less
income taxes payable and any other Permitted Withdrawals), to complete our
business combination. To the extent that our capital stock or debt is used, in
whole or in part, as consideration to complete our 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.
At December 31, 2022, we had cash of $195,339 and working capital of $178,223
(after adding back approximately $212,212 in franchise tax payable as that
liability, which is included in "accrued expenses" in our financial statements,
may be settled using earnings from the Trust Account; $177,036 of franchise
taxes paid out of an operating cash account not yet reimbursed from the Trust
Account; and $524,777 in accrued income tax payable, which may be settled using
earnings from the Trust Account).
At December 31, 2021, we had cash of $840,000 and working capital of $790,000
(after adding back approximately $6,000 in franchise tax payable as that
liability, which is included in "accrued expenses" in our financial statements,
may be settled using the Trust Account).
Our liquidity needs up to December 31, 2022 were satisfied through the proceeds
of $25,000 from the sale of the Founder Shares, a loan of $46,975 under an
unsecured and non-interest bearing promissory note, and the net proceeds from
the consummation of the Initial Public Offering and the sale of the Private
Placement Warrants held outside of the Trust Account. See "Note 5. Related Party
Transactions" to our consolidated financial statements for more information
regarding our borrowings and indebtedness.
51
Additionally, to fund working capital requirements, we have permitted
withdrawals from the Trust Account up to an annual limit of $1,000,000. We may
withdraw additional funds to pay income tax and franchise tax obligations. These
Permitted Withdrawals are limited to only the interest available that has been
earned in excess of the initial deposit in the Trust Account upon consummation
of the Initial Public Offering. In the fiscal year ended December 31, 2022, we
withdrew $0 of the available annual limit.
We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business. However, if our actual costs
of identifying a target business, undertaking in-depth due diligence and
negotiating a business combination are more than our estimated amount, we may
have insufficient funds available to operate our business prior to our business
combination. Moreover, we may need to obtain additional financing either to
complete our business combination or because we become obligated to redeem a
significant number of our Public Shares upon consummation of our business
combination, in which case we may issue additional securities or incur debt in
connection with such business combination. In connection with our 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," we have
until June 11, 2023 (or September 11, 2023 if we have executed a letter of
intent, agreement in principle or definitive agreement for an initial business
combination prior to June 11, 2023) to consummate a business combination. It is
not guaranteed that we 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 of the Company. Management has
determined that the liquidity condition and mandatory liquidation, should a
business combination not occur, and potential subsequent dissolution raises
substantial doubt about our ability to continue as a going concern. No
adjustments have been made to the carrying amounts of assets or liabilities
should we be required to liquidate after June 11, 2023 (or September 11, 2023 if
we have executed a letter of intent, agreement in principle or definitive
agreement for an initial business combination prior to June 11, 2023).
Off-Balance Sheet Financing Arrangements
We have no obligations, assets, or liabilities which 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.
We did not have any obligations, assets, or liabilities which would be
considered off-balance sheet arrangements as of December 31, 2021.
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 an
affiliate of the Sponsor a monthly fee of $10,000 for office space,
administrative and support services. We began incurring these fees on June 8,
2021 and will continue to incur these fees monthly until the earlier of the
completion of the business combination and our liquidation. For the year ended
December 31, 2022, the Company incurred $120,000 in fees for these services. For
the period from February 12, 2021 (inception) through December 31, 2021, the
Company incurred $70,000 in fees for these services. As of December 31, 2022 and
2021, $183,750 and $70,000, respectively, were outstanding and included in
accrued expenses in the accompanying balance sheets.
The underwriters are entitled to a deferred fee of $0.35 per Unit, or
$6,037,500. The deferred fee will become payable to the underwriters from the
amounts held in the Trust Account solely in the event that we complete a
business combination, subject to the terms of the underwriting agreement.
The terms of our Charter provide a Completion Window of 24 months from the the
IPO Date, or 27 months from the IPO Date if we have entered into a letter of
intent, agreement in principle or definitive agreement for an initial business
combination within 24 months from the IPO Date. As a result of our entering into
the Merger Agreement with PSQ Holdings, Inc. on February 27, 2023 (prior to the
24-month anniversary of the IPO Date), our Completion Window has been
automatically extended from June 11, 2023 to September 11, 2023 in accordance
with the terms of our Charter.
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 identified the following critical accounting policies.
52
Warrant Liabilities
We account for the Warrants in accordance with the guidance contained in ASC
815-40, under which the Warrants do not meet the criteria for equity treatment
and must be recorded as liabilities. Accordingly, we classify the Warrants as
liabilities at their fair value and adjusts the Warrants to fair value at each
reporting period. This liability is subject to re-measurement at each balance
sheet date until exercised, and any change in fair value is recognized in the
statements of operations. For periods where no observable traded price was
available, the Warrants are valued using a binomial/lattice model. For periods
subsequent to the detachment of the Warrants from the Units, the Warrant quoted
market price will be used as the fair value as of each relevant date.
Class A Common Stock Subject to Possible Redemption
We account for our Class A common stock subject to possible conversion in
accordance with the guidance in ASC 480 "Distinguishing Liabilities from
Equity." Shares of Class A common stock subject to mandatory redemption are
classified as a liability instrument and measured at fair value. Conditionally
redeemable common stock (including common stock that features redemption rights
that are either within the control of the holder or subject to redemption upon
the occurrence of uncertain events not solely within our control) is classified
as temporary equity. At all other times, common stock is classified as
stockholders' equity. Our Class A common stock features certain redemption
rights that are considered to be outside of our control and subject to
occurrence of uncertain future events. Accordingly, Class A common stock subject
to possible redemption is presented at redemption value as temporary equity,
outside of the stockholders' deficit section of our balance sheets.
Immediately upon the closing of the Initial Public Offering, we recognized the
re-measurement from initial book value to redemption amount, which approximates
fair value. The change in the carrying value of the redeemable Class A common
stock subject to possible redemption resulted in charges against additional
paid-in capital (to the extent available) and accumulated deficit and Class A
common stock.
We recognize 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 redeemable common stock are affected by charges against additional paid in
capital and accumulated deficit.
Net Income per Common Share
Net income per common share is computed by dividing net income by the weighted
average number of common shares outstanding for the period. Re-measurement
associated with the redeemable shares of Class A common stock is excluded from
income per common share as the redemption value approximates fair value.
The calculation of diluted income per common share does not consider the effect
of the warrants issued in connection with the (i) Initial Public Offering, and
(ii) the private placement to purchase an aggregate of 11,450,000 shares of
common stock in the calculation of diluted income per common share, since the
exercise of the warrants is contingent upon the occurrence of future events. For
the years ended December 31, 2022 and 2021, we did not have any dilutive
securities or other contracts that could, potentially, be exercised or converted
into shares of common stock and then share in the earnings of the Company. As a
result, diluted net income per common stock is the same as basic net income per
common share for the period presented.
Recent Accounting Standards
We do not believe that any other recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
financial statements.
Recent Developments
We have evaluated subsequent events and transactions that have occurred after
December 31, 2022 and until the date of this Annual Report. Based upon this
review, we did not identify any subsequent events that would require adjustment
or disclosure in the financial statements.
Pursuant to our Investment Management Trust Agreement dated June 8, 2021, in
January 2023, we withdrew $1,000,000 and $389,298 from the Trust Account for
fiscal year 2022 working capital purposes and fiscal year 2021 and fiscal year
2022 tax obligations, respectively. Additionally, in March 2023, we withdrew
$1,000,000 from the Trust Account for fiscal year 2023 working capital purposes.
Agreement and Plan of Merger
On February 27, 2023, we entered into an Agreement and Plan of Merger (the
"Merger Agreement") by and among us, Colombier-Liberty Acquisition, Inc., a
Delaware corporation and a wholly owned subsidiary of the Company (the "Merger
Sub"), our Sponsor, in the capacity as "Purchaser representative" (solely for
purposes of certain sections of the Merger Agreement), and PSQ Holdings, Inc., a
Delaware corporation ("PSQ"). Pursuant to the terms of the Merger Agreement, a
business combination between us and PSQ (the "Merger") will be effected and our
name will be changed to "PSQ Holdings, Inc." For more information, please see
the Current Report on Form 8-K filed with the SEC on February 28, 2023.
53
Simultaneous with the execution of the Merger Agreement, the Sponsor entered
into a support agreement (the "Sponsor Support Agreement"), pursuant to which it
agreed that it will (i) fully comply with and perform all of the obligations,
covenants and agreements set forth in that certain letter agreement, dated June
8, 2021, between us and Sponsor (the "Insider Letter"); (ii) waive the
anti-dilution rights with respect to its Founder Shares that are triggered upon
the conversion of the Founder Shares into Public Shares upon the consummation of
the Merger; (iii) waive any claims it has or may have against us and each of our
affiliates and PSQ and each of their affiliates with respect to any claims
occurring (or any circumstances existing) prior to the closing of the Merger
("Closing") (subject to certain exceptions); (iv) forfeit one percent of its
Founder Shares and Warrants for every one percent of redemptions in excess of an
amount of shares equal to eighty percent of the sum of (a) the number of Public
Shares issued and outstanding immediately prior to Closing, plus (b) the result
of (i) the aggregate proceeds raised in any Permitted Financing (as such term is
defined in the Merger Agreement), divided by (ii) $10.00. Pursuant to the
Sponsor Support Agreement, we have agreed to enforce the Insider Letter in
accordance with its terms, and not to amend, modify or waive any provision of
the Insider Letter without the prior written consent of PSQ.
Also simultaneous with the execution of the Merger Agreement, certain
stockholders of PSQ (the "PSQ Holders") entered into support agreements (the
"Company Support Agreements"), pursuant to which such stockholders agreed, among
other things, to vote all shares of capital stock of PSQ beneficially owned by
the PSQ Holders (the "PSQ Shares") in favor of the Merger and related
transactions. Such PSQ Holders also agreed to take certain other actions in
support of the Merger Agreement and related transactions (and any actions
required in furtherance thereof) and to refrain from taking actions that would
adversely affect such PSQ Holders' ability to perform their obligations under
the Company Support Agreement. Pursuant to the Company Support Agreements, the
PSQ Holders also agreed not to transfer their PSQ Shares during the period from
and including the date of the Company Support Agreement and the first to occur
of the date of Closing or the date on which the Company Support Agreement is
terminated, except for certain permitted transfers where the recipient also
agrees to comply with the Company Support Agreement.
Certain PSQ Holders have also agreed, subject to certain customary exceptions,
not to (i) sell, offer to sell, contract or agree to sell, pledge or otherwise
dispose of, directly or indirectly, any shares of certain classes of our common
stock held by them and issued as Merger Consideration (as such term is defined
in the Merger Agreement) (such shares, together with any securities convertible
into or exchangeable for or representing the rights to receive shares of us
acquired during the Lock-Up Period, as defined below, the "Lock-Up Shares"),
(ii) enter into a transaction that would have the same effect, (iii) enter into
any swap, hedge or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Lock-Up Shares or
otherwise, or engage in any short sales or other arrangement with respect to the
Lock-Up Shares, or (iv) publicly announce any intention to do any of the
foregoing until the date that is one year after the date of Closing (the
"Effective Time") (the period from the Effective Time until such date, the
"Lock-Up Period"). Such restrictions will lapse if, commencing on the 150th day
following Closing, the volume-weighted average trading price of one share of our
Class A common stock quoted on the NYSE (or such other exchange on which the
shares of Class A common stock are then listed) for any twenty trading days
within any thirty consecutive trading day period is greater than or equal to
$12.00.
The Merger Agreement may be terminated at any time prior to the Effective Time
by either us or PSQ if the Merger and related transactions are not consummated
on or before September 11, 2023 (the "Outside Date"), provided that we may
extend the Outside Date for an additional period ending on the earlier of (A)
the last date for us to consummate its business combination pursuant to an
extension granted pursuant to our organizational documents and (B) December 31,
2023.
The terms of our Charter provide a time period to complete an initial business
combination (a "Completion Window") of 24 months from the date of closing of our
Initial Public Offering (the "IPO Date") or 27 months from the IPO Date if we
have entered into a letter of intent, agreement in principle or definitive
agreement for an initial business combination within 24 months from the IPO Date
(such additional three-month period of the Completion Window, as incorporated
into the terms of our Charter, the "Automatic Three Month Extension"). As
previously disclosed in our Current Report on Form 8-K dated and filed with the
SEC on February 27, 2023 relating to our entry into the Merger Agreement and
other transaction documents with PSQ, as a result of our entering into the
Merger Agreement with PSQ on February 27, 2023 (prior to the 24-month
anniversary of the IPO Date), our Completion Window has been automatically
extended from June 11, 2023 to September 11, 2023, in accordance with the terms
of our Charter.
Other Agreements
In connection with the proposed business combination which is the subject of the
Merger Agreement (the "PSQ Business Combination"), the Company and the
Representative of the Company's underwriters for its Initial Public Offering
(the "UW Representative"), agreed, pursuant to a letter agreement dated March 9,
2023, that the Company, in its discretion, could reallocate a portion of the
"Deferred Discount," as such term is defined in the Underwriting Agreement,
dated June 8, 2021, entered into by the Company and the UW Representative, as
representative of the underwriters in connection with the Initial Public
Offering, to one or more third parties not participating in the Initial Public
Offering, provided that the UW Representative is paid at least an agreed minimum
amount of the Deferred Discount at the closing, if any, of the PSQ Business
Combination.
The Company has not engaged and does not intend to engage Farvahar Capital to
provide financial or other advisory services to the Company in connection with
the PSQ Business Combination and, since inception, Farvahar Capital has not
received, and is not expected to receive, any fees, commissions or
reimbursements of any expenses from the Company and has not and is not expected
to provide any advisory or other services to the Company in connection with the
PSQ Business Combination or otherwise (as previously disclosed, our Sponsor, an
affiliate of Farvahar Capital, entered into an Administrative Support Agreement,
dated June 8, 2021, with the Company, pursuant to which the Company has paid our
Sponsor for office space and administrative and support services, as described
in Item 13. Certain Relationships and Related Transactions, and Director
Independence - Administrative Support Agreement).
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