Forward-Looking Statements
This Quarterly Report on Form 10-Q, including, without limitation, statements
under the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operations," includes forward-looking statements. Our
forward-looking statements include, but are not limited to, statements regarding
our or our management team's expectations, hopes, beliefs, intentions or
strategies regarding the future. In addition, any statements that refer to
projections, forecasts or other characterizations of future events or
circumstances, including any underlying assumptions, are forward-looking
statements. The words "anticipate," "believe," "continue," "could," "estimate,"
"expect," "intends," "may," "might," "plan," "possible," "potential," "predict,"
"project," "should," "would" and similar expressions may identify
forward-looking statements, but the absence of these words does not mean that a
statement is not forward-looking. The forward-looking statements contained in
this report are based on our current expectations and beliefs concerning future
developments and their potential effects on us. There can be no assurance that
future developments affecting us will be those that we have anticipated. These
forward-looking statements involve a number of risks, uncertainties (some of
which are beyond our control) or other assumptions that may cause actual results
or performance to be materially different from those expressed or implied by
these forward-looking statements. These risks and uncertainties include, but are
not limited to, those factors described herein under the heading "Risk Factors"
and under the headings "Cautionary Note Regarding Forward-Looking Statements"
and "Risk Factors" in our Annual Report on Form 10-K for the year ended
December 31, 2021. Should one or more of these risks or uncertainties
materialize, or should any of our assumptions prove incorrect, actual results
may vary in material respects from those projected in these forward-looking
statements. Except as expressly required by applicable securities law, we
disclaim any intention or obligation to update or revise any forward-looking
statements whether as a result of new information, future events or otherwise.
Overview
We are a recently incorporated blank check company incorporated 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 have not identified any business
combination target and we have not, nor has anyone on our behalf, initiated any
substantive discussions, directly or indirectly, with any business combination
target. We intend to effectuate our Initial Business Combination using cash from
the proceeds of our IPO and the Private Placements, our capital stock, debt or a
combination of cash, stock and debt.
As of June 30, 2022, we had cash of approximately $112,000 and working capital
deficiency of approximately $490,000. 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 and Known Trends or Future Events
We did not commence operations until after the closing of our IPO in January
2021, and we have not engaged in any significant operations nor generated any
operating revenues to date. We will not generate any operating revenues until
after completion of our Initial Business Combination. We will generate
non-operating income in the form of interest income on cash and cash
equivalents. There has been no significant change in our financial or trading
position and no material adverse change has occurred since the date of our
audited financial statements. We have incurred and expect to continue to incur
increased 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 three months ended June 30, 2022, we had net income of $2,350,893 which
consisted of $326,682 in interest income and a non-cash $2,166,000 decrease in
fair value of warrant liabilities. These gains were partially offset by $91,789
in general and administrative expenses and $50,000 in franchise tax expenses.
General and administrative expenses of $91,789 were primarily comprised of legal
and accounting fees and other costs related to operating as a public company.
For the three months ended June 30, 2021, we had net loss of $3,743,546 which
consisted of a non-cash $3,610,000 increase in fair value of warrant liabilities
and $137,041 in general and administrative expenses, partially offset by $3,495
in interest income. General and administrative expenses of $137,041 were
primarily comprised of legal and accounting fees.
21
Table of Contents
For the six months ended June 30, 2022, we had net income of $5,867,935 which
consisted of $345,454 in interest income and a non-cash $5,956,500 decrease in
fair value of warrant liabilities. These gains were partially offset by $334,019
in general and administrative expenses and $100,000 in franchise tax expenses.
General and administrative expenses of $334,019 were primarily comprised of
legal and accounting fees and other costs related to operating as a public
company.
For the six months ended June 30, 2021, we had net income of $4,121,457 which
consisted of $6,010 in interest income and a non-cash $5,070,000 decrease in
fair value of warrant liabilities. These gains were partially offset by
transaction expenses of $672,964 related to offering costs related to issuance
of warrants and $281,589 in general and administrative expenses. General and
administrative expenses of $281,589 were primarily comprised of legal and
accounting fees.
Liquidity and Capital Resources
The funds in the Trust Account have been invested only in U.S. government
treasury bills with a maturity of 185 days or less or in money market funds that
meet certain conditions under Rule 2a-7 under the Investment Company Act and
that invest only in direct U.S. government obligations. 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 taxes payable and
deferred underwriting commissions) to complete our Initial Business Combination.
Delaware franchise tax is based on our authorized shares or on our assumed par
and non-par capital, whichever yields a lower result. Under the authorized
shares method, each share is taxed at a graduated rate based on the number of
authorized shares with a maximum aggregate tax of $200,000 per year. Under the
assumed par value capital method, Delaware taxes each $1,000,000 of assumed par
value capital at the rate of $400; where assumed par value would be (1) our
total gross assets, divided by (2) our total issued shares of common stock,
multiplied by (3) the number of our authorized shares. Our annual franchise tax
obligation is expected to be capped at the maximum amount of annual franchise
taxes payable by us as a Delaware corporation of $200,000. Our annual income tax
obligations will depend on the amount of interest and other income earned on the
amounts held in the Trust Account. We expect the only taxes payable by us out of
the funds in the Trust Account will be income and franchise taxes. We expect the
interest earned on the amount in the Trust Account will be sufficient to pay our
taxes. To the extent that our capital stock or debt is used, in whole or in
part, as consideration to complete our Initial 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.
As of August 9, 2022 we held $509,379 outside the Trust Account. We expect to
use these funds primarily to identify and evaluate target businesses, perform
business due diligence on prospective target businesses, travel to and from the
offices or similar locations of prospective target businesses or their
representatives or owners, review corporate documents and material agreements of
prospective target businesses, structure, negotiate and complete an Initial
Business Combination, and to pay taxes to the extent the interest earned on the
Trust Account is not sufficient to pay our taxes.
As of August 9, 2022, we had working capital deficiency of approximately
$511,000. In order to fund working capital deficiencies or finance transaction
costs in connection with an intended Initial Business Combination, our Sponsor,
any other affiliate of our Sponsor, or our officers or directors may, but none
of them is obligated to, loan us funds as may be required. If we complete our
initial business combination, we would repay such loaned amounts out of the
proceeds of the Trust Account released to us. In the event that our initial
business combination does not close, we may use a portion of the working capital
held outside the Trust Account to repay such loaned amounts but no proceeds from
our Trust Account would be used for such repayment. Up to $1,500,000 of such
loans may be convertible into warrants at a price of $1.00 per warrant at the
option of the lender. These warrants would be identical to the Private Placement
Warrants. The terms of such loans, if any, have not been determined and no
written agreements exist with respect to such loans. We do not expect to seek
loans from parties other than our Sponsor, or another affiliate of our Sponsor,
or our officers and directors, if any, as we do not believe third parties will
be willing to loan such funds and provide a waiver against any and all rights to
seek access to funds in our Trust Account.
On December 30, 2021, we issued an unsecured promissory note to our Sponsor,
which provides for borrowings from time to time of up to an aggregate of
$1,500,000, and we borrowed $500,000 under the Sponsor Working Capital Loan on
the same date. The proceeds of the Sponsor Working Capital Loan will be used for
working capital purposes. The Sponsor Working Capital Loan does not bear
interest and is repayable in full upon consummation of the Company's Initial
Business Combination. In the event that the Initial Business Combination is not
completed, we may use a portion of the proceeds held outside the Trust Account
to repay the Working Capital Loans but no proceeds held in the Trust Account
would be used to repay the Working Capital Loans. Up to $1.5 million of the
Working Capital Loans may be convertible into warrants, at a price of $1.00 per
warrant at the option of the lender. Such warrants would be identical to the
Private Placement Warrants. As of June 30, 2022, $500,000 was drawn on the
Working Capital Loans. On August 9, 2022, the Company borrowed additional
$500,000 under the Sponsor Working Capital Loan.
22
Table of Contents
We expect our primary liquidity requirements over the next 12 months will
include approximately $350,000 for legal, accounting, due diligence, travel and
other expenses in connection with any business combinations; $432,000 for legal
and accounting fees related to regulatory reporting requirements; and
approximately $60,000 for Nasdaq continued listing fees.
These amounts are estimates and may differ materially from our actual expenses.
In addition, we could use a portion of the funds held outside the Trust Account
to pay commitment fees for financing, fees to consultants to assist us with our
search for a target business or as a down payment or to fund a "no-shop"
provision (a provision designed to keep target businesses from "shopping" around
for transactions with other companies or investors on terms more favorable to
such target businesses) with respect to a particular proposed business
combination, although we do not have any current intention to do so. If we
entered into an agreement where we paid for the right to receive exclusivity
from a target business, the amount that would be used as a down payment or to
fund a "no-shop" provision would be determined based on the terms of the
specific business combination and the amount of our available funds at the time.
Our forfeiture of such funds (whether as a result of our breach or otherwise)
could result in our not having sufficient funds to continue searching for, or
conducting due diligence with respect to, prospective target businesses.
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 estimates of
the costs of identifying a target business, undertaking in-depth due diligence
and negotiating an Initial 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 Initial Business Combination. Moreover, we may need to
obtain additional financing either to complete our Initial Business Combination
or because we become obligated to redeem a significant number of our Public
Shares upon completion of our Initial Business Combination, in which case we may
issue additional securities or incur debt in connection with such Initial
Business Combination. In addition, we may target businesses with enterprise
values that are greater than we could acquire with the net proceeds of our IPO
and the Private Placements, and, as a result, if the cash portion of the
purchase price exceeds the amount available from the Trust Account, net of
amounts needed to satisfy redemptions by public stockholders, we may be required
to seek additional financing to complete such proposed Initial Business
Combination. We may also obtain financing prior to the closing of our Initial
Business Combination to fund our working capital needs and transaction costs in
connection with our search for and completion of our Initial Business
Combination. There is no limitation on our ability to raise funds through the
issuance of equity or equity-linked securities or through loans, advances or
other indebtedness in connection with our Initial Business Combination,
including pursuant to forward purchase agreements or backstop arrangements we
may enter into. Subject to compliance with applicable securities laws, we would
only complete such financing simultaneously with the completion of our Initial
Business Combination. If we are unable to complete our Initial 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 Initial Business Combination, if cash on hand is insufficient, we
may need to obtain additional financing in order to meet our obligations.
Going Concern
We have until January 22, 2023 to consummate an Initial Business Combination. It
is uncertain whether we will be able to consummate an Initial Business
Combination by this time. If an Initial Business Combination is not consummated
by this date, there will be a mandatory liquidation and subsequent dissolution.
Additionally, the Company may not have sufficient liquidity to fund the working
capital needs of the Company through one year from the issuance of these
condensed financial statements. Management has determined that the liquidity
condition and mandatory liquidation, should an Initial 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 22, 2023.
Off-Balance Sheet Arrangements
As of August 9, 2022, we did not have any off-balance sheet arrangements or any
commitments or contractual obligations.
Critical Accounting Policies and Estimates
Financial Instruments
We record the warrant liabilities and Sponsor Working Capital Loan at estimated
fair value. As of June 30, 2022 and December 31, 2021, the Public Warrants and
Private Placement Warrants were valued using the Public Warrant's publicly
listed trading price as of the balance sheet date. The fair value of the Sponsor
Working Capital Loan approximates the carrying value of the outstanding
principal due to the short-term nature and presumption that the Sponsor would
cash settle the working capital notes. See "Note 8. Fair Value Measurement" to
our condensed financial statements for additional information.
23
Table of Contents
Class A Common Stock Subject to Possible Redemption
We account for our common stock subject to possible redemption in accordance
with the guidance in ASC Topic 480, Distinguishing Liabilities from Equity.
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 feature 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 feature certain redemption rights that are considered
to be outside of our control and subject to occurrence of uncertain future
events. Accordingly, as of June 30, 2022 and December 31, 2021, 23,000,000
shares of Class A common stock subject to possible redemption were presented at
redemption value as temporary equity, outside of the stockholders' equity
section of our balance sheets.
Net Earnings Per Share
The Company has two classes of shares, which are referred to as Class A common
stock and Class B common stock. The contractual formula utilized to calculate
the redemption amount approximates fair value. The Class A feature to redeem at
fair value means that there is effectively only one class of stock. Changes in
fair value are not considered a dividend of the purposes of the numerator in the
earnings per share calculation. Net loss per common share is computed by
dividing the pro rata net loss between the Class A common shares and the Class B
common shares by the weighted average number of shares of common stock
outstanding for each of the periods. The Company has not considered the effect
of the Public Warrants and Private Placement Warrants sold in the IPO purchase
18,050,000 shares of Class A common stock in the calculation of diluted income
per share, since the exercise of such warrants is contingent upon the occurrence
of future events and the inclusion of such warrants would be anti-dilutive.
Warrant Liabilities
We account for our outstanding Public Warrants and Private Placement Warrants in
accordance with authoritative guidance in ASC 480 and ASC 815, Derivatives and
Hedging. We determined that the outstanding Public Warrants and Private
Placement Warrants do not meet the criteria for equity treatment thereunder. As
such, each Public Warrant and Private Placement Warrant must be recorded as a
liability and is subject to re-measurement at each balance sheet date and any
change in fair value is recorded in our condensed statements of operations.
Recent Accounting Pronouncements
Our management does not believe that any recently issued, but not yet effective,
accounting pronouncements, if currently adopted, would have a significant effect
on our condensed financial statements.
© Edgar Online, source Glimpses