The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our audited financial statements
and related notes thereto and other financial information included elsewhere in
this Annual Report. This section of the Annual Report discusses activity as of
and for the years ended December 31, 2022 and 2021. For discussion on activity
for the period from December 28, 2020 (inception) through December 31, 2020 and
period-over-period analysis on results for the year ended December 31, 2021 to
the period from December 28, 2020 (inception) through December 31, 2020, refer
to Part II, "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" in our annual report on Form 10-K for the year ended
December 31, 2021. In addition to historical financial information, some of the
information contained in the following discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions.
You should
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review the "Risk Factors" section of this Annual Report for a discussion of
important factors that could cause our actual results to differ materially from
the results described in or implied by the forward-looking statements contained
in the following discussion and analysis.
Overview
We are a blank check company incorporated as a Delaware corporation on December
28, 2020 for the purpose of effecting a merger, share exchange, asset
acquisition, stock purchase, reorganization or similar business combination with
one or more businesses, which we refer to as a business combination. We
completed our initial public offering on March 4, 2021, which is described below
under "Liquidity and Capital Resources."
While we may pursue a business combination target in any industry, we currently
intend to concentrate our efforts in identifying high-quality businesses with
transformative technologies. Within this focus, we seek to pursue opportunities
with market-leading companies, including from corporate spinouts, closely-held
companies, and institutionally-backed businesses. We believe we will be able to
provide significant value due to our ability to drive growth, global scaling and
profitability in companies, along with our flexibility in understanding and
addressing complex business situations and structures.
Since completing our initial public offering, we have reviewed, and continue to
review, a number of opportunities to enter into a business combination with an
operating business, but we are not able to determine at this time whether we
will complete the Proposed Business Combination (as defined below) or another
business combination with any of the target businesses that we have reviewed or
with any other target business. We intend to effectuate a business combination
using cash from the remaining proceeds of our initial public offering and the
sale of the Private Placement Warrants (as defined below), our capital stock,
debt, or a combination of cash, stock and debt.
Recent Developments
Extension
As previously disclosed, we reconvened our special meeting of stockholders on
February 28, 2023, which was originally scheduled for February 9, 2023,
adjourned until February 21, 2023 and further adjourned until February 28, 2023
(the "Special Meeting"). At the Special Meeting, our stockholders approved a
proposal to amend our amended and restated certificate of incorporation to
extend the date by which we have to consummate a business combination from March
4, 2023 to September 30, 2023 or such earlier date as determined by our board of
directors (the "Extension"). Following the approval of the Extension, we waived
our right under the amended and restated certificate of incorporation to
withdraw up to $100,000 of interest from the trust account to pay dissolution
expenses in the event of our liquidation.
In connection with the Special Meeting, stockholders holding 38,187,226 shares
of Class A common stock exercised their right to redeem their shares for a pro
rata portion of the funds in the trust account. As a result, approximately
$387.6 million (approximately $10.15 per share of Class A common stock) was
removed from the trust account to pay such holders and approximately $45.1
million remained in the trust account. Following the redemptions, the Company
has 4,312,774 shares of Class A common stock outstanding.
In connection with the Special Meeting, the Company and the sponsor entered into
extension support agreements with several unaffiliated third parties, pursuant
to which each third party agreed to (i) notify the sponsor at least three
business days prior to the Special Meeting regarding the number of shares of the
Company's Class A common stock that such third party intended to redeem and the
number of shares of Class A common stock that such third party intended to
retain in connection with the Special Meeting and (ii) vote (and to cause its
controlled affiliates to vote) all shares of Class A common stock beneficially
owned them on the record date for the Special Meeting in favor of the Extension.
In exchange, the sponsor agreed to transfer, immediately following consummation
of a business combination, 20,000 shares of the Company's Class B common stock
to each third party for every 100,000 shares Class A common stock held by such
third party immediately following the Special Meeting, up to a maximum of
100,000 shares of Class B common stock to each third party.
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Proposed Business Combination
As previously disclosed, we have entered into a letter of intent (the "Letter of
Intent") regarding a potential business combination (the "Proposed Business
Combination") with Envoy Medical Corporation ("Envoy"), a U.S.-based medical
device company that has developed and is in early clinical testing of an
implanted device that already received "Breakthrough Device Designation" from
the Food and Drug Administration. We currently expect to execute the definitive
documents in April 2023 and close late in the second quarter or early in the
third quarter of 2023. The Letter of Intent contains certain conditions to the
closing of the Proposed Business Combination, including but not limited to the
Company having more than $40.0 million in the trust account immediately prior to
any redemptions at the closing of the Proposed Business Combination. There can
be no assurance we will execute definitive agreements or close on the timeline
currently expected or at all.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from inception through December 31, 2022 were organizational
activities, those necessary to prepare for the Initial Public Offering,
described below, and those in connection with our search for a business
combination. We do not expect to generate any operating revenues until after the
completion of our initial business combination. We expect to generate
non-operating income in the form of interest income on marketable securities
held after our 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 a net income of $19,233,710, which
consists of an increase in fair value of warrant liabilities of $19,997,306 and
interest income earned on marketable securities held in the trust account of
$6,125,038, and forgiveness of deferred offering costs of $150,262 and income
tax expense of $1,501,714, offset by operating costs of $4,888,124 and a
decrease in fair value of the FPAs of $649,058.
For the year ended December 31, 2021, we had a net loss of $251,633, which
consists of operating costs of $5,204,970, further contributed by offering costs
allocated to warrant liabilities of $782,812, offset by a change in fair value
of warrant liabilities of $5,465,695, change in fair value of the FPAs of
$232,789 and interest income earned on marketable securities held in the trust
account of $37,665.
Liquidity and Capital Resources
As of December 31, 2022, we had $107,773 in our operating bank account and
negative working capital of $7,089,334, which was composed primarily of accrued
expenses in connection with searching for target businesses, performing business
due diligence and negotiating business combination agreements, including in
connection with the Proposed Business Combination.
Our liquidity needs up to the completion of our initial public offering on
March 4, 2021 had been satisfied through a payment from our sponsor of $25,000
for 7,187,500 shares (the "Founder Shares") of our Class B common stock and an
aggregate of $212,487 in advances from a related party. These advances were
repaid and are no longer available.
On March 4, 2021, we consummated our initial public offering of 42,000,000 units
(the "Units") and, on April 14, 2021, we issued an additional 500,000 Units in
connection with the underwriters' partial exercise of their over-allotment
option. The Units were sold at a price of $10.00 per Unit, generating aggregate
gross proceeds of $425,000,000. Simultaneously with the closing of our IPO, we
consummated the sale of 12,400,000 warrants (the "Private Placement Warrants")
to our sponsor and, on April 14, 2021, simultaneously with the closing of the
underwriters' over-allotment option, we issued an additional 100,000 Private
Placement Warrants to our sponsor. The Private Placement Warrants were sold at a
price of $1.00 per Private Placement Warrant, generating aggregate gross
proceeds of $12,500,000.
Following the initial public offering, the partial exercise of the
over-allotment option and the sale of the Private Placement Warrants, a total of
$425,000,000 of the net proceeds from the sale of the Units and Private
Placement Warrants was deposited in a U.S.-based trust account established for
the benefit of the Company's public stockholders maintained by American Stock
Transfer & Trust Company, acting as trustee. Transaction costs of the initial
public offering (including costs related to the closing of the underwriters'
over-allotment option) amounted to $24,012,335, consisting of $8,500,000 of
underwriting discounts and commissions, $14,875,000 of deferred underwriting
discounts and commissions and $637,335 of other offering costs. In September
2022, we
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reversed $4,462,500 of deferred underwriting fees, as certain underwriters
resigned from their role in any potential future business combination and
thereby waived their entitlement to these fees. In February 2023, the remaining
underwriter resigned from its role in the Proposed Business Combination and
thereby waived its entitlement to $10,412,500 in deferred underwriting fees
solely with respect to the Proposed Business Combination. In addition, as of
March 24, 2023, $31,944 of cash was held outside the trust account and is
available for working capital purposes.
We intend to use substantially all of the funds held in the trust account,
including any amounts representing interest earned on the trust account, which
interest shall be net of taxes payable, to complete our business combination. We
may make permitted withdrawals from the trust account to pay our taxes,
including franchise taxes and income taxes. 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.
We intend to use 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,
structure, negotiate and complete a business combination, and to pay taxes to
the extent the interest earned on the trust account is not sufficient to pay our
taxes.
In order to fund working capital deficiencies or finance transaction costs in
connection with an intended 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 our business combination,
we may repay such loaned amounts out of the proceeds of the trust account
released to us. Otherwise, such loans may be repaid only out of funds held
outside the trust account. In the event that our 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 to repay such loaned amounts. 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. The warrants would be identical to the Private Placement Warrants
issued to our sponsor. As of December 31, 2022 and 2021, there were amounts of
$1,500,000 and $0 outstanding under such working capital loans, respectively.
On March 29, 2022, we issued an unsecured promissory note (as amended, the "2022
Promissory Note") to the sponsor, pursuant to which the sponsor may provide up
to $1,500,000 to us as a working capital loan (the "2022 Working Capital Loan").
The 2022 Working Capital Loan does not bear interest and was repayable in full
upon on the earlier of (i) March 29, 2023 or (ii) the consummation of our
initial business combination. On March 21, 2023, we and the sponsor amended the
2022 Promissory Note to extend the maturity date of the 2022 Working Capital
Loan to the earlier of (i) December 31, 2023 or (ii) the consummation of our
initial business combination. Upon the consummation of a business combination,
the sponsor shall have the option, but not the obligation, to convert the
principal balance of the 2022 Working Capital Loan, in whole or in part, into
warrants at a price of $1.00 per warrant. The 2022 Working Capital Loan is
subject to customary events of default, the occurrence of which automatically
trigger the unpaid principal balance of the 2022 Working Capital Loan and all
other sums payable with regard to the 2022 Working Capital Loan becoming
immediately due and payable.
On March 21, 2023, we issued an additional unsecured promissory note (the "2023
Promissory Note") to the sponsor, pursuant to which the sponsor may provide up
to $1,190,000 to us as a working capital loan (the "2023 Working Capital Loan").
The 2023 Working Capital Loan does not bear interest and is repayable in full
upon on the earlier of (i) December 31, 2023 or (ii) the consummation of our
initial business combination. The 2023 Working Capital Loan is subject to
customary events of default, the occurrence of which automatically trigger the
unpaid principal balance of the 2023 Working Capital Loan and all other sums
payable with regard to the 2023 Working Capital Loan becoming immediately due
and payable.
We may need to obtain additional financing to complete our business combination,
in which case we may issue additional securities or incur debt in connection
with such business combination, including pursuant to the Forward Purchase
Agreements described below.
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Forward Purchase Agreements
On December 6, 2021, we entered into the Forward Purchase Agreements with the
Forward Purchasers, pursuant to which the Forward Purchasers have agreed,
subject to certain conditions, to purchase the following:
up to an aggregate of $80,000,000 of unsecured convertible notes of the Company
("Convertible Notes") immediately prior to the closing of our initial business
combination (the "Business Combination Closing"). The terms of the Convertible
Notes, including the terms on which the Convertible Notes will convert into
? shares of our Class A common stock, will be negotiated by us and the Forward
Purchasers, each acting in their sole discretion, prior to the issuance of the
Convertible Notes. The aggregate total of up to $80,000,000 from the issuance
of the Convertible Notes would be received by us upon the Business Combination
Closing.
up to an aggregate of 4,000,000 forward purchase securities of the Company (the
"Forward Purchase Securities") for $10.00 per Forward Purchase Security, or an
aggregate total of up to $40,000,000, immediately prior to the Business
Combination Closing. Each Forward Purchase Security would consist of one share
? of our Class A common stock issued and sold by us and one-sixth of one warrant
transferred by the sponsor for no value, with each whole redeemable warrant
exercisable to purchase one share of our Class A common stock for $11.50 per
share. The aggregate total of up to $40,000,000 from the issuance of the
Forward Purchase Securities would be received by us upon the Business
Combination Closing.
The shares of our Class A common stock included in the Forward Purchase
Securities would have the same terms as our publicly traded shares of Class A
common stock. The warrants included in the Forward Purchase Securities would
have the same terms as the Private Placement Warrants.
In addition, under the Forward Purchase Agreements, if we determine to raise
capital by the private placement of equity securities in connection with the
Business Combination Closing (the "New Equity Securities"), we shall first make
an offer to the Forward Purchasers to purchase the securities then offered on
the same terms as such New Equity Securities, in an aggregate amount of up to
$120,000,000. Any commitment by any Forward Purchaser under any of the Forward
Purchase Agreements to purchase New Equity Securities is subject to and
conditioned upon the acceptance of our offer by such Forward Purchaser,
following our notification to such Forward Purchaser of our intention to offer
the New Equity Securities.
Pursuant to the Forward Purchase Agreements, the Forward Purchasers will be
entitled to registration rights with respect to shares of our Class A common
stock underlying the Convertible Notes, the shares of our Class A common stock
and warrants included in the Forward Purchase Securities, and the New Equity
Securities.
Each Forward Purchase Agreement contains representations and warranties by each
party and conditions to closing, including the approval of the Forward
Purchasers' respective Investment Committees to consummate the purchase of the
Convertible Notes and the Forward Purchase Securities, as applicable, in
connection with a potential future business combination. Such Investment
Committees are under no obligation to ultimately agree to purchase the
securities issuable under the Forward Purchase Agreements. The terms of each
Forward Purchase Agreement for the Convertible Notes and the terms of each
Forward Purchase Agreement for the Forward Purchase Securities are substantively
the same.
Contractual Obligations
As of December 31, 2022, we did not have any long-term debt, capital lease
obligations, operating lease obligations or long-term liabilities, other than an
agreement to pay an affiliate of our sponsor a monthly fee of $40,521 for office
space, administrative and support services, provided to the Company. We began
incurring these fees on March 1, 2021 and will continue to incur these
fees monthly until the earlier of the completion of a business combination and
the Company's liquidation.
The underwriters were entitled to a deferred discount of $0.35 per unit, or
$14,875,000 in the aggregate. The deferred discount would become payable to the
underwriters from the amounts held in the Trust Account solely in the event that
we complete a Business Combination, subject to the terms of the underwriting
agreement. On September 30, 2022, $4,462,500 of the $14,875,000 deferred
underwriter discount was forgiven. In February 2023, the remaining underwriter
resigned from its role in the Proposed Business Combination and thereby waived
its entitlement to $10,412,500 in deferred underwriting fees solely with respect
to the Proposed Business Combination.
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Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
("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 critical accounting policies:
i) Warrant Liabilities
We account for the warrants issued in connection with our Initial Public
Offering in accordance with the guidance contained in Accounting Standards
Codification ("ASC") 815 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 statements of operations. For periods subsequent to the
detachment of the Public Warrants from the Units, the close price of the Public
Warrant price was used as the fair value of the Public Warrants as of each
relevant date.
ii) 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 Topic 480. 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 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 common stock features certain
redemption rights that are considered to be outside of our control and subject
to occurrence of uncertain future events. Accordingly, Class A common stock
subject to possible redemption is presented as temporary equity, outside of the
stockholders' deficit section of our balance sheets. The Company has elected to
recognize changes in the redemption value immediately as they occur and adjust
the carrying value of the security to equal the redemption value at the end of
each reporting period. This method would view the end of the reporting period as
if it were also the redemption date for the security.
iii) Net Income (Loss) per Common Share
Net loss per common share is computed by dividing net loss by the weighted
average number of common stock outstanding during the year. We apply the
two-class method in calculating earnings per share. Accretion associated with
the redeemable shares of Class A common stock is excluded from earnings per
share as the redemption value approximates fair value.
iv) Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board issued Accounting
Standard Update ("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. The ASU 2020-06 also removes certain settlement conditions that
are required for equity-linked 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, and should be applied on a full or modified retrospective
basis, with early adoption permitted beginning on January 1, 2021. 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.
The Company's management does not believe that any other recently issued, but
not yet effective, accounting standards updates, if currently adopted, would
have a material effect on the Company's financial statements.
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