This Annual Report includes "forward-looking statements" that are not historical
facts and involve risks and uncertainties that could cause actual results to
differ materially from those expected and projected. All statements, other than
statements of historical fact included in this Annual Report including, without
limitation, statements in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" regarding the Company's financial
position, business strategy and the plans and objectives of management for
future operations, are forward-looking statements. Words such as "expect,"
"believe," "anticipate," "intend," "estimate," "seek" and variations and similar
words and expressions are intended to identify such forward-looking statements.
Such forward-looking statements relate to future events or future performance,
but reflect management's current beliefs, based on information currently
available. A number of factors could cause actual events, performance or results
to differ materially from the events, performance and results discussed in the
forward-looking statements. For information identifying important factors that
could cause actual results to differ materially from those anticipated in the
forward-looking statements, please refer to "Cautionary Note Regarding
Forward-Looking Statements and Risk Factor Summary," "Item 1A. Risk Factors" and
elsewhere in this Annual Report on Form 10-K. The Company's securities filings
can be accessed on the EDGAR section of 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.
Overview
We are a blank check company incorporated on March 1, 2021 as a Delaware
corporation and formed for the purpose of effectuating a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses, which we refer to throughout this
Annual Report as our "initial business combination". We intend to effectuate our
initial business combination using cash from the proceeds of our initial
business combination and the private placement of the private placement
warrants, the proceeds of the sale of our shares in connection with our initial
business combination (pursuant to forward purchase agreements or backstop
agreements we may enter into following the consummation of the Initial Public
Offering or otherwise), shares issued to the owners of the target, debt issued
to bank or other lenders or the owners of the target, or a combination of the
foregoing.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities for the period from March 1, 2021 (inception) through
December 31, 2021 were organizational activities, those necessary to prepare for
our initial public offering, described below. We do not expect to generate any
operating revenues until after the completion of our initial business
combination. We generate non-operating income in the form of interest income on
cash and cash equivalents 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 due diligence expenses.
For the period from March 1, 2021 (inception) through December 31, 2021, we had
net income of $7,116,141, which resulted from gains on the change in fair value
of warrant liabilities of $8,686,933 and unrealized gains on investments held in
the Trust Account of $29,687, partially offset by expensed offering costs of
$762,517, formation and operating costs of $670,839, and franchise tax expense
of $167,123. The gains on the change in fair value of warrant liabilities was
due in large part to the decrease in the public traded price of the public
warrants.
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PART II
Liquidity and Capital Resources
On July 30, 2021, we consummated our initial public offering of 17,500,000 units
generating gross proceeds to the Company of $175,000,000. Simultaneously with
the consummation of the initial public offering, we completed the private sale
of 7,850,000 warrants to the Sponsor at a purchase price of $1.00 per warrant
(the "private placement warrants"), generating gross proceeds of $7,850,000. The
proceeds from the sale of the private placement warrants were added to the net
proceeds from our initial public offering held in a trust account (the "trust
account"). If we do not complete an initial business combination within 24
months from the closing of our initial public offering, the proceeds from the
sale of the private placement warrants will be used to fund the redemption of
the public shares (subject to the requirements of applicable law) and the
private placement warrants will expire worthless.
We had granted the underwriter in our initial public offering a 45-day option to
purchase up to 2,625,000 additional units to cover over-allotments, if any. On
August 20, 2021, the underwriter partially exercised the over-allotment option
and purchased an additional 541,500 units, generating gross proceeds of
$5,415,000, and incurred $108,300 in cash underwriting fees and $189,525 that
will be payable to the underwriter for deferred underwriting commissions.
Simultaneously with the underwriter partially exercising the over-allotment
option, our sponsor purchased an additional 162,450 private placement warrants
(the "over-allotment private placement warrants") at a price of $1.00 per
over-allotment private placement warrant ($162,450 in the aggregate).
For the period from March 1, 2021 (inception) through December 31, 2021, net
cash used in operating activities was $1,018,748, which was due to the change in
fair value of warrant liabilities of $8,686,933, changes in working capital of
$180,786, and unrealized gain on investments held in Trust Account of $29,687,
partially offset by our net income of $7,116,141, and expensed offering costs of
$762,517.
For the period from March 1, 2021 (inception) through December 31, 2021, net
cash used in investing activities was $182,219,150, which was the result of the
amount of net proceeds from the initial public offering and partial exercise of
the over-allotment option by the underwriter being deposited to the Trust
Account.
For the period from March 1, 2021 (inception) through December 31, 2021, net
cash provided by financing activities was $184,079,957, which was due to
proceeds from our initial public offering and the partial exercise of the
over-allotment option by the underwriter, net of underwriter's discount paid of
$176,806,700, proceeds from sale of private placement warrants of $8,012,450,
the proceeds from the promissory note - related party of $300,000 and the
proceeds from the sale of Class B common stock to our sponsor of $25,000,
partially offset by the payment of offering costs of $764,193 and the repayment
of the promissory note - related party of $300,000.
As of December 31, 2021, we had cash of $842,059, held outside the trust
account. We intend to use the funds held outside the trust account primarily to
identify and evaluate target businesses, perform business due diligence on
prospective target businesses, travel to and from the offices, plants or similar
locations of prospective target businesses or their representatives or owners,
review corporate documents and material agreements of prospective target
businesses, and structure, negotiate and complete a business combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with an intended initial 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. If we complete our initial
business combination, we would repay such loaned amounts. In the event that our
initial business combination does not close, we may use a portion of the working
capital held outside the trust account to repay such loaned amounts but no
proceeds from our trust account would be used for such repayment. Up to
$1,500,000 of such loans may be convertible into warrants, at a price of $1.00
per warrant at the option of the lender. The warrants would be identical to the
private placement warrants, including as to exercise price, exercisability and
exercise period. The terms of such loans by our officers and directors, if any,
have not been determined and no written agreements exist with respect to such
loans. We do not expect to seek loans from parties other than our sponsor or an
affiliate of our sponsor as we do not believe third parties will be willing to
loan such funds and provide a waiver against any and all rights to seek access
to funds in our trust account.
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We have incurred and expect to continue to incur significant costs in pursuit of
our acquisition plans. We may have insufficient funds available to operate our
business prior to our initial business combination. Moreover, we may need to
obtain additional financing to complete our initial business combination, either
because the transaction requires more cash than is available from the proceeds
held in our trust account or because we become obligated to redeem a significant
number of our public shares upon completion of our initial business combination,
in which case we may issue additional securities or incur debt in connection
with such business combination, which may include a specified future issuance.
Subject to compliance with applicable securities laws, we would only complete
such financing simultaneously with the completion of our initial business
combination. If we are unable to complete our initial business combination
because we do not have sufficient funds available to us, we will be forced to
cease operations and liquidate the trust account. In addition, following our
initial business combination, if cash on hand is insufficient, we may need to
obtain additional financing in order to meet our obligations.
Contractual Obligations
Underwriting Agreement
We granted the underwriter a 45-day option to purchase up to 2,625,000
additional units to cover over-allotments at our initial public offering price,
less the underwriting discounts and commissions. On August 20, 2021, the
underwriter partially exercised the over-allotment option to purchase an
additional 541,500 units at an offering price of $10.00 per unit for an
aggregate purchase price of $5,415,000.
The underwriter was paid a cash underwriting discount of $0.20 per unit, or
$3,608,300 in the aggregate, upon the closing of our initial public offering and
partial exercise of the over-allotment option. In addition, $0.35 per unit, or
$6,314,525 in the aggregate will be payable to the underwriter for deferred
underwriting commissions. The deferred fee will become payable to the
underwriter from the amounts held in the trust account solely in the event that
we complete an initial business combination, subject to the terms of the
underwriting agreement.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
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.
Warrant Liabilities
We account for warrants as either equity-classified or liability-classified
instruments based on an assessment of the warrant's specific terms and
applicable authoritative guidance in Accounting Standards Codification 480,
Distinguishing Liabilities from Equity ("ASC 480") and Accounting Standards
Codification 815, Derivatives and Hedging ("ASC 815"). The assessment considers
whether the warrants are freestanding financial instruments pursuant to ASC 480,
meet the definition of a liability pursuant to ASC 480, and whether the warrants
meet all of the requirements for equity classification under ASC 815, including
whether the warrants are indexed to our own common stock, among other conditions
for equity classification. This assessment, which requires the use of
professional judgment, is conducted at the time of warrant issuance and as of
each subsequent quarterly period end date while the warrants are outstanding.
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Upon initial measurement as of July 30, 2021, we utilized a binomial/lattice
model to value the public warrants and private placement warrants. The estimated
fair value upon the initial measurement of the warrant liabilities as of July
30, 2021, was determined using Level 3 inputs. We estimated volatility based on
research on comparable companies with the same type of warrants along with the
implied volatilities shortly after they start trading. The risk-free interest
rate was based on the U.S. Treasury zero-coupon yield curve on the grant date
for a maturity similar to the expected remaining life of the warrants. The
expected life of the warrants was assumed to be equivalent to their remaining
contractual term. The dividend rate was based on the historical rate, which we
anticipated to remain at zero. After the public warrants were separately listed
and traded in September 2021, since both public warrants and private placement
warrants are subject to the make-whole table, the private placement warrants
have the same value as the public warrants and the public trading price is used.
The following table provides the significant unobservable inputs used in the
binomial/lattice model for the initial valuation of the public warrants and
private placement warrants as of July 30, 2021:
As of July 30, 2021
(Initial
Measurement)
Stock price $ 9.47
Exercise price $ 11.50
Dividend yield - %
Expected term (in years) 5.5
Volatility 20.0 %
Risk-free rate 0.80 %
Fair value $ 0.95
Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting
period. The estimated fair value of the public warrants transferred from a Level
3 measurement to a Level 1 fair value measurement in September 2021 after the
public warrants were separately listed and traded. The estimated fair value of
the private placement warrants transferred from a Level 3 measurement to a Level
2 fair value measurement in September 2021 due to the use of an observable
market quote for a similar asset in an active market.
Recent Accounting Pronouncements
See "Recent Accounting Pronouncements" in Note 2 of the accompanying financial
statements.
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