You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our condensed financial statements
and related notes included in Part I, Item 1 of this Quarterly Report. This
discussion and other parts of this report contain forward-looking statements
that involve risks and uncertainties, such as statements of our plans,
objectives, expectations and intentions. Our actual results could differ
materially from those discussed in these forward-looking statements. See
"Cautionary Note Regarding Forward-Looking Statements." Factors that could cause
or contribute to such differences include, but are not limited to, those
discussed in Part I, Item 1A "Risk Factors" of our Annual Report on Form 10-K.
Overview
We are a blank check company incorporated in Delaware on February 22, 2021. We
were 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 are an emerging growth company and, as such, we are
subject to all of the risks associated with emerging growth companies.
As of September 30, 2022, we have not commenced any operations. All activity for
the period from February 22, 2021 (inception) through September 30, 2022 relates
to our formation and the IPO, described below, and, since the offering, the
search for a prospective initial business combination. We will not generate any
operating revenues until after the completion of its initial business
combination, at the earliest. We will generate non-operating income in the form
of interest income on cash and cash equivalents from the proceeds derived from
the Initial Public Offering, and non-operating income or expense due to changes
in the fair value of derivative warrant liabilities. We have selected
December 31 as its fiscal year end.
Our sponsor is Mercato Partners Acquisition Group, LLC, a Delaware limited
liability company. The registration statement filed in connection with our
Initial Public Offering was declared effective on November 3, 2021. On
November 8, 2021, we consummated our Initial Public Offering of 20,000,000 units
(the "Units" and, with respect to the Class A common stock included in the Units
being offered, the "public shares"), at $10.00 per Unit, generating gross
proceeds of $200.0 million, and incurring offering costs of approximately
$12.1 million, of which $4.0 million was for underwriting commissions,
$7.0 million was for deferred underwriting commissions and approximately
$1.1 million was for offering costs, of which approximately $0.3 million was
allocated to derivative warrant liabilities.
Simultaneously with the closing of the Initial Public Offering, we consummated
the private placement ("Private Placement") of 9,000,000 warrants, at a price of
$1.00 per private placement warrant to the sponsor, generating proceeds of
$9.0 million.
In connection with the Initial Public Offering, the underwriter was granted an
option (the "Over-allotment Option") to purchase up to an additional 3,000,000
Units ("Over-allotment Units") solely to cover over-allotments, if any, at an
offering price of $10.00 per Over-allotment Unit. On November 19, 2021, the
underwriter exercised the Over-allotment Option in full and, on November 23,
2021, purchased 3,000,000 Over-allotment Units, generating gross proceeds of
$30 million, and incurring additional offering costs of approximately
$1.7 million, of which $0.6 million was paid for underwriting commissions, and
approximately $1.1 million is payable to the underwriter for deferred
underwriting commissions.
On August 1, 2022 the underwriter irrevocably waived its rights to the deferred
underwriting commissions due under the underwriting agreement consummated in
connection with the Initial Public Offering.
Simultaneously with the sale of the Over-allotment Units, on November 23, 2021,
the Company consummated a second closing of the Private Placement of an
aggregate of 1,050,000 private placement warrants, at a price of $1.00 per
private placement warrant, with the sponsor. The second closing of the Private
Placement generated additional aggregate gross proceeds of $1,050,000. The
private placement warrants are identical to the warrants sold as part of the
Units in the Initial Public Offering except that, if held by the sponsor or its
permitted transferees, they (i) may be exercised for cash or on a cashless
basis, (ii) are not subject to being called for redemption under certain
redemption scenarios and (iii) subject to certain limited exceptions, will be
subject to transfer restrictions until 30 days following the consummation of the
Company's initial business combination.
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Upon the closing of the Initial Public Offering, over-allotment and the Private
Placement, $233.45 million ($10.15 per Unit) of net proceeds, including the net
proceeds of the Initial Public Offering and certain of the proceeds of the
Private Placement, was placed in a trust account ("trust account") with
Continental Stock Transfer & Trust Company acting as trustee and invested in
United States "government securities" within the meaning of Section 2(a)(16) of
the Investment Company Act having a maturity of 185 days or less or in money
market funds meeting certain conditions under Rule 2a-7 promulgated under the
Investment Company Act of 1940, as amended, or the Investment Company Act, which
invest only in direct U.S. government treasury obligations, as determined by us,
until the earlier of: (i) the completion of a business combination and (ii) the
distribution of the trust account as described below.
Our management has broad discretion with respect to the specific application of
the net proceeds of its Initial Public Offering and the sale of private
placement warrants, although substantially all of the net proceeds are intended
to be applied generally toward consummating a business combination. Our business
combination must be with one or more operating businesses or assets with a fair
market value equal to at least 80% of the net assets held in the trust account
(excluding the deferred underwriting commissions, which the underwriter
irrevocably waived on August 1, 2022, and taxes payable on the interest earned
on the trust account) at the time we sign a definitive agreement in connection
with the initial business combination. However, we will only complete a business
combination if the post-transaction company owns or acquires 50% or more of the
outstanding voting securities of the target or otherwise acquires a controlling
interest in the target sufficient for it not to be required to register as an
investment company under the Investment Company Act.
We will provide our holders of the public shares (the "public stockholders")
with the opportunity to redeem all or a portion of their public shares upon the
completion of a business combination either (i) in connection with a
stockholders' meeting called to approve the business combination or (ii) by
means of a tender offer. The decision as to whether we will seek stockholder
approval of a business combination or conduct a tender offer will be made by us,
solely in its discretion. The public stockholders will be entitled to redeem
their public shares for a pro rata portion of the amount then in the trust
account (initially at $10.15 per share, plus any pro rata interest earned on the
funds held in the trust account and not previously released to us to pay its tax
obligations). The per-share amount to be distributed to public stockholders who
redeem their public shares will not be reduced by the deferred underwriting
commissions, which to the underwriter irrevocably waived on August 1, 2022. All
of the public shares contain a redemption feature which allows for the
redemption of such public shares in connection with the liquidation, if there is
a stockholder vote or tender offer in connection with the initial business
combination and in connection with certain amendments to our amended and
restated certificate of incorporation. In accordance with U.S. Securities and
Exchange Commission (the "SEC") and its guidance on redeemable equity
instruments, which has been codified in ASC 480-10-S99, redemption provisions
not solely within the control of a company require common stock subject to
redemption to be classified outside of permanent equity. Given that the public
shares will be issued with other freestanding instruments (i.e., public
warrants), the initial carrying value of Class A common stock classified as
temporary equity will be the allocated proceeds determined in accordance with
ASC 470-20. The Class A common stock is subject to ASC 480-10-S99. If it is
probable that the equity instrument will become redeemable, we have the option
to either (i) accrete changes in the redemption value over the period from the
date of issuance (or from the date that it becomes probable that the instrument
will become redeemable, if later) to the earliest redemption date of the
instrument or (ii) recognize changes in the redemption value immediately as they
occur and adjust the carrying amount of the instrument to equal the redemption
value at the end of each reporting period. We have elected to recognize the
changes in redemption value immediately. The changes in redemption value are
recognized as a one-time charge against additional paid-in capital (to the
extent available) and accumulated deficit. While redemptions cannot cause our
net tangible assets to fall below $5,000,001, all of the public shares are
redeemable and will be classified as such on the balance sheet until such date
that a redemption event takes place.
If we seek stockholder approval in connection with a business combination, the
holders of the founder shares prior to this Initial Public Offering (the
"initial stockholders") agreed to vote their founder shares and any public
shares purchased during or after the Initial Public Offering in favor of a
business combination. In addition, the initial stockholders agreed to waive
their redemption rights with respect to their founder shares and public shares
in connection with the completion of a business combination. In addition, we
agreed not to enter into a definitive agreement regarding an initial business
combination without the prior consent of the sponsor.
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Notwithstanding the foregoing, our amended and restated certificate of
incorporation will provide that a public stockholder, together with any
affiliate of such stockholder or any other person with whom such stockholder is
acting in concert or as a "group" (as defined under Section 13 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), will be restricted from
redeeming its shares with respect to more than an aggregate of 15% or more of
the Class A common stock sold in the Initial Public Offering, without the prior
consent of us.
The sponsor, executive officers, directors and director nominees have agreed not
to propose an amendment to our amended and restated certificate of incorporation
that would affect the substance or timing of our obligation to provide for the
redemption of its public shares in connection with a business combination or to
redeem 100% of its public shares if we do not complete a business combination,
unless we provide the public stockholders with the opportunity to redeem their
Class A common stock in conjunction with any such amendment. Any such payments
would be made in the form of a loan.
We will have 15 months from the closing of the Initial Public Offering, or
February 8, 2023, to consummate an initial business combination. However, if we
anticipate that it may not be able to consummate the initial business
combination within 15 months, we will, by resolution of its board if requested
by the sponsor, extend the period of time to consummate a business combination
by an additional three months (for a total of 18 months to complete a business
combination), subject to the sponsor depositing additional funds into the trust
account as set out below. In connection with any such extension, public
stockholders will not be offered the opportunity to vote on or redeem their
shares. In order to extend the time available to us to consummate the initial
business combination for an additional three months, the sponsor or its
affiliates or designees must deposit into the trust account $0.10 per Public
Share, or $2.3 million in the aggregate on or prior to the date of the deadline.
If we are unable to complete a business combination within 15 months from the
closing of the Initial Public Offering or a potential three-month extension
period (the "Combination Period"), we 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 the public shares, at a per-share
price, payable in cash, equal to the aggregate amount then on deposit in the
trust account, including interest earned on the funds held in the trust account
and not previously released to us to pay its income taxes, if any (less up to
$100,000 of interest to pay dissolution expenses) divided by the number of the
then- outstanding public shares, which redemption will completely extinguish
public stockholders' rights as stockholders (including the right to receive
further liquidation distributions, if any); and (iii) as promptly as reasonably
possible following such redemption, subject to the approval of the remaining
stockholders and the board of directors, liquidate and dissolve, subject in the
case of clauses (ii) and (iii), to our obligations under Cayman Islands law to
provide for claims of creditors and the requirements of other applicable law.
In connection with the redemption of 100% of our outstanding public shares for a
portion of the funds held in the trust account, each holder will receive a full
pro rata portion of the amount then in the trust account, plus any pro rata
interest earned on the funds held in the trust account and not previously
released to the Company to pay the Company's taxes payable (less up to $100,000
of interest to pay dissolution expenses).
The initial stockholders agreed to waive their liquidation rights with respect
to the founder shares if we fail to complete a business combination within the
Combination Period. However, if the initial stockholders should acquire public
shares in or after the Initial Public Offering, they will be entitled to
liquidating distributions from the trust account with respect to such public
shares if we fail to complete a business combination within the Combination
Period. The underwriter irrevocably waived its rights to the deferred
underwriting commissions held in the trust account and such amounts will be
included with the funds held in the trust account that will be available to fund
the redemption of our public shares. 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 only $10.15 per share
initially held in the trust account. In order to protect the amounts held in the
trust account, the sponsor agreed that it will be liable to us if and to the
extent any claims by a third party for services rendered or products sold to
our, or a prospective target business with which we have entered into a written
letter of intent, confidentiality or other similar agreement or business
combination agreement, reduce the amount of funds in the trust account to below
the lesser of (i) $10.15 per Public Share and (ii) the actual amount per Public
Share held in the trust account as of the date of the liquidation of the trust
account, if less than $10.15 per share due to reductions in the value of the
trust assets, less taxes payable, provided that such liability will not apply to
any claims by a third party or prospective target business who executed a waiver
of any and all rights to the monies held in the trust account (whether or not
such waiver is enforceable) nor will it
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apply to any claims under our indemnity of the underwriter of the Initial Public
Offering against certain liabilities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). In the event that an executed
waiver is deemed to be unenforceable against a third party, the sponsor will not
be responsible to the extent of any liability for such third-party claims. We
will seek to reduce the possibility that the sponsor will have to indemnify the
trust account due to claims of creditors by endeavoring to have vendors, service
providers (except our independent registered public accounting firm),
prospective target businesses or other entities with which we do business,
execute agreements with our waiving any right, title, interest or claim of any
kind in or to monies held in the trust account.
Going Concern Consideration
As of September 30, 2022, we had approximately $46,000 in cash and working
deficit of approximately $392,000 (excluding franchise and income taxes
payable).
The Company's liquidity needs prior to the consummation of the Initial Public
Offering were satisfied through the payment of $25,000 from the sponsor to
purchase founder shares and a loan under the Note from the sponsor of
approximately $162,000. The Company fully repaid the Note on November 12, 2021.
Subsequent to the consummation of the Initial Public Offering, the Company's
liquidity has been satisfied through the net proceeds from the consummation of
the Initial Public Offering and the Private Placement held outside of the trust
account and proceeds from a convertible promissory instrument (the "Instrument")
issued to the Company by the Sponsor on July 26, 2022. Pursuant to the
Instrument, we may borrow from the Sponsor, from time to time, up to an
aggregate of $1,500,000. In August 2022, we borrowed $200,000 under the
Instrument.
In connection with our assessment of going concern considerations in accordance
with FASB Accounting Standards Update ("ASU") 2014-15, "Disclosures of
Uncertainties about an Entity's Ability to Continue as a Going Concern,"
management has determined that the mandatory liquidation and 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 February 8, 2023. The
financial statements do not include any adjustment that might be necessary if we
are unable to continue as a going concern. Management plans to complete a
business combination prior to the mandatory liquidation date.
Results of Operations
Our entire activity from February 22, 2021 (inception) through September 30,
2022 was in preparation for our formation and the Initial Public Offering, and
subsequent to the IPO, identifying a target company for a business combination.
We will not be generating any operating revenues until the closing and
completion of our initial business combination.
For the three months ended September 30, 2022, we had a net income of
approximately $3,978,000, which consisted of approximately $246,000 of gain from
extinguishment of deferred underwriting commissions on public warrants,
approximately $3,202,000 of non-operating gain from the change in the fair value
of derivative liabilities, and approximately $1,245,000 in income from
investments held in trust account, partially offset by approximately $369,000 of
general and administrative expenses, approximately $251,000 of income tax
expense, and approximately $50,000 in franchise tax expense.
For the three months ended September 30, 2021, we had a net loss of
approximately $6,000, which consisted of approximately $5,000 in general and
administrative expenses and approximately $1,000 in franchise tax expenses.
For the nine months ended September 30, 2022, we had a net income of
approximately $13,217,000, which consisted of approximately $246,000 of gain
from extinguishment of deferred underwriting commissions on public warrants,
approximately $12,900,000 of non-operating gain from the change in the fair
value of derivative liabilities, and approximately $1,550,000 in income from
investments held in trust account, partially offset by approximately $879,000 of
general and administrative expenses, approximately $287,000 of income tax
expense, and approximately $148,000 in franchise tax expense.
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For the period from February 22, 2021 (inception) through September 30, 2021, we
had a net loss of approximately $12,000, which consisted of approximately $9,000
in general and administrative expenses and approximately $3,000 in franchise tax
expense.
Other Contractual Obligations
Registration and Shareholder Rights
The holders of the founder shares, private placement warrants, Class A common
stock underlying the private placement warrants and warrants that may be issued
upon conversion of Working Capital Loans (and any Class A common stock issuable
upon the exercise of the private placement warrants and warrants that may be
issued upon conversion of Working Capital Loans) are entitled to registration
rights pursuant to the registration and shareholder rights agreement. The
holders of these securities are entitled to make up to three demands, excluding
short form demands, that the Company registers 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. The Company will bear the expenses incurred in connection
with the filing of any such registration statements.
Underwriting Agreement
The underwriter received an underwriting discount of $0.20 per Unit, or
$4.6 million in the aggregate, paid upon the closing of the Initial Public
Offering and over-allotment. An additional fee of $0.35 per Unit, or
$8.05 million in the aggregate will be payable to the underwriter for deferred
underwriting commissions. On August 1, 2022, the underwriter irrevocably waived
its rights to the deferred underwriting commissions due under the underwriting
agreement.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic on the
industry and has concluded that while it is reasonably possible that the virus
could have a negative effect on the Company's financial position, results of its
operations, and/or search for a target company, the specific impact is not
readily determinable as of the date of the financial statement. The financial
statement does not include any adjustments that might result from the outcome of
this uncertainty.
Critical Accounting Policies and Estimates
This management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
accordance with U.S. GAAP. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and the disclosure of contingent
assets and liabilities in our financial statements. On an ongoing basis, we
evaluate our estimates and judgments, including those related to fair value of
financial instruments and accrued expenses. We base our estimates on historical
experience, known trends and events and various other factors that we believe to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. We have identified the
following as our critical accounting policies:
Derivative Warrant Liabilities
The Company does not use derivative instruments to hedge exposures to cash flow,
market, or foreign currency risks. The Company evaluates all of its financial
instruments, including issued stock purchase warrants, to determine if such
instruments are derivatives or contain features that qualify as embedded
derivatives, pursuant to ASC 480 and ASC 815-15. The classification of
derivative instruments, including whether such instruments should be recorded as
liabilities or as equity, is re-assessed at the end of each reporting period.
The determination of the fair value of the warrant liabilities and other
financial instruments is subject to change as more current information becomes
available and accordingly the actual results could differ significantly.
Derivative warrant liabilities are classified as non-current liabilities as
their liquidation is not reasonably expected to require the use of current
assets or require the creation of current liabilities.
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Redeemable Class A Common Stock
All of the 20,000,000 shares of Class A common stock sold as parts of the Units
in the Initial Public Offering contain a redemption feature. In accordance with
the Accounting Standards Codification 480-10-S99-3A, "Classification and
Measurement of Redeemable Securities", redemption provisions not solely within
the control of the Company require the security to be classified outside of
permanent equity. Ordinary liquidation events, which involve the redemption and
liquidation of all of the entity's equity instruments, are excluded from the
provisions of ASC 480. We classified all of the shares of Class A common stock
as redeemable. Immediately upon the closing of the Initial Public Offering, we
recognized a one-time charge against additional paid-in capital (to the extent
available) and accumulated deficit for the difference between the initial
carrying value of the Class A common stock and the redemption value.
Effective with the closing of the Initial Public Offering, we recognized the
accretion from initial book value to redemption amount, which resulted in
charges against additional paid-in capital (to the extent available) and
accumulated deficit.
Net Income (Loss) Per Share of Common Stock
We comply with accounting and disclosure requirements of FASB ASC Topic 260,
"Earnings Per Share." Net income (loss) is computed by dividing net loss by the
weighted average number of shares of common stock outstanding during the
periods, excluding common stock subject to forfeiture. We considered the effect
of Class B common stock that were excluded from the weighted average number of
basic shares outstanding as they were contingent on the exercise of the
Over-allotment Option by the underwriter. As of September 30, 2022 and
December 31, 2021, we did not have any dilutive securities and other contracts
that could, potentially, be exercised or converted into shares of common stock
and then share in the earnings of ours. As a result, diluted income (loss) per
share is the same as basic loss per share for the periods presented.
Recent accounting pronouncements
Management does not believe that any recently issued, but not yet effective,
accounting pronouncements, if currently adopted, would have a material effect on
our financial statements.
Off-Balance Sheet Arrangements
As of September 30, 2022, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments
or contractual obligations.
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