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.
12
Overview
We are an early-stage blank check company incorporated in February 2021 as a
Delaware corporation 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 businesses. We completed our IPO on
November 19, 2021. We intend to effectuate our initial business combination
using cash from the proceeds of the IPO and the sale of the private placement
warrants, our capital stock, debt or a combination of cash, stock and debt.
On February 15, 2023, the Company signed a letter of intent with the Target
Company for a potential business combination which, if completed, would qualify
as its initial business combination. The letter of intent is non-binding with
respect to all its material terms, except with respect to provisions regarding a
limited period of exclusivity. The Target Company is a US-based manufacturer in
the packaging industry with industry-leading profitability serving diversified
end markets and with an established and highly attractive, blue-chip customer
base that are subject to multi-year contracts.
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 an initial business combination. We
expect to continue to incur significant costs in the pursuit of our acquisition
plans. We cannot assure you that our plans to raise capital or to complete our
initial business combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities through December 31, 2022 were organizational activities,
those necessary to prepare for the IPO, described below, and, after our IPO,
identifying a target company for an initial business combination. We do not
expect to generate any operating revenues until after the completion of our
initial 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 $1,984,300, which
consisted of a change in fair value of Convertible Note of $425,296, interest
earned on marketable securities held in the trust account of $3,856,720 and
dividend income of $2,868, offset by operating costs of $1,543,593 and income
tax expense of $756,991.
For the period from February 19, 2021 (inception) through December 31, 2021, we
had net loss of $223,233, which consisted of operating costs of $255,131 and
provision for income taxes of $19,287, offset by interest earned on marketable
securities held in the trust account of $12,611.
Liquidity and Going Concern
As of December 31, 2022, the Company had $67,770 in its operating bank account,
$266,821,059 in securities held in the Trust Account to be used for a Business
Combination or to repurchase or redeem its common stock in connection therewith
and working capital of $339,349.
In connection with the Company's assessment of going concern considerations in
accordance with the authoritative guidance in FASB Accounting Standards Update
("ASU") Subtopic 205-40, "Presentation of Financial Statements-Going Concern,"
management has determined that should the Company be unable to complete a
Business Combination, the mandatory liquidation and subsequent dissolution
described in Note 1 of the financial statements that would follow, raises
substantial doubt about the Company's ability to continue as a going concern.
The Company had 15 months from the closing of the IPO (i.e., February 19, 2023),
subject to six one-month extensions (i.e., up to August 19, 2023) to consummate
a Business Combination. It is uncertain that the Company will be able to
consummate a Business Combination by the specified period. If a Business
Combination is not consummated August 19, 2023 (or such earlier date if the
Company does not exercise its option(s) to extend the deadline), there will be a
mandatory liquidation and subsequent dissolution. These financial statements do
not include any adjustments relating to the recovery of the recorded assets or
the classification of the liabilities that might be necessary should the Company
be unable to continue as a going concern. On February 15, 2023, the Company held
a Special Meeting to vote on a proposal to amend the Charter to increase the
monthly extension payment per one-month extension of the deadline to complete
the initial business combination to $0.04 per share of the Company's Class A
common stock sold in the Company's initial public offering (the "Charter
Amendment Proposal"). The Company convened and adjourned the Special Meeting
without conducting any business and the Company adjourned the Special Meeting
until February 17, 2023. On February 17, 2023, the Company reconvened the
Special Meeting at which its stockholders approved the Charter Amendment
Proposal. In connection with the vote to approve the Charter Amendment Proposal,
holders of 14,574,581 shares of Class A common stock properly exercised their
right to redeem their shares of Class A common stock at a redemption price of
approximately $10.35 per share, for an aggregate redemption amount of
approximately $150,738,777. As such, approximately 56% of the Class A common
stock outstanding with redemption rights was redeemed and approximately
17,572,169 shares of the Class A common stock remain outstanding. After giving
effect to the redemptions, $116,875,493 remains in the Trust Account.
On February 21, 2023, the Company issued the 2023 Note in the aggregate
principal amount of up to $2,712,100.56 (the "Extension Funds") to our Sponsor,
pursuant to which a portion of the Extension Funds may be deposited into the
Trust Account for each share of Class A common stock sold in the Company's
initial public offering that was not redeemed in connection with increase of the
redemption price set forth in the Charter Amendment Proposal. On February 21,
2023, the Company drew down $452,016.76 under the 2023 Note to fund the first
extension payment.
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Also, in connection with the Company's assessment of going concern
considerations in accordance with the ASU Subtopic 205-40 management has
determined that if the Company is unable to raise additional funds to alleviate
liquidity needs as well as complete a Business Combination by August 19, 2023
(or such earlier date if the Company does not exercise its option(s) to extend
the deadline) then the Company will cease all operations except for the purpose
of liquidating. The liquidity condition as well as the date for mandatory
liquidation and subsequent dissolution raise substantial doubt about the
Company's ability to continue as a going concern.
These financial statements do not include any adjustments relating to the
recovery of the recorded assets or the classification of the liabilities that
might be necessary should the Company be unable to continue as a going concern.
The Company's liquidity needs prior to the consummation of the IPO were
satisfied through the payment of $25,000 from the Sponsor to cover certain
offering costs on the Company's behalf in exchange for issuance of Founder
Shares (Note 4) and a promissory note, as amended, from the Sponsor (see Note
4). Subsequent to the IPO, the Company's liquidity needs have been satisfied
through a portion of the net proceeds from the Private Placement. Until the
consummation of a Business Combination, the Company will be using the funds not
held in the Trust Account for identifying and evaluating prospective acquisition
candidates, performing due diligence on prospective target businesses, paying
for travel expenditures, selecting the target business to acquire, and
structuring, negotiating and consummating the Business Combination. In order to
finance transaction costs in connection with a Business Combination, the Company
will need to raise additional capital through loans or additional investments
from its Sponsor, shareholders, officers, directors, or third parties. The
Company's officers, directors and Sponsor may, but are not obligated to, loan
the Company funds, from time to time or at any time, in whatever amount they
deem reasonable in their sole discretion, to meet the Company's working capital
needs.
On April 13, 2022, the Sponsor issued the 2022 Convertible Note, pursuant to
which the Company may borrow up to an aggregate principal amount of $1,500,000.
The 2022 Convertible Note is non-interest bearing and payable on the later of
(a) February 19, 2023 (or such later date as the Company may extend the deadline
to complete the business combination and (b) the effective date of the business
combination.
At the option of the Sponsor, at any time on or prior to the maturity date, any
amounts outstanding under the 2022 Convertible Note (or any portion thereof) up
to $1,500,000 in the aggregate, may be converted into warrants to purchase Class
A common stock of the Company at a conversion price equal to $1.00 per whole
warrant. As of December 31, 2022, there was an amount outstanding of $625,000
under the 2022 Convertible Note.
The 2022 Convertible note was accounted for using the fair value method. The
advances of $625,000 for the year ended December 31, 2022 were initially valued
at $501,147 whereas the difference of $123,853 was recorded as a credit to
stockholders' deficit. The change in the fair value of the note recorded in the
statements of operations for the year ended December 31, 2022 were $425,296,
resulting in a fair value of the 2022 Convertible Note of $75,851.
Off-Balance Sheet Arrangements
As of December 31, 2022, we had no obligations, assets or liabilities, which
would be considered off-balance sheet arrangements.
Contractual Obligations
As of December 31, 2022, we do not have any long-term debt, capital lease
obligations, operating lease obligations or long-term liabilities, other than an
agreement to pay affiliate of our Sponsor a monthly fee of $15,000 for office
space, utilities and secretarial and administrative and support. We began
incurring these fees on consummation of the IPO and will continue to incur these
fees monthly until the earlier of the completion of our initial business
combination and our liquidation.
The underwriter is entitled to a deferred fee of $0.35 per unit sold in the IPO,
or $9,056,250 in the aggregate. This deferred fee will be waived by the
underwriter in the event that the Company does not complete an initial business
combination, subject to the terms of the underwriting agreement with respect to
the Company's IPO.
Critical Accounting Policies and Estimates
The preparation of the financial statements in conformity with US 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 as our critical accounting policies:
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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 ASC 480. 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 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, our Class A Common Stock
subject to possible redemption is presented as temporary equity, outside of the
stockholders' equity section of our balance sheets. The Company recognizes
changes in redemption value immediately as they occur and adjusts the carrying
value of redeemable 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.
Convertible Promissory Note
The Company accounts for the 2022 Convertible Note under ASC 815, "Derivatives
and Hedging" ("ASC 815"). Under 815-15-25, the election can be at the inception
of a financial instrument to account for the instrument under the fair value
option under ASC 825, "Financial Instruments" ("ASC 825"). The Company has made
such election for its convertible promissory note. Using the fair value option,
the convertible promissory note is required to be recorded at its initial fair
value on the date of issuance and each balance sheet date thereafter.
Differences between the face value of the note and fair value at issuance are
recognized as either an expense in the statements of operations (if issued at a
premium) or as a capital contribution (if issued at a discount). Changes in the
estimated fair value of the notes are recognized as non-cash gains or losses in
the statements of operations.
Net Income (Loss) Per Ordinary Share
The Company follows the two-class method to calculate earnings per ordinary
share. Net loss per share is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the period,
excluding shares of common stock subject to forfeiture by the Sponsor. The
calculation of diluted income (loss) per share does not consider the effect of
the warrants issued in connection with the IPO and warrants issued in the
Private Placement since the exercise of these warrants are contingent upon the
occurrence of future events. The calculation also does not include the warrants
that could be issued as a result of the conversion option in the convertible
promissory note. For the year ended December 31, 2022 and 2021, the Company did
not have any dilutive securities and/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 income (loss) per share is the
same as basic income (loss) per share for the period presented.
Recent Accounting Standards
The Company has reviewed recent accounting pronouncements and concluded that
they are either not applicable to the Company or no material effect is expected
on the financial statements as a result of future adoption.
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