References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Sierra Lake Acquisition Corp. References to our "management"
or our "management team" refer to our officers and directors, and references to
the "Sponsor" refer to Sierra Lake Sponsor LLC. The following discussion and
analysis of the Company's financial condition and results of operations should
be read in conjunction with the financial statements and the notes thereto
contained elsewhere in this Quarterly Report. Certain information contained in
the discussion and analysis set forth below includes forward-looking statements
that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Exchange Act, as amended, that are not historical facts and involve risks and
uncertainties that could cause actual results to differ materially from those
expected and projected. Other than statements of historical fact, all statements
included in this Form 10-Q including, without limitation, statements in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the completion of the Business Combination (as defined
below), 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 the Risk
Factors section of the Company's Annual Report on Form 10-K filed with the U.S.
Securities and Exchange Commission (the "SEC"). 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 formed under the laws of the State of Delaware on
January 26, 2021 for the purpose of effectuating a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or other similar
business combination with one or more businesses (the "Business Combination").
We intend to effectuate our 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.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete a Business
Combination will be successful.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic on the
industry and has concluded that while it is reasonably possible that the virus
could have a negative effect on our financial position, results of our
operations and/or search for a target company, the specific impact is not
readily determinable as of the date of the financial statements. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
In February 2022, Russia commenced a military action with the country of
Ukraine. As a result of this action, various nations, including the United
States, have instituted economic sanctions against Russia. The global impact of
the military action and subsequent imposing of sanctions continues to evolve and
cannot be sufficiently measured or predicted with certainty. The inherent
uncertainty surrounding this war has negatively impacted the share prices of
publicly traded companies and may continue to do so. Other recent events
contributing to a climate of geopolitical uncertainty include rising tensions
between China and Taiwan. The full impact of these events on the world economy
is not determinable as of the date of this quarterly report.
Recent increases in inflation and interest rates in the United States and
elsewhere may lead to increased price volatility for publicly traded securities,
including ours, and may lead to other national, regional and international
economic disruptions, any of which could make it more difficult for us to
consummate an initial business combination.
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 the Company 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 the
Company 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 the Company's ability to complete a Business Combination.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from January 26, 2021 (inception) through December 31, 2021
were organizational activities, those necessary to prepare for the Initial
Public Offering, described below, and identifying a target company for a
Business Combination. We do not expect to generate any operating revenues until
after the completion of our Business Combination. We generate non-operating
income in the form of interest income on marketable securities held in the Trust
Account. We incur expenses as a result of being a public company (for legal,
financial reporting, accounting and auditing compliance), as well as for due
diligence expenses.
For the three months ended September 30, 2022, we had a net income of
$3,333,506, which consists of the change in fair value of warrant liabilities of
$2,435,000, unrealized gain on marketable securities held in the Trust Account
of $79,200 and interest earned on marketable securities held in the Trust
Account of $1,311,896, offset by operating and formation costs of $251,847, and
provision for income taxes of $240,743.
For the nine months ended September 30, 2022, we had a net income of
$12,306,608, which consists of the change in fair value of warrant liabilities
of $11,549,500, unrealized gain on marketable securities held in the Trust
Account of $45,613 and interest earned on marketable securities held in the
Trust Account of $1,801,366, offset by operating and formation costs of
$825,701, and provision for income taxes of $264,170.
For the three months ended September 30, 2021, we had a net income of
$5,433,314, which consists of the change in fair value of warrant liabilities of
$9,435,000, and interest earned on marketable securities held in the Trust
Account of $2,399, offset by formation and operational costs of $27,899,
$1,425,000 of other expense relating to fair value exceeding amount paid for
warrants, unrealized loss on marketable securities held in the Trust Account of
$19,692, and transaction costs associated with the Initial Public Offering of
$2,531,494.
For the period from January 26, 2021 (inception) through September 30, 2021, we
had a net income of $5,432,135, which consists of the change in fair value of
warrant liabilities of $9,435,000, and interest earned on marketable securities
held in the Trust Account of $2,399, offset by formation and operational costs
of $29,078, $1,425,000 of other expense relating to fair value exceeding amount
paid for warrants, unrealized loss on marketable securities held in the Trust
Account of $19,692, and transaction costs associated with the Initial Public
Offering of $2,531,494.
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Liquidity and Capital Resources and Going Concern
On September 17, 2021, we consummated the Initial Public Offering of 30,000,000
Units at $10.00 per Unit, generating gross proceeds of $300,000,000.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 9,500,000 Private Placement Warrants at a price of $1.00 per Private
Placement Warrant to the Sponsor and Cantor, generating gross proceeds of
$9,500,000.
Following the Initial Public Offering and the sale of the Private Placement
Units, a total of $301,500,000 was placed in the Trust Account. We incurred
$21,498,498 in Initial Public Offering related costs, including $15,000,000 of
deferred underwriting costs, $6,000,000 of underwriting fees and $498,498 of
other costs.
For the nine months ended September 30, 2022, cash used in operating activities
was $569,441. Net income of $12,306,608 was affected by change in fair value of
warrant liabilities of $11,549,500, unrealized gain on marketable securities
held in the Trust Account of $45,613 and interest earned on marketable
securities held in the Trust Account of $1,801,366. Changes in operating assets
and liabilities provided $520,430 of cash for operating activities.
For the period from January 26, 2021 (inception) through September 30, 2021,
cash used in operating activities was $29,112. Net income of $5,432,135 was
affected by interest earned on marketable securities held in the Trust Account
of $2,399, unrealized loss on marketable securities held in the Trust Account of
$19,692, change in fair value of warrant liabilities of $9,435,000, $1,425,000
of other expense relating to fair value exceeding amount paid for warrants, and
transaction costs associated with the Initial Public Offering of $2,531,494.
Changes in operating assets and liabilities used $34 of cash for operating
activities.
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At September 30, 2022, we had cash and marketable securities held in the Trust
Account of $303,059,522 (including $1,546,660 of interest income and unrealized
gain) consisting of U.S. Treasury Bills with a maturity of 185 days or less.
Interest income on the balance in the Trust Account may be used by us to pay
taxes.
We intend to use substantially all of the funds held in the Trust Account,
including any amounts representing interest earned on the Trust Account (less
income taxes payable), to complete our Business Combination. To the extent that
our capital stock or debt is used, in whole or in part, as consideration to
complete our Business Combination, the remaining proceeds held in the Trust
Account will be used as working capital to finance the operations of the target
business or businesses, make other acquisitions and pursue our growth
strategies.
At September 30, 2022, we had cash of $650,406. 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 a Business Combination, the Sponsor, or certain of our officers
and directors or their affiliates may, but are not obligated to, loan us funds
as may be required. If we complete a Business Combination, we would repay such
loaned amounts. In the event that a Business Combination does not close, we may
use a portion of the working capital held outside the Trust Account to repay
such loaned amounts but no proceeds from our Trust Account would be used for
such repayment. Up to $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.
Management has determined that the Company will not have enough cash to meet its
obligations as they become due. Management expects to incur significant costs in
pursuit of its acquisition plans. The Company believes it will need to raise
additional funds in order to meet the expenditures required for operating its
business and to consummate a business combination. Moreover, the Company may
need to obtain additional financing or draw on the Working Capital Loans (as
defined above) either to complete a Business Combination or because it becomes
obligated to redeem a significant number of the Public Shares upon consummation
of a Business Combination, in which case the Company may issue additional
securities or incur debt in connection with such Business Combination. Subject
to compliance with applicable securities laws, the Company would only complete
such financing simultaneously with the completion of our Business Combination.
If the Company is unable to complete the Business Combination because it does
not have sufficient funds available, the Company will be forced to cease
operations and liquidate the Trust Account. In addition, following the Business
Combination, if cash on hand is insufficient, the Company may need to obtain
additional financing in order to meet its obligations.
In connection with the Company's assessment of going concern considerations in
accordance with Financial Accounting Standard Board's Accounting Standards
Update ("ASU") 2014-15, "Disclosures of Uncertainties about an Entity's Ability
to Continue as a Going Concern," the Company has until December 17, 2022 to
consummate a Business Combination. If a Business Combination is not consummated
by this date and an extension has not been requested by the Sponsor and approved
by the Company's stockholders, there will be a mandatory liquidation and
subsequent dissolution of the Company. Management has determined that the
mandatory liquidation, should a Business Combination not occur and an extension
not be requested by the Sponsor, and potential subsequent dissolution, raise
substantial doubt about the Company's ability to continue as a going concern. No
adjustments have been made to the carrying amounts of assets or liabilities
should the Company be required to liquidate after December 17, 2022. The Company
intends to continue to search for and seek to complete a Business Combination,
and, if the Company identifies a company to acquire, an extension of the
Company's deadline to complete a Business Combination will need to be requested
by the Company's Sponsor and approved by the Company's stockholders. The Company
is within 12 months of its mandatory liquidation date as of the time of filing
of this Quarterly Report on Form 10-Q.
As more fully described in Note 1 to the financial statements, the Company's
business plan is dependent on the completion of a business combination and the
Company 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. Management's plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 2022. We do not participate
in transactions that create relationships with unconsolidated entities or
financial partnerships, often referred to as variable interest entities, which
would have been established for the purpose of facilitating off-balance sheet
arrangements. We have not entered into any off-balance sheet financing
arrangements, established any special purpose entities, guaranteed any debt or
commitments of other entities, or purchased any non-financial assets.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities.
The underwriters are entitled to a deferred fee of 5.0% of the gross proceeds of
the initial 30,000,000 Units sold in the Initial Public Offering, or
$15,000,000. The deferred fee will become payable to the underwriter from the
amounts held in the Trust Account solely in the event that the Company completes
a Business Combination, subject to the terms of the underwriting agreement.
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Critical Accounting Policies
The preparation of condensed 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 the warrants issued in connection with our Initial Public
Offering in accordance with the guidance contained in ASC 815-40 under which the
Warrants do not meet the criteria for equity treatment and must be recorded as
liabilities. Accordingly, we classify the Warrants as liabilities at their fair
value and adjust the Warrants to fair value at each reporting period. This
liability is subject to re-measurement at each balance sheet date until
exercised, and any change in fair value is recognized in our statements of
operations.
Common Stock Subject to Possible Redemption
We account for our common stock subject to possible conversion in accordance
with the guidance in ASC Topic 480 "Distinguishing Liabilities from Equity."
Common stock subject to mandatory redemption is classified as a liability
instrument and measured at fair value. Conditionally redeemable common stock
(including common stock that features redemption rights that are either within
the control of the holder or subject to redemption upon the occurrence of
uncertain events not solely within our control) is classified as temporary
equity. At all other times, common stock is classified as stockholders' equity.
Our Class A common stock features certain redemption rights that are considered
to be outside of our control and subject to occurrence of uncertain future
events. Accordingly, Class A common stock subject to possible redemption is
presented at redemption value as temporary equity, outside of the stockholders'
deficit section of our condensed balance sheets.
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Net Income Per Common Share
Net income per common share is computed by dividing net income by the weighted
average number of common shares outstanding for the period. Accretion associated
with the redeemable shares of Class A common stock is excluded from earnings per
share as the redemption value approximates fair value.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
condensed financial statements.
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SIERRA LAKE ACQUISITION CORP. 
