References to the "Company," "Minority Equality Opportunities Acquisition Inc.,"
"our," "us" or "we" refer to Minority Equality Opportunities Acquisition Inc.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial statements and the
related notes included elsewhere in this Annual Report. Some of the information
contained in this discussion and analysis or set forth elsewhere in this Annual
Report, including information with respect to our plans and strategy for our
business, includes forward-looking statements that involve risks, uncertainties
and other factors that could cause actual results to differ materially from
those made, projected or implied in the forward-looking statements. Please see
the "Risk Factors" section for a discussion of the uncertainties, risks and
assumptions associated with these statements.
Cautionary Note Regarding Forward-Looking Statements
This Form 10-K includes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). We have based these forward-looking statements on our current
expectations and projections about future events. These forward-looking
statements are subject to known and unknown risks, uncertainties and assumptions
about us that may cause our actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may," "should," "could," "would," "expect,"
"plan," "anticipate," "believe," "estimate," "continue," or the negative of such
terms or other similar expressions. Such statements include, but are not limited
to, possible business combinations and the financing thereof, and related
matters, as well as all other statements other than statements of historical
fact included in this Form 10-K. The Company's securities filings can be
accessed on the EDGAR section of the U.S. Securities and Exchange Commission's
(the "SEC's") website at www.sec.gov. Except as expressly required by applicable
securities law, the Company disclaims any intention or obligation to update or
revise any forward-looking statements whether as a result of new information,
future events or otherwise.
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Overview
We are a blank check company incorporated on February 18, 2021 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 (the "Business Combination").
Our sponsor is Minority Equality Opportunities Acquisition Sponsor, LLC, a
Delaware limited liability company (the "Sponsor"). The registration statement
for our initial public offering was declared effective on August 25, 2021. On
August 30, 2021, we consummated our initial public offering (the "Initial Public
Offering") of 12,650,000 Units, which included the full exercise by the
underwriters of the over-allotment option to purchase an additional 1,650,000
Units, at $10.00 per Unit, generating gross proceeds of $126,500,000.
Transaction costs amounted to $8,998,713, consisting of $2,403,500 of
underwriting fees, $4,554,000 of deferred underwriting fees, $586,779 of other
offering costs, and $1,454,434 of the fair value of the representative's common
stock. Of the $8,998,713 aggregate transaction costs, $741,209 was allocated to
expense associated with the warrant liability.
We issued 158,125 shares of Class A common stock, with a fair value of
$1,454,434, to Maxim, the representative of the underwriters, which is deemed
compensation by FINRA and therefore subject to a lock-up for a period of 180
days immediately following the commencement of sales of the IPO. Additionally,
Maxim has agreed not to transfer, assign or sell any such shares until the
completion of our initial Business Combination. In addition, Maxim has agreed
(i) to waive its redemption rights with respect to such shares in connection
with the completion of our initial Business Combination and (ii) to waive its
rights to liquidating distributions from the trust account with respect to such
shares if we fail to complete our initial Business Combination on or prior to
May 30, 2023.
Simultaneously with the closing of the IPO, we consummated the sale of an
aggregate of 6,027,500 warrants (the "Private Placement Warrants") at a price of
$1.00 per warrant in a private placement to our Sponsor and to Maxim Partners
LLC, generating gross proceeds to us of $6,027,500. A total of 5,395,000 Private
Placement Warrants were issued to the Sponsor and a total of 632,500 Private
Placement Warrants were issued to Maxim Partners LLC.
Upon the closing of the Initial Public Offering and the Private Placement, an
amount of $128,397,500 ($10.15 per Unit) from the net proceeds of the sale of
the Units in the IPO and the sale of the Private Placement Warrants was placed
in a trust account (the "Trust Account") and will only be invested in U.S.
government treasury obligations with a maturity of 185 days or less or in money
market funds meeting certain conditions under Rule 2a-7 under the Investment
Company Act which invest only in direct U.S. government treasury obligations.
Except with respect to interest earned on the funds held in the Trust Account
that may be released to our company to pay our franchise and income tax
obligations (less up to $100,000 of interest to pay dissolution expenses), the
proceeds from the IPO and the sale of the Private Placement Warrants will not be
released from the Trust Account until the earliest of: (a) the completion of our
initial Business Combination; (b) the redemption of any public shares properly
submitted in connection with a stockholder vote to amend our certificate of
incorporation: (i) to modify the substance or timing of our obligation to redeem
100% of the public shares if we do not complete the initial Business Combination
on or prior to May 30, 2023; or (ii) with respect to any other material
provision relating to stockholders' rights or pre-Business Combination activity;
and (c) the redemption of the public shares if we are unable to complete the
initial Business Combination on or prior to May 30, 2023, subject to applicable
law. In connection with the Extension Meeting, the holders of 11,691,103 public
shares exercised their right to redeem such shares for a pro rata portion of the
funds in the Trust Account. As a result of such redemptions, approximately
$120.8 million (approximately $10.33 per share), representing approximately 92%
of the assets held in the Trust Account prior to such redemptions, was removed
from the Trust Account to pay such holders.
Our management has broad discretion with respect to the specific application of
the net proceeds of the Initial Public Offering and the sale of the Private
Placement Warrants, although substantially all of the net proceeds are intended
to be applied generally toward consummating a Business Combination.
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We will have until May 30, 2023 to complete the initial Business Combination.
Pursuant to our amended and restated certificate of incorporation and the trust
agreement entered into between us and Continental Stock Transfer & Trust
Company, each as amended in connection with the Extension Meeting, a deposit in
the amount of $83,333.33 must be made into the Trust Account for each month
extended during the six month period from November 30, 2022 to May 30, 2023. Our
sponsor and its affiliates or designees are not obligated to fund the trust
account to extend the time for us to complete our initial Business Combination.
If we are unable to complete the initial Business Combination on or prior to May
30, 2023, 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 the franchise and income 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), subject to applicable law; and (iii) as promptly as
reasonably possible following such redemption, subject to the approval of our
remaining stockholders and the board of directors, dissolve and liquidate,
subject in each case to our obligations under Delaware law to provide for claims
of creditors and the requirements of other applicable law. There will be no
redemption rights or liquidating distributions with respect to the warrants,
which will expire worthless if we fail to complete the initial Business
Combination on or prior to May 30, 2023.
Business Combination Agreement
On August 30, 2022, we entered into the Business Combination Agreement with
Digerati Technologies, Inc. ("Digerati") and MEOA Merger Sub, Inc. ("Merger
Sub"). The Business Combination Agreement and the transactions contemplated
thereby were approved by the board of directors of each of our company and
Digerati. The Business Combination Agreement provides for, among other things,
the merger of Merger Sub with and into Digerati, with Digerati as the surviving
company in the merger and, after giving effect to such merger, Digerati becoming
our wholly-owned subsidiary. In addition, we will be renamed Verve Technology
Corporation upon the consummation of the Business Combination.
In accordance with the terms and subject to the conditions of the Business
Combination Agreement, at the Effective Time, based on an implied equity value
of Digerati of $71,080,810: (i) each share of our Class A common stock and Class
B common stock issued and outstanding immediately prior to the Effective Time
will become one share of New Digerati Common Stock; (ii) each share of the
common stock of Digerati outstanding as of immediately prior to the Effective
Time (which, for the avoidance of doubt, will include shares of the common stock
of Digerati issued upon the exercise of the Post Road Warrant and upon the
conversion of Digerati's outstanding shares of Series B Preferred Stock and
Series C Preferred Stock, which exercise and conversions shall occur prior to
the Effective Time) will be automatically cancelled and extinguished and
converted into a right to receive shares of New Digerati Common Stock; (iii)
each share of capital stock of Merger Sub issued and outstanding as of
immediately prior to the Effective Time will be automatically cancelled and
extinguished and converted into one share of New Digerati Common Stock; (iv) all
vested and unvested options to purchase Digerati common stock will be assumed by
our company and thereafter be settled or exercisable for shares of New Digerati
Common Stock; (v) each warrant to purchase shares of Digerati common stock
(other than the Post Road Warrant, which shall be exercised prior to the
Effective Time) will be assumed by our company and thereafter be a warrant to
purchase shares of New Digerati Common Stock; (provided, however, that those
certain warrants to purchase up to 13,534,535 shares of Digerati Common Stock
that Digerati issued to four (4) bridge lenders in November and December 2022
(the "Bridge Loan Warrants") (although they will be assumed by our company) are
not part of the implied equity value of Digerati; and (vi) each share of
Digerati preferred stock that will remain outstanding after the Effective Time
will be assumed by our company and thereafter be convertible into shares of New
Digerati Common Stock.
On February 14, 2023, the parties to the Business Combination Agreement amended
the Business Combination Agreement (the "February Amendment") to increase the
implied equity value of Digerati from $68,680,807 to $71,080,810 to give effect
to the issuance by Digerati to Maxim, immediately prior to the Closing of the
Business Combination, of such number of shares of Digerati Common Stock as would
be exchanged for an aggregate of 240,000 shares of New Digerati Common Stock
upon the Closing of the Business Combination as partial compensation for
financial advisory services that Maxim provided to Digerati in connection with
the Business Combination. The February Amendment also clarified that the shares
of Digerati Common Stock underlying the Bridge Loan Warrants would not be part
of the implied equity value of Digerati of $71,080,810, and it clarified that
none of the shares underlying any of the convertible promissory notes of
Digerati that are outstanding upon the Closing of the Business Combination are
part of the implied equity value of Digerati of $71,080,810.
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On February 24, 2023, the parties to the Business Combination Agreement further
amended the Business Combination Agreement to, among other things, extend the
Termination Date (as defined in the Business Combination Agreement) from
February 25, 2023 to April 28, 2023.
The Business Combination is expected to close in the second calendar quarter of
2023, following the receipt of the required approval by our stockholders and the
fulfillment of other customary closing conditions.
Recent Developments
On August 30, 2022, an affiliate of our sponsor funded an extension loan in the
amount of $1,265,000 and caused such amount to be deposited into the Trust
Account in order provide additional time for our company to complete an initial
business combination. The loan is unsecured and non-interest bearing. If we
complete an initial business combination on or prior to May 30, 2023, we will,
at the option of our sponsor (or its affiliate), (i) repay the extension loan
out of the proceeds of our Trust Account that are released to our company, or
(ii) convert a portion or all of the loan into warrants to purchase shares of
our common stock at a price of $1.00 per warrant, which warrants will be
identical to the Private Placement Warrants issued to our sponsor at the time of
our IPO. If we do not complete our initial business combination on or prior to
May 30, 2023, we will only repay the extension loan from funds held outside of
our Trust Account.
On September 3, 2021, an affiliate of our sponsor funded a working capital loan
in the amount of up to $500,000. The loan is unsecured and non-interest bearing.
If we complete an initial business combination on or prior to May 30, 2023, we
will, at the option of our sponsor (or its affiliate), (i) repay the loan out of
the proceeds of our Trust Account that are released to our company, or (ii)
convert a portion or all of the loan into warrants to purchase shares of our
common stock at a price of $1.00 per warrant, which warrants will be identical
to the Private Placement Warrants issued to our sponsor at the time of our IPO.
If we do not complete our initial business combination on or prior to May 30,
2023, we will only repay the working capital loan from funds held outside of our
Trust Account.
At the Extension Meeting, our stockholders approved an amendment to our amended
and restated certificate of incorporation to extend the date by which we must
consummate an initial business combination from November 30, 2022 up to six (6)
one-month extensions to May 30, 2023. We filed a certificate of amendment to our
amended and restated certificate of incorporation on November 29, 2022 with the
Secretary of State of the State of Delaware to effect such extension. As per
such extension, an additional $83,333.33 must be deposited into the Trust
Account for each month extended. As of the date of this report, an aggregate of
$250,000 has been deposited into the Trust Account in connection with three
one-month extensions. The funds for such extensions were provided by Digerati
pursuant to an agreement dated November 9, 2022 between MEOA and Digerati
whereby, among other things, Digerati agreed to provide up to $500,000 to be
deposited into the Trust Account to extend the business combination period up to
six times (for a total extension of six months from November 30, 2022).
Liquidity, Capital Resources and Going Concern Considerations
As of December 31, 2022, we had $407,250 in cash and working capital deficit of
$2,517,615.
Our liquidity needs up to December 31, 2022 had been satisfied through a capital
contribution from our Sponsor of $25,000 for the founder shares and the loan
under an unsecured promissory note from our Sponsor of up to $300,000. After
consummation of the IPO on August 30, 2021, we had approximately $1.6 million in
our operating bank account, and working capital of approximately $0.8 million.
On September 3, 2021, the Sponsor agreed to provide us with loans in such
amounts as may be required to fund our working capital requirements up to an
aggregate of $500,000. 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,
provide us Working Capital Loans.
On February 28, 2022, March 21, 2022, and September 19, 2022, our Sponsor (or an
affiliate of our Sponsor) agreed to loan to us $174,000, $163,000, and $163,000,
respectively, as part of the Working Capital Loans. The promissory notes are
non-interest bearing and payable upon consummation of our initial Business
Combination. At the lender's discretion, the promissory notes may be repayable
in warrants of the post Business Combination entity at a price of $1.00 per
warrant. As of December 31, 2022, there was $500,000 of borrowings. We assessed
the provisions of the convertible promissory notes under ASC 815-15. The
derivative component of the obligations is initially valued and classified as
derivative liabilities with an offset to a discount on the promissory notes. To
calculate the value of the embedded derivative the Monte Carlo Model was
utilized to fair value the underlying warrants and the compound option. The fair
value of the conversion feature was zero at the dates of issuance and at
December 31, 2022.
61
Based on the foregoing, management believes that we will not have sufficient
working capital and borrowing capacity to meet our needs through the earlier of
the consummation of a Business Combination or May 30, 2023. Over this time
period, we will be using these funds for paying existing accounts payable,
identifying and evaluating prospective initial Business Combination candidates,
performing due diligence on prospective target businesses, paying for travel
expenditures, selecting the target business to merge with or acquire, and
structuring, negotiating and consummating the Business Combination.
We are within 12 months of our mandatory liquidation date as of the time of
filing of this Annual Report on Form 10-K. In connection with our assessment of
going concern considerations in accordance with Accounting Standards Update
("ASU") 2014-15, "Disclosures of Uncertainties about an Entity's Ability to
Continue as a Going Concern," we have until May 30, 2023 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, there will be a mandatory liquidation and subsequent dissolution
of our company. Management has determined that insufficient working capital and
the mandatory liquidation, should a Business Combination not occur, and
potential subsequent dissolution raises substantial doubt about our ability to
continue as a going concern.
The consolidated financial statements included in this report do not include any
adjustments relating to the recovery of the recorded assets or the
classification of the liabilities that might be necessary should we be unable to
continue as a going concern.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic and the
Russian military action in Ukraine and has concluded that while it is reasonably
possible that the virus and/or such military action could have a negative effect
on our financial position, results of its operations, and/or search for a target
company, the specific impact is not readily determinable as of the date of the
consolidated financial statements included in this report. The consolidated
financial statements included in this report do not include any adjustments that
might result from the outcome of this uncertainty.
Inflation Reduction Act of 2022
On August 16, 2022, the Inflation Reduction Act of 2022 (the "IR Act") was
signed into federal law. The IR Act provides for, among other things, a new U.S.
federal 1% excise tax on certain repurchases of stock by publicly traded U.S.
domestic corporations and certain U.S. domestic subsidiaries of publicly traded
foreign corporations occurring on or after January 1, 2023. The excise tax is
imposed on the repurchasing corporation itself, not its shareholders from which
shares are repurchased. The amount of the excise tax is generally 1% of the fair
market value of the shares repurchased at the time of the repurchase. However,
for purposes of calculating the excise tax, repurchasing corporations are
permitted to net the fair market value of certain new stock issuances against
the fair market value of stock repurchases during the same taxable year. In
addition, certain exceptions apply to the excise tax. The U.S. Department of the
Treasury (the "Treasury") has been given authority to provide regulations and
other guidance to carry out and prevent the abuse or avoidance of the excise
tax.
Any redemption or other repurchase that occurs after December 31, 2022, in
connection with a Business Combination, extension vote or otherwise, may be
subject to the excise tax. Whether and to what extent we would be subject to the
excise tax in connection with a Business Combination, extension vote or
otherwise would depend on a number of factors, including (i) the fair market
value of the redemptions and repurchases in connection with the Business
Combination, extension or otherwise, (ii) the structure of a Business
Combination, (iii) the nature and amount of any "PIPE" or other equity issuances
in connection with a Business Combination (or otherwise issued not in connection
with a Business Combination but issued within the same taxable year of a
Business Combination) and (iv) the content of regulations and other guidance
from the Treasury. In addition, because the excise tax would be payable by us
and not by the redeeming holder, the mechanics of any required payment of the
excise tax have not been determined. The foregoing could cause a reduction in
the cash available on hand to complete a Business Combination and in our ability
to complete a Business Combination.
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Results of Operations
As of December 31, 2022, we had not commenced any operations. All activity for
the period from February 18, 2021 (inception) through December 31, 2022 relates
to our formation and the Initial Public Offering and search for a target for our
initial Business Combination. We have neither engaged in any operations nor
generated any revenues to date. We will not generate any operating revenues
until after the completion of our initial Business Combination, at the earliest.
We will generate non-operating income in the form of interest income on cash and
cash equivalents from the proceeds derived from the Initial Public Offering. We
expect 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 fiscal year ended December 31, 2022, we had a net income of $5,940,296,
which included a gain from the change in fair value of warrant liabilities of
$6,659,839, benefit from income tax of $253,660, capital gains on trust of $8
and interest income earned on cash held in Trust Account of $1,515,362, offset
by formation and operating costs of $2,006,244.
Contractual Obligations
We do not have any long-term debt obligations, capital lease obligations,
operating lease obligations, purchase obligations or long-term liabilities.
Administrative Services Agreement
On August 25, 2021, we entered into an Administrative Support Agreement (the
"Support Agreement") with Sphere 3D Corp. ("Sphere"), an affiliate of our
Sponsor, pursuant to which we agreed that, commencing on the date that our
securities were first listed on the NASDAQ Capital Market, we would pay to
Sphere $10,000 per month for office space, utilities and secretarial and
administrative support services. Upon the earlier of the completion of the
initial Business Combination or our liquidation, we will cease paying such
monthly fees. The Support Agreement was amended on May 16, 2022, at which time
we and Sphere agreed that, notwithstanding anything in the Support Agreement to
the contrary, the monthly payment referenced in clause (i) of the Support
Agreement shall, beginning with respect to the monthly period that began on
February 26, 2022 and ended on March 25, 2022, and continuing thereafter until
the earlier of the consummation of our initial business combination or our
liquidation, accrue without interest thereon and be due and payable on the
earlier of the consummation of our initial business combination or our
liquidation. The Support Agreement was further amended on January 17, 2023 to
provide that we would pay to Sphere an amount equal to $100,000 to be applied
against accrued payments under the Support Agreement plus up to an additional
amount equal to $25,000 to be applied against any remaining accrued payments,
with the balance to be applied against future fees under the Support Agreement.
Registration Rights
The holders of the founder shares, the shares of Class A common stock that were
issued to the representative of the underwriters in the IPO, Private Placement
Warrants, and warrants that may be issued upon conversion of Working Capital
Loans and/or Extension Loans (and any shares of Class A Common Stock issuable
upon the exercise of the Private Placement Warrants and warrants that may be
issued upon conversion of Working Capital Loans and/or Extension Loans and upon
conversion of the founder shares) are entitled to registration rights pursuant
to a registration rights agreement dated August 25, 2021, requiring us to
register such securities for resale (in the case of the founder shares, only
after conversion to Class A Common Stock). The holders of these securities are
entitled to make up to three demands, excluding short form demands, that we
register such securities. In addition, the holders have certain "piggy-back"
registration rights with respect to registration statements filed subsequent to
the completion of the initial Business Combination. Notwithstanding the
foregoing, the underwriters may not exercise their demand and "piggyback"
registration rights after five and seven years after the effective date of the
registration statement for the IPO and may not exercise their demand rights on
more than one occasion.
63
Underwriting Agreement
The underwriter had a 45-day option from the date of the IPO to purchase up to
an aggregate of 1,650,000 additional Units at the public offering price less the
underwriting commissions to cover over-allotments, if any. On August 30, 2021,
the underwriter fully exercised its over-allotment option.
The underwriter is entitled to a deferred underwriting discount of 3.6% of the
gross proceeds of the Initial Public Offering, which included the exercise of
the over-allotment option, or $4,554,000, held in the Trust Account upon the
completion of our initial Business Combination subject to the terms of the
underwriting agreement. On August 30, 2022, we amended the underwriting
agreement to reflect a commission value equal to the product of (i) $4,554,000
and (ii) one (1) minus the quotient resulting by dividing the percentage of
redemptions of all public shares that were originally issued in the Initial
Public Offering by two (2). Additionally, the payment of the deferred
underwriting commission shall be paid in cash but shall be subordinate to the
payments of up to $2,500,000 of Sponsor loans to our company and up to
$2,500,000 of debt repayment to other parties.
Financial Advisory Agreements
In November 2021, we entered into agreements with PGP Capital Advisors and
Vaughan Capital Advisors whereby such entities would provide financial advisory
services to our company. Pursuant to such agreements, we would pay monthly fees
to such advisors in the aggregate amount of $25,000 and would reimburse such
advisors for their out-of-pocket costs and expenses. We also agreed to pay to
such advisors an aggregate success fee upon the closing of a business
combination transaction equal to the sum of: (i) three percent (3%) of the
transaction value of the target company in such business combination up to $100
million, plus (ii) two percent (2%) of the transaction value of the target
company greater than $100 million up to $200 million, plus (iii) one percent
(1%) of the transaction value of the target company above $200 million. The
success fee shall be reduced by the monthly fees previously paid to the
financial advisors. The financial advisors shall have the option to receive an
equivalent dollar amount of warrants and/or shares of our Class A common stock
in lieu of cash up to twenty percent (20%) of the success fee payable.
On August 30, 2022, we amended the agreements with our financial advisors to
provide for a $40,000 retainer payment to be paid within forty-five (45) days
following the amendment and to provide that if the proposed Business Combination
with Digerati closes, the advisors shall be entitled to an aggregate success fee
upon the closing of the Business Combination equal to two percent (2%) of the
transaction value of Digerati up to $100 million, with such success fee to be
reduced by the aggregate amount of all payments to the advisors prior to the
closing.
Recent Accounting Pronouncements
Management does not believe that any other recently issued, but not effective,
accounting standards, if currently adopted, would have a material effect on our
consolidated financial statements.
Critical Accounting Policies
Offering Costs
We comply with the requirements of ASC 340-10-S99-1. Deferred offering costs
consists of legal, accounting, underwriting fees and other costs incurred
through the balance sheet date that are directly related to the Public Offering.
Offering costs are allocated to the separable financial instruments to be issued
in the IPO based on a relative fair value basis, compared to total proceeds
received. Upon closing of the IPO on August 30, 2021, offering costs associated
with warrant liabilities were expensed, and offering costs associated with the
Class A common stock were charged to temporary equity. Transaction costs
amounted to $8,998,713, of which $741,209 were allocated to expense associated
with the warrant liability.
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Convertible Instruments
We account for our promissory notes that feature conversion options in
accordance with ASC No. 815, Derivatives and Hedging Activities ("ASC No. 815").
ASC No. 815 requires companies to bifurcate conversion options from their host
instruments and account for them as freestanding derivative financial
instruments according to certain criteria. The criteria includes circumstances
in which (a) the economic characteristics and risks of the embedded derivative
instrument are not clearly and closely related to the economic characteristics
and risks of the host contract, (b) a promissory note that embodies both the
embedded derivative instrument and the host contract is not re-measured at fair
value under otherwise applicable GAAP with changes in fair value reported in
earnings as they occur and (c) a separate instrument with the same terms as the
embedded derivative instrument would be considered a derivative instrument.
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 either within the control of the holder or
subject to possible 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 feature 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, the 958,897 shares of Class A common stock is presented at
redemption value as temporary equity, outside of the stockholders' deficit
section of our balance sheets. There was no change to redemption value at
December 31, 2022 since the incurred taxes exceed the interest earned inception
to date. The dissolution expense of $100,000 is not included in the redemption
value of the shares subject to possible redemption since it is only taken into
account in the event of our liquidation. In connection with the Extension
Meeting, stockholders holding 11,691,103 public shares exercised their right to
redeem such shares for a pro rata portion of the funds in the Trust Account. As
a result of such redemptions, approximately $120.8 million (approximately $10.33
per share), representing approximately 92% of the assets held in the Trust
Account prior to such redemptions, was removed from the Trust Account to pay
such holders.
Net Income (Loss) Per Common Stock
We have two classes of shares, 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 outstanding warrants to purchase
18,677,500 shares of Class A common stock in the calculation of diluted income
per share, since their exercise is contingent upon future events. As a result,
diluted net income per common stock is the same as basic net income per common
stock for the periods.
Derivative Financial Instruments
We evaluated the financial instruments to determine if such instruments are
derivatives or contain features that qualify as embedded derivatives in
accordance with ASC Topic 815, "Derivatives and Hedging". Derivative instruments
are initially recorded at fair value on the grant date and re-valued at each
reporting date, with changes in the fair value reported in the statements of
operations. Derivative assets and liabilities are classified in the balance
sheets as current or non-current based on whether or not net-cash settlement or
conversion of the instrument could be required within 12 months of the balance
sheet date.
Warrant Liability
We evaluated the Public Warrants and Private Placement Warrants to be issued in
the IPO (collectively, "Warrants") in accordance with ASC 815-40, "Derivatives
and Hedging - Contracts in Entity's Own Equity" and concluded that a provision
in the Warrant Agreement related to certain tender or exchange offers precludes
the Warrants from being accounted for as components of equity. As the Warrants
meet the definition of a derivative as contemplated in ASC 815, the Warrants
will be recorded as derivative liabilities on the balance sheets and measured at
fair value at inception (on the date of the IPO) and at each reporting date in
accordance with ASC 820, "Fair Value Measurement", with changes in fair value
recognized in the statements of operations in the period of change.
65
Off-Balance Sheet Arrangements
As of December 31, 2022, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K.
Inflation
We do not believe that inflation had a material impact on our business, revenues
or operating results during the period presented.
Emerging Growth Company Status
We are an "emerging growth company," as defined in Section 2(a) of the
Securities Act, as modified by the Jumpstart our Business Startups Act of 2012
(the "JOBS Act"), and may take advantage of certain exemptions from various
reporting requirements that are applicable to other public companies that are
not emerging growth companies including, but not limited to, not being required
to comply with the auditor attestation requirements of Section 404 of the
Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation in its periodic reports and proxy statements, and exemptions from
the requirements of holding a nonbinding advisory vote on executive compensation
and stockholder approval of any golden parachute payments not previously
approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies
from being required to comply with new or revised financial accounting standards
until private companies (that is, those that have not had a Securities Act
registration statement declared effective or do not have a class of securities
registered under the Exchange Act) are required to comply with the new or
revised financial accounting standards. The JOBS Act provides that a company can
elect to opt out of the extended transition period and comply with the
requirements that apply to non-emerging growth companies but any such election
to opt out is irrevocable. We have elected not to opt out of such extended
transition period which means that when a standard is issued or revised and it
has different application dates for public or private companies, the Company, as
an emerging growth company, can adopt the new or revised standard at the time
private companies adopt the new or revised standard. This may make comparison of
our financial statement with another public company which is neither an emerging
growth company nor an emerging growth company which has opted out of using the
extended transition period difficult or impossible because of the potential
differences in accounting standards used.
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