The following discussion and analysis of the Company's 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.
We had not completed our Public Offering as of December 31, 2022. Except as
specified herein, this discussion and analysis of our financial condition and
results of operations does not give effect to the Public Offering.
Overview
We are a blank check company incorporated on January 19, 2021 as a Delaware
corporation and formed for the purpose of effecting a Business Combination with
one or more target businesses. We completed our Public Offering on January 14,
2022.
We presently have no revenue, have had losses since inception from incurring
formation costs and have had no operations other than the active solicitation of
a target business with which to complete a business combination.
Results of Operations
For the Year Ended December 31, 2022, the Company had net income of $16,051,936
of which $11,366,667 was a non-cash gain related to the change in fair value of
the warrant liability.
For the Period from January 19, 2021 (inception) to December 31, 2021, the
Company had a net loss of ($6,112).
Our business activities during the year mainly consisted of identifying and
evaluating prospective acquisition candidates for a Business Combination. We
believe that we have sufficient funds available to complete our efforts to
effect a Business Combination with an operating business by January 14, 2024.
However, if our estimates 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.
As indicated in the accompanying financial statements, at December 31, 2022, the
Company had $378,072 in cash and deferred offering costs of $18,375,000.
Further, we expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete our Business
Combination will be successful.
Liquidity and Capital Resources
On July 8, 2021, the Sponsor purchased 15,093,750 Founder Shares for $25,000, or
approximately $0.002 per share. On January 11, 2022, the Sponsor transferred
25,000 Founder Shares to each of the independent directors at their original
purchase price. On February 28, 2021, the Sponsor forfeited 1,968,750 Founder
Shares following the expiration of the unexercised portion of underwriters'
over-allotment option, so that the Founder Shares held by the Initial
Stockholders would represent 20% of the outstanding shares of common stock. The
Founder Shares will automatically convert into shares of Class A Common Stock at
the time of the Business Combination on a one-for-one basis, subject to
adjustment as described in the Company's amended and restated certificate of
incorporation.
On January 14, 2022, the Company consummated its Public Offering of 52,500,000
Units at a price of $10.00 per Unit, generating gross proceeds of $525,000,000.
On the IPO Closing Date, we completed the private sale of an aggregate of
8,333,333 Private Placement Warrants, each exercisable to purchase one share of
Class A Common Stock at $11.50 per share, to our Sponsor, at a price of $1.50
per Private Placement Warrant, generating gross proceeds, before expenses, of
$12,500,000. After deducting the underwriting discounts and commissions
(excluding the Deferred Discount, which amount will be payable upon consummation
of the Business Combination, if consummated) and the estimated offering
expenses, the total net proceeds from our Public Offering and the sale of the
Private Placement Warrants were $527,000,000, of which $525,000,000 (or $10.00
per share sold in the Public Offering) was placed in the Trust Account. The
amount of proceeds not deposited in the Trust Account was $2,000,000 at the
closing of our Public
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Offering. Interest earned on the funds held in the Trust Account may be released
to us to fund our Regulatory Withdrawals, for a maximum of 24 months and/or
additional amounts necessary to pay our franchise and income taxes.
On July 8, 2021, the Company borrowed $300,000 by the issuance of an unsecured
promissory note from the Sponsor for $300,000 to cover expenses related to the
Public Offering. This Note was non-interest bearing and payable on the earlier
of January 31, 2023 or the completion of the Public Offering. The Note was
repaid upon completion of the Public Offering. This facility is no longer
available.
On February 7, 2022, the Sponsor made available to the Company a loan of up to
$4,000,000 pursuant to a promissory note issued by the Company to the Sponsor.
The proceeds from the note will be used for ongoing operational expenses and
certain other expenses in connection with the Business Combination. The note, as
amended, is unsecured, non-interest bearing and matures on the earlier of: (i)
January 14, 2024 or (ii) the date on which the Company consummates the Business
Combination. As of December 31, 2022 and December 31, 2021, the amount advanced
by Sponsor to the Company was $600,000 and $300,000, respectively.
As of December 31, 2022 and December 31, 2021, the Company had cash held outside
of the Trust Account of approximately $378,072 and $147,160, respectively, which
is available to fund our working capital requirements. Additionally, interest
earned on the funds held in the Trust Account may be released to us to fund our
Regulatory Withdrawals, subject to an annual limit of $900,000, for a maximum of
24 months and/or additional amounts necessary to pay our franchise and income
taxes.
At December 31, 2022 and December 31, 2021, the Company had current liabilities
of $949,113 and $465,816 and working capital (deficit) of $373,420 and
($318,656), respectively, the balances of which are primarily related to
warrants we have recorded as liabilities as described in Notes 2 and 3. Other
amounts are related to accrued expenses owed to professionals, consultants,
advisors and others who are working on seeking a Business Combination as
described in Note 1. Such work is continuing after December 31, 2022 and amounts
are continuing to accrue. Additionally, the warrant liability will not impact
the Company's liquidity until a Business Combination has been consummated, as
they do not require cash settlement until such event has occurred.
We intend to use substantially all of the funds held in the Trust Account,
including interest (which interest shall be net of Regulatory Withdrawals and
taxes payable) to consummate our Business Combination. Moreover, we may need to
obtain additional financing either to complete a Business Combination or because
we become obligated to redeem a significant number of shares of our Class A
Common Stock upon completion of a 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. To the extent that our capital stock or debt is used, in whole or
in part, as consideration to consummate our Business Combination, the remaining
proceeds held in our Trust Account, if any, will be used as working capital to
finance the operations of the target business or businesses, make other
acquisitions and pursue our growth strategy. Following the closing of a Business
Combination, we do not expect there to be remaining proceeds in our Trust
Account.
As of December 31, 2022 and December 31, 2021, we did not have any long-term
debt obligations, capital lease obligations, operating lease obligations,
purchase obligations or long-term liabilities. In connection with the Public
Offering, we entered into an administrative services agreement to pay monthly
recurring expenses of $20,000 to an affiliate of the Sponsor for office space,
utilities and secretarial support. The administrative services agreement
terminates upon the earlier of the completion of a Business Combination or the
liquidation of the Company.
The underwriters are entitled to underwriting discounts and commissions of 5.5%
($28,875,000), of which 2.0% ($10,500,000) was paid at the IPO Closing Date, and
3.5% ($18,375,000) was deferred. The Deferred Discount will become payable to
the underwriters from the amounts held in the Trust Account solely in the event
that the Company
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completes a Business Combination, subject to the terms of the underwriting
agreement. The underwriters are not entitled to any interest accrued on the
Deferred Discount.
Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America ("U.S.
GAAP") and pursuant to the accounting and disclosure rules and regulations of
the Securities and Exchange Commission ("SEC"), and reflect all adjustments,
consisting only of normal recurring adjustments, which are, in the opinion of
management, necessary for a fair presentation of the financial position as of
December 31, 2022 and the results of operations and cash flows for the periods
presented. Operating results for the period ended December 31, 2022 are not
necessarily indicative of results that may be expected for the full year or any
other period.
Offering Costs
The Company complies with the requirements of FASB ASC Topic 340-10-S99-1,
"Other Assets and Deferred Costs - SEC Materials" ("ASC 340-10-S99") and SEC
Staff Accounting Bulletin (SAB) Topic 5A - "Expenses of Offering". Offering
costs were $29,391,653 (including $28,875,000 in underwriters' fees) consisting
principally of professional and registration fees incurred through the balance
sheet date that are related to the Public Offering and are charged to temporary
equity upon the completion of the Public Offering. Since the Company is required
to classify the warrants as derivative liabilities, offering costs totaling
$617,225 are reflected as an expense in the statements of operations.
Income Taxes
The Company follows the asset and liability method of accounting for income
taxes under FASB ASC 740, "Income Taxes." Deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable to
differences between the financial statements carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.
For those liabilities or benefits to be recognized, a tax position must be
more-likely-than-not to be sustained upon examination by taxing authorities. The
Company recognizes accrued interest and penalties related to unrecognized tax
liabilities as income tax expense. No amounts were accrued for the payment of
interest and penalties at December 31, 2022 and December 31, 2021.
The Company may be subject to potential examination by U.S. federal, states or
foreign jurisdiction authorities in the areas of income taxes. These potential
examinations may include questioning the timing and amount of deductions, the
nexus of income amounts in various tax jurisdictions and compliance with U.S.
federal, states or foreign tax laws.
The Company is incorporated in the State of Delaware and is required to pay
franchise taxes to the State of Delaware on an annual basis.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an original
maturity of three months or less to be cash equivalents. There were no cash
equivalents as of December 31, 2022 and December 31, 2021.
Investments Held in Trust Account
The Company's amended and restated certificate of incorporation provides that,
other than the withdrawal of interest to pay taxes, if any, none of the funds
held in trust will be released until the earlier of: (i) the completion of the
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Business Combination; (ii) the redemption of any public shares of common stock
properly tendered in connection with a stockholder vote to amend the Company's
amended and restated certificate of incorporation to modify the substance or
timing of the Company's obligation to redeem 100% of such public shares of
common stock if the Company does not complete the Business Combination by
January 14, 2024; or (iii) the redemption of 100% of the public shares of common
stock if the Company is unable to complete a Business Combination by January 14,
2024, subject to the requirements of law and stock exchange rules. As of
December 31, 2021, the Trust Account was not yet created, therefore the Company
had no assets in the Trust Account. As of December 31, 2022, the Company had
$531,940,494 in the Trust Account which may be utilized for a Business
Combination. At December 31, 2022, the Trust Account consisted of money market
funds, which are presented at fair value.
Derivative Liabilities
The Company evaluated the Warrants (as defined below in Note 3 - Public
Offering) and Private Placement Warrants (as defined below in Note 4 - Related
Party Transactions) (collectively, "Warrant Securities") in accordance with ASC
815-40, Derivatives and Hedging - Contracts in Entity's Own Equity, and
concluded that the Warrant Securities could not be accounted for as components
of equity. As the Warrant Securities meet the definition of a derivative in
accordance with ASC 815, the Warrant Securities are recorded as derivative
liabilities on the Balance Sheet and measured at fair value at inception (the
Close Date) and remeasured at each reporting date in accordance with ASC 820,
"Fair Value Measurement", with changes in fair value recognized in the Statement
of Operations in the period of change.
Recent accounting pronouncements
In August 2020, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 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) ("ASU 2020-06") to simplify accounting for certain
financial instruments. ASU 2020-06 eliminates the current models that require
separation of beneficial conversion and cash conversion features from
convertible instruments and simplifies the derivative scope exception guidance
pertaining to equity classification of contracts in an entity's own equity. The
new standard also introduces additional disclosures for convertible debt and
freestanding instruments that are indexed to and settled in an entity's own
equity. ASU 2020-06 amends the diluted earnings per share guidance, including
the requirement to use the if-converted method for all convertible instruments.
ASU 2020-06 is effective January 1, 2024 for a smaller reporting company and
should be applied on a full or modified retrospective basis, with early adoption
permitted beginning on January 1, 2021. The Company continues to evaluate the
impact of ASU 2020-06 on its financial statements.
Management does not believe that any other recently issued, but not yet
effective, accounting pronouncements, if currently adopted, would have a
material effect on the Company's financial statements.
Liquidity and Going Concern Consideration
In connection with our assessment of going concern considerations in accordance
with FASB ASC Topic 205-40, "Presentation of Financial Statements - Going
Concern," we have until January 14, 2024 to consummate a Business Combination.
It is uncertain that we will be able to consummate a Business Combination by
this time. If the Company does not complete its Business Combination by January
14, 2024, the Company will (i) cease all operations except for the purpose of
winding up, (ii) as promptly as reasonably possible but not more than ten
business days thereafter, redeem 100% of the common stock sold as part of the
units in the Public Offering, at a per-share price, payable in cash, equal to
the aggregate amount then on deposit in the Trust Account, including interest
(which interest shall be net of franchise and income taxes payable and less up
to $100,000 of such net interest which may be distributed to the Company to pay
dissolution expenses), divided by the number of then outstanding public shares,
which redemption will completely extinguish public stockholders' rights as
stockholders (including the right to receive further liquidation distributions,
if any), subject to applicable law, and (iii) as promptly as reasonably possible
following such redemption, subject to the approval of the Company's remaining
stockholders and the Company's Board of Directors, dissolve and liquidate,
subject in each case to the Company's obligations under Delaware law to provide
for claims of creditors and the requirements of other applicable law.
In the event of such distribution, it is possible that the per share value of
the residual assets remaining available for distribution (including Trust
Account assets) will be less than the initial public offering price per unit in
the Public Offering. In addition, if the Company fails to complete its Business
Combination by January 14, 2024, there will be no redemption rights or
liquidating distributions with respect to the warrants, which will expire
worthless. In the event of
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such distribution, it is possible that the per share value of the residual
assets remaining available for distribution (including Trust Account assets)
will be less than the initial public offering price per unit in the Public
Offering. In addition, if the Company fails to complete its Business Combination
by January 14, 2024, there will be no redemption rights or liquidating
distributions with respect to the warrants, which will expire worthless.
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 January 14, 2024. The
amount of time remaining to finalize a Business Combination does raise
substantial doubt in the Company as a going concern.
In addition, at December 31, 2022 and December 31, 2021, the Company had current
liabilities of $949,113 and $465,816, respectively, and working capital
(deficit) of $373,420 and ($318,656), respectively. Other amounts are related to
accrued expenses owed to professionals, consultants, advisors and others who are
working on seeking a Business Combination as described in Note 1. Such work is
continuing after December 31, 2022 and amounts are continuing to accrue. In
order to finance ongoing operating costs, the Sponsor or an affiliate of the
Sponsor may provide the Company with additional working capital via a Sponsor
Loan (see Note 4).
Critical Accounting Policies and Critical Accounting Estimates
The preparation of consolidated financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States
requires our 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 consolidated financial statements, and income and
expenses during the periods reported. Actual results could materially differ
from those estimates. We have identified the following as our critical
accounting policies:
Net loss per common share
The Company has two classes of shares, which are referred to as Class A Common
Stock and the Founders Shares. Net income/(loss) per common share is computed
utilizing the two-class method. The two-class method is an earnings allocation
formula that determines earnings per share separately for each class of common
stock based on an allocation of undistributed earnings per the rights of each
class. At December 31, 2022, the Company did not have any dilutive securities or
other contracts that could, potentially, be exercised or converted into common
stock and then share in the earnings of the Company under the treasury stock
method. As a result, diluted net income/(loss) per common share is the same as
basic net income/(loss) per common share for the period.
Fair Value Measurement
ASC 820 establishes a fair value hierarchy that prioritizes and ranks the level
of observability of inputs used to measure investments at fair value. The
observability of inputs is impacted by a number of factors, including the type
of investment, characteristics specific to the investment, market conditions and
other factors. The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level I
measurements) and the lowest priority to unobservable inputs (Level III
measurements).
Investments with readily available quoted prices or for which fair value can be
measured from quoted prices in active markets will typically have a higher
degree of input observability and a lesser degree of judgment applied in
determining fair value.
The three levels of the fair value hierarchy under ASC 820 are as follows:
Level I-Quoted prices (unadjusted) in active markets for identical investments
at the measurement date are used.
Level II-Pricing inputs are other than quoted prices included within Level I
that are observable for the investment, either directly or indirectly. Level II
pricing inputs include quoted prices for similar investments in active markets,
quoted prices for identical or similar investments in markets that are not
active, inputs other than quoted prices that are observable for the investment,
and inputs that are derived principally from or corroborated by observable
market data by correlation or other means.
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Level III-Pricing inputs are unobservable and include situations where there is
little, if any, market activity for the investment. The inputs used in
determination of fair value require significant judgment and estimation.
In some cases, the inputs used to measure fair value might fall within different
levels of the fair value hierarchy. In such cases, the level in the fair value
hierarchy within which the investment is categorized in its entirety is
determined based on the lowest level input that is significant to the
investment. Assessing the significance of a particular input to the valuation of
an investment in its entirety requires judgment and considers factors specific
to the investment. The categorization of an investment within the hierarchy is
based upon the pricing transparency of the investment and does not necessarily
correspond to the perceived risk of that investment.
Warrant Liability
We account for the warrants issued in connection with our initial public
offering 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 adjust 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 our statement of
operations. The Company utilized a Monte Carlo simulation methodology to value
the warrants for periods prior to public warrant trading and observable
transactions for subsequent periods, with changes in fair value recognized in
the statements of operations. The estimated fair value of the warrant liability
is determined using Level 1 and Level 2 inputs. The key assumptions in the
option pricing model utilized are assumptions related to expected share-price
volatility, expected term, risk-free interest rate and dividend yield. The
expected volatility as of the IPO Closing Date was derived from observable
public warrant pricing on comparable 'blank-check' companies that recently went
public in 2020 and 2021. The risk-free interest rate is based on the
interpolated U.S. Constant Maturity Treasury yield. The expected term of the
warrants is assumed to be six months until the closing of a Business
Combination, and the contractual five year term subsequently. The dividend rate
is based on the historical rate, which the Company anticipates to remain at
zero.
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