Item
I. Financial Statements (Unaudited)
THE MUSIC ACQUISITION CORPORATION
CONDENSED BALANCE SHEETS
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March 31,
2021
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December 31,
2020
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(unaudited)
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(audited)
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Assets:
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Current Assets:
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Cash
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$
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735,175
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$
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55,000
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Prepaid Expenses
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729,415
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—
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Total current assets
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1,464,590
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55,000
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Deferred offering costs
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—
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173,427
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Cash and Investments held in Trust Account
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230,002,079
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—
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Total Assets
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$
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231,466,669
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$
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228,427
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Liabilities and Stockholders’ Equity
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Current liabilities:
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Accrued offering costs and expenses
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$
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31,331
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$
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84,178
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Promissory note – related party
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—
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120,000
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Total current liabilities
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31,331
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204,178
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Deferred underwriting fee
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8,050,000
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—
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Warrant liability
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11,066,080
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—
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Total liabilities
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19,147,411
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204,178
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Commitments
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Common Stock subject to possible redemption, 20,731,925 and no shares at redemption value at March 31, 2021 and December 31, 2020, respectively
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207,319,250
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—
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Stockholders’ Equity:
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Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding
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—
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—
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Class A common stock, $0.0001 par value; 380,000,000 shares authorized; 2,268,075 and 0 shares issued and outstanding (excluding 20,731,925 and no shares subject to possible redemption) at March 31, 2021 and December 31, 2020, respectively
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227
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—
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Class B common stock, $0.0001 par value; 20,000,000 shares authorized; 5,750,000 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively
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575
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575
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Additional paid-in capital
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1,360,761
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24,425
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Retained earnings (accumulated deficit)
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3,638,445
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(751
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)
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Total stockholders’ equity
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5,000,008
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24,249
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Total Liabilities and Stockholders’ Equity
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$
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231,466,669
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$
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228,427
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The accompanying notes are an integral part of
these unaudited condensed financial statements.
THE MUSIC ACQUISITION CORPORATION
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2021
(UNAUDITED)
Formation and operating costs
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$
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139,559
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Loss from Operations
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(139,559
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)
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Other income:
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Interest earned on cash and marketable securities held in Trust Account
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2,079
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Offering costs allocated to warrants
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(556,614
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)
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Change in fair value of warrant liability
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4,333,290
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Total other income
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3,778,755
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Net income
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$
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3,639,196
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Weighted average shares outstanding of Class A common stock
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23,000,000
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Basic and diluted net income per share, Class A common stock
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$
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—
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Weighted average shares outstanding of Class B common stock
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5,455,056
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Basic and diluted net income per share, Class B common stock
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$
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0.67
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The accompanying notes are an integral part of
these unaudited condensed financial statements.
THE MUSIC ACQUISITION CORPORATION
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
THREE MONTHS ENDED MARCH 31, 2021
(UNAUDITED)
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Class A
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Class B
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Additional
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Retained Earnings
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Total
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Common stock
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Common stock
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Paid-in
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(Accumulated
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Stockholder’s
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Shares
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Amount
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Shares
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Amount
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Capital
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Deficit)
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Equity
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Balance as of January 1, 2021
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—
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$
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—
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5,750,000
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$
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575
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$
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24,425
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$
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(751
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)
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$
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24,249
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Sale of 23,000,000 Units, net of offering costs related to Class A common stock and initial fair value of Public Warrants liability
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23,000,000
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2,300
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—
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—
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207,681,333
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—
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207,683,633
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Excess cash proceeds from Private Placement over fair value of Private Warrants liability
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—
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—
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—
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—
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972,180
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—
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972,180
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Net income
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—
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—
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—
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—
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—
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3,639,196
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3,639,196
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Common stock subject to possible redemption
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(20,731,925
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)
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(2,073
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)
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—
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—
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(207,317,177
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)
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—
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(207,319,250
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)
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Balance as of March 31, 2021 (unaudited)
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2,268,075
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$
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227
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5,750,000
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$
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575
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$
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1,360,761
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$
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3,638,445
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$
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5,000,008
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The accompanying notes are an integral part of
these unaudited condensed financial statements.
THE MUSIC ACQUISITION CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2021
(UNAUDITED)
Cash flows from operating activities:
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Net income
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$
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3,639,196
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Adjustments to reconcile net income to net cash used in operating activities:
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Interest earned on marketable securities held in Trust Account
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(2,079
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)
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Offering costs allocated to warrants
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556,614
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Change in fair value of warrant liability
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(4,333,290
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)
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Changes in operating assets and liabilities:
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Prepaid assets
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(729,415
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Accrued expenses
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30,880
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Net cash used in operating activities
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(838,094
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)
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Cash Flows from Investing Activities:
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Investment of cash in Trust Account
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(230,000,000
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)
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Net cash used in investing activities
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(230,000,000
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)
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Cash Flows from Financing Activities:
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Proceeds from sale of Units, net of underwriting discount
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225,400,000
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Proceeds from issuance of Private Placement Warrants
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6,600,000
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Proceeds from promissory note – related party
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50,000
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Repayment of promissory note – related party
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(170,000
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)
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Payment of offering costs
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(361,731
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Net cash provided by financing activities
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231,518,269
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Net change in cash
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680,175
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Cash, beginning of period
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55,000
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Cash, end of the period
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$
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735,175
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Supplemental disclosure of cash flow information:
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Initial value of Class A common stock subject to possible redemption
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$
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203,119,890
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Change in initial value of Class A common stock subject to possible redemption
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4,199,360
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Initial classification of warrant liability
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$
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15,399,370
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Deferred underwriters’ discount payable charged to additional paid-in capital
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$
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8,050,000
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The accompanying notes are an integral part of
these unaudited condensed financial statements.
THE MUSIC ACQUISITION CORPORATION
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1 — Organization and Business Operations
The Music Acquisition Corporation (the “Company”)
is a newly organized blank check company incorporated as a Delaware corporation on October 14, 2020. The Company was formed for the purpose
of effecting a merger, stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more
businesses (“Business Combination”).
As of March 31, 2021, the Company had not commenced
any operations. All activity through March 31, 2021 relates to the Company’s formation and the Initial Public Offering (“IPO”)
which is described below, and identifying a target company for a Business Combination. The Company will not generate any operating revenues
until after the completion of a Business Combination, at the earliest. The Company generates non-operating income in the form of interest
income from the proceeds derived from the IPO.
The registration
statement for the Company’s IPO was declared effective by the U.S. Securities and Exchange Commission (the “SEC”) on
February 2, 2021 (the “Effective Date”). On February 5, 2021, the Company consummated the IPO of 23,000,000 units (the
“Units” and, with respect to the shares of Class A common stock included in the Units sold, the “Public Shares”),
which included the full exercise by the underwriters of the over-allotment option to purchase an additional 3,000,000 Units, at $10.00
per Unit, generating gross proceeds of $230,000,000, which is discussed in Note 3. Each Unit consists of one share of common stock, and
one-half of one redeemable warrant to purchase one share of Class A common stock at a price of $11.50 per whole share.
Simultaneously with the closing of the IPO, the
Company consummated the sale of 6,600,000 Private Placement Warrants (the “Private Placement Warrants”), at a price of $1.00
per Private Placement Warrant, in a private placement to Music Acquisition Sponsor, LLC, a Delaware limited liability company (the “Sponsor”),
generating gross proceeds of $6,600,000, which is discussed in Note 4.
Transaction costs of the IPO amounted to $13,101,431
consisting of $4,600,000 of underwriting discount, $8,050,000 of deferred underwriting discount, and $451,431 of other offering costs.
Following the closing of the IPO on February 5,
2021, $230,000,000 ($10.00 per Unit) from the net offering 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 invested in United States “government securities”
within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 185 days or less or in money market funds meeting
certain conditions of Rule 2a-7 promulgated under the Investment Company Act which invests only in direct U.S. government treasury obligations,
until the earliest of (a) the completion of the Company’s initial Business Combination, (b) the redemption of the Company’s
public shares if the Company is unable to complete the initial Business Combination within 24 months from the closing of the IPO, subject
to applicable law, and (c) the redemption of the Company’s public shares properly submitted in connection with a stockholder vote
to amend the Company’s amended and restated certificate of incorporation.
The Company’s Business Combination must
be with one or more operating businesses or assets with a fair market value equal to at least 80% of the net assets held in the trust
account (as defined below) (excluding the amount of any deferred underwriting discount held in trust and taxes payable) at the time of
the signing a definitive agreement in connection with an initial Business Combination. However, the Company will only complete a Business
Combination if the post transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise
acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment
Company Act of 1940, as amended (the “Investment Company Act”). There is no assurance that the Company will be able to successfully
effect a Business Combination.
The Company will provide its public holders of
its outstanding public shares (the “public stockholders”) with the opportunity to redeem all or a portion of their public
shares upon the completion of the initial Business Combination either (i) in connection with a stockholder meeting called to approve
the initial Business Combination or (ii) without a stockholder vote by means of a tender offer. Except for as required by applicable
law or stock exchange listing requirements, the decision as to whether the Company will seek stockholder approval of a proposed Business
Combination or conduct a tender offer will be made by the Company, solely in its discretion.
The stockholders will be entitled to redeem their
shares for a pro rata share of the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the
consummation of the initial Business Combination, including interest earned on the funds held in the Trust Account (net of amounts which
may be withdrawn to pay our taxes), divided by the number of then outstanding public shares, subject to the limitations described in this
prospectus. The amount in the Trust Account is initially anticipated to be $10.00 per public share. The redemption rights will include
the requirement that a beneficial holder must identify itself in order to validly redeem its shares. The per share amount the Company
will distribute to investors who properly redeem their shares will not be reduced by the deferred underwriting commissions the Company
will pay to the underwriters in the IPO.
The Company will have only 24 months from the
closing of the IPO to complete an initial Business Combination (the “Combination Period”). However, if the Company doesn’t
complete a Business Combination within the Combination Period, the Company 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 the Company to pay its taxes (less up to $100,000 of interest to pay dissolution
expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’
rights as stockholders (including the right to receive further liquidating distributions, if any), and (iii) as promptly as reasonably
possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board
of directors, liquidate and dissolve, subject in each case to the Company’s obligations under Delaware law to provide for claims
of creditors and the requirements of other applicable law.
The
Company’s initial stockholders, officers and directors have agreed to (i) waive their redemption rights
with respect to any Founder Shares (as defined below) and public shares they hold in connection with the completion of the initial Business
Combination, (ii) waive their redemption rights with respect to any Founder Shares and public shares they hold in connection with
a stockholder vote to approve an amendment to the Company’s amended and restated certificate of incorporation, (iii) waive
their rights to liquidating distributions from the Trust Account with respect to any Founder Shares they hold if the Company fails to
complete the initial Business Combination within the Combination Period, and (iv) vote any Founder Shares and any public shares
held by them in favor of the Company’s initial Business Combination.
The Company’s Sponsor has agreed that it
will be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company,
or a prospective target business with which the Company has entered into a written letter of intent, confidentiality or other similar
agreement or Business Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per public
share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account,
if less than $10.00 per share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will
not apply to any claims by a third-party or prospective target business who executed a waiver of any and all rights to the monies held
in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under the Company’s indemnity of
the underwriters of the IPO against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities
Act”). However, the Company has not asked its Sponsor to reserve for such indemnification obligations, nor has the Company independently
verified whether its Sponsor has sufficient funds to satisfy its indemnity obligations and the Company believes that the Company’s
Sponsor’s only assets are securities of the Company. Therefore, the Company cannot assure that its Sponsor would be able to satisfy
those obligations.
Liquidity and Capital Resources
As of March 31, 2021,
the Company had approximately $.7 million in its operating bank account, and working capital of approximately $1.4 million.
The Company’s liquidity needs up to February
5, 2021 had been satisfied through a capital contribution from the Sponsor of $25,000 (see Note 5) for the Founder Shares and the loan
under an unsecured promissory note from the Sponsor of $170,000 (see Note 5). The promissory note from the Sponsor was paid in full as
of February 8, 2021. In addition, in order to finance transaction costs in connection with a Business Combination, the Company’s
Sponsor or an affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, provide
the Company Working Capital Loans (see Note 5). As of March 31, 2021 and December 31, 2020, there were no amounts outstanding under any
Working Capital Loans.
Based on
the foregoing, management believes that the Company will have sufficient working capital and borrowing capacity to meet its needs through
the earlier of the consummation of a Business Combination or one year from this filing. Over this time period, the Company 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.
Risks and Uncertainties
Management
is continuing to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that it could have
a negative effect on the Company’s 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 these unaudited condensed financial statements. The unaudited condensed financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 2 — Significant Accounting Policies
Basis of Presentation
The accompanying
unaudited condensed financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in
the United States of America (“GAAP”) for financial information and pursuant to the rules and regulations of 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 audited financial statements and notes thereto included
in the Form 10-K filed by the Company with the SEC on March 29, 2021. The interim results for the three months ended March 31,
2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 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 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 US 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. Accordingly, actual results could differ
from those estimates.
Making estimates requires management to exercise
significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances
that existed at the date of the unaudited condensed financial statements, which management considered in formulating its estimate, could
change in the near term due to one or more future confirming events. One of the more significant accounting estimates included in these
unaudited condensed financial statements is the determination of the fair value of the warrant liability. Accordingly, the actual results
could differ significantly from those estimates.
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 March 31, 2021 and December 31, 2020.
Marketable Securities Held in Trust Account
At March 31, 2021, the assets held in the Trust
Account were held in money market funds which invest U.S. Treasury securities. During the three months ended March 31, 2021, the Company
did not withdraw any of the interest income from the Trust Account to pay its tax obligations.
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.
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
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 Sheet 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 Statement of Operations in
the period of change.
Offering Costs Associated
with the Initial Public Offering
The Company complies
with the requirements of the 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, presented as non-operating expenses in the
statement of operations. Offering costs associated with the Class A common stock were charged to stockholders’ equity upon
the completion of the Initial Public Offering.
Class A Common Stock Subject to Possible Redemption
The Company
accounts for its Class A common stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing
Liabilities from Equity.” Class A common stock subject to mandatory redemption (if any) is classified as liability instruments
and are measured at fair value. Conditionally redeemable Class A common stock (including Class A common stock that features
redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not
solely within the Company’s control) are classified as temporary equity. At all other times, Class A common stock is classified
as stockholders’ equity. The Company’s Class A common stock feature certain redemption rights that are considered to
be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, at March 31, 2021 and
December 31, 2020, 20,731,925 and 0 shares, respectively, of Class A common stock subject to possible redemption is presented as
temporary equity, outside of the stockholders’ equity section of the Company’s condensed balance sheets.
Income Taxes
The Company accounts for income taxes under ASC
740 Income Taxes (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected
impact of differences between the financial statement 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. The deferred tax assets were deemed to be
de minimis as of March 31, 2021 and December 31, 2020.
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 December 31, 2020. 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 tax examinations by major taxing authorities since inception. These potential 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. The provision for income taxes was deemed to be de minimis for the three months ended March 31, 2021.
Net Income Per Common Share
Net income
per share is computed by dividing net loss by the weighted-average number of common stock outstanding during the period. The Company has
not considered the effect of the Warrants to purchase an aggregate of 18,100,000
shares of the Company’s Class A common stock in the calculation of diluted income per share, since the exercise of the
warrants are contingent upon the occurrence of future events. As a result, diluted net income per common share is the same as basic net
income per common share for the period presented.
Reconciliation of Net Income per Common Share
The Company’s
condensed statement of operations includes a presentation of loss per share for common stock subject to redemption in a manner similar
to the two-class method of income (loss) per share. Accordingly, basic and diluted loss per common share of
Class A common stock and Class B common stock is calculated as follows:
|
|
Three Months
Ended
March 31,
2021
|
|
Net Income per share for Class A common stock:
|
|
|
|
Interest income earned on securities held in the Trust Account
|
|
$
|
2,079
|
|
Less: Interest income available to the Company for taxes
|
|
|
(450
|
)
|
Adjusted net income
|
|
$
|
1,629
|
|
|
|
|
|
|
Weighted average shares outstanding of Class A common stock
|
|
|
23,000,000
|
|
Basic and diluted net income per share, Class A common stock
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
Net Income per share for Class B common stock:
|
|
|
|
|
Net income
|
|
$
|
3,639,196
|
|
Less: Income attributable to Class A common stock
|
|
|
(1,629
|
)
|
Adjusted net income
|
|
$
|
3,637,567
|
|
|
|
|
|
|
Weighted average shares outstanding of Class B common stock
|
|
|
5,455,056
|
|
Basic and diluted net income per share, Class B common stock
|
|
$
|
0.67
|
|
Fair Value of Financial Instruments
The Company follows the guidance in ASC 820, “Fair
Value Measurement,” for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period,
and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The fair value of the Company’s financial
assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale
of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the
measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of
observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions
about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities
based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1 —
|
Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not being applied. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.
|
|
|
Level 2 —
|
Valuations based on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived principally from or corroborated by market through correlation or other means.
|
|
|
Level 3 —
|
Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
|
See Note 8 for additional information on assets
and liabilities measured at fair value.
Recently Adopted Accounting Standards
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. The ASU 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 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.
Recent Accounting Pronouncements
Management does not believe that any recently
issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed
financial statements.
Note 3 — Initial Public Offering
Public Units
On February 5, 2021, the Company sold 23,000,000
Units, at a purchase price of $10.00 per Unit, which included the full exercise by the underwriters of the over-allotment option to purchase
an additional 3,000,000 Units. Each Unit consists of one share of Class A common stock, and one-half of one redeemable warrant to purchase
one share of Class A common stock (the “Public Warrants”).
Public Warrants
Each whole warrant entitles the holder to purchase
one share of the Company’s Class A common stock at a price of $11.50 per share, subject to adjustment as discussed herein. The warrants
will become exercisable on the later of 12 months from the closing of the IPO or 30 days after the completion of its initial Business
Combination, and will expire five years after the completion of the Company’s initial Business Combination, at 5:00 p.m., New York
City time, or earlier upon redemption or liquidation. In addition, if (x) the Company issues additional shares of Class A common
stock or equity-linked securities for capital raising purposes in connection with the closing of its initial Business Combination at an
issue price or effective issue price of less than $9.20 per share of Class A common stock (with such issue price or effective issue
price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance to the Company’s
initial stockholders or their affiliates, without taking into account any Founder Shares held by the Company’s initial stockholders
or their affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds
from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of the initial
Business Combination on the date of the consummation of the initial Business Combination (net of redemptions), and (z) the volume
weighted average trading price of the Company’s Class A common stock during the 20 trading day period starting on the
trading day after the day on which the Company consummates the initial Business Combination (such price, the “Market Value”)
is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher
of the Market Value and the Newly Issued Price, and the $18.00 per share redemption trigger price described below under “Redemption
of warrants” will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price.
The Company will not be obligated to deliver any
shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless
a registration statement under the Securities Act with respect to the shares of Class A common stock underlying the warrants is then effective
and a prospectus relating thereto is current, or valid exemption from registration is available. No warrant will be exercisable and the
Company will not be obligated to issue a share of Class A common stock upon exercise of a warrant unless the share of Class A common stock
issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence
of the registered holder of the warrants. In no event will the Company be required to net cash settle any warrant. In the event that a
registration statement is not effective for the exercised warrants, the purchaser of a Unit containing such warrant will have paid the
full purchase price for the Unit solely for the share of Class A common stock underlying such Unit.
The Company has agreed that as soon as practicable,
but in no event later than fifteen (15) business days after the closing of the initial Business Combination, it will use its reasonable
best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the Class A common stock
issuable upon exercise of the warrants. The Company will use its best efforts to cause the same to become effective and to maintain the
effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the warrants in accordance
with the provisions of the warrant agreement. If a registration statement covering the shares of Class A common stock issuable upon exercise
of the warrants is not effective by the sixtieth (60th) business day after the closing of the initial Business Combination, warrant holders
may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain
an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities
Act or another exemption. Notwithstanding the above, if the Class A common stock is at the time of any exercise of a warrant not listed
on a national securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of
the Securities Act, the Company may, at its option, require holders of public warrants who exercise their warrants to do so on a “cashless
basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, it will not be required
to file or maintain in effect a registration statement, and in the event the Company does not so elect, it will use its best efforts to
register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Once the warrants become exercisable, the Company
may call the Public Warrants for redemption:
|
●
|
in whole and not in part;
|
|
|
|
|
●
|
at a price of $0.01 per warrant;
|
|
|
|
|
●
|
upon a minimum of 30 days’ prior written notice of redemption to each warrant holder; and
|
|
|
|
|
●
|
if, and only if, the last reported sale price of the Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the warrant holders.
|
If the Company calls the warrants for redemption
as described above, the Company will have the option to require any holder that wishes to exercise his, her or its warrant to do so on
a “cashless basis.” If the Company takes advantage of this option, all holders of warrants would pay the exercise price by
surrendering their warrants in exchange for a number of shares of Class A common stock equal to the quotient obtained by dividing (x)
the product of (A) the number of shares of Class A common stock underlying the warrants and (B) the excess of the “fair market value”
of the Company’s Class A common stock (defined in the next sentence) over the exercise price of the warrants by (y) the fair market
value. The “fair market value” will mean the average last reported sales price of the Class A common stock for the 10 trading
days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants.
Note 4 — Private Placement
Simultaneously with the closing of the IPO, the
Sponsor purchased an aggregate of 6,600,000 Private Placement Warrants at a price of $1.00
per Private Placement Warrant, for an aggregate purchase price of $6,600,000, in a private placement. A portion of the proceeds from the
private placement was added to the proceeds from the IPO held in the Trust Account.
The Private Placement Warrants are identical to
the Public Warrants sold in the IPO except that the Private Placement Warrants, so long as they are held by the initial stockholders or
its permitted transferees, (i) they will not be redeemable by the Company for cash, (ii) they (including the Class A common stock issuable
upon exercise of these warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold until 30 days after
the completion of the Company’s initial Business Combination, and (iii) they may be exercised by the holders on a cashless basis.
If the Private Placement Warrants are held by holders other than the initial purchasers or their permitted transferees, the Private Placement
Warrants will be redeemable by the Company and exercisable by the holders on the same basis as the warrants included in the Units being
sold in the IPO.
Note 5 — Related Party Transactions
Founder Shares
On November 25, 2020, the Sponsor paid $25,000
in cash, or approximately $0.004 per share, to the Company in consideration for 5,750,000 shares of Class B common stock (the “Founder
Shares”). The Founder Shares included an aggregate of up to 750,000 shares which were subject to forfeiture if the over-allotment
option was not exercised by the underwriters in full. On February 5, 2021, the underwriters fully exercised their over-allotment option,
hence, the 750,000 Founder Shares are no longer subject to forfeiture.
The Sponsor has agreed not to transfer, assign
or sell any of its Founder Shares (subject to certain limited exceptions) until the earlier to occur of (i) one year after the completion
of the Company’s initial Business Combination or (ii) the date on which the Company completes a liquidation, merger, capital
stock exchange, reorganization or other similar transaction after the initial Business Combination that results in all of the Company’s
stockholders having the right to exchange their Class A common stock for cash, securities or other property (the “Lock-up”).
Notwithstanding the foregoing, if (A) the last reported sales price of the Company’s Class A common stock equals or exceeds
$12.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20 trading
days within any 30-trading day period commencing at least 150 days after the initial Business Combination or (B) the Company
consummates a transaction after the initial Business Combination which results in its stockholders having the right to exchange their
shares for cash, securities or other property, the Founder Shares will be released from the Lock-up.
Promissory Note — Related Party
On November 25, 2020, the Company issued an unsecured
promissory note to the Sponsor, pursuant to which the Company may borrow up to an aggregate principal amount of $300,000 to be used for
a portion of the expenses of the IPO. This loan was non-interest bearing, unsecured and due at the earlier of June 30, 2021 or the closing
of the IPO. As of the IPO on February 5, 2021, the Company had drawn down $170,000 under the promissory note. On February 8, 2021, the
Company paid the $170,000 balance on the note in full. As of March 31, 2021 and December 31, 2020,
there were borrowings outstanding under the promissory note of $0 and $120,000, respectively.
Related Party Loans
In order to fund working capital deficiencies
or finance transaction costs in connection with an intended initial Business Combination, the Sponsor or an affiliate of the Sponsor or
certain of the Company’s officers and directors or their respective affiliates may, but are not obligated to, loan the Company funds
as may be required on a non-interest basis (“Working Capital Loans”). If the Company completes a Business Combination, the
Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working
Capital Loans would be repaid only out of funds held outside of the Trust Account. In the event that a Business Combination does not close,
the Company may use a portion of the working capital held outside the Trust Account to repay the Working Capital Loans but no proceeds
from the Trust Account would be used to repay the Working Capital Loans. Up to $1,500,000 of such Working Capital Loans may be convertible
into warrants of the post Business Combination entity at a price of $1.00 per warrant at the option of the lender. The warrants would
be identical to the Private Warrants, including as to exercise price, exercisability and exercise period. As of March 31, 2021 and December
31, 2020, no such Working Capital Loans were outstanding.
Administrative Service Fee
The Company agreed to pay an affiliate of the
Company’s Sponsor a monthly fee of $15,000 for office space, secretarial and administrative services. Upon completion of the Company’s
Business Combination or its liquidation, the Company will cease paying these monthly fees. For the three months ended March 31,
2021, the Company has incurred and paid $30,000 of administrative service fees.
Note 6 — Commitments and Contingencies
Registration Rights
The holders of the Founder Shares, Private Warrants
and warrants that may be issued upon conversion of Working Capital Loans will be entitled to registration rights pursuant to a registration
rights agreement dated as of February 2, 2021 by and between the Company and the parties thereto, requiring the Company to register such
securities and any other securities of the company acquired by them prior to the consummation of the initial Business Combination for
resale. The holders of these securities are entitled to make up to three demands, excluding short form demands, that the Company registers
such securities. In addition, the holders have certain “piggy-back” registration rights to include their securities in other
registration statements filed by the Company.
Underwriting Agreement
The underwriters had a 45-day option from the date
of the IPO to purchase up to an aggregate of 3,000,000 additional Units at the public offering price less the underwriting commissions
to cover over-allotments, if any. On February 5, 2021, the underwriters
fully exercised their over-allotment option and were paid a cash underwriting discount of $0.20 per Unit, or $4,600,000 in the aggregate.
The underwriters are entitled to deferred underwriting
fee of 3.5% of the gross proceeds of the IPO, or $8,050,000 in the aggregate. The deferred
fee will be payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes an initial
Business Combination, subject to the terms of the underwriting agreement.
Note 7 — Stockholders’ Equity
Preferred Stock — The Company
is authorized to issue a total of 1,000,000 preferred shares at par value of $0.0001 each. At March 31, 2021 and December 31, 2020, there
were no shares of preferred stock issued or outstanding.
Class A Common Stock — The
Company is authorized to issue a total of 380,000,000 shares of Class A common stock at par value of $0.0001 each. At March 31, 2021 and
December 31, 2020, there were 23,000,000 and 0 shares issued and outstanding, including 20,731,925 and no shares subject to possible redemption,
respectively.
Class B Common Stock — The
Company is authorized to issue a total of 20,000,000 shares of Class B common stock at par value of $0.0001 each. At March 31, 2021 and
December 31, 2020, there were 5,750,000 shares issued and outstanding.
The shares of Class B common stock will automatically
convert into shares of the Company’s Class A common stock at the time of the closing of its initial Business Combination on a one-for-one
basis, subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like, and subject to further
adjustment as provided herein. In the case that additional shares of Class A common stock, or equity-linked securities, are issued or
deemed issued in connection with the initial Business Combination, the number of shares of Class A common stock issuable upon conversion
of all Founder Shares will equal, in the aggregate, on an as-converted basis, 20% of the total number of shares of Class A common stock
outstanding after such conversion (after giving effect to any redemptions of shares of Class A common stock by public stockholders), including
the total number of shares of Class A common stock issued, or deemed issued or issuable upon conversion or exercise of any equity-linked
securities or rights issued or deemed issued, by the Company in connection with or in relation to the consummation of the initial Business
Combination, excluding any shares of Class A common stock or equity-linked securities or rights exercisable for or convertible into shares
of Class A common stock issued, or to be issued, to any seller in the initial Business Combination and any Private Placement Warrants
issued to the Sponsor, officers or directors upon conversion of Working Capital Loans, provided that such conversion of Founder Shares
will never occur on a less than one-for-one basis.
Stockholders of record are entitled to one vote
for each share held on all matters to be voted on by stockholders. Holders of the Class A common stock and holders of the Class B common
stock will vote together as a single class on all matters submitted to a vote of the Company’s stockholders except as required by
law. Unless specified in the Company’s amended and restated certificate of incorporation, or as required by applicable provisions
of the Delaware General Corporation Law or applicable stock exchange rules, the affirmative vote of a majority of the Company’s
shares of common stock that are voted is required to approve any such matter voted on by the Company’s stockholders.
Note 8 — Fair Value Measurements
The following table presents information about
the Company’s assets and liabilities that are measured at fair value on a recurring basis at March 31, 2021, and indicates the fair
value hierarchy of the valuation inputs the Company utilized to determine such fair value:
|
|
March 31,
|
|
|
Quoted
Prices In
Active
Markets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Other
Unobservable
Inputs
|
|
|
|
2021
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Money Market held in Trust Account
|
|
$
|
230,002,079
|
|
|
$
|
230,002,079
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public Warrants Liability
|
|
$
|
7,015,000
|
|
|
$
|
7,015,000
|
|
|
$
|
-
|
|
|
$
|
|
|
Private Placement Warrants Liability
|
|
|
4,051,080
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,051,080
|
|
|
|
$
|
11,066,080
|
|
|
$
|
7,015,000
|
|
|
$
|
-
|
|
|
$
|
4,051,080
|
|
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 of $7,015,000 transferred from a
Level 3 fair value measurement to a Level 1 fair value measurement as of March 31, 2021.
Warrant Liabilities
The Warrants are accounted for as liabilities
in accordance with ASC 815-40 and are presented within warrant liabilities on the Condensed Balance Sheet. The warrant liabilities are
measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant
liabilities in the Condensed Statement of Operations.
The Company established the initial fair value
of the Public Warrants and Private Warrants on February 5, 2021, the date of the Company’s Initial Public Offering, using a Monte
Carlo simulation model. The Public Warrants and Private Warrants were classified as Level 3 at the initial measurement date, and the
Private Warrants were classified as Level 3 as of March 31, 2021 due to the use of unobservable inputs. The Public Warrants were classified
as Level 1 as of March 31, 2021 due to use of the observed trading price of the separated Public Warrants.
The following table presents the changes in the
fair value of warrant liabilities:
|
|
Private
Placement
Warrants
|
|
|
Public
Warrants
|
|
|
Warrant
Liabilities
|
|
Fair Value as of December 31, 2020
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Initial measurement on February 5, 2021
|
|
|
5,627,820
|
|
|
|
9,771,550
|
|
|
|
15,399,370
|
|
Change in valuation
|
|
|
(1,576,740
|
)
|
|
|
(2,756,550
|
)
|
|
|
(4,333,290
|
)
|
|
|
$
|
4,051,080
|
|
|
$
|
7,015,000
|
|
|
$
|
11,066,080
|
|
The key inputs into the Monte Carlo simulation
as of as of February 5, 2021 and March 31, 2021 were as follows:
|
|
(Initial Measurement)
|
|
|
|
|
Inputs
|
|
February 5,
2021
|
|
|
March 31,
2021
|
|
Risk-free interest rate
|
|
|
0.72
|
%
|
|
|
1.26
|
%
|
Expected term (years)
|
|
|
6.58
|
|
|
|
6.42
|
|
Expected volatility
|
|
|
15.0
|
%
|
|
|
10.0
|
%
|
Underlying stock price
|
|
$
|
9.58
|
|
|
$
|
9.79
|
|
Note 9 — Subsequent Events
Management has evaluated subsequent events to
determine if events or transactions occurring through May 21, 2021, the date the unaudited condensed financial statements were available
for issuance, require potential adjustment to or disclosure in the unaudited condensed financial statements and has concluded that, other
than contained herein, all such events that would require recognition or disclosure have been recognized or disclosed.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
References
to the “Company,” “our,” “us” or “we” refer to The Music Acquisition Corporation.
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction
with the unaudited condensed financial statements and the notes thereto contained elsewhere in this report. Certain information
contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Cautionary
Note Regarding Forward-Looking Statements
This
Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
as amended, 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-Q.
Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities
and Exchange Commission (“SEC”) filings.
Overview
We
are a blank check company incorporated in Delaware on October 14, 2020, for the purpose of effecting a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses (the “Business
Combination”).
Our
Sponsor is Music Acquisition Sponsor LLC (the “Sponsor”), a Delaware limited liability company. The registration statement
on Form S-1 for our initial public offering (the “Initial Public Offering” or “IPO”) was declared effective
on February 2, 2021. On February 5, 2021, we consummated our Initial Public Offering of 23,000,000 units (the “Units”
and, with respect to the Class A common stock included in the Units, the “Public Shares”), which included the full
exercise of the underwriters’ option to purchase up to an additional 3.0 million Units at the Initial Public Offering price
to cover over-allotments, at $10.00 per Unit, generating gross proceeds of $230.0 million. Each Unit consists of one share of
Class A common stock of the Company, par value $0.0001 per share (“Class A common stock”), and one-half of one redeemable
warrant of the Company (“Warrants”), with each whole Warrant entitling the holder thereof to purchase one share of
Class A Common Stock at an exercise price of $11.50 per share, subject to adjustment, pursuant to the Company’s registration
statement on Form S-1 (File No. 333-252152).
Simultaneously
with the closing of the Initial Public Offering, we consummated the private placement (“Private Placement”) of 6,600,000
warrants (each, a “Private Placement Warrant” and collectively, the “Private Placement Warrants”) to our
Sponsor, each exercisable to purchase one share of Class A common stock at $11.50 per share, at a price of $1.00 per Private Placement
Warrant, generating gross proceeds to us of $6.6 million.
Upon
the closing of the Initial Public Offering and the Private Placement (including the additional Units and additional Private Placement
Warrants sold in connection with the full exercise of the underwriters’ over-allotment option), a total of $230.0 million
of the net proceeds of the Initial Public Offering and the Private Placement, including $8,050,000, of deferred underwriting discounts
and commissions, were placed in a trust account (“Trust Account”) located in the United States at JP Morgan Chase
Bank, N.A. with Continental Stock Transfer & Trust Company acting as trustee.
If
we are unable to complete an initial Business Combination within 24 months from the closing of the Initial Public Offering, or
February 5, 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 (net of
permitted withdrawals and up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public
Shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to
receive further liquidating distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject
to the approval of the remaining stockholders and the board of directors, liquidate and dissolve, subject in each case to our
obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
Liquidity
and Capital Resources
As
of March 31, 2021, we had approximately $0.7 million in our operating bank account, and working capital of approximately $1.4
million.
Our
liquidity needs have been satisfied with the net proceeds from the consummation of the Private Placement not held in the Trust
Account. In addition, in order to fund working capital deficiencies or finance transaction costs in connection with an intended
initial Business Combination, the Sponsor, an affiliate of the Sponsor, or certain of the Company’s officers and directors
or their affiliates may, but are not obligated to, loan the Company funds as may be required on a non-interest basis (“Working
Capital Loans”). To date, there are no amounts outstanding under any Working Capital Loan.
Based
on the foregoing, management believes that we will have sufficient working capital and borrowing capacity to meet our needs through
the earlier of the consummation of an initial Business Combination or one year from this filing. 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 initial Business Combination.
Management
continues to evaluate the impact of the COVID-19 pandemic and has concluded that the specific impact is not readily determinable
as of the date of these financial statements. The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Results
of Operations
Our
only activities from October 14, 2020 (inception) up to March 31, 2021 were organizational activities and those necessary to prepare
for our Initial Public Offering, and, after our Initial Public Offering, identifying a target company for an initial business
combination. We do not expect to generate any operating revenues until the closing and completion of our initial Business Combination,
at the earliest. We generate non-operating income in the form of interest income on marketable securities held in the Trust Account.
We are incurring 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 quarterly period ended March 31, 2021, we had a net income of approximately $3.6 million, which included a loss from operations
of $0.1 million, offering cost expense allocated to warrants of $0.6 million, and fully offset by a gain from the change
in fair value of warrant liabilities of $4.3 million.
Commitments
and Contractual Obligations
Registration
Rights
The
holders of 5,750,000 shares of the Company’s Class B common stock (as adjusted, the “Founder Shares”), Private
Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans, if any (and any 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 upon conversion of the Founder Shares), will be entitled to certain registration rights pursuant to a registration rights
agreement. These holders will be entitled to certain demand and “piggyback” registration rights. We will bear the
expenses incurred in connection with the filing of any such registration statements.
Underwriting
Agreement
The
underwriters had a 45-day option from the date of the IPO on February 5, 2021 to purchase up to an aggregate of 3,000,000 additional
Units at the public offering price less the underwriting commissions to cover over-allotments, if any. On February 5, 2021, the
underwriters fully exercised their over-allotment option.
The
underwriters were entitled to a cash underwriting fee of $0.20 per Unit payable upon the closing of the IPO. When the IPO closed
on February 5, 2021, the underwriters were paid an aggregate of $4,600,000, or $0.20 per Unit.
The
underwriters will be entitled to deferred underwriting commission of 3.5% of the gross proceeds of the IPO held in the Trust Account,
or $8,050,000, upon the completion of the Company’s initial Business Combination subject to the terms of the underwriting
agreement.
Contractual
Obligations
We
do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an
agreement to reimburse an affiliate of our Sponsor for office space, secretarial and administrative services provided to members
of our management team in an amount not to exceed $15,000 per month. We began incurring these fees on February 2, 2021 and will
continue to incur these fees monthly until the earlier of the completion of our initial business combination or our liquidation.
Critical
Accounting Policies
The
preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the
United States of America (“US 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 financial statements
and the reported amounts of expenses during the reporting period. Making estimates requires management to exercise significant
judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances
that existed at the date of the financial statements, which management considered in formulating its estimate, could change in
the near term due to one or more future confirming events. Accordingly, actual results could differ from those estimates.
We
have identified the following significant accounting policies:
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 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 Sheet 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 Statement of Operations in the period of change.
Offering
Costs Associated with the Initial Public Offering
The Company complies with the requirements of the 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, presented as non-operating expenses
in the statement of operations. Offering costs associated with the Class A common stock were charged to stockholders’ equity upon the
completion of the Initial Public Offering.
Class
A Common Stock Subject to Possible Redemption
The Company accounts for its Class A common stock subject to possible redemption in
accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Class A common stock subject to mandatory
redemption (if any) is classified as liability instruments and are measured at fair value. Conditionally redeemable Class A common stock
(including Class A common stock that features redemption rights that are either within the control of the holder or subject to redemption
upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times,
Class A common stock is classified as stockholders’ equity. The Company’s Class A common stock feature certain redemption rights that
are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, at March
31, 2021 and December 31, 2020, 20,731,925 and 0 shares, respectively, of Class A common stock subject to possible redemption is presented
as temporary equity, outside of the stockholders’ equity section of the Company’s condensed balance sheets.
Net
Income Per Common Share
Net income per share is computed by dividing net loss by the weighted-average number of common stock outstanding during the period. The
Company has not considered the effect of the Warrants to purchase an aggregate
of 18,100,000 shares of the Company’s Class A common stock in the calculation of diluted income per share, since the exercise of the warrants
are contingent upon the occurrence of future events. As a result, diluted net income per common share is the same as basic net income
per common share for the period presented.
Income
Taxes
The
Company accounts for income taxes under ASC 740 Income Taxes (“ASC 740”). ASC 740 requires the recognition of deferred tax
assets and liabilities for both the expected impact of differences between the financial statement 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. The deferred
tax assets were deemed to be de minimis as of March 31, 2021 and December 31, 2020.
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 December 31, 2020. 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 tax examinations by major taxing authorities
since inception. These potential 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. The provision for income taxes was deemed to be de minimis for the three
months ended March 31, 2021.
Recent
Accounting Pronouncements
Management
does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material
effect on our financial statements.
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 we 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 our 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, we, 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 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.