Note 2 — Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements of the Company are
presented in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not
include all of the information and footnotes required by GAAP. In the opinion of management, the unaudited condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of
the balances and results for the periods presented.
The accompanying unaudited condensed financial statements should be read in
conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC on April 13, 2022, which contains the audited financial statements and notes thereto. The accompanying condensed balance sheet as
of December 31, 2021 has been derived from the audited financial statements. The interim results for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or
for any future interim periods.
Emerging Growth Company Status
The Company is 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 it 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. The Company has 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 the Company’s unaudited condensed financial statements
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.
Use of Estimates
The preparation of unaudited condensed financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements and the
reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Out-of-Period Adjustment
During the second quarter of 2022, the Company determined that it had not recognized certain filing
and listing fees related to the year ended December 31, 2021. The Company assessed these errors and determined that they were not material to previous reporting periods. Therefore, the Company recorded these items as out-of-period adjustments in
the three and six months ended June 30, 2022 by increasing formation and operating costs by $158,128 in the Condensed Statements of
Operations.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of
three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of June 30, 2022 and
December 31, 2021.
Marketable Securities Held in Trust Account
At June 30, 2022 and December 31, 2021, the assets held in the Trust Account were
held primarily in U.S. Treasury Bills with maturities of 185 days or less. During the six months ended June 30, 2022, the Company withdrew $79,124
of the interest income from the Trust Account to pay its tax obligations.
The Company classifies its United States Treasury securities as held-to-maturity
in accordance with FASB ASC Topic 320, “Investments - Debt and Equity Securities.” Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. Held-to-maturity treasury securities are
recorded at amortized cost and adjusted for the amortization or accretion of premiums or discounts.
A decline in the market value of held-to-maturity securities below cost that is
deemed to be other than temporary, results in an impairment that reduces the carrying costs to such securities’ fair value. The impairment is charged to earnings and a new cost basis for the security is established. To determine whether an
impairment is other than temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs
evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and the duration of the impairment, changes in value subsequent to year-end, forecasted performance of the investee, and the
general market condition in the geographic area or industry in which the investee operates.
Premiums and discounts are amortized or accreted over the life of the related
held-to-maturity security as an adjustment to yield using the effective-interest method. Such amortization and accretion are included in the “interest earned on cash and marketable securities held in Trust Account” line item in the condensed
statements of operations. Interest income is recognized when earned.
Warrant Liabilities
The Company evaluated the Public Warrants and Private Placement Warrants
(collectively, “Warrants”, which are discussed in Note 3, Note 4 and Note 8) in accordance with ACS 480, “Distinguishing Liabilities from Equity” and 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
are recorded as derivative liabilities on the Condensed 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 Condensed Statements of Operations in the period of change.
Offering Costs Associated with the Initial Public Offering
The Company complies with the requirements of ASC 340-10-S99-1. 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 are expensed as incurred and presented as non-operating expenses in the condensed statements of operations.
Offering costs associated with the Class A common stock were charged to temporary equity upon the completion of the Initial Public Offering. Transaction costs amounted to $16,253,012, of which $621,678 were allocated to expense
associated with the warrant liability.
Common Stock Subject to Possible Redemption
All of the Class A Common Stock sold as part of the Units in the Public Offering
contain a redemption feature which allows for the redemption of such public shares in connection with the Company’s liquidation, if there is a stockholder vote or tender offer in connection with the Business Combination and in connection with
certain amendments to the Company’s second amended and restated certificate of incorporation. In accordance with SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not
solely within the control of the Company require common stock subject to redemption to be classified outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments,
are excluded from the provisions of ASC 480. Accordingly, at June 30, 2022 and December 31, 2021, all shares of Class A common stock subject to possible redemption are presented as temporary equity, outside of the stockholders’ deficit section of
the Company’s condensed balance sheets.
The Company recognizes changes in redemption value immediately as they occur and
adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock are affected by charges against additional paid-in
capital (to the extent available) and accumulated deficit. Subsequent to the IPO, accretion includes cumulative interest earned on cash and marketable securities held in the Trust account, net of amounts withdrawn to pay taxes and incurred taxes
that are eligible to be reimbursed from the Trust account in the future.
At June 30, 2022 and December 31, 2021, the Class A
common stock reflected in the condensed balance sheets are reconciled in the following table:
Gross Proceeds
|
|
$
|
287,500,000
|
|
Less:
|
|
|
|
|
Proceeds allocated to Public Warrants
|
|
|
(10,996,875
|
)
|
Issuance costs related to Class A ordinary shares
|
|
|
(16,253,262
|
)
|
Plus:
|
|
|
|
|
Offering costs allocated to warrants
|
|
|
621,678 |
|
Remeasurement of Class A common stock to redemption value
|
|
|
26,628,459
|
|
Class A common stock subject to possible redemption, December 31, 2021
|
|
|
287,500,000
|
|
Plus:
|
|
|
|
|
Accretion of Class A common stock to redemption value
|
|
|
248,505
|
|
Class A common stock subject to possible redemption, June 30, 2022
|
|
$
|
287,748,505
|
|
Share-Based Compensation
The Company complies with ASC Topic 718, “Compensation - Stock Compensation” regarding interests in founder shares transferred by the Sponsor
to directors of the Company as compensation, which are described in Note 5.
The interests in the Founder Shares effectively vest upon the Company completing the initial Business Combination and compensation expense
will be recorded accordingly at that date based upon the initial grant date fair value, the determination of which represents a significant estimate. The grant date fair value is based upon an option pricing model.
The Founders Shares were granted subject to a performance condition (i.e., consummation of the Business Combination). Compensation expense
related to the Founders Shares will be recognized only when the performance condition is probable of occurrence under the applicable accounting literature in this circumstance.
As of June 30, 2022 and December 31, 2021, the Company determined that a Business Combination is not considered probable, and therefore no stock-based compensation expense has been recognized. Stock-based compensation will be recognized at the date a Business Combination is
considered probable (i.e., upon completion of a Business Combination) in an amount equal to the number of Founders Shares that ultimately vest multiplied times the grant date fair value per share (unless subsequently modified) less the amount
initially received for the purchase of the Founders Shares.
Income Taxes
The Company is included in the consolidated tax return of Figure Technologies,
Inc (the “Parent”). The Company calculates the provision for income taxes by using a “separate return” method. Under this method the Company is assumed to file a separate return with the tax authority, thereby reporting its taxable income or loss
and paying the applicable tax to, or receiving the appropriate refund from, the Parent. The Company’s current provision is the amount of tax payable or refundable on the basis of a hypothetical, current year, separate return.
The Company accounts for income taxes under ASC 740, “Income Taxes.” ASC 740,
Income Taxes, requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the unaudited condensed financial statements and tax basis of assets and liabilities and for the expected future tax
benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. ASC
740-270-25-2 requires that an annual effective tax rate be determined and such annual effective rate applied to year to date income in interim periods under ASC 740-270-30-5. As of June 30, 2022 and December 31, 2021, the Company’s deferred tax
asset had a full valuation allowance recorded against it. Our effective tax rate was 0.02% and 0.00% for the three months ended June 30, 2022 and 2021, respectively, and 0.01%
and 0.00% for the six months ended June 30, 2022 and 2021, respectively. The effective tax rate differs from the statutory tax rate of 21% for the three and six months ended June 30, 2022 and 2021, due to changes in fair value of the warrant liabilities, which are not recognized for
income tax purposes, and the valuation allowance on the deferred tax assets.
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized
in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be
recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and
transition.
The Company recognizes accrued interest and penalties related to unrecognized tax
benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of June 30, 2022 and December 31, 2021. The Company is currently not aware of any issues under review that could result in
significant payments, accruals or material deviation from its position.
The Company has identified the United States as its only “major” tax jurisdiction.
The Company is subject to income taxation by major taxing authorities since inception. These examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal
and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
Net Income (Loss) Per Share of Common Stock
The Company complies with accounting and disclosure requirements of FASB ASC Topic
260, Earnings Per Share. Basic and diluted net income (loss) per share of common stock, for each respective class of common stock, is computed by dividing net income (loss) by the weighted average number of shares of each respective class of common
stock outstanding during the period, allocated proportionally to each class of common stock. The Company has three classes of stock, redeemable Class A Common Stock, non-redeemable Class B Common Stock and non-redeemable Class L Common Stock.
Earnings and losses are shared pro rata between the Class A, Class B and Class L Common Stock. The Company has not considered the effect of warrants sold in the Initial Public Offering and the private placement to purchase an aggregate of 12,354,167 shares of common stock in the calculation of diluted income (loss) per share of stock, since the exercise of the warrants is contingent upon
the occurrence of future events. As a result, diluted net income (loss) per share of common stock is the same as basic net income (loss) per share of common stock for the periods presented. Remeasurement associated with the redeemable shares of
Class A common stock is excluded from income (loss) per share of common stock as the redemption value approximates fair value.
Reconciliation of Net Income (Loss) per Share of Common Stock
The Company’s net income (loss) is adjusted for the portion of net income (loss)
that is allocable to each class of common stock. The allocable net income (loss) is calculated by multiplying net income (loss) by the ratio of weighted average number of shares outstanding attributable to Class A, Class B and Class L common stock
to the total weighted average number of shares outstanding for the period. Accordingly, basic and diluted income (loss) per share of common stock is calculated as follows:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2022
|
|
|
2021
|
|
|
2022
|
|
|
2021
|
|
Redeemable Class A Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: Net income (loss) allocable to Class A Common Stock
|
|
$
|
4,610,697
|
|
|
$
|
(762,567 |
) |
|
$
|
8,357,082 |
|
|
$
|
480,600
|
|
Denominator: Basic and diluted weighted average shares outstanding, Class A common stock
|
|
|
28,750,000
|
|
|
|
28,750,000 |
|
|
|
28,750,000 |
|
|
|
20,331,492
|
|
Basic and diluted net income (loss) per share of common stock
|
|
$
|
0.16
|
|
|
$
|
(0.03 |
) |
|
$
|
0.29 |
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Redeemable Class B Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: Net income (loss) allocable to Non-Redeemable Stock
|
|
$
|
512,300
|
|
|
$
|
(84,730 |
) |
|
$
|
928,565 |
|
|
$
|
72,627
|
|
Denominator: Weighted Average Non-Redeemable stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average shares outstanding
|
|
|
3,194,444
|
|
|
|
3,194,444 |
|
|
|
3,194,444 |
|
|
|
3,072,437
|
|
Basic and diluted net income (loss) per share of common stock
|
|
$
|
0.16
|
|
|
$
|
(0.03 |
) |
|
$
|
0.29 |
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Redeemable Class L Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: Net income (loss) allocable to Non-Redeemable Stock
|
|
$
|
1,463,713 |
|
|
$
|
(242,085 |
) |
|
$
|
2,653,042 |
|
|
$
|
207,506 |
|
Denominator: Weighted Average Non-Redeemable stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average shares outstanding |
|
|
9,126,984 |
|
|
|
9,126,984 |
|
|
|
9,126,984 |
|
|
|
8,778,392 |
|
Basic and diluted net income (loss) per share of common stock |
|
$
|
0.16 |
|
|
$
|
(0.03 |
) |
|
$
|
0.29 |
|
|
$ |
0.02 |
|
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist of cash accounts in a financial institution, which, at times, may exceed the federal depository insurance coverage of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not
exposed to significant risks on such accounts.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial
instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying condensed balance sheets, primarily due to their short-term nature.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic
470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by
removing major separation models required under current GAAP. ASU 2020-06 also removes certain settlement conditions that are required for equity-linked contracts to qualify for scope exception, and it simplifies the diluted earnings per share
calculation in certain areas. The Company early adopted ASU 2020-06 on January 1, 2021. Adoption of the ASU did not impact the Company’s financial position, results of operations or cash flows.
Management does not believe that any other recently issued, but not effective,
accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed financial statements.