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 contained elsewhere in this Annual Report. Certain
information contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties.
All statements other than statements of historical fact included in this Annual
Report including, without limitation, statements under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position, business strategy and the plans and objectives of
management for future operations, are forward-looking statements. When used in
this Annual Report, words such as "anticipate," "believe," "estimate," "expect,"
"intend" and similar expressions, as they relate to us or the Company's
management, identify forward-looking statements. Such forward-looking statements
are based on the beliefs of management, as well as assumptions made by, and
information currently available to, the Company's management. Actual results
could differ materially from those contemplated by the forward-looking
statements as a result of many factors, including those set forth under
"Cautionary Note Regarding Forward-Looking Statements," "Item 1A. Risk Factors"
and elsewhere in this Annual Report.
Overview
We are a blank check company incorporated in Delaware on February 19, 2021 and
formed for the purpose of effecting a merger, capital stock exchange, asset
acquisition, stock purchase, reorganization or similar business combination with
one or more target businesses. We intend to effectuate our business combination
using cash from the proceeds of our initial public offering and the sale of the
placement units that occurred simultaneously with the completion of our initial
public offering, 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 (other than searching for a Business
Combination after the Initial Public Offering) nor generated any revenues to
date. Our only activities from inception through December 31, 2022 were
organizational activities, those necessary to prepare for the Initial Public
Offering, described below, and, after 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 Business Combination,
at the earliest. We generate non-operating income in the form of interest income
on the 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 net income of $1,115,764, which
consisted of interest income earned on investments held in Trust Account of
$3,619,061, partially offset by operating and formation costs of $1,776,887 and
provision for income tax of $726,410.
For the period from February 19, 2021 (inception) through December 31, 2021, we
had a net loss of $99,988, which consisted of operating and formation costs of
$100,518, offset by interest income on cash held in trust account of $530.
55
Liquidity and Capital Resources
On December 20, 2021, we consummated the Initial Public Offering of 22,000,000
units generating gross proceeds of $220,000,000. Each unit consists of one share
of Class A common stock and one-half of one redeemable warrant, with each whole
warrant entitling the holder thereof to purchase one share of Class A common
stock for $11.50 per share, subject to adjustment. On January 11, 2022, the
underwriter partially exercised its over-allotment option, resulting in the sale
on January 14, 2022 of an additional 2,869,342 units for total gross proceeds of
$28,693,420.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 890,000 Private Placement Units at a price of $10.00 per Private
Placement Unit in a private placement to our Sponsor, generating gross proceeds
of $8,900,000. On January 14, 2022, the underwriter partially exercised its
over-allotment option, resulting in the sale of an additional 86,081 Private
Placement Units to our Sponsor for total gross proceeds of $860,810, bringing
the total aggregate gross proceeds of the Private Placement to $9,760,810.
We incurred $14,181,568 in IPO transaction costs, including $4,973,868 of
underwriting fees ($660,000 of which was reimbursed to us to pay the advisory
fee due to CCM), $8,704,270 of deferred underwriting fees and $503,430 of other
offering costs.
Following the Initial Public Offering, the partial exercise of the
over-allotment option, and the sale of the Private Placement Units, a total of
$251,180,354 ($10.10 per Unit) was placed in the Trust Account and invested in
U.S. government securities, within the meaning set forth in Section 2(a)(16) of
the Investment Company Act of 1940, as amended (the "Investment Company Act"),
with a maturity of 185 days or less, or in money market funds meeting certain
conditions under Rule 2a-7 of the Investment Company Act, as determined by us,
until the earlier of: (i) the consummation of a Business Combination or (ii) the
distribution of the funds in the Trust Account to the Company's stockholders, as
described below.
As of December 31, 2022, we had $72,753 in cash held outside of trust and
working capital of $203,453. Prior to the completion of our Initial Public
Offering, our liquidity needs had been satisfied through a capital contribution
from the Sponsor of $25,000 and a loan to us of up to $300,000 by our Sponsor
under an unsecured promissory note, which had no outstanding balance as of
December 31, 2022. The outstanding balance under the promissory note of $105,260
was repaid on December 27, 2021 and the promissory note was terminated.
As of December 31, 2022, we had cash, investments and marketable securities held
in the Trust Account of $254,251,750. We intend to use substantially all of the
funds held in the Trust Account, including any amounts representing interest
earned on the Trust Account to complete our Business Combination. We may
withdraw interest to pay taxes. During the year ended December 31, 2022, we
withdrew $548,195 of the interest income from the Trust Account to pay franchise
and income taxes. 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.
We intend 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,
and structure, negotiate and complete a Business Combination.
However, if our estimate of the costs of identifying a target business,
undertaking in-depth due diligence and negotiating a Business Combination are
less than the actual amount necessary to do so, 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. Subject to compliance with applicable securities laws, we would
only complete such financing simultaneously with the completion of our Business
Combination. If we are unable to complete our Business Combination because we do
not have sufficient funds available to us, we will be forced to cease operations
and liquidate the Trust Account. In addition, following our Business
Combination, if cash on hand is insufficient, we may need to obtain additional
financing in order to meet our obligations.
56
Going Concern
In connection with the Company's assessment of going concern considerations in
accordance with Financial Accounting Standard Board's ("FASB") Accounting
Standards Update ("ASU") 2014-15, "Disclosures of Uncertainties about an
Entity's Ability to Continue as a Going Concern," we have until September 20,
2023 to consummate a Business Combination. It is uncertain whether 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. We had working capital of $203,453 as of
December 31, 2022; however, we expect to incur significant expenses as it
relates to the consummation of a business combination. We have 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. Management intends to consummate a
Business Combination prior to September 20, 2023. No adjustments have been made
to the carrying amounts of assets or liabilities should we be required to
liquidate after September 20, 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.
Contractual Obligations
Other than the below, we do not have any long-term debt obligations, capital
lease obligations, operating lease obligations, purchase obligations or
long-term liabilities.
We entered into an administrative services agreement pursuant to which we pay
the Sponsor or its designee a monthly fee of $30,000 for office space,
administrative and shared personnel support services to the Company. We began
incurring these fees on December 16, 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, we incurred and paid $360,000
for the administrative support services.
The holders of the founder shares, private placement units (including securities
contained therein) and units that may be issued upon conversion of working
capital loans (including securities contained therein) will be entitled to
registration rights pursuant to a registration rights agreement requiring us to
register such securities for resale (in the case of the founder shares, only
after conversion to the Class A common stock). The holders of these securities
are entitled to make up to three demands, excluding short form demands, that we
register such securities. In addition, the holders have certain "piggy-back"
registration rights with respect to registration statements filed subsequent to
the completion of the initial Business Combination and rights to require us to
register for resale such securities pursuant to Rule 415 under the Securities
Act.
We granted the underwriter of the Initial Public Offering a 45-day option to
purchase up to 3,300,000 additional Units to cover over-allotments, if any, at
the Initial Public Offering price less the underwriting discounts and
commissions. On January 14, 2022, the underwriter purchased an additional
2,869,342 Units pursuant to the over-allotment option.
The underwriter earned a cash underwriting discount of two percent (2%) of the
gross proceeds of the Units sold in the Initial Public Offering and pursuant to
the over-allotment option, or $4,973,868. Additionally, the underwriter will be
entitled to a deferred underwriting discount of 3.5% of the gross proceeds of
the Units sold in the Initial Public Offering and pursuant to the over-allotment
option, or $8,704,270. The deferred underwriting discount will become payable to
the underwriter 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.
We engaged Cohen & Company Capital Markets, a division of J.V.B. Financial
Group, LLC ("CCM"), to provide financial advisory services in connection with
the Initial Public Offering. We paid CCM a fee in an amount equal to 0.3% of the
aggregate proceeds of the Initial Public Offering (excluding the proceeds of the
exercise of the over-allotment option) net of underwriter's expenses, upon the
closing of the Initial Public Offering. We also intend to engage CCM to act as
an advisor in connection with the Business Combination for which it will earn an
advisory fee of 0.525% of the proceeds of the Initial Public Offering (excluding
the proceeds of the exercise of the over-allotment option) payable at closing of
the Business Combination. CCM will also be entitled to an advisory fee equal to
0.825% of the aggregate proceeds of the exercise of the over-allotment option,
payable at the closing of the Business Combination. CCM's fees will be
reimbursed to us by the underwriter as it becomes payable out of the
underwriting commission and will not result in any incremental fees to us.
Accordingly, a reimbursement receivable and deferred advisory fee of $1,155,000
has been reflected in the accompanying balance sheets.
57
Critical Accounting Policies
The preparation of the financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements.
Making estimates requires management to exercise significant judgment. It is at
least reasonably possible that the estimate of the effect of a condition,
situation or set of circumstances that existed at the date of the financial
statements, which management considered in formulating its estimate, could
change in the near term due to one or more future confirming events.
Accordingly, the actual results could differ significantly from those estimates.
We have identified the following as our critical accounting policies:
Class A Common Stock Subject to Possible Redemption
We account for our Class A common stock subject to possible redemption in
accordance with the guidance in Accounting Standards Codification ("ASC") Topic
480, "Distinguishing Liabilities from Equity." Class A common stock subject to
mandatory redemption is classified as a liability instrument and is measured at
fair value. Conditionally redeemable common stock (including common stock that
features redemption rights that are within the control of the holder or subject
to redemption upon the occurrence of uncertain events not solely within the
Company's control) is classified in temporary equity. At all other times, common
stock is classified as stockholders' equity. Our Class A common stock sold in
the IPO and over-allotment feature certain redemption rights that are considered
to be outside of our control and subject to the occurrence of uncertain future
events. Accordingly, at December 31, 2022 and 2021, 24,869,342 and 22,000,000
shares of Class A common stock are presented at redemption value as temporary
equity, outside of the stockholders' deficit section of our balance sheets,
respectively.
We recognize changes in redemption value immediately as they occur and adjust
the carrying value of Class A common stock to equal the redemption value at the
end of each reporting period. Increases or decreases in the carrying amount of
redeemable Class A common stock are affected by charges against additional paid
in capital and accumulated deficit. This method would view the end of the
reporting period as if it were also the redemption date for the security.
Net Income (Loss) Per Common Share
We have two classes of shares, which are referred to as Class A common stock and
Class B common stock. Earnings and losses are shared pro rata between the two
classes of shares. Accretion associated with the redeemable shares of Class A
common stock is excluded from earnings per share as the redemption value
approximates fair value. We have not considered the effect of the warrants in
the calculation of diluted net income (loss) per share, if any, since their
exercise is contingent upon future events. As a result, diluted net income
(loss) per share of common stock is the same as basic net income (loss) per
share of common stock. Accretion associated with the redeemable shares of Class
A common stock is excluded from earnings per share as the redemption value
approximates the fair value.
58
Recent Accounting Standards
In August 2020, the FASB issued ASU No. 2020-06, "Debt-Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in
Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity's Own Equity" ("ASU 2020-06"), which simplifies
accounting for convertible instruments by removing major separation models
required under current GAAP. ASU 2020-06 removes certain settlement conditions
that are required for equity contracts to qualify for the derivative scope
exception, and it also simplifies the diluted earnings per share calculation in
certain areas. ASU 2020-06 is effective for fiscal years beginning after
December 15, 2023, including interim periods within those fiscal years, with
early adoption permitted. We are currently assessing the impact, if any, that
ASU 2020-06 would have on our financial position, results of operations or cash
flows.
Management does 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.
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