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 December 11, 2020 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.
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Results of Operations
All activity for the period from December 11, 2020 (inception) through December
31, 2020 was de minimis and related only to our formation. All activity for the
period from January 1, 2021 (commencement of operations) through December 31,
2022 relates to our formation, the Initial Public Offering 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 expect to generate
non-operating income in the form of interest income on marketable securities
held after the Initial Public Offering. 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 $1,378,408, which
consisted of interest income earned on investments held in Trust Account of
$5,888,798, offset by operating costs of $3,319,946 and provision for income
taxes of $1,190,444.
For the period from January 1, 2021 (commencement of operations) through
December 31, 2021, we had a net loss of $803,856, which consisted of formation
and operating costs of $807,727, offset by interest income on investments held
in Trust Account of $3,871.
Liquidity and Capital Resources
On November 23, 2021, we consummated the Initial Public Offering of 40,250,000
Units (the "Units" and, with respect to the shares of Class A common stock
included in the Units sold, the "Public Shares"), which included the full
exercise by the underwriter of its over-allotment option in the amount of
5,250,000 Units, at a price of $10.00 per Unit, generating gross proceeds of
$402,500,000.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 1,778,750 units (each, a "Private Placement Unit") at a price of
$10.00 per Private Placement Unit in a private placement to our Sponsor,
generating gross proceeds of $17,787,500.
Transaction costs amounted to $24,712,590, consisting of $7,000,000 of
underwriting fees, $17,150,000 of deferred underwriting fees, $6,860,000 of
deferred advisory fees, and $3,362,590 of other offering costs, net of a
$9,660,000 reimbursement for the financial advisory fee.
Following the closing of the Initial Public Offering, the full exercise of the
over-allotment option, and the sale of the Private Placement Units, a total of
$408,537,500 ($10.15 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 $557,193 in cash and working capital of
$487,895, net of franchise taxes payable and income taxes payable. 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 $122,926 was paid in full on November 23, 2021 and
the promissory note was terminated, and is no longer available to be drawn upon.
As of December 31, 2022, we had cash, investments and marketable securities held
in the Trust Account of $413,569,723. 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 from the Trust Account to pay our taxes. During the year ended
December 31, 2022, we withdrew $860,446 of interest income from the Trust
Account for that purpose. 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.
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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.
In order to finance transaction costs in connection with a Business Combination,
our Sponsor or an affiliate of our Sponsor, or certain of our directors and
officers may, but are not obligated to, loan us funds as may be required. If we
complete a Business Combination, we may repay such loaned amounts out of the
proceeds of the Trust Account released to us. In the event that a 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 $2,000,000 of such loans
may be convertible into units, at a price of $10.00 per unit, at the option of
the lender at the time of the Business Combination. The units would be identical
to the Private Placement Units. 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 an affiliate of our
Sponsor 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. As of December 31, 2022 and 2021, no such loans were outstanding.
We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business through the earlier of the
consummation of a Business Combination or one year from the date of the
financial statements. 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.
Going Concern
We have until August 23, 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
$487,895, net of income taxes payable and franchise taxes payable, as of
December 31, 2022; however, we will incur additional expenses as it relates to
the consummation of a business combination. 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. We intend to consummate a Business
Combination by August 23, 2023. No adjustments have been made to the carrying
amounts of assets or liabilities should we be required to liquidate after August
23, 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
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay the Sponsor
or an affiliate of the Sponsor a monthly fee of $40,000 for office space,
administrative and shared personnel support services to the Company. We began
incurring these fees on November 19, 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 $480,000
in fees for these services. For the period from January 1, 2021 (commencement of
operations) through December 31, 2021, we incurred $61,935 in fees for these
services.
Pursuant to a registration rights agreement entered into on November 18, 2021,
the holders of the Founder Shares, Private Placement Units (including securities
contained therein) and warrants that may be issued upon conversion of loans made
by the Sponsor or one of its affiliates have registration rights to require us
to register a sale of any of our securities held by them (in the case of the
Founder Shares, only after conversion to the Class A common stock). These
holders are entitled to make up to three demands, excluding short form
registration demands, that the Company registers such securities for sale under
the Securities Act. In addition, these holders have "piggy-back" registration
rights to include such securities in other registration statements we file and
rights to require us to register for resale such securities pursuant to Rule 415
under the Securities Act.
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The underwriter agreed to defer until consummation of the Business Combination
$17,150,000 of its underwriting commissions, which equals 4.0% of the gross
proceeds from the Units sold to the public, excluding any Units purchased
pursuant to the underwriter's overallotment option, and 6.0% of the gross
proceeds from the Units sold to the public pursuant to the underwriter's
overallotment option. This amount was placed in the Trust Account and will be
released to the underwriter only on completion of an initial Business
Combination.
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 0.8% of the
aggregate proceeds of the Initial Public Offering (excluding the proceeds of the
exercise of the overallotment option) net of underwriter's expenses, upon the
closing of the Initial Public Offering. We also engaged CCM to act as an advisor
in connection with the Business Combination for which it will earn an advisory
fee of 1.6% of the proceeds of the Initial Public Offering (excluding the
proceeds of the exercise of the overallotment option) payable at closing of the
Business Combination. CCM is also entitled to an advisory fee equal to 2.4% of
the aggregate proceeds of the exercise of the overallotment option, payable at
the closing of the Business Combination. The underwriter has agreed to reimburse
us for the fee to CCM as it becomes payable out of the underwriting commissions,
including the deferred underwriting commissions payable at closing of the
Business Combination. Accordingly, a reimbursement receivable and deferred
advisory fee of $6,860,000 has been reflected in the accompanying balance
sheets.
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 and the reported amounts of expenses during
the reporting periods.
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 our
control) is classified in 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, at December 31, 2022 and
2021, 40,250,000 shares of Class A common stock are presented at redemption
value as temporary equity, outside of the stockholders' deficit section of our
balance sheets.
We recognize changes in redemption value immediately as they occur and adjust
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. 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 Stock
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. We have not considered the effect of the warrants sold in the
Initial Public Offering and the Private Placement to purchase an aggregate of
21,014,375 shares of our Class A common stock in the calculation of diluted net
income (loss) per share, since their exercise is contingent upon future events.
As a result, diluted net income (loss) per share is the same as basic net income
(loss) per share.
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. The Company is currently assessing the impact, if any,
that ASU 2020-06 would have on its financial position, results of operations or
cash flows.
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We do not believe that any other recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on the
Company's financial statements.
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