NOTES
TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note
1 — Organization and Business Operations
Williams Rowland Acquisition Corp. (the “Company”) is a
blank check company incorporated as a Delaware corporation for the purpose of effecting a merger, capital stock exchange, asset acquisition,
stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). The
Company has not selected any Business Combination target and neither the Company nor anyone on its behalf has initiated any substantive
discussions, directly or indirectly, with any Business Combination target. The Company may pursue an initial business combination target
in any business or industry.
As
of June 30, 2022, the Company had not commenced any operations. All activity for the period from March 10, 2021 (inception) through June
30, 2022 relates to the Company’s formation and operation and the Initial Public Offering (“IPO” or “Public Offering”).
The Company will not generate any operating revenues until after the completion of its Business Combination, at the earliest. The Company
generates non-operating income in the form of interest income on cash, the Trust Account (as defined below) and cash equivalents from
the proceeds derived from the IPO. The Company has selected December 31 as its fiscal year end.
The
Company’s sponsors are Williams Rowland Sponsor LLC, a Delaware limited liability company and WRAC Ltd (collectively, the “Sponsors”).
The registration statement for the Company’s initial public offering was declared effective on July 26, 2021 (the “Effective
Date”). On July 29, 2021, the Company consummated the initial public offering (the “Public Offering” or “IPO”)
of 20,000,000 units (the “Units”), at $10.00 per unit, generating gross proceeds of $200,000,000 (see Note 3). The underwriters
exercised their full over-allotment option to purchase an additional 3,000,000 Units on August 5, 2021.
Simultaneously
with the closing of the IPO, the Company consummated the sale of 9,900,000 warrants to the Sponsor (the “Private Placement Warrant(s)”),
at a price of $1.00 per Private Placement Warrant, generating gross proceeds of $9,900,000 (see Note 4). Each Private Placement Warrant
is exercisable to purchase one share of Common stock at $11.50 per share. The Sponsor purchased an additional 1,200,000 Private Placement
Warrants as a result of the underwriters’ exercise of their full over-allotment option on August 5, 2021.
Transaction
costs of the IPO and subsequent over-allotment exercise amounted to $16,074,841, comprised of $4,600,000 of underwriting discount,
$8,050,000 of deferred underwriting discount, fair value of founder shares transferred to Anchor Investors of $2,772,169 (as
defined in Note 5), and $652,672 of other offering costs.
The
Company’s Business Combination must be with one or more target businesses that together have a fair value equal to at least 80%
of the net balance in the Trust Account (as defined below) (excluding the amount of deferred underwriting discounts held and taxes payable
on the income earned on the Trust Account) at the time of the signing an agreement to enter into a Business Combination. However, the
Company will only complete a Business Combination if the post-Business Combination 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.
Following the closing of the IPO on July 29, 2021,
and the subsequent full exercise of the underwriters’ over-allotment option on August 5, 2021, $236,500,000 (comprised of $205,900,000
from the IPO and $30,600,000 from the over-allotment) from the net proceeds of the sale of the Units, including a portion of the proceeds
from the sale of the Private Placement Warrants, was deposited in a trust account (“Trust Account”), located in the United
States with Continental Stock Transfer & Trust Company acting as trustee. $1,900,000 of the total proceeds of the public and private
offering was deposited into the Company’s Operating Bank account on July 30, 2021 and the remaining $234,600,000 ($10.20 per Unit)
was placed in the Trust Account. These funds are invested only in U.S. government securities with a maturity of 185 days or less or in
money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government
treasury obligations. Except with respect to interest earned on the funds held in the Trust Account that may be released to the Company
to pay its franchise and income tax obligations (less up to $100,000 interest to pay dissolution expenses), the proceeds from the Public
Offering and the sale of the Private Placement Warrants will not be released from the Trust Account until the earliest of (a) the completion
of the initial Business Combination, (b) the redemption of any public shares properly submitted in connection with a stockholder vote
to amend the Company’s amended and restated certificate of incorporation (i) to modify the substance or timing of the ability of
holders of the public shares to seek redemption in connection with the initial Business Combination or the Company’s obligation
to redeem 100% of the public shares if the Company does not complete the initial Business Combination within 18 months from the closing
of the Public Offering or (ii) with respect to any other provision relating to stockholders’ rights or pre-Business Combination
activity, and (c) the redemption of the public shares if the Company is unable to complete the initial Business Combination within 18
months from the closing of the Public Offering, subject to applicable law. The proceeds deposited in the Trust Account could become subject
to the claims of the creditors, if any, which could have priority over the claims of the public stockholders.
The
Company 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. The decision as to whether the Company will seek stockholder approval of a proposed initial Business
Combination or conduct a tender offer will be made by the Company, solely in its discretion, and will be based on a variety of factors
such as the timing of the transaction and whether the terms of the transaction would require the Company to seek stockholder approval
under the law or stock exchange listing requirements. The Company will provide the public stockholders with the opportunity to redeem
all or a portion of their public shares upon the completion of the initial Business Combination at a per-share price, payable in cash,
equal to 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 earned on the funds held in the Trust Account and not previously released to the Company to pay its taxes,
divided by the number of then outstanding public shares, subject to the limitations described herein.
The
shares of common stock subject to redemption are recorded at redemption value and classified as temporary equity, in accordance with
Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing
Liabilities from Equity.” The Company will proceed with a Business Combination if the Company has net tangible assets of at least
$5,000,001 upon such consummation of a Business Combination and, if the Company seeks stockholder approval, a majority of the issued
and outstanding shares voted are voted in favor of the Business Combination.
The
Company will have only 18 months from the closing of the Public Offering, or January 29, 2023 (the “Combination Period”)
to complete the initial Business Combination. If the Company is unable to complete the initial 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 subject to lawfully available funds therefor, redeem 100% of 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 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 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. There will be no redemption rights or liquidating
distributions with respect to the warrants, which will expire worthless if the Company fails to complete the initial Business Combination
within the Combination Period.
The
initial stockholders, Sponsors, executive officers and directors have entered into a letter agreement with the Company, pursuant to which
they have agreed to (i) waive their redemption rights with respect to any founder shares 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 (A) to modify the substance or timing of the ability of holders of the public shares to seek redemption in connection
with the initial Business Combination or the Company’s obligation to redeem 100% of the public shares if the Company does not complete
the initial Business Combination within the Combination Period or (B) with respect to any other provision relating to stockholders’
rights or pre-initial Business Combination activity and (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, although they will be entitled to liquidating distributions from the Trust Account with respect to any public shares they hold
if the Company fails to complete the initial Business Combination within the Combination Period.
The
Sponsors have 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) $10.20 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 $10.20 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. However, the Company
has not asked the Sponsors to reserve for such indemnification obligations, nor has the Company independently verified whether the Sponsors
have sufficient funds to satisfy its indemnity obligations and believe that the Sponsors’ only assets are securities of the Company.
Therefore, the Company cannot assure you that the Sponsors would be able to satisfy those obligations.
Liquidity,
Capital Resources and Going Concern
As of June 30, 2022, the Company had $152,409
in its operating bank account and working capital deficiency of $528,756.
The
Company’s liquidity needs up to June 30, 2022, had been satisfied through a capital contribution from the Sponsors of $25,000 (see
Note 5) for the founder shares and the loan under an unsecured promissory note, from the Sponsors, initially of up to $600,000 to cover
expenses related to the Initial Public Offering. This loan was repaid and cancelled upon consummation of IPO and is no longer available
for liquidity needs as of June 30, 2022.
The
Company anticipates that the $152,409 outside of the Trust Account as of June 30, 2022, might not be sufficient to allow the Company
to operate until January 29, 2023, the Combination Period, assuming that a Business Combination is not consummated during that time.
Until consummation of its Business Combination, the Company will be using the funds not held in the Trust Account, and any additional
Working Capital Loans (as defined in Note 5) from the initial stockholders, the Company’s officers and directors, or their respective
affiliates (which is described in Note 5), for identifying and evaluating prospective acquisition candidates, performing business due
diligence on prospective target businesses, traveling to and from the offices, plants or similar locations of prospective target businesses,
reviewing corporate documents and material agreements of prospective target businesses, selecting the target business to acquire and
structuring, negotiating and consummating the business combination.
On
September 7, 2021, the Company executed a promissory note to the Sponsors for an amount of $500,000 (the “Promissory
Note”). The Promissory Note is a part of $1,000,000 working capital facility described in the Note 5. The Promissory Note is
non-interest bearing and is repayable at the earlier of
the date of when the Company consummates a Business Combination with another entity, the date on which the Company determines to
liquidate or December 31, 2023. At the option of the Sponsors, in lieu of cash payment of the principal, the Sponsors may receive
warrants to purchase Common Stock of the Company. As of June 30, 2022 and December 31, 2021, the Company had borrowed $375,000 and
$125,000, respectively, under the Promissory Note, which remained outstanding.
The
Company can raise additional capital through Working Capital
Loans from the initial stockholders, the Company’s officers, directors, or their respective affiliates (which
is described in Note 5), or through loans from third parties. None of the Sponsors, officers or directors are under any obligation
to advance funds to, or to invest in, the Company. 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 its business plan, and reducing overhead expenses. The Company cannot provide any assurance that new financing will
be available to it on commercially acceptable terms, if at all.
The
Company has until January 29, 2023 or 18 months from the closing of the IPO, to consummate a Business Combination. It is uncertain
that it will be able consummate a Business Combination within the Combination Period. If a Business Combination is not consummated
within the Combination Period, there will be a mandatory liquidation and subsequent dissolution. In connection with the
Company’s assessment of going concern considerations in accordance with the authoritative guidance FASB Accounting Standards
Update (“ASU”) Topic 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going
Concern”, management has determined that the potential liquidity and capital constraints as described above, in addition to
potential mandatory liquidation, and subsequent dissolution, should the Company be unable to complete a Business Combination, raises
substantial doubt about the Company’s ability to continue as a going concern through the earlier of one year from the issuance
date of the financial statements or January 29, 2023. No
adjustments have been made to the carrying amounts of assets and liabilities should the Company be required to liquidate after
January 29, 2023. The unaudited condensed financial
statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern
Risks
and Uncertainties
Impact of COVID-19
Management
is currently evaluating 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 these financial statements. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Impact of the Military Conflict in Ukraine
In February 2022, the Russian Federation and Belarus commenced a military
action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted economic
sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy are
not determinable as of the date of these unaudited condensed financial statements.
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. Operating results for the three and six months ended June 30, 2022 are not necessarily
indicative of the results that may be expected through December 31, 2022 or any future periods.
The
accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto
included in the Annual Form 10-K filed by the Company with the SEC on April 21, 2022.
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 financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of expenses during the reporting period. Actual results could differ 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 had $152,409 and $613,068 in cash and no cash equivalents as of June 30, 2022 and December 31, 2021, respectively.
Investment
Held in Trust Account
At
June 30, 2022 and December 31, 2021, the assets held in the Trust Account were held in U.S. Treasury Bills with a maturity of 185 days
or less. During the period ended June 30, 2022, the Company did not withdraw any of the interest income from the Trust Account to pay
its tax obligations.
The
Company classifies its United States Treasury securities as held-to-maturity in accordance with FASB ASC Topic 320 “Investments
- Debt and Equity Securities.” Held-to-maturity securities are those securities which the Company has the ability and intent to
hold until maturity. Held-to-maturity treasury securities are recorded at amortized cost and adjusted for the amortization or accretion
of premiums or discounts.
A
decline in the market value of held-to-maturity securities below cost that is deemed to be other than temporary, results in an impairment
that reduces the carrying costs to such securities’ fair value. The impairment is charged to earnings and a new cost basis for
the security is established. To determine whether an impairment is other than temporary, the Company considers whether it has the ability
and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment
is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the
severity and the duration of the impairment, changes in value subsequent to year-end, forecasted performance of the investee, and the
general market condition in the geographic area or industry in which the investee operates.
Premiums
and discounts are amortized or accreted over the life of the related held-to-maturity security as an adjustment to yield using the effective-interest
method. Such amortization and accretion are included in the “Trust interest income” line item in the statements of operations.
Interest income is recognized when earned.
Offering
Costs Associated with Initial Public Offering
The
Company complies with the requirements of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A - “Expenses
of Offering”. Offering costs consist of legal, accounting, underwriting and other costs incurred that are related to the IPO. Offering
costs amounted to $16,074,841, for the costs related IPO and subsequent over-allotment, as well as fair value of founder shares transferred
to Anchor Investors. Total amount of offering costs is allocated between redeemable shares and Public Warrants based on their relative
fair values.
Fair
Value of Financial Instruments
The
fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair Value
Measurements and Disclosures,” approximates the carrying amounts represented in the balance sheets, primarily due to its short-term
nature.
Fair
Value Measurements
The
Company follows the guidance in ASC 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
— |
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. |
Warrants
The
Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the
warrant’s specific terms and applicable authoritative guidance in FASB ASC 480, Distinguishing Liabilities from Equity (“ASC
480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considered whether the warrants are freestanding
financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all
of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common
shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s
control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, was conducted
at the time warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For
issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component
of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all of the criteria for
equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance
sheet date thereafter. The Company accounts for its outstanding warrants as equity-classified.
Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. For derivative financial instruments that are accounted
for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at
each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.
Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement
or conversion of the instrument could be required within 12 months of the balance sheet date.
FASB
ASC 470-20, Debt with Conversion and Other Options addresses the allocation of proceeds from the issuance of convertible debt into its
equity and debt components. The Company applies this guidance to allocate IPO proceeds from the Units between common stock and warrants,
using the residual method by allocating IPO proceeds first to fair value of the warrants and then common stock.
Common
Stock Subject to Possible Redemption
The
Company accounts for its Common stock subject to possible redemption in accordance with the guidance in FASB ASC Topic 480 “Distinguishing
Liabilities from Equity.” Common stock subject to mandatory redemption (if any) is classified as a liability instrument and is
measured at fair value. Conditionally redeemable Common stock (including Common stock that features redemption rights that are either
within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s
control) is classified as temporary equity. At all other times, Common stock is classified as Stockholders’ equity. The Company’s
Common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence
of uncertain future events. Accordingly, Common stock subject to possible redemption is presented at redemption value as temporary equity,
outside of the Stockholders’ deficit section of the Company’s balance sheets.
Immediately
upon the closing of the IPO, the Company recognized the accretion from initial book value to redemption amount. 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 common stock subject to possible redemption reflected in the balance sheets is reconciled
in the following table:
Gross Proceeds from IPO | |
$ | 230,000,000 | |
Less: | |
| | |
Issuance costs related to redeemable common stock | |
| (15,262,797 | ) |
Proceeds allocated to Public Warrants | |
| (11,618,788 | ) |
Plus: | |
| | |
Remeasurement of common stock to redemption value | |
| 31,481,585 | |
Common stock subject to possible redemption | |
$ | 234,600,000 | |
Net
Loss Per Common Share
The
Company complies with the accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” The Company
applies the two-class method in calculating earnings per share. The contractual formula utilized to calculate the redemption amount approximates
fair value. The Class feature to redeem at fair value means that there is effectively only one class of common stock. Changes in fair
value are not considered a dividend for the purposes of the numerator in the earnings per share calculation. Net loss per share of common
stock is computed by dividing the pro rata net loss between the shares of redeemable common stock and the shares of non-redeemable common
stock by the weighted average number of shares of common stock outstanding for each of the periods. The calculation of diluted loss per
share does not consider the effect of the warrants issued in connection with the IPO since the exercise of the warrants is contingent
upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive.
The
following table reflects the calculation of basic and diluted net loss per common stock (in dollars, except per share amounts):
| |
Three Months Ended June 30, 2022 | | |
Three Months Ended June 30, 2021 | | |
Six Months Ended June 30, 2022 | | |
For the Period from March 10, 2021 (Inception) Through June 30, 2021 | |
| |
Common Stock subject to possible redemption | | |
Non-redeemable common stock | | |
Common Stock subject to possible redemption | | |
Non-redeemable common stock | | |
Common Stock subject to possible redemption | | |
Non-redeemable common stock | | |
Common Stock subject to possible redemption | | |
Non-redeemable common stock | |
Basic and diluted net loss per common stock | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Numerator: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Allocation of net loss, as adjusted | |
$ | (323,898 | ) | |
$ | (80,975 | ) | |
$ | — | | |
| (51 | ) | |
$ | (612,624 | ) | |
$ | (153,156 | ) | |
$ | — | | |
$ | (671 | ) |
Denominator: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Basic and diluted weighted average shares outstanding | |
| 23,000,000 | | |
| 5,750,000 | | |
| — | | |
| 5,000,000 | (1) | |
| 23,000,000 | | |
| 5,750,000 | | |
| — | | |
| 5,000,000 | (1) |
Basic and diluted net loss per common stock | |
$ | (0.01 | ) | |
$ | (0.01 | ) | |
$ | — | | |
| (0.00 | ) | |
$ | (0.03 | ) | |
$ | (0.03 | ) | |
$ | — | | |
$ | (0.00 | ) |
| (1) | Excludes
up to 750,000 shares of Common Stock subject to forfeiture if the over-allotment option is not exercised in full or in part by the underwriter
(See Note 5). |
Income
Taxes
The
Company accounts for income taxes under ASC 740, “Income Taxes.” ASC 740, Income Taxes, requires the recognition of deferred
tax assets and liabilities for both the expected impact of differences between the unaudited condensed financial statements and tax basis
of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740
additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets
will not be realized. As of June 30, 2022 and December 31, 2021, the Company’s deferred tax asset had a full valuation allowance
recorded against it. The effective tax rate differs from the statutory tax rate of 21% for the three months and six months ended June
30, 2022 and 2021, due to changes in fair value in warrant liability, changes in fair value in the PIPE derivative liability, and the
valuation allowance on the deferred tax assets.
ASC
740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes
a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination
by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim
period, disclosure and transition.
The
Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized
tax benefits and no amounts accrued for interest and penalties as of June 30, 2022 and December 31, 2021. The Company is currently not
aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
The
Company has identified the United States as its only “major” tax jurisdiction. The Company is subject to income taxation
by major taxing authorities since inception. These examinations may include questioning the timing and amount of deductions, the nexus
of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management does not expect
that the total amount of unrecognized tax benefits will materially change over the next twelve months.
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 Deposit Insurance Corporation (FDIC) 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.
Recent
Accounting Pronouncements
In
August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current
models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the
derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard
also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s
own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for
all convertible instruments. ASU 2020-06 is effective January 1, 2024 and should be applied on a full or modified retrospective basis,
with early adoption permitted beginning on January 1, 2021. The Company deferred the adoption of ASU 2020-06 and is currently assessing
the impact, if any, it would have on its financial position, results of operations or cash flows.
Note
3 — Initial Public Offering
Public
Units
On
July 29, 2021, the Company sold 20,000,000 Units at a purchase price of $10.00 per Unit for aggregate proceeds of $200,000,000.
On August 5, 2021, the underwriters exercised the full over-allotment option, which resulted in the sale of an additional 3,000,000 Units
and $30,000,000 in proceeds. This resulted in aggregate Units sold of 23,000,000 and aggregate proceeds of $230,000,000 from
the IPO and subsequent over-allotment.
Each
Unit consists of one share of Common stock, and one-half (1/2) of one warrant (“Public Warrant”). Each whole public warrant
entitles the holder to purchase one share of Common stock at an exercise price of $11.50 per share, subject to adjustment.
Note
4 — Private Placement
Simultaneously
with the closing of the IPO on July 29, 2021, the Sponsor purchased an aggregate of 9,900,000 Private Placement Warrants
at a price of $1.00 per Private Placement Warrant, for a purchase price of $9,900,000, in a private placement. In connection with
the underwriters’ exercise of their full over-allotment option on August 5, 2021, the Sponsors purchased an additional 1,200,000 Private
Placement Warrants for a purchase price of $1,200,000. This resulted in aggregate Private Placement Warrants of 11,100,000 sold
for aggregate proceeds of $11,100,000 from the IPO and subsequent over-allotment.
Each Private
Placement Warrant entitles the holder thereof to purchase one share of the Company’s Common stock at a price of $11.50 per share,
subject to adjustment, and will expire worthless if the Company does not complete the initial Business Combination. A portion of
the proceeds from the private placement was added to the proceeds from the IPO held in the Trust Account.
Note
5 — Related Party Transactions
Founder
Shares
Upon
inception the Sponsors paid $25,000 in exchange for 5,750,000 shares of common stock (the “Founder Shares”). The number of
founder shares outstanding was determined based on the expectation that the total size of the Public Offering would be a maximum of 23,000,000
Units if the underwriter’s over-allotment option is exercised in full, and therefore that such founder shares would represent 20%
of the outstanding shares after the Public Offering. Up to 750,000 of the founder shares were subject to forfeiture depending on the
extent to which the underwriter’s over-allotment was exercised. The underwriters exercised their full over-allotment option on
August 5, 2021, thereby making the 750,000 shares no longer subject to forfeiture.
On
June 26, 2021, the Sponsor transferred 40,000 of Founder Shares to three of the Company’s directors and the Chief Financial Officer
(“CFO”) in recognition of and compensation for
their future services to the Company. The assignment of the Founder Shares to the Company’s directors and CFO is within the scope
of FASB ASC Topic 718, “Compensation-Stock Compensation” (“ASC 718”). Under ASC 718, stock-based compensation
associated with equity-classified awards is measured at fair value upon the grant date. The fair value of the 40,000 Founder Shares granted
to the Company’s directors and CFO was $295,698 or approximately $7.39 per share.
The Founder Shares were assigned to directors and advisor effectively assigned subject to a performance condition (i.e., the consummation
of a Business Combination). Compensation expense related to the Founder Shares is recognized only when the performance condition is probable
of achievement under the applicable accounting literature. Stock-based compensation would be recognized at the date a Business Combination
is considered probable in an amount equal to the number of Founder Shares times the grant date fair value per share (unless subsequently
modified) less the amount initially received for the purchase of the Founder Shares. As of June 30, 2022 and December 31, 2021, the Company
has not yet entered into any definitive agreements in connection with any Business Combination. Any such agreements may be subject to
certain conditions to closing, such as, for example, approval by the Company’s stockholders. As a result, the Company determined
that the consummation of a Business Combination is not considered probable, and, therefore, no stock-based compensation expense has been
recognized.
Of
the aggregate 23,000,000 Units sold in the Initial Public Offering, 1,980,000 Units were purchased by (i) D. E. Shaw Valence Portfolios,
L.L.C., (ii) certain investment funds and accounts managed by Radcliffe Capital Management, L.P., and (iii) certain investment funds
and accounts managed by Shaolin Capital Management LLC, unaffiliated qualified institutional buyers (the “Anchor Investors”).
In connection with the closing of the Initial Public Offering, each Anchor Investor acquired from the Sponsors an indirect economic interest
in certain Founder Shares (375,000 Founder Shares in the aggregate) at a purchase price of $0.0001 per share. The Company estimated the
aggregate fair value of the Founder Shares attributable to the Anchor Investors to be $2,772,169 or approximately $7.39 per share. The
excess of the fair value of the Founder Shares was determined to be a contribution to the Company from the Sponsor in accordance with
Staff Accounting Bulletin (“SAB”) Topic 5T and an offering cost in accordance with SAB Topic 5A. Accordingly, the offering
cost was recorded against additional paid-in capital.
The
Company’s initial stockholders have agreed not to transfer, assign or sell any of their founder shares until the earlier to occur
of: (A) one year after the completion of the initial Business Combination or (B) subsequent to the initial Business Combination, (x)
if the last reported sale price of the 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 (y) the date on which the Company completes a liquidation, merger, capital stock exchange
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 (except as described herein under the section of this prospectus entitled “Principal Stockholders
- Restrictions on Transfers of Founder Shares and Private Placement Warrants”). Any permitted transferees will be subject to the
same restrictions with respect to any founder shares. (the “Lock-up”).
Promissory
Notes with Sponsor
The Sponsors agreed to loan the Company up to $600,000 to be used for a portion of the expenses of the Public
Offering. This loan was non-interest bearing, unsecured and due at the earlier of August 31, 2021 or the closing of the Public Offering.
This loan was repaid and cancelled upon consummation of IPO and is no longer available for liquidity needs as of June 30, 2022.
In
order to finance transaction costs in connection with an intended initial Business Combination, the Sponsors, an affiliate of the Sponsors
or certain of the Company’s officers and directors may, but are not obligated to, loan the Company additional funds as may be required
for working capital purposes (the “Working Capital Loans”). If the Company completes an initial Business Combination, the
Company would repay such loaned amounts out of the proceeds of the Trust Account released to the Company. Otherwise, such loans would
be repaid only out of funds held outside the Trust Account. In the event that the initial Business Combination does not close, the Company
may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from the Trust Account
would be used to repay such loaned amounts. Up to $1,000,000 of such loans may be convertible into Private Placement 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 Placement Warrants issued to the Sponsors.
On
September 7, 2021, the Company executed a Promissory Note with
the Sponsor for an amount of $500,000, as part of the Working Capital Loan facility and under the aforementioned terms, including
a conversion option. The Promissory Note is non-interest bearing
and is repayable at the earlier of the date of when the Company consummates a Business Combination with another entity, the date on which
the Company determines to liquidate or December 31, 2023. Through June 30, 2022, and December 31, 2021, the Company had borrowed $375,000
and $125,000, respectively, under the Promissory Note, which
remained outstanding. The conversion option included in the Promissory Note is
considered an embedded derivative and is remeasured at the end of each reporting period. The value of the conversion feature was de
minimis as of June 30, 2022, and December 31, 2021.
Administrative
Service Fee
The
Company has entered into an administrative services agreement on July 26, 2021, commencing on that date, pursuant to which the Company
will pay an affiliate of the Sponsors a total of $10,000 per month for office space, administrative and support services. Upon completion
of the Company’s initial Business Combination or its liquidation, the Company will cease paying these monthly fees. For the three
and six months ended June 30, 2022, the Company recorded $30,000 and $60,000, of administrative service fees, which are included in formation
and operating costs in the accompanying statements of operations. For the period from March 10, 2021 (inception) through June 30, 2021,
the Company had nothing accrued in connection with this agreement. No amounts were outstanding for the administrative services at June
30, 2022 and at December 31, 2021.
Note
6 — Investments Held in Trust Account
At
June 30, 2022 and December 31, 2021, the assets held in the Trust Account were held in U.S. Treasury Bills with a maturity of 185 days
or less. During the period from July 29, 2021 (the date of the IPO) through June 30, 2022, the Company did not withdraw any of the interest
income from the Trust Account to pay its tax obligations.
The
Company classifies its United States Treasury securities as held-to-maturity in accordance with FASB ASC Topic 320 “Investments
- Debt and Equity Securities.” Held-to-maturity securities are those securities which the Company has the ability and intent to
hold until maturity. Held-to-maturity treasury securities are recorded at amortized cost and adjusted for the amortization or accretion
of premiums or discounts.
The
carrying value, excluding gross unrealized holding loss and fair value of held to maturity securities on June 30, 2022 and December 31,
2021 are as follows:
| |
Amortized Cost and Carrying Value as of June 30, 2022 | | |
Gross Unrealized Gains | | |
Gross Unrealized Losses | | |
Fair Value as of June 30, 2022 | |
U.S. Treasury Securities | |
$ | 234,901,775 | | |
$ | — | | |
$ | (72,258 | ) | |
$ | 234,829,517 | |
Cash held in Trust Account | |
| 819 | | |
| — | | |
| — | | |
| 819 | |
| |
$ | 234,902,594 | | |
$ | — | | |
$ | (72,258 | ) | |
$ | 234,830,336 | |
| |
Amortized
Cost and
Carrying
Value as of
December 31,
2021 | | |
Gross
Unrealized
Gains | | |
Gross
Unrealized
Losses | | |
Fair
Value
as of
December 31,
2021 | |
U.S. Treasury Securities | |
$ | 234,645,916 | | |
$ | — | | |
$ | (20,436 | ) | |
$ | 234,625,480 | |
Cash held in Trust Account | |
| 710 | | |
| — | | |
| — | | |
| 710 | |
| |
$ | 234,646,626 | | |
$ | — | | |
$ | (20,436 | ) | |
$ | 234,626,190 | |
The
Face Value of the U.S. Treasury Securities held in Trust was $236,354,000 and $234,815,000 at June 30, 2022 and December 31, 2021.
Note
7 — Commitments and Contingencies
Registration
Rights
The
holders of the founder shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans (and
any shares of 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 registration rights pursuant to a registration
rights agreement requiring the Company to register such securities for resale. The holders of these securities will be 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 with respect to registration statements filed subsequent to the Company’s completion
of the initial Business Combination.
Underwriting
Agreement
The
Company granted the underwriter a 45-day option to purchase up to 3,000,000 additional Units to cover any over-allotments,
if any, at the Public Offering price less the underwriting discounts and commissions. On August 5, 2021, the underwriter exercised the
over-allotment option in full.
The
underwriter was entitled to a cash underwriting discount of two percent (2%) of the gross proceeds of the Public Offering, or $4,000,000.
The underwriter exercised the full over-allotment option on August 5, 2021 resulting in an additional $600,000 underwriting discount
for an aggregate underwriting discount of $4,600,000 related to the IPO and subsequent over-allotment exercise.
Additionally,
the underwriter will be entitled to a deferred underwriting discount of 3.5% of the gross proceeds of the Public Offering upon the
completion of the Company’s initial Business Combination.
Note
8 — Stockholders’ Deficit
Preferred
Stock
The
Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share. As of June 30, 2022 and December
31, 2021, there were no shares of preferred stock issued or outstanding.
Common
Stock
The
Company is authorized to issue 100,000,000 shares of Common stock with a par value of $0.0001 per share. Holders of the Common stock
are entitled to one vote for each common stock. As of June 30, 2022 and December 31, 2021, there were 5,750,000 shares of Common stock
issued and outstanding, excluding 23,000,000 shares subject to possible redemption, which are presented as temporary equity.
Warrants
Each
whole warrant will entitle the holder to purchase one share of the Company’s common stock at a price of $11.50 per share, subject
to adjustment. In addition, if the Company issues additional shares of common stock or equity-linked securities 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 common stock (with such issue price or effective issue price to be determined in good faith by the board of directors and, in
the case of any such issuance to the initial stockholders or their affiliates, without taking into account any founder shares or private
placement securities held by them, as applicable, prior to such issuance) (the “newly issued price”), the exercise price
of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the newly issued price.
The
warrants will expire at 5:00 p.m., New York City time on the warrant expiration date, which is five years after the completion of the
initial Business Combination or earlier upon redemption or liquidation. On the exercise of any warrant, the warrant exercise price will
be paid directly to the Company and not placed in the Trust Account.
The
Company will not be obligated to deliver any shares of 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 common stock underlying
the warrants is then effective and a prospectus relating thereto is current, subject to the Company’s satisfying its obligations
described below with respect to registration. No warrant will be exercisable and the Company will not be obligated to issue shares of
common stock upon exercise of a warrant unless 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 the event that the conditions
in the two immediately preceding sentences are not satisfied with respect to a warrant, the holder of such warrant will not be entitled
to exercise such warrant and such warrant may have no value and expire worthless. 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 common stock underlying such Unit.
The
Company is not registering the shares of common stock issuable upon exercise of the warrants at this time. However, the Company has agreed
that as soon as practicable, but in no event later than 15 business days after the closing of the initial Business Combination, the Company
will use its best efforts to file with the SEC a registration statement for the registration under the Securities Act of the shares of
common stock issuable upon exercise of the warrants and thereafter will use its best efforts to cause the same to become effective within
60 business days following the initial Business Combination and to maintain a current prospectus relating to the common stock issuable
upon exercise of the warrants, until the expiration of the warrants in accordance with the provisions of the warrant agreement. If a
registration statement covering the shares of common stock issuable upon exercise of the warrants is not effective by the 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. If that exemption, or
another exemption, is not available, holders will not be able to exercise their warrants on a cashless basis.
Redemption
of warrants
Once
the warrants become exercisable, the Company may redeem the outstanding 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 reported sale price of the 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. |
The
Private Placement Warrants are identical to the Public Warrants sold as part of the Units in the Initial Public Offering, subject to
limited exceptions.
Note
9 — Subsequent Events
The
Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements
were issued. Based upon this review, other than as described below, the Company did not identify any subsequent events that would have
required adjustment or disclosure in the financial statements.