References to the "Company," "our," "us" or "we" refer to Compute Health
Acquisition Corp. The following discussion and analysis of the Company's
financial condition and results of operations should be read in conjunction with
the 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 that will be set forth in our
preliminary prospectus/proxy statement to be included in a Registration
Statement on Form S-4 that we will file with the SEC relating to our proposed
business combination with Allurion (the "Allurion Business Combination").
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 "Cautionary Note Regarding
Forward-Looking Statements and Risk Factor Summary," "Item 1A. Risk Factors" and
elsewhere in this Annual Report on Form 10-K.
Overview
We are a blank check company incorporated in Delaware on October 7, 2020 for the
purpose of effecting a merger, capital stock exchange, asset acquisition, stock
purchase, reorganization or similar business combination with one or more
businesses (the "Business Combination"). Our Sponsor is Compute Health Sponsor
LLC, a Delaware limited liability company. We intend to complete our initial
business combination using cash from the proceeds of the Initial Public Offering
and the sale of the private placement warrants, our capital stock, debt or a
combination of cash, stock and debt.
The registration statement for our Initial Public Offering became effective on
February 4, 2021. On February 9, 2021, we consummated its Initial Public
Offering of 86,250,000 Units, including 11,250,000 Over-Allotment Units to cover
over-allotments, at $10.00 per Unit, generating gross proceeds of $862.5
million, and incurring offering costs of approximately $48.4 million, of which
approximately $30.2 million was for deferred underwriting commissions, which has
been waived.
45
Simultaneously with the closing of the Initial Public Offering, we consummated
the Private Placement of 12,833,333 Private Placement Warrants, at a price of
$1.50 per Private Placement Warrant to the Sponsor, generating proceeds of
approximately $19.3 million.
Upon the closing of the Initial Public Offering and the Private Placement,
$862.5 million ($10.00 per Unit) of the net proceeds of the Initial Public
Offering and certain of the proceeds of the Private Placement was placed in a
Trust Account located in the United States with Continental Stock Transfer &
Trust Company acting as trustee, and invested only in United States "government
securities" within the meaning of Section 2(a)(16) of the Investment Company Act
of 1940, as amended (the "Investment Company Act"), having a maturity of 180
days or less or in money market funds meeting certain conditions under Rule 2a-7
promulgated under 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.
On December 2, 2022, our stockholders approved amendments to our Certificate of
Incorporation extending the time for us to complete a Business Combination from
24 months from the date of the Initial Public Offering to 30 months from the
date of the Initial Public Offering. In connection with the extension,
stockholders elected to redeem 77,026,806 shares of our common stock,
representing approximately 71.45% of the issued and outstanding shares of our
common stock and 89.31% of the issued and outstanding shares of our common stock
sold in the our Initial Public Offering. As a result, there are currently
9,223,194 shares of our Class A common stock outstanding. After the satisfaction
of such redemptions, the balance in our Trust Account was approximately $93.0
million, as described further in "Recent Developments - Trust Account
Redemptions and Extension of Combination Period."
If we are unable to complete a Business Combination within 30 months from the
closing of the Initial Public Offering, or August 9, 2023 (which was extended
from February 9, 2023 by vote of our stockholders) (the "Combination Period")
and our stockholders have not amended the amended and restated certificate of
incorporation to further extend such 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 our taxes (less up
to $100,000 of interest to pay dissolution expenses), divided by the number of
then outstanding Public Shares, which redemption will completely extinguish
Public Stockholders' rights as stockholders (including the right to receive
further liquidating 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, dissolve and liquidate, subject in in
each case to our obligations under Delaware law to provide for claims of
creditors and the requirements of other applicable law.
The issuance of additional shares of our stock in a business combination:
? may significantly dilute the equity interest of investors in the Initial Public
Offering, which dilution would increase if the anti-dilution provisions in the
Class B common stock resulted in the issuance of Class A shares on a greater
than one-to-one basis upon conversion of the Class B common stock;
? may subordinate the rights of holders of our common stock if preferred stock is
issued with rights senior to those afforded our common stock;
? could cause a change of control if a substantial number of shares of our common
stock is issued, which may affect, among other things, our ability to use our
net operating loss carry forwards, if any, and could result in the resignation
or removal of our present officers and directors;
? may have the effect of delaying or preventing a change of control of us by
diluting the stock ownership or voting rights of a person seeking to obtain
control of us;
? may adversely affect prevailing market prices for our units, Class A common
stock and/or warrants; and
? may not result in adjustment to the exercise price of our warrants.
46
Similarly, if we issue debt securities or otherwise incur significant debt to
bank or other lenders or owners of a target, it could result in:
? default and foreclosure on our assets if our operating revenues after an
initial business combination are insufficient to repay our debt obligations;
? acceleration of our obligations to repay the indebtedness even if we make all
principal and interest payments when due if we breach certain covenants that
require the maintenance of certain financial ratios or reserves without a
waiver or renegotiation of that covenant;
? our immediate payment of all principal and accrued interest, if any, if the
debt is payable on demand;
? our inability to obtain necessary additional financing if the debt contains
covenants restricting our ability to obtain such financing while the debt is
outstanding;
? our inability to pay dividends on our common stock;
? using a substantial portion of our cash flow to pay principal and interest on
our debt, which will reduce the funds available for dividends on our common
stock if declared, our ability to pay expenses, make capital expenditures and
acquisitions, and fund other general corporate purposes;
? limitations on our flexibility in planning for and reacting to changes in our
business and in the industry in which we operate;
? increased vulnerability to adverse changes in general economic, industry and
competitive conditions and adverse changes in government regulation;
? limitations on our ability to borrow additional amounts for expenses, capital
expenditures, acquisitions, debt service requirements, and execution of our
strategy; and
? other purposes and other disadvantages compared to our competitors who have
less debt.
Recent Developments
Trust Account Redemptions and Extension of Combination Period
On December 2, 2022, we held a special meeting of stockholders (the "Special
Meeting") to approve amendments to the our Certificate of Incorporation to (i)
extend the time for us to complete a Business Combination from February 9, 2023,
which is 24 months from the date of the Initial Public Offering, to August 9,
2023, which is 30 months from the date of the Initial Public Offering (the
"Extension Proposal"), and (ii) to remove the limitation that we may not redeem
public shares to the extent that such redemption would result in the Company
having net tangible assets (as determined in accordance with Rule 3a51-1(g)(1)
of Exchange Act) of less than $5,000,001. Prior to the Special Meeting, we
instructed Continental Stock Transfer & Trust Company, the trustee of the Trust
Account, to liquidate the U.S. government treasury obligations or money market
funds held in the Trust Account and thereafter to hold all funds in the Trust
Account in cash in an interest-bearing demand deposit account until the earlier
of consummation of our initial Business Combination or liquidation. In
connection with the proposals, as described in the proxy, our Sponsor agreed
that if the Extension Proposal was approved and the Charter Extension becomes
effective, it will make deposits of additional funds (the "Extension Deposits")
into the Trust Account for the aggregate benefit of Public Shares that are not
redeemed by the Public Stockholders in connection with the Extension Proposal
(collectively, the "Remaining Public Shares") in exchange for one or more
non-interest bearing, unsecured promissory notes issued by our Company to the
Sponsor. For each whole month, or portion thereof, that is needed by us to
complete an initial Business Combination from the date of the Extension Meeting
until the August 9, 2023, our Sponsor will make Extension Deposits of $0.05 into
the Trust Account for each Remaining Public Share, up to a total of $400,000 per
month, in exchange for one or more non-interest bearing, unsecured promissory
notes issued by us to the Sponsor. In addition, pursuant to the prospectus we
stated we will not use any trust proceeds to pay any excise taxes with the
redemption of our securities.
47
Both proposals were approved. In connection with the Extension Proposal,
stockholders elected to redeem 77,026,806 shares of our common stock,
representing approximately 71.45% of the issued and outstanding shares of our
common stock and 89.31% of the issued and outstanding shares of our common stock
sold in the Company's Initial Public Offering. Approximately $776.5 million was
withdrawn from the Company's Trust Account to pay for the redemption, leaving
approximately $94.3 million in the Trust Account as of December 31, 2022.
On December 5, 2022, we filed a Certificate of Amendment of Amended and Restated
Certificate of Incorporation (the "Certificate of Amendment") with the Secretary
of State of the State of Delaware to (A) to extend the date (the "Termination
Date") by which we must either (a) consummate a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or other similar business
combination, with one or more businesses, which we refer to as our initial
Business Combination, or (b) (i) cease all operations except for the purpose of
winding up if we fail to complete such initial Business Combination and (ii)
redeem all of the shares of Class A common stock of our Company sold in the
Initial Public Offering that was consummated on February 9, 2021, from February
9, 2023 to August 9, 2023 (the "Extension Amendment") and (B) to eliminate from
the Certificate of Incorporation the limitation that we may not redeem public
shares to the extent that such redemption would result in the Company having net
tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the
Securities Exchange Act of 1934) of less than $5,000,001 (the "Redemption
Limitation") in order to allow us to redeem public shares irrespective of
whether such redemption would exceed the Redemption Limitation (the "Redemption
Limitation Amendment").
A copy of the amended and restated certificate of incorporation of the Company
is filed herewith as Exhibit 3.1 and is incorporated herein by reference.
Allurion Business Combination
On February 9, 2023, we entered into a business combination agreement (the
"Business Combination Agreement") with Compute Health Corp., a Delaware
corporation and direct, wholly-owned subsidiary of us ("Merger Sub I"), Compute
Health LLC, a Delaware limited liability company and direct, wholly-owned
subsidiary of us ("Merger Sub II" and, together with Merger Sub I, the "Merger
Subs"), Allurion Technologies Holdings, Inc., a Delaware corporation and direct,
wholly-owned subsidiary of Allurion (as defined below) ("Pubco"), and Allurion
Technologies, Inc., a Delaware corporation ("Allurion" and, collectively with
the Company, the Merger Subs and Pubco, the "Parties").
Pursuant to the Business Combination Agreement, and upon the terms and subject
to the conditions set forth therein, the business combination will be effected
in three steps: (a) we will merge with and into Pubco (the "CPUH Merger," the
closing of the CPUH Merger, the "CPUH Merger Closing" and the time at which the
CPUH Merger becomes effective, the "CPUH Merger Effective Time"), with Pubco
surviving (Pubco, in its capacity as the surviving company in the CPUH Merger,
the "Surviving Corporation") and, after giving effect to such merger, becoming
the publicly-listed company and the sole owner of each Merger Sub, (b) at least
three (3) hours following the consummation of the CPUH Merger, Merger Sub I will
merge with and into Allurion (the "Intermediate Merger," the closing of the
Intermediate Merger, the "Intermediate Merger Closing" and the time at which the
Intermediate Merger becomes effective, the "Intermediate Merger Effective
Time"), with Allurion surviving as the surviving company in the Intermediate
Merger (Allurion, in its capacity as the surviving company in the Intermediate
Merger, the "Intermediate Surviving Corporation") and, after giving effect to
such merger, becoming a wholly-owned subsidiary of the Surviving Corporation and
(c) thereafter, the Intermediate Surviving Corporation will merge with and into
Merger Sub II (the "Final Merger," and the time at which the Final Merger
becomes effective, the "Final Merger Effective Time") (the Final Merger,
collectively with the CPUH Merger and the Intermediate Merger, the "Mergers"
and, together with the other transactions contemplated by the Business
Combination Agreement and the Ancillary Documents (as defined in the Business
Combination Agreement), the "Proposed Transactions"), with Merger Sub II
surviving as the surviving company in the Final Merger (Merger Sub II, in its
capacity as the surviving company of the Final Merger, the "Surviving Subsidiary
Company") and, after giving effect to such merger, remaining a wholly-owned
subsidiary of the Surviving Corporation.
48
In connection with the execution of the Business Combination Agreement, the
Company and Pubco entered into Subscription Agreements with certain accredited
investors or qualified institutional buyers (collectively, the "Subscription
Investors") concurrently with the execution of the Business Combination
Agreement on February 9, 2023. Pursuant to the Subscription Agreements, the
Subscription Investors agreed to subscribe for and purchase, and Pubco agreed to
issue and sell, to the Subscription Investors an aggregate of 5,386,695 shares
of Pubco common stock for a purchase price of $7.04 per share, or an aggregate
of approximately $37.9 million, in a private placement.
For more information about the Business Combination Agreement and the proposed
Allurion Business Combination, see our Current Report on Form 8-K filed with the
SEC on February 9, 2023 and the Allurion Disclosure Statement that we will file
with the SEC. Unless specifically stated, this Annual Report does not give
effect to the proposed Allurion Business Combination and does not contain the
risks associated with the proposed Allurion Business Combination. Such risks and
effects relating to the proposed Allurion Business Combination will be included
in the Allurion Disclosure Statement.
Results of Operations
Our entire activity since inception through December 31, 2022 related to our
formation, the preparation for an Initial Public Offering, and since our Initial
Public Offering, our activity has been limited to the search for a prospective
initial Business Combination. We will not generate any operating revenues until
the closing and completion of our initial Business Combination.
For the year ended December 31, 2022, we had net income of approximately $32.4
million, which consisted of approximately $26.5 million for change in fair value
of derivative liabilities, approximately $10.7 million from income from the
investments held in the Trust Account, approximately $1,000 interest earned from
bank account, approximately $866,000 gain from reversal of deferred underwriting
liability - Public Warrants, approximately $1.2 million for change in fair value
of promissory note, partially offset by approximately $4.5 million of general
and administrative expenses, $200,000 of franchise tax expense, and
approximately $2.2 million of income tax expense.
For the year ended December 31, 2021, we had an income of approximately $5.8
million, which consisted of approximately $9.2 million for change in fair value
of derivative liabilities, approximately $144,000 for change in fair value of
promissory note, approximately $50,000 from income from the investments held in
the Trust Account, partially offset by approximately $2.0 million of general and
administrative expenses, approximately $200,000 of franchise tax expense,
approximately $37,000 loss on the promissory note to related party and
approximately $1.4 million of financing costs - derivative warrant liabilities.
Liquidity and Going concern
As of December 31, 2022, we had approximately $0.8 million in our operating bank
accounts and working capital of approximately $0.6 million, excluding
approximately $0.9 million of Working Capital Loans (as defined below) at fair
value ($2.2 million of principal). During the year ended December 31, 2022,
approximately $2.7 million was withdrawn from the Trust Account to pay franchise
and income taxes.
Our 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 (as defined in Note 5), and borrowings under a Note from the
Sponsor of approximately $266,000. The Company repaid the Note in full upon
consummation of the Initial Public Offering. Subsequent to the consummation of
the Initial Public Offering, our 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. In addition, in order to finance
transaction costs in connection with a Business Combination, the Sponsor or an
affiliate of the Sponsor, or certain of our officers and directors may, but are
not obligated to, provide us Working Capital Loans (as defined below). As of
December 31, 2022 and 2021, a total principal amount of $2.25 million and $1.5
million was drawn under these Working Capital Loans, respectively, with $750,000
available for future borrowings. Our Sponsor has also agreed to fund the
Extension Deposits in exchange for one or more non-interest bearing unsecured
promissory notes issued by our Company to the Sponsor.
49
However, in connection with the Company's assessment of going concern
considerations in accordance with the authoritative guidance in Financial
Accounting Standard Board ("FASB") Accounting Standards Codification ("ASC") ASC
Topic 205-40, "Presentation of Financial Statements - Going Concern," management
has determined that the mandatory liquidation and subsequent dissolution, should
the Company be unable to complete a business combination, raises substantial
doubt about the Company's ability to continue as a going concern. The Company
has until August 9, 2023, or such later date as may be approved by our
stockholders, to consummate a Business Combination. It is uncertain that we will
be able to consummate a Business Combination by this time. If a Business
Combination is not consummated by this date, or an extension is not approved,
there will be a mandatory liquidation and subsequent dissolution. No adjustments
have been made to the carrying amounts of assets or liabilities should the
Company be required to liquidate after August 9, 2023, or such later date as may
be approved by our stockholders.
Related Party Transactions
Founder Shares
On October 16, 2020, our Sponsor purchased 21,562,500 Founder Shares for an
aggregate price of $25,000. Our Sponsor agreed to forfeit up to 2,812,500
Founder Shares to the extent that the over-allotment option was not exercised in
full by the underwriters, so that the Founder Shares would represent 20.0% of
our Company's issued and outstanding shares after the Initial Public Offering.
The underwriter exercised its over-allotment option in full on February 9, 2021;
thus, these 2,812,500 Founder Shares are no longer subject to forfeiture.
The initial stockholders agreed, subject to limited exceptions, not to transfer,
assign or sell any of the Founder Shares until the earlier to occur of: (A) one
year after the completion of the initial Business Combination and (B) subsequent
to the initial Business Combination, (x) if the last reported sale price of the
Class A common stock equals or exceeds $12.00 per share for any 20 trading days
within any 30-trading day period commencing at least 150 days after the initial
Business Combination, or (y) the date on which we complete a liquidation,
merger, capital stock exchange, reorganization or other similar transaction that
results in all of the stockholders having the right to exchange their shares of
common stock for cash, securities or other property.
Related Party Loans
On October 16, 2020, our Sponsor agreed to loan us an aggregate of up to
$300,000 to cover expenses related to the Initial Public Offering pursuant to a
promissory note (the "Note"). This loan was non-interest bearing and payable
upon the closing of the Initial Public Offering. We borrowed approximately
$170,000 under the Note and repaid the Note in full upon consummation of the
Initial Public Offering.
In addition, in order to finance transaction costs in connection with a Business
Combination, our Sponsor or an affiliate of our Sponsor, or certain of our
officers and directors may, but are not obligated to, loan us funds as may be
required ("Working Capital Loans").
On April 6, 2021, we entered into a Loan Note Instrument (the "Loan Note" or
"Convertible Promissory Note - related party") with our Sponsor, pursuant to
which, our Sponsor, in its sole and absolute discretion, may loan to us up to
$1,500,000 for costs reasonably related to the consummation of an initial
Business Combination. The Loan Note does not bear any interest. The Loan Note is
payable on the earliest to occur of (i) the date on which we consummate our
initial Business Combination and (ii) the date that the winding up of our
Company is effective. The Loan Note is subject to customary events if default,
including failure by us to pay the principal amount due pursuant to the Loan
Note within five business days of the Maturity Date and certain bankruptcy
events of our Company.
At our Sponsor's option, at any time prior to payment in full of the principal
balance of the Loan Note, our Sponsor may elect to convert all or any portion of
the unpaid principal balance of the Loan Note into that number of warrants, each
whole warrant exercisable for one share of common stock of our Company (the
"Conversion Warrants"), equal to: (x) the portion of the principal amount of the
Loan Note being converted, divided by (y) $1.50, rounded up to the nearest whole
number of warrants. The Conversion Warrants shall be identical to the warrants
issued by us to the Sponsor in a private placement upon consummation of our
initial public offering. The Conversion Warrants are subject to customary
registration rights granted by us to the Sponsor pursuant to the Loan Note. As
of December 31, 2022 and 2021, $1.5 million and $1.4 million was drawn under the
Convertible Promissory Note - related party, respectively, presented at the fair
value of approximately $182,000 and $1.4 million on the accompanying balance
sheets, respectively.
50
On July 28, 2022, we entered into a second Loan Note Instrument (the "Second
Loan Note" or "Promissory note - related party) with our Sponsor ("Payee"),
pursuant to which, Payee, in its sole and absolute discretion, may loan to our
Company up to $1.5 million for costs reasonably related to our consummation of
an initial Business Combination. The Second Loan Note does not bear any
interest. The Second Loan Note is payable on the earliest to occur of (i) the
date on which we consummate the initial business combination and (ii) the date
that the winding up of our Company is effective. On July 28, 2022, we borrowed
$750,000 under the Second Loan Note. As of December 31, 2022, $750,000 was
outstanding under the Second Loan Note and $750,000 is available for future
borrowings.
Our Sponsor agreed that if the Extension Proposal was approved and the Charter
Extension becomes effective, it would make deposits of additional funds (the
"Extension Deposits") into the Trust Account for the aggregate benefit of the
Public Shares that are not redeemed by the Public Stockholders in connection
with the Extension Proposal (collectively, the "Remaining Public Shares") in
exchange for one or more non-interest bearing, unsecured promissory notes issued
by us to our Sponsor. For each whole month, or portion thereof, that is needed
by us to complete an initial business combination from the date of the Extension
Meeting until the August 9, 2023, our Sponsor will make Extension Deposits of
$0.05 into the Trust Account for each Remaining Public Share, up to a total of
$400,000 per month, in exchange for one or more non-interest bearing, unsecured
promissory notes issued by us to our Sponsor. As the Extension Proposal was
approved, we have made contributions to the Trust Account of $400,000, which was
funded by advances to us from our Sponsor. As of December 31, 2022, $400,000 was
outstanding and presented as due to related party on the accompanying balance
sheets. Subsequent to December 31, 2022, the advance has been formalized as a
promissory note from the Sponsor. See Note 12.
Administrative Services Agreement
Commencing on the date that our securities were first listed on the NYSE through
the earlier of consummation of the initial Business Combination and the
liquidation, we agreed to pay the Sponsor a total of $10,000 per month for
administrative and support services. The Sponsor has waived these fees through
December 31, 2022.
Our Sponsor, officers and directors, or any of their respective affiliates, will
be reimbursed for any out-of-pocket expenses incurred in connection with
activities on our behalf such as identifying potential target businesses and
performing due diligence on suitable business combinations. Our audit committee
review on a quarterly basis all payments that were made by us to our initial
stockholders, officers, directors or our or their affiliates and will determine
which expenses and the amount of expenses that will be reimbursed. There is no
cap or ceiling on the reimbursement of out-of-pocket expenses incurred by such
persons in connection with activities on our behalf.
Critical Accounting Policies
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 United States generally accepted accounting principles. 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:
Investments Held in Trust Account
Our portfolio of investments is comprised of U.S. government securities, within
the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a
maturity of 185 days or less, or investments in money market funds that invest
in U.S. government securities and generally have a readily determinable fair
value, or a combination thereof. When our investments held in the Trust Account
are comprised of U.S. government securities, the investments are classified as
trading securities. When our investments held in the Trust Account are comprised
of money market funds, the investments are recognized at fair value. Trading
securities and investments in money market funds are presented on the balance
sheets at fair value at the end of each reporting period. Gains and losses
resulting from the change in fair value of these securities is included in
income from investments held in Trust Account in the accompanying statements of
operations. The estimated fair values of investments held in the Trust Account
are determined using available market information.
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Derivative Warrant Liabilities
We evaluate 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 FASB ASC Topic
815, "Derivatives and Hedging" ("ASC 815"). 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 warrants issued in connection with the Initial Public Offering (the "Public
Warrants") and the Private Placement Warrants are recognized as derivative
liabilities in accordance with ASC 815. Accordingly, we recognize the warrant
instruments as liabilities at fair value and adjusts the instruments to fair
value at each reporting period. The liabilities are subject to re-measurement at
each balance sheet date until exercised, and any change in fair value is
recognized in our statements of operations. The fair value of the Public
Warrants issued in connection with the Public Offering and Private Placement
Warrants were initially measured at fair value using a Monte Carlo simulation
model and subsequently, the fair value of the Private Placement Warrants have
been estimated using a Monte Carlo simulation model each measurement date. The
fair value of Public Warrants issued in connection with the Initial Public
Offering have subsequently been measured based on the listed market price of
such warrants. As the transfer of Private Placement Warrants to anyone who is
not a permitted transferee would result in the Private Placement Warrants having
substantially the same terms as the Public Warrants, we determined that the fair
value of each Private Placement Warrant is equivalent to that of each Public
Warrant. The fair value of the Warrants as of December 31, 2022 and 2021, is
based on observable listed prices for such warrants. The determination of the
fair value of the warrant liability may be 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.
Convertible Promissory Note - Related Party
We have elected the fair value option to account for our Convertible Promissory
Note - related party with our Sponsor as defined and more fully described in the
Notes to the financial statements. As a result of applying the fair value
option, the Company records each draw at fair value with a gain or loss
recognized at issuance, and subsequent changes in fair value are recorded as
change in the fair value of our Convertible Promissory Note - related party on
the statements of operations. The fair value is based on prices or valuation
techniques that require inputs that are both unobservable and significant to the
overall fair value measurement. These inputs reflect management's and, if
applicable, an independent third-party valuation firm's own assumption about the
assumptions a market participant would use in pricing the asset or liability.
Offering Costs Associated with the Initial Public Offering
Offering costs consisted of legal, accounting, underwriting fees and other costs
incurred through the Initial Public Offering that were directly related to the
Initial Public Offering. Offering costs are allocated to the separable financial
instruments issued in the Initial Public Offering based on a relative fair value
basis, compared to total proceeds received. Offering costs associated with
warrant liabilities were expensed as incurred, presented as non-operating
expenses in the statements of operations. Offering costs associated with the
Class A common stock were charged against their carrying value upon the
completion of the Initial Public Offering. Deferred underwriting commissions
were classified as non-current liabilities as their liquidation was not
reasonably expected to require the use of current assets or require the creation
of current liabilities.
On November 15, 2022, we received notification from Goldman Sachs & Co. LLC
("Goldman Sachs"), the underwriters in the Company's Initial Public Offering,
that Goldman Sachs waives any entitlement it may have to the deferred
underwriting commissions. As such, the deferred underwriting fee liability has
been reversed in the year ended December 31, 2022. The amount allocated to the
Public Warrants was recorded as a gain on the accompanying statements of
operations and the amount allocated to the Class A common stock was added back
as additional paid-in capital.
52
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. Class A common stock subject to
mandatory redemption (if any) is classified as liability instruments and are
measured at fair value. Conditionally redeemable Class A common stock (including
Class A 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) are classified as temporary equity. At all
other times, Class A 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 the occurrence of uncertain future events.
In connection with the Extension Proposal 77,026,806 shares of Class A common
stock were redeemed. Accordingly, as of December 31, 2022 and 2021, 9,223,194
and 86,250,000 shares of Class A common stock subject to possible redemption is
presented at redemption value as temporary equity, respectively, outside of the
stockholders' equity section of the balance sheets.
We recognize changes in redemption value immediately as they occur and adjusts
the carrying value of the Class A common stock subject to possible redemption 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. Effective with the closing of the Initial Public
Offering, we recognized the remeasurement from initial book value to redemption
amount, which resulted in charges against additional paid-in capital (to the
extent available) and accumulated deficit. Subsequent changes in redemption
value are recognized and presented as remeasurement of Class A common stock to
redemption value on the accompanying statement of changes in stockholders'
equity (deficit) included in the financial statements.
Net Income Per Share of Common Stock
We comply with accounting and disclosure requirements of FASB ASC Topic 260,
"Earnings Per Share." We have two classes of shares, which are referred to as
Class A common stock and Class B common stock. Income and losses are shared pro
rata between the two classes of shares. Net income (loss) per common share is
calculated by dividing the net income by the weighted average shares of common
stock outstanding for the respective period.
The calculation of diluted net income per common stock does not consider the
effect of the warrants issued in connection with the Initial Public Offering
(including exercise of the over-allotment option) and the Private Placement to
purchase an aggregate of 34,395,833 shares of common stock in the calculation of
diluted income per share, because their exercise is contingent upon future
events. Remeasurement associated with the redeemable Class A common stock is
excluded from earnings per share as the redemption value approximates fair
value.
Recent Accounting Pronouncements
In August 2020, the FASB 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, which
simplifies accounting for convertible instruments by removing major separation
models required under current GAAP. The ASU 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. As permitted by the standard, we have elected to
early adopt this standard in our first quarter of 2021 with no impact upon
adoption.
Our management does not believe that any other recently issued, but not yet
effective, accounting standards if currently adopted would have a material
effect on the accompanying financial statements.
Contractual Obligations
Registration Rights
The holders of Founder Shares, Private Placement Warrants and warrants that may
be issued upon conversion of Working Capital Loans, if any (and any shares of
Class A common stock issuable upon the exercise of the Private Placement
Warrants or warrants issued upon conversion of the Working Capital Loans), were
entitled to registration rights pursuant to a registration rights agreement
signed upon the consummation of the Initial Public Offering. These holders were
entitled to certain demand and "piggyback" registration rights. However, the
registration rights agreement provided that the Company would not be required to
effect or permit any registration or cause any registration statement to become
effective until termination of the applicable lock-up period. We will bear the
expenses incurred in connection with the filing of any such registration
statements.
53
Deferred Legal fees
We have an agreement to obtain legal advisory services pursuant to which our
legal counsel has agreed to defer their fees until the closing of the Business
Combination. The deferred fees will become payable to the legal counsel in the
event the Company completes a Business Combination. As of December 31, 2022, the
amount of these fees is approximately $4.0 million, included as deferred legal
fees on the accompanying balance sheets.
Contingent Fee Arrangement
On August 26, 2022 we entered arrangement with Credit Suisse Securities (USA)
LLC ("Credit Suisse") to obtain financial advisory and equity capital market
advisory services and to act as our placement agent in connection with raising
capital with a specific target in its search for a Business Combination. Credit
Suisse would be entitled to a transaction fee of $8.0 million. Per the
arrangement, the $8.0 million transaction fee for these services is contingent
upon the closing of a Business Combination and therefore not included as
liabilities on the accompanying balance sheets. Under the arrangement, we will
also reimburse Credit Suisse for reasonable expenses. As of December 31, 2022,
no expenses have been claimed.
On January 28, 2023, our Company and Credit Suisse agreed to amend the
transaction fee in Section 2 of the Arrangement from $8.0 million to $2.0
million. As of December 31, 2022, no expenses have been claimed.
Off-Balance Sheet Arrangements
As of December 31, 2022 and 2021, 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.
JOBS Act
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains
provisions that, among other things, relax certain reporting requirements for
qualifying public companies. We qualify as an "emerging growth company" and
under the JOBS Act are allowed to comply with new or revised accounting
pronouncements based on the effective date for private (not publicly traded)
companies. We are electing to delay the adoption of new or revised accounting
standards, and as a result, we may not comply with new or revised accounting
standards on the relevant dates on which adoption of such standards is required
for non-emerging growth companies. As a result, our financial statements may not
be comparable to companies that comply with new or revised accounting
pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the
other reduced reporting requirements provided by the JOBS Act. Subject to
certain conditions set forth in the JOBS Act, if, as an "emerging growth
company", we choose to rely on such exemptions we may not be required to, among
other things, (i) provide an auditor's attestation report on our system of
internal controls over financial reporting pursuant to Section 404 of the
Sarbanes-Oxley Act, (ii) provide all of the compensation disclosure that may be
required of non-emerging growth public companies under the Dodd-Frank Wall
Street Reform and Consumer Protection Act, (iii) comply with any requirement
that may be adopted by the PCAOB regarding mandatory audit firm rotation or a
supplement to the auditor's report providing additional information about the
audit and the financial statements (auditor discussion and analysis), and (iv)
disclose certain executive compensation related items such as the correlation
between executive compensation and performance and comparisons of the CEO's
compensation to median employee compensation. These exemptions will apply for a
period of five years following the completion of the Initial Public Offering or
until we are no longer an "emerging growth company," whichever is earlier.
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