NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE
1 — ORGANIZATION AND NATURE OF BUSINESS OPERATIONS
Organization
and General
B.
Riley Principal 250 Merger Corp. (the “Company”), a blank check corporation, was incorporated as a Delaware corporation on
June 19, 2020. The Company is an emerging growth company, as defined in Section 2(a) of the Securities Act of 1933, as amended,
(the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The
Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or
similar business combination with one or more businesses (an “Initial Business Combination”).
As
of June 30, 2022, the Company had not commenced any operations. All activity of the Company includes the activity of the Company
from inception and activity related to the initial public offering (the “Public Offering”) described below and evaluating
prospective acquisition targets. The Company will not generate any operating revenues until after completion of its Initial Business
Combination, at the earliest. The Company will generate non-operating income in the form of interest income on cash and cash equivalents
from the proceeds derived from the Public Offering described below. The Company has selected December 31st as its fiscal year
end.
Public
Offering
The
Company completed the sale of 15,000,000 units (the “Public Units”) at an offering price of $10.00 per Public
Unit in the Public Offering on May 11, 2021. B. Riley Principal 250 Sponsor Co. LLC (the “Sponsor”), a Delaware limited liability
company and a wholly-owned indirect subsidiary of B. Riley Financial, Inc. (“B. Riley Financial”), purchased an aggregate
of 555,000 units at a price of $10.00 per unit (the “Private Placement Units”) in a private placement that
closed on May 11, 2021 simultaneously with the Public Offering. The sale of the 15,000,000 Public Units in the Public Offering
generated gross proceeds of $150,000,000, less underwriting commissions of $3,000,000 (2% of the gross proceeds of the Public Offering)
and other offering costs of $571,103. The sale of the Private Placement Units generated $5,550,000 of gross proceeds. The Company
granted the underwriters a 45-day option from the date of the prospectus, May 7, 2021, to purchase additional Public Units. On June 14,
2021, the underwriters exercised the over-allotment in full and purchased an additional 2,250,000 Public Units (the “Over-Allotment
Public Units”), generating gross proceeds of $22,500,000, less underwriting commissions of $450,000 (2% of the gross proceeds
of the Over-Allotment Public Units. On June 14, 2021, simultaneously with consummation of the sale of the Over-Allotment Public
Units, the Company consummated a private sale of an additional 45,000 Private Placement Units (the “Over-Allotment Private
Placement Units”) to the Sponsor, generating gross proceeds of $450,000.
Each
Unit consists of one share of the Company’s Class A common stock, $0.0001 par value (“Class A common stock”,
and with respect to the shares underlying the Public Units, the “public shares” and with respect to the shares underlying
the Private Placement Units, the “Private Placement Shares”), and one-third of one redeemable warrant, with each whole warrant
exercisable for one share of Class A common stock (the “Warrants” and, with respect to the Warrants underlying the Public
Units, the “Public Warrants” and with respect to the Warrants underlying the Private Placement Units, the “Private
Placement Warrants”). One Warrant entitles the holder thereof to purchase one whole share of Class A common stock at an initial
exercise price of $11.50 per share.
Sponsor
and Note Payable - Related Party
The
Company had a promissory note (the “Note”) payable to Sponsor which allowed the Company to borrow up to $300,000 without
interest to be used for a portion of the expenses of Public Offering. The Note was payable on the earlier of: (i) December 31,
2021 or (ii) the date on which the Company consummated an initial public offering of its securities. Borrowings during the six months
ended June 30, 2021 totaled $100,000 which were loaned by the Sponsor to the Company and on May 17, 2021 the full balance of the Note
in the amount of $100,000 was repaid using proceeds from the Public Offering and the Private Placement.
The
Trust Account
Upon
completion of the Public Offering, and the underwriters exercise of the over-allotment in full, $172,250,000 of proceeds were placed
in the Company’s trust account at Bank of America, N.A., with Continental Stock Transfer & Trust Company acting as trustee
(the “Trust Account”) and are invested in permitted United States “government securities” within the meaning
of Section 2(a)(16) of the Investment Company Act of 1940, as amended, which we refer to as the Investment Company Act, having a maturity
of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act
that invest only in direct U.S. government treasury obligations. Unless and until the Company completes the Initial Business Combination,
it may pay its expenses only from the net proceeds of the Public Offering and the sale of the Private Placement Units held outside the
Trust Account, which was $671,082 and $1,050,144 on June 30, 2022 and December 31, 2021, respectively.
Except
with respect to interest earned on the funds held in the Trust Account that may be released to the Company to pay its taxes, the proceeds
from the Public Offering may not be released from the Trust Account until the earliest of: (i) the completion of the Initial Business
Combination; (ii) the redemption of any public shares properly tendered in connection with a stockholder vote to amend the Company’s amended
and restated certificate of incorporation (the “Amended Charter”) to modify the substance or timing of the Company’s
obligation to redeem 100% of its public shares if it does not complete the Initial Business Combination by May 11, 2023; or (iii)
the redemption of all of the Company’s public shares if the Company is unable to complete the Initial Business Combination by May
11, 2023 (at which such time up to $100,000 of interest shall be available to the Company to pay dissolution expenses), subject
to applicable law. The proceeds deposited in the Trust Account could become subject to the claims of the Company’s creditors, if
any, which could have priority over the claims of the holders of the Company’s public shares (the “public stockholders”).
Initial
Business Combination
The
Company’s management has broad discretion with respect to the specific application of the net proceeds of the Public Offering,
although substantially all of the net proceeds of the Public Offering and the sale of the Private Placement Units are intended to be
generally applied toward consummating an Initial Business Combination. The Initial Business Combination must occur with one or more businesses
or assets with a fair market value equal to at least 80% of the net assets held in the Trust Account (excluding the amount of any
deferred underwriting discount). There is no assurance that the Company will be able to successfully effect an Initial Business Combination.
The
Company, after signing a definitive agreement for an Initial Business Combination, will provide its 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) by means of a tender offer. However,
in no event will the Company redeem its public shares in an amount that would cause its net tangible assets to be less than $5,000,001.
In such case, the Company would not proceed with the redemption of its public shares and the related Initial Business Combination, and
instead may search for an alternate Initial Business Combination.
If
the Company holds a stockholder vote or there is a tender offer for shares in connection with an Initial Business Combination, a public
stockholder will have the right to redeem its public shares for an amount in cash equal to its pro rata share of the aggregate amount
then on deposit in the Trust Account as of two business days prior to the consummation of the Initial Business Combination, including
interest but less taxes payable. As a result, such shares of Class A common stock have been recorded at redemption amount and classified
as temporary equity upon the completion of the Public Offering, in accordance with the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 480, “Distinguishing Liabilities from Equity.”
Pursuant
to the Company’s Amended Charter, if the Company is unable to complete the Initial Business Combination by May 11, 2023, the Company
will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no 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
franchise and income taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding
public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to
receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following
such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve
and liquidate, 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
Sponsor and the Company’s officers and directors have entered into a letter agreement with the Company, pursuant to which they
have agreed to waive their rights to liquidating distributions from the Trust Account with respect to any Founder Shares and Private
Placement Shares held by them if the Company fails to complete the Initial Business Combination by May 11, 2023. However, if the Sponsor
or any of the Company’s directors or officers acquires public shares in or after the Public Offering, they will be entitled to
liquidating distributions from the Trust Account with respect to such public shares if the Company fails to complete the Initial Business
Combination within the prescribed time period.
In
the event of a liquidation, dissolution or winding up of the Company after an Initial Business Combination, the Company’s remaining
stockholders are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities and
after provision is made for each class of stock, if any, having preference over the common stock. The Company’s stockholders have
no preemptive or other subscription rights. There are no sinking fund provisions applicable to the common stock, except that the Company
will provide its stockholders with the opportunity to redeem their public shares for cash equal to their pro rata share of the aggregate
amount then on deposit in the Trust Account, under the circumstances, and, subject to the limitations, described herein.
Going
Concern Consideration
The
Company has principally financed its operations from inception using proceeds from the promissory note from the Sponsor prior to the
Public Offering and such amount of proceeds from the Public Offering, Private Placement, and the underwriters exercise of the over-allotment
in full that were placed in a bank account outside of the Trust Account for working capital purposes. In connection with the closing
of the Public Offering, Private Placement, and the underwriters exercise of the over-allotment in full, $172,250,000 (or $10.00 per
Class A common stock) of proceeds were placed in the Trust Account. As of June 30, 2022, the Company had $671,082 in its operating
bank account, $172,752,590 in investments held in the Trust Account to be used for an Initial Business Combination or to repurchase
or redeem its public shares in connection therewith and working capital of $789,125, which excludes income taxes payable of $6,100 and
Delaware franchise taxes payable of $47,561 (which is included in accounts payable and accrued expenses at June 30, 2022) as franchise
taxes are paid from the Trust Account from interest income earned.
If
our funds are insufficient to meet the expenditures required for operating our business in the attempt to find an Initial Business Combination
or in the event that an Initial Business Combination is not consummated, we will likely need to raise additional funds in order to meet
the expenditures required for operating our business. The Company may not be able to obtain additional financing or raise additional
capital to finance its ongoing operations. If the Company is unable to raise additional capital, it may be required to take additional
measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit
of a potential transaction and reducing overhead expenses. If we are
unable to raise additional funds to alleviate liquidity needs and complete an Initial Business Combination by May 11, 2023, then we will
cease all operations except for the purpose of liquidating. The Company cannot provide any assurance
that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about
the Company’s ability to continue as a going concern for one year from the issuance date of these condensed financial statements.
These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the
liabilities that might be necessary should the Company be unable to continue as a going concern.
Risks
and Uncertainties
Management
continues to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus 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 the financial statement. The financial statement does not include any adjustments
that might result from the outcome of this uncertainty.
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
financial statements of the Company are presented in conformity with accounting principles generally accepted in the United States of
America (“GAAP”). The Company’s unaudited condensed interim financial statements have been prepared in accordance
with U.S. GAAP and the rules and regulations of the SEC for interim financial information and the instructions to Form 10-Q. Accordingly,
the financial statements do not include all of the information and footnotes required by U.S. GAAP. In the opinion of management, all
adjustments considered for a fair presentation have been included. Operating results for the six months ended June 30, 2022 are
not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any other period. The accompanying
unaudited condensed interim financial statements should be read in conjunction with the Company’s audited financial statements
and notes thereto included in the Company’s Form 10-K filed with the SEC on March 29, 2022.
Emerging
Growth Company
The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by 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 independent registered public accounting
firm 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 shareholder approval of any golden parachute payments not previously approved.
Use
of Estimates
The
preparation of the financial statements in conformity with 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 statement.
Estimates are used when accounting for certain items such as valuation of investments held in Trust Account, derivative and warrant liabilities,
and accounting for income tax valuation allowances. 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 statement, which management considered in formulating its estimate, could change in the near term due to one or more future
confirming events. 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 date 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.
Investments
Held in Trust Account
As
of June 30, 2022 and December 31, 2021, the Company had $172,752,590 and $172,507,535, respectively, in investments held in the
Trust Account. The assets held in the Trust Account were held in a mutual fund that invests in U.S. Treasury securities.
Class
A Common Stock Subject to Possible Redemption
All
of the 17,250,000 shares of Class A common stock sold as part of the Public 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 Initial Business Combination and in connection with certain amendments to the Company’s
Amended Charter. In accordance with the Securities and Exchange Commission (“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
shares of common stock subject to redemption to be classified outside of permanent equity. Therefore, all of the shares of Class A common
stock sold in the Public Offering has been classified outside of permanent equity.
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 and accumulated deficit.
As
of June 30, 2022 and December 31, 2021, the shares of Class A common stock reflected in the Condensed Balance Sheets are reconciled in
the following table:
Gross proceeds | |
$ | 172,500,000 | |
Less: | |
| | |
Proceeds allocated to Public Warrants | |
| (5,347,500 | ) |
Proceeds allocated to derivative liability | |
| (84,985 | ) |
Issuance costs allocated to Class A ordinary shares | |
| (3,896,314 | ) |
Plus: | |
| | |
Remeasurement of carrying value to redemption value | |
| 9,298,579 | |
Reclassification of derivative liability upon exercise of overallotment option | |
| 30,220 | |
Class A ordinary shares subject to possible redemption | |
$ | 172,500,000 | |
Warrant
Liability
The
Company accounts for warrants to purchase shares of the Company’s common stock that are not indexed to its own stock as liabilities
at fair value on the balance sheet in accordance with subtopic ASC 815-40-15, “Derivatives and Hedging - Contract’s in Entity’s
Own Equity”. The warrants are re-evaluated for the proper accounting treatment at each reporting period and are subject to remeasurement
at each balance sheet date and any change in fair value is recognized as a component of other income (expense), net on the statement
of operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration
of the Warrants. At that time, the portion of the liability related to the Warrants will be reclassified to additional paid-in capital.
At June 30, 2022 and December 31, 2021, there were 5,950,000 Warrants issued in connection with the Public Offering (the 5,750,000 public
Warrants and the 200,000 Private Placement Warrants).
Offering
Costs Associated with the Public Offering
The
Company complies with the requirements of ASC 340-10-S99-1 and SEC Staff Accounting Bulletin Topic 5A - Expenses of Offering. Offering
costs consist principally of professional and registration fees incurred through the balance sheet date that are related to the Public
Offering. Offering costs directly attributable to the issuance of an equity contract to be classified in equity are recorded as a reduction
in equity. Offering costs for equity contracts that are classified as assets and liabilities are expensed immediately. The Company incurred
offering costs amounting to $4,021,103 as a result of the Public Offering (consisting of underwriting commissions of $3,450,000 (2%
of the gross proceeds of the Public Offering) and other offering costs of $571,103). The Company recorded $3,896,314 of offering
costs as a reduction of temporary equity in connection with the shares of Class A common stock included in the Units. The Company immediately
expensed $124,789 of offering costs during 2021 in connection with the Public Warrants and Private Placement Warrants that were
classified as liabilities.
Income
Taxes
Prior
to the change in ownership on May 11, 2021 as a result of the Public Offering, the Company was included in the consolidated tax return
of B. Riley Financial (the “Parent”). During this period, the Company calculated 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 current
provision was the amount of tax payable or refundable on the basis of a hypothetical, current year, separate return. Following changes
in ownership on May 11, 2021, the Company deconsolidated from the Parent for tax purposes. Beginning May 11, 2021, the Company files
separate corporate federal and state and local income tax returns.
Any
difference between the tax provision (or benefit) allocated to the Company under the separate return method and payments to be made by
(or received from) the Parent for tax expense are treated as either dividends or capital contribution. Accordingly, the amount by which
the Company’s tax liability under the separate return method exceeds the amount of tax liability ultimately settled as a result
of using incremental expenses of the Parent is periodically settled as a capital contribution from the Parent to the Company.
The
Company complies with the accounting and reporting requirements of ASC Topic 740 “Income Taxes,” which requires an asset
and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed
for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible
amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The
Company’s effective tax rate was 0.51% and 0.00% for the three months ended June 30, 2022 and 2021, respectively, and was 0.23%
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 warrant liability and the valuation allowance
on the deferred income tax assets.
ASC
Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax
positions 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. The Company recognizes accrued interest and penalties related to unrecognized
tax benefits as income tax expense. As of June 30, 2022 and December 31, 2021, there were no unrecognized tax benefits and no amounts
accrued for interest and penalties. 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 may be subject to potential examination by federal, state and city taxing authorities in the areas of income taxes. These potential
examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance
with federal, state and city 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.
Unrecognized
Tax Benefits
The
Company recognizes tax positions in its financial statements only when it is more likely than not that the position will be sustained
on examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is
measured at the largest amount of benefit that will more likely than not be realized on settlement. A liability is established for differences
between positions taken in a tax return and amounts recognized in the financial statements. There were no unrecognized tax benefits as
of June 30, 2022 and December 31, 2021. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as
income tax expense. No amounts were accrued for interest expense and penalties related to income tax matters as of June 30,
2022 and December 31, 2021. The Company is subject to income tax examinations by major taxing authorities since inception.
Net
Income (Loss) Per Common Share
The
Company has two classes of shares, which are referred to as Class A common stock and Class B common stock (the “Founder Shares”).
Earnings and losses are shared pro rata between the two classes of shares. Private Placement Warrants and public Warrants to purchase 5,950,000 shares
of Class A common stock at $11.50 per share were issued in connection with the Public Offering and exercise of the overallotment.
At June 30, 2022, no Warrants have been exercised. The 5,950,000 potential shares of Class A common stock issuable upon exercise
of the outstanding Warrants to purchase the Company’s stock were excluded from diluted earnings per share for the three and six
months ended June 30, 2022, because the Warrants are contingently exercisable, and the contingencies have not yet been met. Basic and
diluted earnings per share for the three and six months ended June 30, 2021 gives effect retroactively as of January 1, 2021 to the shares
of Class B common stock that were outstanding as a result of the Public Offering. During the three and six months ended June 30, 2021,
the dilutive impact of the 562,500 shares of Class B common stock that were subject to forfeiture and contingently issuable
upon completion of the Public Offering were antidilutive. The table below presents a reconciliation of the numerator and denominator
used to compute basic and diluted net income (loss) per share for each class of common stock:
| |
Three
Months Ended June 30, | |
| |
2022 | | |
2021 | |
| |
Class
A | | |
Class
B | | |
Class
A | | |
Class
B | |
Basic and diluted net income per share: | |
| | | |
| | | |
| | | |
| | |
Numerator: | |
| | | |
| | | |
| | | |
| | |
Allocation of net income (loss) | |
$ | 949,432 | | |
$ | 229,380 | | |
$ | (959,822 | ) | |
$ | (439,935 | ) |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Weighted average shares outstanding | |
| 17,850,000 | | |
| 4,312,500 | | |
| 8,950,220 | | |
| 4,102,335 | |
Basic and diluted net income (loss) per share | |
$ | 0.05 | | |
$ | 0.05 | | |
$ | (0.11 | ) | |
$ | (0.11 | ) |
| |
Six
Months Ended June 30, | |
| |
2022 | | |
2021 | |
| |
Class
A | | |
Class
B | | |
Class
A | | |
Class
B | |
Basic and diluted net income per share: | |
| | | |
| | | |
| | | |
| | |
Numerator: | |
| | | |
| | | |
| | | |
| | |
Allocation of net income (loss) | |
$ | 2,133,581 | | |
$ | 515,466 | | |
$ | (723,663 | ) | |
$ | (676,544 | ) |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Weighted average shares outstanding | |
| 17,850,000 | | |
| 4,312,500 | | |
| 4,499,834 | | |
| 4,206,837 | |
Basic and diluted net income (loss) per share | |
$ | 0.12 | | |
$ | 0.12 | | |
$ | (0.16 | ) | |
$ | (0.16 | ) |
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.
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 balance sheet, primarily due to their short-term nature.
The
Company follows the guidance in ASC Topic 820 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: | Quoted
prices in active markets for identical assets or liabilities. An active market for an asset
or liability is a market in which transactions for the asset or liability occur with sufficient
frequency and volume to provide pricing information on an ongoing basis. |
| Level
2: | Observable
inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active
markets for similar assets or liabilities and quoted prices for identical assets or liabilities
in markets that are not active. |
| Level
3: | Unobservable
inputs based on our assessment of the assumptions that market participants would use in pricing
the asset or liability. |
The
Company’s 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 statements of operations. The public Warrants
commenced separate trading on June 28, 2021.
See
Note 4 for additional information on assets and liabilities measured at fair value.
Recent
Accounting Pronouncements
In
August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 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”, which simplifies accounting for convertible instruments
by removing major separation models required under current U.S. GAAP. The ASU also removes certain settlement conditions that are required
for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation
in certain areas. The new standard is effective for the Company on January 1, 2024, although early adoption is permitted. The ASU allows
the use of the modified retrospective method or the fully retrospective method. The Company is still in the process of evaluating the
impact of this new standard; however, the Company does not believe the initial impact of adopting the standard will result in any changes
to the Company’s statements of financial position, operations or cash flows.
In
June 2022, the FASB issued ASU 2022-03, ASC Subtopic 820 “Fair Value Measurement of Equity Securities Subject to Contractual Sale
Restrictions”. The ASU amends ASC 820 to clarify that a contractual sales restriction is not considered in measuring an equity
security at fair value and to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that
are measured at fair value. The ASU applies to both holders and issuers of equity and equity-linked securities measured at fair value.
The amendments in this ASU are effective for the Company in fiscal years beginning after December 15, 2023, and interim periods within
those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made
available for issuance. The Company is considering the impact of this pronouncement on the financial statements.
NOTE
3 — RELATED PARTY TRANSACTIONS
Founder
Shares
On
June 22, 2020, 7,187,500 Founder Shares were issued to B. Riley Principal Investments, LLC. All of the Founder Shares
were contributed to the Sponsor in June 2020. Subsequently, on April 19, 2021, the Sponsor surrendered 2,875,000 Founder
Shares to the Company for no consideration, resulting in the Sponsor owning 4,312,500 Founder Shares (Note 6). As used herein,
unless the context otherwise requires, Founder Shares shall be deemed to include the shares of Class A common stock issuable upon conversion
thereof. The Founder Shares are identical to the Class A common stock included in the Public Units sold in the Public Offering, except
that the Founder Shares automatically convert into shares of Class A common stock at the time of the Initial Business Combination and
are subject to certain transfer restrictions, as described in more detail below, and the holders of the Founder Shares, as described
in more detail below, have agreed to certain restrictions and will have certain registration rights with respect thereto. The number
of Founder Shares issued was determined based on the expectation that the Founder Shares would represent 20% of the outstanding
shares of common stock upon completion of the Public Offering excluding the Private Placement Shares.
The
Company’s Sponsor, officers and directors have agreed, subject to limited exceptions, not to transfer, assign or sell any Founder
Shares held by them until the earlier to occur of: (i) one year after the completion of the Initial Business Combination, (ii) the last
sale price of Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, 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 (iii) the date following the completion of the Initial Business Combination on which
the Company completes a liquidation, merger, stock exchange, reorganization or other similar transaction that results in all of the stockholders
having the right to exchange their shares of common stock for cash, securities or other property.
Business
Combination Marketing Agreement
Pursuant
to a business combination marketing agreement, the Company engaged B. Riley Securities, Inc. as advisors in connection with its Initial
Business Combination to assist it in arranging meetings with its stockholders to discuss a potential business combination and the target
business’ attributes, introduce it to potential investors that may be interested in purchasing its securities, assist it in obtaining
stockholder approval for its Initial Business Combination and assist it with the preparation of press releases and public filings in
connection with the Initial Business Combination. The Company will pay B. Riley Securities, Inc. for such services upon the consummation
of the Initial Business Combination a cash fee in an amount equal to 3.5% of the gross proceeds of the Public Offering (exclusive
of any applicable finders’ fees which might become payable) ($6,037,500 since the underwriters’ over-allotment option
was exercised in full). Pursuant to the terms of the business combination marketing agreement, no fee will be due if the Company does
not complete an Initial Business Combination.
Administrative
Fees
Commencing
on May 11, 2021, the Company agreed to pay an affiliate of the Sponsor a total of $3,750 per month for office space, utilities and
secretarial and administrative support. Upon completion of the Initial Business Combination or the Company’s liquidation, it will
cease paying these monthly fees. At June 30, 2022 and December 31, 2021, amounts due to related party includes $50,198 and $27,698,
respectively, for administrative fees payable to the Sponsor. The Company incurred administrative fees of $11,250 and $22,500 during
the three and six months ended June 30, 2022 and $7,500 during each of the three and six months ended June 30, 2021.
Due
to Related Party
Amounts
owed to Sponsor for advances of operating expenses were $50,198 and $27,698 at June 30, 2022 and December 31, 2021, respectively.
Any
amounts payable to our Sponsor or in the event there may be a future working capital loan from our Sponsor these amounts would be repaid
from funds held outside the Trust Account or from funds released to the Company upon completion of the Initial Business Combination.
Up to $1,500,000 of such working capital loans, in the event there are any outstanding amounts at the time of the completion of
the Initial Business Combination, may be convertible into private placement-equivalent units at a price of $10.00 per unit at the
option of the lender. None of our Sponsor, members of our management team nor any of their affiliates is under any obligation to advance
funds for working capital loans.
NOTE
4 — RECURRING FAIR VALUE MEASUREMENTS
The
following table presents information about the Company’s assets and liabilities that were measured at fair value on a recurring
basis as of June 30, 2022 and December 31, 2021, and indicates the fair value hierarchy of the valuation techniques the Company utilized
to determine such fair value.
| |
| | |
Quoted | | |
Significant | | |
Significant | |
| |
| | |
Prices In | | |
Other | | |
Other | |
| |
| | |
Active | | |
Observable | | |
Observable | |
| |
June 30, | | |
Markets | | |
Inputs | | |
Inputs | |
| |
2022 | | |
(Level
1) | | |
(Level
2) | | |
(Level
3) | |
Assets: | |
| | |
| | |
| | |
| |
Investments held in Trust Account
(1) | |
$ | 172,752,590 | | |
$ | 172,752,590 | | |
$ | — | | |
$ | — | |
| |
| 172,752,590 | | |
| 172,752,590 | | |
| — | | |
| — | |
Liabilities: | |
| | | |
| | | |
| | | |
| | |
Public Warrants | |
$ | 1,610,000 | | |
$ | 1,610,000 | | |
$ | — | | |
$ | — | |
Private Placement Warrants | |
| 60,000 | | |
| — | | |
| — | | |
| 60,000 | |
Warrant Liability | |
$ | 1,670,000 | | |
$ | 1,610,000 | | |
$ | — | | |
$ | 60,000 | |
| |
| | |
Quoted | | |
Significant | | |
Significant | |
| |
| | |
Prices In | | |
Other | | |
Other | |
| |
| | |
Active | | |
Observable | | |
Observable | |
| |
December 31, | | |
Markets | | |
Inputs | | |
Inputs | |
| |
2021 | | |
(Level
1) | | |
(Level
2) | | |
(Level
3) | |
Assets: | |
| | |
| | |
| | |
| |
Investments held in Trust Account
(1) | |
$ | 172,507,535 | | |
$ | 172,507,535 | | |
$ | — | | |
$ | — | |
| |
| 172,507,535 | | |
| 172,507,535 | | |
| — | | |
| — | |
Liabilities: | |
| | | |
| | | |
| | | |
| | |
Public Warrants | |
$ | 4,600,000 | | |
$ | 4,600,000 | | |
$ | — | | |
$ | — | |
Private Placement Warrants | |
| 166,000 | | |
| — | | |
| — | | |
| 166,000 | |
Warrant Liability | |
$ | 4,766,000 | | |
$ | 4,600,000 | | |
$ | — | | |
$ | 166,000 | |
(1) - | The fair value of the investments held in the Trust Account approximates the carrying amounts primarily due to the short-ternm nature. |
Transfers
to/from Levels 1, 2, and 3 are recognized at the end of the reporting periods. There were no transfers to/from Level 1, 2 or 3 measurements
during the six months ended June 30, 2022.
Warrant
Liability
The
Warrants are accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on the Condensed
Balance Sheets. 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 Statements of Operations.
The
Company values the Public Warrants at the closing trading price at the end of the reporting period. A Modified Black-Scholes model is
used to value the Private Placement Warrants at each reporting period. The changes in fair value of warrants is recognized as part of
other income in the Condensed Statements of Operations. Inherent in a binomial options pricing model are assumptions related to expected
share-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common
stock based on historical volatility that matches the expected remaining life of the Private Placement Warrants. The risk-free interest
rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of
the Private Placement Warrants. The expected life of the Private Placement Warrants is assumed to be equivalent to their remaining contractual
term. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero.
The
key inputs into the Black-Scholes Model in determining the fair value of the Private Placement Warrants were as follows at June 30, 2022
and December 31, 2021:
| |
June 30, | | |
December 31, | |
Input | |
2022 | | |
2021 | |
Risk-free interest rate
| |
| 3.00 | % | |
| 1.30 | % |
Expected term (years) | |
| 5.90 | | |
| 5.60 | |
Expected volatility | |
| 2.6 | % | |
| 13.0 | % |
Exercise price | |
$ | 11.50 | | |
$ | 11.50 | |
Dividend yield | |
| 0.0 | % | |
| 0.0 | % |
The
change in Level 3 measurements during the six months ended June 30, 2022 is as follows:
Private warrant liability at January
1, 2022 | |
$ | 166,000 | |
Change in fair value
of private warrant liability | |
| (106,000 | ) |
Private warrant liability
at June 30, 2022 | |
$ | 60,000 | |
NOTE
5 — COMMITMENTS
Registration
Rights
The
holders of Founder Shares (and any shares of Class A common stock issuable upon conversion of the Founder Shares), Private Placement
Units, Private Placement Shares, Private Placement Warrants (and any shares of Class A common stock issuable upon the exercise of the
Private Placement Warrants) and any securities that may be issued upon conversion of working capital loans, if any, have registration
rights to require the Company to register the resale of any of its securities held by them (in the case of the Founder Shares, only after
conversion of such shares to shares of Class A common stock) pursuant to a registration rights agreement. These holders are also
entitled to certain piggyback registration rights. However, the registration rights agreement provides that the Company will not permit
any registration statement filed under the Securities Act to become effective until termination of the applicable lock-up period for
the securities to be registered. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
NOTE
6 — WARRANTS
Warrants
may only be exercised for a whole number of shares. No fractional Warrants will be issued upon separation of the Units and only whole
Warrants will trade. The Warrants will become exercisable 30 days after the completion of the Initial Business Combination, provided
that the Company has an effective registration statement under the Securities Act covering the shares of Class A common stock issuable
upon exercise of the Warrants and a current prospectus relating to them is available (or the Company permits holders to exercise their
Warrants on a cashless basis and such cashless exercise is exempt from registration under the Securities Act). The Company will as soon
as practicable, but in no event later than 15 business days, after the closing of the Initial Business Combination, use its best efforts
to file with the SEC a new registration statement for the registration under the Securities Act of the shares of Class A common stock
issuable upon exercise of the Warrants, to cause the same to become effective within 60 business days after the closing of the Initial
Business Combination and to maintain a current prospectus relating to those shares of Class A common stock until the Warrants expire
or are redeemed, as specified in the Company’s warrant agreement. If the shares issuable upon exercise of the Warrants are not
registered under the Securities Act by the 60th business day after the closing of the Initial Business Combination, the Company
will be required to permit holders to exercise their Warrants on a “cashless basis” in accordance with Section 3(a)(9) of
the Securities Act or another exemption. Notwithstanding the above, if the Company’s Class A common stock is at the time of any
exercise of a Warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security”
under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of 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 elects,
the Company will not be required to file or maintain in effect a registration statement, but the Company will use its best efforts to
register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
The
Warrants will expire at 5:00 p.m., New York City time, five years after the completion of an Initial Business Combination or
earlier upon redemption or liquidation.
The
Private Placement Warrants are identical to the Warrants underlying the Units sold in the Public Offering, except that the Private Placement
Warrants and the shares of Class A common stock issuable upon exercise of the Private Placement Warrants will not be transferable, assignable
or salable until 30 days after the completion of the Initial Business Combination, subject to certain limited exceptions. Additionally,
the Private Placement Warrants will be non-redeemable so long as they are held by the Sponsor or its permitted transferees. If the Private
Placement Warrants are held by someone other than the Sponsor or its permitted transferees, the Private Placement Warrants will be redeemable
by the Company and exercisable by such holders on the same basis as the Warrants.
The
Company may call the Warrants for redemption (except with respect to the Private Placement Warrants):
| ● | 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 (the “30-day redemption
period”); and |
| ● | if, and only if, the last 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 on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders. |
If
the Company calls the Warrants for redemption, management will have the option to require all holders that wish to exercise the Warrants
to do so on a “cashless basis,” as described in the warrant agreement.
The
exercise price and number of shares of Class A common stock issuable upon exercise of the Warrants may be adjusted in certain circumstances
including in the event of a share dividend, or recapitalization, reorganization, merger or consolidation. In addition, if (x) the Company
issues additional shares of Class A common stock or securities convertible into or exercisable or exchangeable for shares of Class A
common stock for capital raising purposes in connection with the closing of the 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 Sponsor or its affiliates, without
taking into account any Founder Shares held by the Sponsor or such 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 funding the Initial Business Combination, and (z) the volume weighted average trading price of the Class
A common stock during the 20 trading day period starting on the trading day prior to the day on which the Company consummates the Initial
Business Combination (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 above will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly
Issued Price. Additionally, 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. There will be no redemption rights or liquidating
distributions with respect to the Warrants, which will expire worthless if the Company fails to complete an Initial Business Combination
by May 11, 2023.
As
more fully described in Note 2, the Company accounts for the warrants for shares of the Company’s common stock as a liability since
they are not indexed to the Company’s stock.
NOTE
7 — STOCKHOLDERS’ DEFICIT
Common
Stock
The
authorized common stock of the Company includes up to 100,000,000 shares of Class A common stock with a par value of $0.0001 per
share and 10,000,000 shares of Class B common stock with a par value of $0.0001. If the Company enters into an Initial
Business Combination, it may (depending on the terms of such an Initial Business Combination) be required to increase the number of shares
of Class A common stock which the Company is authorized to issue at the same time as the Company’s stockholders vote on the
Initial Business Combination, to the extent the Company seeks stockholder approval in connection with the Initial Business Combination.
Holders of the Company’s common stock are entitled to one vote for each share of common stock. At June 30, 2022 and December
31, 2021, there were 17,850,000 shares of Class A common stock issued and outstanding. Of the 17,850,000 shares of
Class A common stock, 17,250,000 shares of Class A common stock issued in the Public Offering are classified as temporary equity
at June 30, 2022 and December 31, 2021 since they are subject to possible redemption as more fully described in Notes 1 and 2. The remaining 600,000 shares
of Class A common stock and 4,312,500 shares of Class B common stock issued and outstanding at June 30, 2022 and December
31, 2021 are classified as permanent equity since the Sponsor and the Company’s officers and directors have entered into a letter
agreement with the Company, pursuant to which they have agreed to waive their rights to liquidating distributions from the Trust Account as
more fully described in Note 1.
Preferred
Stock
The
Company is authorized to issue 1,000,000 shares of preferred stock, par value of $0.0001 per share, with such designations,
voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. At June
30, 2022 and December 31, 2021, there were no shares of preferred stock issued or outstanding.
NOTE
8 — SUBSEQUENT EVENTS
The
Company evaluated subsequent events and transactions that occurred after the balance sheet date and through the date that the financial
statements were issued. The Company did not identify any subsequent events that would have required adjustment or disclosure in the financial
statements.