UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
or
For the transition period from to
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Units, each consisting of one share of Class A Common Stock and one-third of one Redeemable Warrant | CLRMU | The Nasdaq Stock Market LLC | ||
Redeemable Warrants, each whole warrant exercisable for one share of Class A Common Stock for $11.50 per share | CLRMW | The Nasdaq Stock Market LLC |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☐ Large accelerated filer | ☐ Accelerated filer |
☒ | |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes
As
of November 14, 2022, there were
CLARIM ACQUISITION CORP.
Quarterly Report on Form 10-Q
for the Quarter Ended September 30, 2022
Table of Contents
i
GLOSSARY OF TERMS
Unless otherwise stated in this Report (as defined below), or the context otherwise requires, references to:
● | “ASC” are to the FASB (as defined below) Accounting Standards Codification; |
● | “ASU” are to the FASB (as defined below) Accounting Standards Update; |
● | “board of directors,” “board” or “directors” are to the board of directors of the Company (as defined below); |
● | “Business Combination” are to a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses; |
● | “Class A common stock” are to the shares of Class A common stock of the Company, par value $0.0001 per share; |
● | “Class B common stock” are to the shares of Class B common stock of the Company, par value $0.0001 per share; |
● | “common stock” are to the Class A common stock and the Class B common stock; |
● | “Combination Period” are to the 24-month period, from the closing of the Initial Public Offering (as defined below) to February 2, 2023, that the Company has to consummate an initial Business Combination; |
● | “Company,” “our Company,” “we” or “us” are to Clarim Acquisition Corp., a Delaware corporation; |
● | “Exchange Act” are to the Securities Exchange Act of 1934, as amended; |
● | “FASB” are to the Financial Accounting Standards Board; |
● | “Founder Shares” are to the shares of Class B common stock initially purchased by our Sponsor (as defined below) in the Private Placement (as defined below) and the shares of Class A common stock that will be issued upon the automatic conversion of the shares of Class B common stock at the time of our Business Combination as described herein (for the avoidance of doubt, such Class A common stock will not be “Public Shares” (as defined below); |
● | “GAAP” are to the accounting principles generally accepted in the United States of America; |
● | “Initial Public Offering” or “IPO” are to the initial public offering that was consummated by the Company on February 2, 2021; |
● | “Initial Stockholders” are to holders of our Founder Shares prior to our Initial Public Offering; |
● | “Investment Company Act” are to the Investment Company Act of 1940, as amended; |
● | “JOBS Act” are to the Jumpstart Our Business Startups Act of 2012; |
● | “Private Placement” are to the private placement of warrants that occurred simultaneously with the closing of our Initial Public Offering; |
● | “Private Placement Warrants” are to the warrants issued to our Sponsor in the Private Placement; |
● | “Public Shares” are to the shares of Class A common stock sold as part of the Units (as defined below) in our Initial Public Offering (whether they were purchased in our Initial Public Offering or thereafter in the open market); |
● | “Public Stockholders” are to the holders of our Public Shares, including our Initial Stockholders and management team to the extent our Initial Stockholders and/or members of our management team purchase Public Shares, provided that each Initial Stockholder’s and member of our management team’s status as a “Public Stockholder” will only exist with respect to such Public Shares; |
ii
● | “Public Warrants” refer to the redeemable warrants sold as part of the Units in our Initial Public Offering (whether they were subscribed for in our Initial Public Offering or purchased in the open market); |
● | “Registration Statement” are to the Registration Statement on Form S-1 initially filed with the SEC (as defined below) on January 13, 2021, as amended, and declared effective on January 28, 2021 (File No. 333-252086); |
● | “Report” are to this Quarterly Report on Form 10-Q for the quarter ended September 30, 2022; |
● | “SAB” are to the SEC Staff Accounting Bulletin; |
● | “Sarbanes-Oxley Act” are to the Sarbanes-Oxley Act of 2002; |
● | “SEC” are to the U.S. Securities and Exchange Commission; |
● | “Securities Act” are to the Securities Act of 1933, as amended; |
● | “Sponsor” are to Clarim Partners, LLC, a Delaware limited liability company; James F. McCann, our Chairman and Chief Executive Officer is the managing member of our Sponsor; |
● | “Sponsor IPO Loan” are to the loan of an aggregate of up to $300,000 the Sponsor agreed to lend the Company to be used for a portion of the expenses of the IPO; |
● | “Trust Account” are to the U.S.-based trust account in which an amount of $287,500,000 from the net proceeds of the sale of the Units in the Initial Public Offering and the Private Placement Warrants was placed following the closing of the Initial Public Offering; |
● | “Units” are to the units sold in our Initial Public Offering, which consist of one Public Share and one-third of one Public Warrant; |
● | “warrants” are to Public Warrants and Private Placement Warrants, together; |
● | “Working Capital Loans” are to funds that, in order to finance transaction costs in connection with a Business Combination, the Sponsor, an affiliate of the Sponsor, or certain of the Company’s officers and directors or their affiliates may, but are not obligated to, loan the Company; |
● | “Working Capital Note I” are to the promissory note of up to $750,000 the Company entered into with the Sponsor on November 19, 2021; |
● | Working Capital Note II” are to the promissory note of up to $600,000 the Company entered into with the Sponsor on March 31, 2022; and |
● | “Working Capital Notes” are to Working Capital Note I and Working Capital Note II, together. |
iii
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CLARIM ACQUISITION CORP.
CONDENSED BALANCE SHEETS
September 30, 2022 | December 31, 2021 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current asset - cash | $ | $ | ||||||
Prepaid expenses | ||||||||
Total current assets | ||||||||
Prepaid expenses, non-current | ||||||||
Cash and marketable securities held in Trust Account | ||||||||
Total Assets | $ | $ | ||||||
Liabilities, Redeemable Common Stock and Stockholders’ Deficit | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | $ | ||||||
Income taxes payable | ||||||||
Accrued franchise tax | ||||||||
Due to related party | ||||||||
Sponsor IPO Loan | ||||||||
Working Capital Notes | ||||||||
Accrued professional fees | ||||||||
Total current liabilities | ||||||||
Warrant liabilities | ||||||||
Deferred underwriting discount | ||||||||
Total liabilities | ||||||||
Commitments and Contingencies | ||||||||
Redeemable Common Stock | ||||||||
Class A common stock subject to possible redemption, | ||||||||
Stockholders’ Deficit: | ||||||||
Preferred stock, $ | ||||||||
Class A common stock, $ | ||||||||
Class B common stock, $ | ||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total stockholders’ deficit | ( | ) | ( | ) | ||||
Total Liabilities, Redeemable Common Stock and Stockholders’ Deficit | $ | $ |
The accompanying notes are an integral part of these unaudited condensed financial statements.
1
CLARIM ACQUISITION CORP.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Operating costs | $ | $ | $ | $ | ||||||||||||
Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Other income: | ||||||||||||||||
Change in fair value of warrant liabilities | ||||||||||||||||
Change in fair value of Working Capital Notes | ||||||||||||||||
Bank interest income | ||||||||||||||||
Interest income on marketable securities held in Trust Account | ||||||||||||||||
Warrant issuance costs | - | ( | ) | |||||||||||||
Total other income, net | ||||||||||||||||
Income before provision for income taxes | ||||||||||||||||
Provision for income taxes | ||||||||||||||||
Net income | $ | $ | $ | $ | ||||||||||||
$ | $ | $ | $ | |||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
2
CLARIM ACQUISITION CORP.
UNAUDITED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
Class B Common Stock | Additional Paid-in | Accumulated | Stockholders’ | |||||||||||||||||
Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
Balance as of December 31, 2021 | ( | ) | $ | ( | ) | |||||||||||||||
Net income | — | |||||||||||||||||||
Balance as of March 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
Capital contribution attributable to proceeds received in excess of fair value of Working Capital Notes | — | |||||||||||||||||||
Remeasurement of Class A common stock subject to possible redemption to redemption value | — | ( | ) | ( | ) | |||||||||||||||
Net income | — | |||||||||||||||||||
Balance as of June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
Remeasurement of Class A common stock subject to possible redemption to redemption value | ( | ) | ( | ) | ||||||||||||||||
Net income | — | |||||||||||||||||||
Balance as of September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) |
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
Class B Common Stock | Additional Paid-in | Accumulated | Stockholders’ Equity | |||||||||||||||||
Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||
Balance as of December 31, 2020 | ( | ) | ||||||||||||||||||
Excess of proceeds over fair value of Private Placement Warrants | — | |||||||||||||||||||
Remeasurement of Class A common stock under ASC 480-10-S99 (as defined in Note 3) | — | ( | ) | ( | ) | ( | ) | |||||||||||||
Net income | — | |||||||||||||||||||
Balance as of March 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
Net loss | — | ( | ) | ( | ) | |||||||||||||||
Balance as of June 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
Net income | — | |||||||||||||||||||
Balance as of September 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) |
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
CLARIM ACQUISITION CORP.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
For the Nine Months ended September 30, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | $ | ||||||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
Warrant issuance costs | ||||||||
Change in fair value of warrant liabilities | ( | ) | ( | ) | ||||
Change in fair value of Working Capital Notes | ( | ) | ||||||
Interest earned on cash and marketable securities held in Trust Account | ( | ) | ( | ) | ||||
Changes in current assets and liabilities: | ||||||||
Prepaid expenses | ( | ) | ||||||
Deferred legal and professional fee | ||||||||
Accounts payable and accrued expenses | ( | ) | ||||||
Income taxes payable | ||||||||
Accrued franchise tax | ( | ) | ||||||
Accrued professional fees | ||||||||
Due to related party | ||||||||
Net cash used in operating activities | ( | ) | ( | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Investment held in Trust Account | ( | ) | ||||||
Withdrawal from Trust Account to cover taxes | ||||||||
Net cash provided by (used in) investing activities | ( | ) | ||||||
Cash flows from financing activities: | ||||||||
Proceeds from Working Capital Notes | ||||||||
Proceeds from Initial Public Offering, net of underwriters’ fees | ||||||||
Proceeds from Private Placement Warrants | ||||||||
Repayment of Sponsor IPO Loan | ( | ) | ||||||
Payments of offering costs | ( | ) | ||||||
Net cash provided by financing activities | ||||||||
Net change in cash | ||||||||
Cash, beginning of the period | ||||||||
Cash, end of the period | $ | $ | ||||||
Supplemental disclosures of noncash investing and financing activities: | ||||||||
Capital contribution for proceeds received in excess of fair value of Working Capital Notes | $ | $ | ||||||
Remeasurement of Class A common stock subject to possible redemption to redemption value | $ | $ | ||||||
Deferred underwriting commissions charged to additional paid in capital | $ | $ | ||||||
Deferred offering costs paid by Sponsor loan | $ | $ | ||||||
Initial fair value of warrant liability | $ | $ |
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
CLARIM ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS OPERATIONS
Organization and General
Clarim Acquisition Corp. is a blank check company incorporated as a Delaware corporation on November 4, 2020. The Company was formed for the purpose of effecting a Business Combination.
As of September 30, 2022, the Company had not commenced any operations. All activity for the period from November 4, 2020 (inception) through September 30, 2022 relates to the Company’s formation and the IPO, which is described below, and, since the closing of the IPO, the search for a prospective Business Combination. 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 and marketable securities held in the Trust Account, incurs reasonable business expenses to affect a Business Combination and recognizes changes in the fair value of warrant liability as other income (expense).
The Company’s sponsor is Clarim Partners, LLC, a Delaware limited liability company.
Financing
The
Registration Statement for the Company’s IPO was declared effective on January 28, 2021. On February 2, 2021, the Company consummated
the IPO of
Simultaneously
with the closing of the IPO, the Company consummated the sale of
Transaction
costs amounted to $
Trust Account
Following
the closing of the IPO on February 2, 2021, $
5
Initial Business Combination
The
Company’s Business Combination must be with one or more target businesses that together have a fair market value (as defined in
Note 3) equal to at least
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 Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) without
a stockholder vote by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a proposed Business
Combination or conduct a tender offer will be made by the Company, solely in its discretion. The stockholders will be entitled to redeem
their shares for a pro rata share of the aggregate amount then on deposit in the Trust Account (initially approximately $
The
shares of common stock subject to redemption will be recorded at a redemption value and classified as temporary equity upon the completion
of the IPO, in accordance with FASB ASC Topic 480, “Distinguishing Liabilities from Equity” (“ASC 480”). In such
case, the Company will proceed with a Business Combination if the Company has net tangible assets of at least $
If
the Company is unable to complete its Business Combination within the Combination Period, the Company will: (i) cease all operations
except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem
the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including
interest earned on the funds held in the Trust Account and not previously released to the Company to pay its taxes (less up to $
The
Sponsor, officers and directors have agreed to (i) waive their redemption rights with respect to their Founder Shares and Public Shares
in connection with the completion of the Business Combination, (ii) waive their redemption rights with respect to their Founder Shares
and Public Shares 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 Company’s obligation to provide for the redemption of the Public
Shares in connection with a Business Combination or to redeem
6
Liquidity, Capital Resources and Going Concern
As of September 30, 2022, the Company had $
Prior
to the completion of the IPO, the Company’s liquidity needs had been satisfied through a payment from the Sponsor of $
In addition, in order to finance transaction costs in connection with a Business Combination, the Company’s Sponsor or an affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, provide the Company Working Capital Loans (see Note 5).
On
November 19, 2021 and March 31, 2022, respectively, the Company issued the Working Capital Notes to the Sponsor, pursuant to which the
Company may draw down capital to fund its working capital needs or in connection with the Business Combination, up to a total principal
amount of $
Over the Combination Period, through the earlier of the consummation of a Business Combination or February 2, 2023, the Company will be using these funds for paying existing accounts payable, identifying and evaluating prospective Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.
The Company cannot guarantee that it will have sufficient resources to execute its business plan. Accordingly, the Company may need to raise additional capital through loans or additional investments from its Sponsor, stockholders, officers, directors, or third parties. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms. As of the date of this Report, the Company is within 12 months of its mandatory liquidation date of February 2, 2023. In connection with the Company’s assessment of going concern considerations in accordance with FASB ASU Topic 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management is uncertain that the Company will be able to consummate a Business Combination by this time. If a Business Combination is not consummated by this date, there will be a mandatory liquidation and subsequent dissolution of the Company. Management has determined that these conditions raise substantial doubt about the Company’s ability to continue as a going concern.
No adjustments have been made to the carrying amounts of assets or liabilities should the Company be unable to continue as a going concern.
7
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements are presented in U.S. dollars in conformity with 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 accompanying unaudited condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair presentation of the financial statements for the periods presented. Operating results for the period for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected through December 31, 2022.
The accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on April 14, 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 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 that is neither an emerging growth company nor an emerging growth company that 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 the accompanying unaudited condensed 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 accompanying unaudited condensed financial statements. Making estimates requires management to exercise significant judgement. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of September 30, 2022 and December 31, 2021.
Cash and Securities Held in Trust Account
Investment held in Trust Account consist of United States Treasury securities. The Company classifies its United States Treasury securities as held-to-maturity in accordance with FASB ASC Topic 320, “Investments - Debt and Equity Securities” (“ASC 320”). 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 the investee operates in.
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. Trust interest income is recognized when earned.
8
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), approximates the carrying amounts represented in the condensed balance sheets, primarily due to its short-term nature.
Fair Value Measurements
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC 820, approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature. “Fair value” is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
● | Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; |
● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
The fair value of the Company’s certain assets and liabilities, which qualify as financial instruments under ASC 820, approximates the carrying amounts represented in the balance sheet. The fair values of cash and cash equivalents, prepaid expenses, accounts payable and accrued expenses are estimated to approximate the carrying values as of September 30, 2022 and December 31, 2021 due to the short maturities of such instruments.
The Company’s warrant liability for the Private Placement Warrants is based on a valuation model utilizing management judgment and pricing inputs from observable and unobservable markets with less volume and transaction frequency than active markets. Significant deviations from these estimates and inputs could result in a material change in fair value. The fair value of the warrant liability is classified as Level 3. See Note 6 for additional information on assets and liabilities measured at fair value.
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution,
which, at times, may exceed the Federal Deposit Insurance Corporation coverage limit of $
Common Stock Subject to Possible Redemption
The Company accounts for its common stock subject to possible redemption in accordance with the guidance in ASC 480. 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 feature 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’ deficit. The Company’s common stock feature certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, 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.
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.
9
Net Income Per Share of Common Stock
The
Company has two classes of common stock, which are referred to as “Class A common stock” and “Class B common stock.”
Earnings and losses are shared pro rata between the two classes of shares. The
For the three months ended September 30, | For the nine months ended September 30 | |||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
Class A | Class B | Class A | Class B | Class A | Class B | Class A | Class B | |||||||||||||||||||||||||
Basic and diluted net income per share: | ||||||||||||||||||||||||||||||||
Numerator: | ||||||||||||||||||||||||||||||||
Allocation of net income | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Denominator: | ||||||||||||||||||||||||||||||||
Weighted-average shares outstanding | ||||||||||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ |
Offering Costs Associated with the Initial Public Offering
The Company complies with the requirements of FASB ASC Topic 340-10-S99-1 and SAB Topic 5A, “Expenses of Offering” (“ASC 340-10-S99-1 and SAB 5A”). Offering costs consist principally of professional and registration fees incurred through the balance sheet date. Offering costs are allocated to the separable financial instruments issued in the IPO based on a relative fair value basis compared to total proceeds received. Offering costs associated with warrant liabilities is expensed, and offering costs associated with the Class A common stock were charged to temporary equity upon the completion of the IPO.
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 FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). Derivative instruments are recorded at fair value on the grant date and re-valued at each reporting date, with changes in fair value reported in the statements of operations. Derivative assets and liabilities are classified on 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. The Company has determined the warrants are a derivative instrument.
FASB ASC Topic 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 Class A common stock and warrants, using the residual method by allocating IPO proceeds first to fair value of the warrants and then the Class A common stock.
Working Capital Notes
The Company accounts for its Working Capital Notes under FASB ASC Topic 815 “Derivatives and Hedging” (“ASC 815”). Pursuant to ASC 815-15-25 the election can be at the inception of a financial instrument to account for the instrument under the fair value option under FASB ASC Topic 825. “Financial Instruments” (“ASC 825”). The Company has made such election for the Working Capital Notes. Using the fair value option, the Working Capital Notes are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the Working Capital Notes are recognized as a non-cash gain or loss in the condensed statements of operations.
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 ASC 480 and ASC 815. The assessment considers 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 stock 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 is conducted at the time of 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 the
10
Income Taxes
The Company accounts for income taxes under FASB ASC Topic 740, “Income Taxes” (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
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 September 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.
Our
effective tax rate from continuing operations was
For
the nine months ended September 30, 2022 the Company has prepared it's provision on the basis that the Company is seeking and will likely
be receiving approval to liquidate prior to December 31, 2022. Based on this assumption, the Company believes it’s effective tax
rate will be approximately
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, cash flows and/or search for a target company, the specific impact is not readily determinable as of the date of the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The credit and financial markets have experienced extreme volatility and disruptions due to the current conflict between Ukraine and Russia. The conflict is expected to have further global economic consequences, including but not limited to the possibility of severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in inflation rates and uncertainty about economic and political stability. In addition, the United States and other countries have imposed sanctions on Russia, which increases the risk that Russia, as a retaliatory action, may launch cyberattacks against the United States, its government, infrastructure and businesses. Any of the foregoing consequences, including those the Company cannot yet predict, may cause the Company’s business, financial condition, results of operations and the price of the Company’s common stock to be adversely affected.
Inflation Reduction Act of 2022
On
August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for,
among other things, a new U.S. federal
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension vote or otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax in connection with a Business Combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business Combination but issued within the same taxable year of a Business Combination) and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business Combination and in the Company’s ability to complete a Business Combination.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, “Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40)” (“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 for the Company and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations or cash flows.
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed financial statements.
11
NOTE 3 - INITIAL PUBLIC OFFERING
Pursuant
to the IPO on February 2, 2021, the Company sold
Following
the closing of the IPO on February 2, 2021, $
All
of the
The Class A common stock is subject to SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99. If it is probable that the equity instrument will become redeemable, the Company has the option to either accrete changes in the redemption value over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of the instrument or to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The Company recognizes changes in redemption value immediately as they occur. Immediately upon the closing of the IPO, the Company recognized the accretion from initial book value to redemption amount value. The change in the carrying value of redeemable common stock resulted in charges against additional paid-in capital and accumulated deficit.
As of September 30, 2022 and December 31, 2021, the common stock reflected on the balance sheets are reconciled in the following table:
Gross proceeds from IPO | $ | |||
Less: | ||||
Proceeds allocated to Public Warrants | ( | ) | ||
Issuance costs allocated to Class A common stock | ( | ) | ||
Plus: | ||||
Remeasurement of Class A common stock to redemption value | ||||
Class A common stock subject to possible redemption as of December 31, 2021 | ||||
Plus: | ||||
Remeasurement of Class A common stock to redemption value | ||||
Class A common stock subject to possible redemption as of March 31, 2022 | ||||
Plus: | ||||
Remeasurement of Class A common stock to redemption value | ||||
Class A common stock subject to possible redemption as of June 30, 2022 | $ | |||
Plus: | ||||
Remeasurement of Class A common stock to redemption value | ||||
Class A common stock subject to possible redemption as of September 30, 2022 | $ |
Public Warrants
Each
whole Public Warrant entitles the holder to purchase one share of the Company’s Class A common stock at a price of $
12
The Public Warrants will become exercisable on the later of (i) February 2, 2022 or (ii) 30 days after the completion of its Business Combination, and will expire five years after the completion of the Company’s Business Combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.
The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the shares of Class A common stock underlying the warrants is then effective and a current prospectus relating thereto is current. No warrant will be exercisable and the Company will not be obligated to issue shares of Class A common stock upon exercise of a warrant unless Class A common stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants. In no event will the Company be required to net cash settle any warrant. In the event that a registration statement is not effective for the exercised warrants, the purchaser of a unit containing such warrant will have paid the full purchase price for the unit solely for the share of Class A common stock underlying such unit.
Redemption of Warrants When the Price per Class A Common Stock Equals or Exceeds $18.00
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; and |
● | if, and only if, the reported closing price of the Class A common stock equals or exceeds $18.00 per share 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. |
Redemption of Warrants When the Price per Class A Common Stock Equals or Exceeds $10.00
Once the warrants become exercisable, the Company may redeem the outstanding warrants:
● | in whole and not in part; |
● | at $0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares determined based on the redemption date and the fair market value of the Class A common stock; |
● | if, and only if, the closing price of Class A common stock equals or exceeds $10.00 per public share for any 20 trading days within the 30-trading day period ending three trading days before the Company sends notice of redemption to the warrant holders; and |
● | if the closing price of the Class A common stock for any 20 trading days within a 30-trading day period ending on the third trading days before the Company sends notice of redemption to the warrant holders is less than $18.00 per share, the Private Placement Warrants must also concurrently be called for redemption on the same terms as the outstanding Public Warrants, as described above. |
If
the Company calls the warrants for redemption as described above, the management will have the option to require all holders that wish
to exercise warrants to do so on a cashless basis. In determining whether to require all holders to exercise their warrants on a cashless
basis, the management will consider, among other factors, the Company’s cash position, the number of warrants that are outstanding
and the dilutive effect on its stockholders of issuing the maximum number of shares of Class A common stock issuable upon the exercise
of the warrants. In such event, each holder would pay the exercise price by surrendering the warrants for that number of shares of Class
A common stock equal to the lesser of (A) the quotient obtained by dividing (x) the product of the number of shares of Class A common
stock underlying the warrants multiplied by the excess of the “fair market value” over the exercise price of the warrant
by (y) the fair market value and (B)
13
NOTE 4 - PRIVATE PLACEMENT
Simultaneously
with the closing of the IPO, the Sponsor purchased an aggregate of
Each
Private Placement Warrant entitles the holder to purchase one share of the Class A common stock at a price of $
The
Company’s Sponsor has agreed to (i) waive its redemption rights with respect to the Founder Shares and Public Shares in connection
with the completion of the Company’s Business Combination, (ii) waive its redemption rights with respect to the Founder Shares
and Public Shares 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 Company’s obligation to provide for the redemption of the Company’s
Public Shares in connection with a Business Combination or to redeem
NOTE 5 - RELATED PARTY TRANSACTIONS
Founder Shares
In
November 2020, the Company’s Initial Stockholders purchased an aggregate of
With
certain limited exceptions, the Founder Shares are not transferable, assignable or salable (except to the Company’s officers and
directors and other persons or entities affiliated with the Sponsor, each of whom will be subject to the same transfer restrictions)
until the earlier of (A) one year after the completion of the Company’s Business Combination or (B) subsequent to the Company’s
Business Combination, (x) if the reported closing price of Class A common stock equals or exceeds $
14
Due to Related Party
At
September 30, 2022 and December 31, 2021, the due to related party (balance of $
Sponsor IPO Loan
The
Sponsor agreed to loan or fund offering costs on behalf of the Company an aggregate of up to $
Working Capital Notes
In
order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor or certain of
the Company’s officers and directors may, but are not obligated to, loan the Company Working Capital Loans. If the Company completes
a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company.
Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination
does not close, the Company may use a portion of the working capital held outside the Trust Account to repay the Working Capital Loans
but no proceeds from the Trust Account would be used to repay the Working Capital Loans. Up to $
On
November 19, 2021, the Company entered into
At
September 30, 2022, the outstanding balance of $
15
On
March 31, 2022, the Company issued Working Capital Note II, an additional unsecured promissory note for an aggregate of up to $
Upon
the consummation of the Initial Business Combination, the outstanding amount under the Working Capital Notes shall automatically convert
into that number of Conversion Warrants of the Company or its successor entity, equal to: (x) the outstanding amount of the promissory
note being converted, divided by (y) $
The issuances of the Working Capital Notes were made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
Administrative Service Fee
The
Company has agreed to pay an affiliate of its Sponsor, commencing on January 28, 2021, a total of $
NOTE 6 - RECURRING FAIR VALUE MEASUREMENTS
Cash and Securities Held in Trust Account
As
of September 30, 2022 and December 31, 2021, investment in the Company’s Trust Account consisted of $
Carrying Value/ Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value as of September 30, 2022 | |||||||||||||
U.S. Money Market | $ | $ | $ | $ | ||||||||||||
U.S. Treasury Securities | ( | ) | ||||||||||||||
$ | $ | $ | ( | ) | $ |
Carrying Value/ Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value as of December 31, 2021 | |||||||||||||
U.S. Money Market | $ | $ | $ | $ | ||||||||||||
U.S. Treasury Securities | ||||||||||||||||
$ | $ | $ | $ |
16
Warrant Liability
As
of September 30, 2022 and December 31, 2021, the Company’s warrants liability was valued at $
Initial Measurement
The estimated fair value of the warrant liability on February 2, 2021 was determined using Level 3 inputs. Inherent in a Monte-Carlo simulation model are assumptions related to expected stock-price volatility (pre-merger and post-merger), expected term, dividend yield and risk-free interest rate. The Company estimates the volatility of its common stock based on management’s understanding of the volatility associated with instruments of other similar entities. The risk-free interest rate is based on the U.S. Treasury Constant Maturity similar to the expected remaining life of the warrants. The expected life of the warrants is simulated based on management assumptions regarding the timing and likelihood of completing a Business Combination. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero. The assumptions used in calculating the estimated fair values represent the Company’s best estimate. However, inherent uncertainties are involved. If factors or assumptions change, the estimated fair values could be materially different.
The key inputs into the Monte Carlo simulation model for the warrant liability were as follows as of February 2, 2021:
Input | February 2, 2021 | |||
Expected term (years) | ||||
Expected volatility | % | |||
Risk-free interest rate | % | |||
Stock price | $ | |||
Dividend yield | % | |||
Exercise price | $ |
Subsequent Measurement
The
fair value of the Public Warrants as of September 30, 2022 is classified as Level 1 due to the use of an observable market quote in an
active market. As of September 30, 2022, the aggregate value of Public Warrants was $
The estimated fair value of the Private Placement Warrants on September 30, 2022 is determined using Level 3 inputs. Inherent in a Monte-Carlo simulation model are assumptions related to expected stock-price volatility (pre-merger and post-merger), expected term, dividend yield and risk-free interest rate. The Company estimates the volatility of its common stock based on management’s understanding of the volatility associated with instruments of other similar entities. The risk-free interest rate is based on the U.S. Treasury Constant Maturity similar to the expected remaining life of the warrants. The expected life of the warrants is simulated based on management assumptions regarding the timing and likelihood of completing a Business Combination. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero. The assumptions used in calculating the estimated fair values represent the Company’s best estimate. However, inherent uncertainties are involved. If factors or assumptions change, the estimated fair values could be materially different.
The key inputs into the Black Scholes model for the Private Placement Warrants were as follows:
Input | September 30, 2022 | December 31, 2021 | ||||||
Expected term (years) | ||||||||
Expected volatility | % | % | ||||||
Risk-free interest rate | % | % | ||||||
Stock price | $ | $ | ||||||
Dividend yield | % | % | ||||||
Exercise price | $ | $ |
17
The following table sets forth a summary of the changes in the fair value of the Level 3 warrant liability for the three and nine months September 30, 2022:
Warrant Liability | ||||
Fair value as of December 31, 2021 | $ | |||
Change in fair value | ( | ) | ||
Fair value as of March 31, 2022 | $ | |||
Change in fair value | ( | ) | ||
Fair value as of June 30, 2022 | $ | |||
Change in fair value | ( | ) | ||
Fair value as of September 30, 2022 | $ |
Working Capital Notes
The Company established the fair value for the Working Capital Note I using a Black-Scholes model, which is considered to be a Level 3 fair value measurement.
The estimated fair value of the Working Capital Notes was based on the following significant inputs:
Input | December 31, 2021 | September 30, 2022 | ||||||
Expected term (years) | ||||||||
Expected volatility | % | % | ||||||
Risk-free interest rate | % | % | ||||||
Stock price | $ | |||||||
Dividend yield | % | % | ||||||
Exercise price | $ |
The following table presents the changes in the fair value of the Level 3 Working Capital Note I:
Fair value as of January 1, 2022 | $ | |||
Proceeds received through issuance of Working Capital Notes | ||||
Capital contribution attributable to proceeds received in excess of fair value of Working Capital Notes | ||||
Change in valuation inputs or other assumptions | ( | ) | ||
Fair value as of September 30, 2022 | $ |
There were no transfers in or out of Level 3 from other levels in the fair value hierarchy during the three months ended September 30, 2022 for Working Capital Note I.
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 September 30, 2022 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.
September 30, | Quoted Prices In Active Markets | Significant Other Observable Inputs | Significant Other Unobservable Inputs | |||||||||||||
2022 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
U.S. Money Market held in Trust Account | $ | $ | $ | $ | ||||||||||||
U.S. Treasury Securities held in Trust Account | ||||||||||||||||
$ | $ | $ | $ | |||||||||||||
Liabilities: | ||||||||||||||||
Public Warrant Liability | $ | $ | $ | $ | ||||||||||||
Private Warrant Liability | ||||||||||||||||
Working Capital Notes | ||||||||||||||||
$ | $ | $ | $ |
18
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Registration Rights
The holders of the Founder Shares, Private Placement Warrants, and Conversion Warrants have registration rights to require the Company to register a sale of any of its securities held by them pursuant to a registration rights agreement signed on January 28, 2021. These holders are entitled to make up to three demands, excluding short form registration demands, that the Company registers such securities for sale under the Securities Act. In addition, these holders have “piggy-back” registration rights to include their securities in other registration statements filed by the Company.
Underwriting Agreement
The
underwriters had a 45-day option from February 2, 2021 to purchase up to an additional
On
February 2, 2021, the underwriters fully exercised the over-allotment option to purchase
NOTE 8 - STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred Stock
The
Company is authorized to issue a total of
Class A Common Stock
The
Company is authorized to issue a total of
Class B Common Stock
The
Company is authorized to issue a total of
The
Company’s Sponsor, directors and officers have agreed not to transfer, assign or sell their Founder Shares until the earlier to
occur of (A) one year after the completion of the Company’s Business Combination or (B) subsequent to the Company’s Business
Combination, (x) if the reported closing price of the Company’s Class A common stock equals or exceeds $
The
shares of Class B common stock will automatically convert into shares of the Company’s Class A common stock at the time of its
Business Combination on a one-for-one basis, subject to adjustment pursuant to certain anti-dilution rights, as described herein. In
the case that additional shares of Class A common stock or equity-linked securities are issued or deemed issued in connection with the
Company’s Business Combination, the number of shares of Class A common stock issuable upon conversion of all Founder Shares will
equal, in the aggregate, on an as-converted basis,
Holders of record of the Class A and Class B common stock vote together as a single class on all matters submitted to a vote of the Company’s stockholders, with each share of common stock entitling the holder to one vote except as required by law.
NOTE 9 - SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the accompanying unaudited condensed financial statements were available to be issued. The Company did not identify any subsequent events that would have required adjustment or disclosure in the accompanying unaudited condensed financial statements.
On November 10, 2022, the Company filed a definitive proxy statement with the SEC and plans to hold a stockholder meeting on December 7, 2022 to seek approval of the following proposals: the Redemption Limit Elimination Proposal, the Early Termination Proposal, the Early Termination Trust Amendment Proposal and the Adjournment Proposal. If the proposals are approved by the stockholders, the Company plans to liquidate in advance of the mandatory liquidation date in the current amended and restated certificate of incorporation and no later than December 30, 2022, and distribute the funds held in Trust Account to the Public Stockholders.
19
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Cautionary Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Report including, without limitation, statements under this “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward- looking statements. When used in this Report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or the Company’s management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those contemplated by the forward- looking statements as a result of certain factors detailed in our filings with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Overview
We are a blank check company incorporated as a Delaware corporation on November 4, 2020. The Company was formed for the purpose of effecting a Business Combination with one or more businesses.
We leverage the more than nine decades of combined operational and financial experience of our management team and board of directors who are both established e-commerce entrepreneurs and sophisticated investors. We believe our extensive industry experience and proven ability to source, acquire, grow and revitalize companies will provide our management team with a robust and consistent flow of acquisition opportunities. Our management team and board’s broad relationships across multiple networks, including leading consumer and technology company founders, executives of private and public companies, leading M&A investment banks and private equity firms, as well as their ability to engage early with founder-led businesses represents a differentiated advantage to successfully source transaction opportunities. Our team has been immersed in the same ecosystem as the current founders of private companies who are making decisions on how to build currency for future growth and monetization.
While we may pursue an initial Business Combination target in any business, industry or geographical location, we are focusing our search primarily within the consumer-facing e-commerce sector. We are capitalizing on the ability of our management team to identify, acquire and operate a business or businesses that can benefit from our management team and board’s established relationships and operating experience. Our management team has extensive experience in identifying and executing strategic investments and has done so successfully in several sectors, particularly in digital consumer-facing businesses. Over time, we believe that all companies will need to deploy an omni-commerce strategy to succeed, and we will leverage our management team and board’s unique experience to successfully develop our business target’s omni-commerce.
20
Results of Operations
Our entire activity since inception up to September 30, 2022 relates to our formation, the IPO and, since the closing of the IPO, a search for an initial Business Combination candidate. We will not generate any operating revenues until the closing and completion of our initial Business Combination, at the earliest. We generate non-operating income in the form of interest income on marketable securities held after the IPO. We incur expenses as a result of being a public company (for legal, financial reporting, accounting, and auditing compliance), as well as for due diligence expenses in connection with completing an initial Business Combination.
For the three months ended September 30, 2022, we had net income of $1,963,645, which consisted of $1,222,941 in interest earned on marketable securities held in the Trust Account and $1,032,500 on change in fair value of warrants, $28,000 in the change in fair value of the Working Capital Notes, offset by $247,783 in operating costs.
For the nine months ended September 30, 2022, we had net income of $9,939,295, which consisted of $1,763,467 in interest earned on marketable securities held in the Trust Account and $8,702,500 on change in fair value of warrants, $334,000 in the change in fair value of the Working Capital Notes, offset by $783,650 in operating costs.
For the three months ended September 30, 2021, we had net income of $1,738,856, which consisted of $23,672 in interest earned on marketable securities held in the Trust Account, and $16 in bank interest income, and $3,149,167 in unrealized gain on change in fair value of warrants, offset by $1,433,999 in operating costs which included accrued professional expenses for identifying targets, pursuing discussions with potential acquisition candidates, due diligence of prospective business combination partners and initial negotiations regarding deal terms for potential transactions.
For the nine months ended September 30, 2021, we had net income of $2,932,458, which consisted of $58,584 in interest earned on marketable securities held in the Trust Account, and $43 in bank interest income, and $5,413,333 in unrealized gain on change in fair value of warrants, offset by $1,433,999 in operating costs and $530,059 of warrant issuance costs.
Liquidity, Capital Resources and Going Concern
As of September 30, 2022, the Company had $154,266 in its operating bank account, and a working capital deficit of $824,765.
Prior to the completion of the IPO, our liquidity needs had been satisfied through a payment from the Sponsor of $25,000 for the Founder Shares to cover certain offering costs, and the loan under an unsecured promissory note from the Sponsor of $112,942. We paid $112,500 of the loan to the Sponsor on February 11, 2021. Subsequent to the consummation of the IPO and Private Placement, our liquidity needs have been satisfied through the proceeds from the consummation of the Private Placement not held in the Trust Account and Working Capital Notes.
In addition, in order to finance transaction costs in connection with an initial Business Combination, our Sponsor or an affiliate of the Sponsor or certain of our officers and directors may, but are not obligated to, provide us Working Capital Loans.
We also issued the Working Capital Notes to the Sponsor on November 19, 2021 and March 31, 2022, respectively, pursuant to which we may draw down capital to fund our working capital needs or in connection with our initial Business Combination, up to a total principal amount in the aggregate of up to $1,350,000. The Sponsor has also informally agreed to commit additional funding as and if necessary and agreed with us of up to $500,000 upon similar terms and conditions as the foregoing promissory note. At September 30, 2022, an aggregate of $600,000 has been drawn against the Working Capital Notes.
Over this time period through the earlier of the consummation of an initial Business Combination or one year from this filing, we will be using these funds for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the initial Business Combination.
The Company cannot guarantee that it will have sufficient resources to execute its business plan. Accordingly, the Company may need to raise additional capital through loans or additional investments from its Sponsor, stockholders, officers, directors, or third parties. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms. As of the date of this Report, the Company is within 12 months of its mandatory liquidation date of February 2, 2023. In connection with the Company’s assessment of going concern considerations in accordance with ASU Topic 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management is uncertain that the Company will be able to consummate a Business Combination by this time. If a Business Combination is not consummated by this date, there will be a mandatory liquidation and subsequent dissolution of the Company. Management has determined that these conditions raise substantial doubt about the Company’s ability to continue as a going concern.
No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after February 2, 2023.
On November 10, 2022, the Company filed a definitive proxy statement with the SEC and plans to hold a stockholder meeting on December 7, 2022 to seek approval of the following proposals: the Redemption Limit Elimination Proposal, the Early Termination Proposal, the Early Termination Trust Amendment Proposal and the Adjournment Proposal. If the proposals are approved by the stockholders, the Company plans to liquidate in advance of the mandatory liquidation date in the current amended and restated certificate of incorporation and no later than December 30, 2022, and distribute the funds held in Trust Account to the Public Stockholders.
21
Off-Balance Sheet Arrangements
As of September 30, 2022, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Contractual Obligations
We do not have any long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations or other long-term liabilities, other than an agreement to pay the Sponsor a monthly fee of $10,000 for office space, utilities and secretarial and administrative support. We began incurring these fees on January 28, 2021 and will continue to incur these fees monthly until the earlier of the completion of our initial Business Combination or our liquidation.
The underwriters of the IPO are entitled to a deferred underwriting commission of 3.5% of the gross proceeds of the IPO held in the Trust Account, or $10,062,500, upon the completion of our initial Business Combination, subject to the terms of the underwriting agreement. The deferred underwriting commission will be waived by the underwriters in the event that we do not complete an initial Business Combination.
Critical Accounting Policies and 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 accompanying unaudited condensed financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. We have identified the following as our critical accounting policies:
Common Stock Subject to Possible Redemption
We account for our common stock subject to possible redemption in accordance with the guidance in ASC 480. 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 feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ deficit. Our common stock feature certain redemption rights that are considered to be outside of our 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 our balance sheets.
We recognize 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.
Net Income per Common stock
We have two classes of shares, which are referred to as “Class A common stock” and “Class B common stock.” Earnings and losses are shared pro rata between the two classes of shares. The 14,750,000 potential common stock for outstanding warrants to purchase our stock were excluded from diluted earnings per share for the three and nine months ended September 30, 2022 because the warrants are contingently exercisable, and the contingencies have not yet been met.
Offering Costs associated with the Initial Public Offering
We comply with the requirements of ASC 340-10-S99-1 and SAB 5A. Offering costs consist principally of professional and registration fees incurred through the balance sheet date. Offering costs are allocated to the separable financial instruments issued in the IPO based on a relative fair value basis compared to total proceeds received. Offering costs associated with warrant liabilities is expensed, and offering costs associated with the Class A common stock were charged to temporary equity upon the completion of the IPO.
22
Derivative Financial Instruments
We evaluate our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC 815. Derivative instruments are recorded at fair value on the grant date and re-valued at each reporting date, with changes in the fair value reported in the statements of operations. Derivative assets and liabilities are classified on the balance sheets 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. We have determined the warrants are a derivative instrument.
FASB ASC Topic 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. We apply this guidance to allocate IPO proceeds from the Units between Class A common stock and warrants, using the residual method by allocating IPO proceeds first to fair value of the warrants and then the Class A common stock.
Working Capital Notes
We account for the Working Capital Notes, which are convertible promissory notes, under ASC 815. Under ASC 815-15-25, the election can be at the inception of a financial instrument to account for the instrument under the fair value option under ASC 825. We have made such election for the Working Capital Notes. Using the fair value option, the Working Capital Notes are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the notes are recognized as a non-cash gain or loss in our condensed statements of operations.
Emerging Growth Company Status
We are 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 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 approval of any golden parachute payments not previously approved.
Further, Section102 (b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Factors That May Adversely Affect Our Results of Operations
Our results of operations and our ability to complete an initial Business Combination may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond our control. Our business could be impacted by, among other things, downturns in the financial markets or in economic conditions, increases in oil prices, inflation, increases in interest rates, supply chain disruptions, declines in consumer confidence and spending, the ongoing effects of the COVID-19 pandemic, including resurgences and the emergence of new variants, and geopolitical instability, such as the military conflict in the Ukraine. We cannot at this time fully predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact our business and our ability to complete an initial Business Combination.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
23
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer (together, the “Certifying Officers”), or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our Certifying Officers, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officers concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Report, due solely to the material weakness in our internal control over financial reporting related to our accounting for complex financial instruments.
In light of this material weakness, we have enhanced our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our financial statements including making greater use of third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. We believe our efforts will enhance our controls relating to accounting for complex financial transactions, but we can offer no assurance that our controls will not require additional review and modification in the future as industry accounting practice may evolve over time.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
Other than as discussed above, there have been no changes to our internal control over financial reporting during the quarter ended September 30, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
24
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
To the knowledge of our management team, there is no litigation currently pending or contemplated against us, any of our officers or directors in their capacity as such or against any of our property.
ITEM 1A. RISK FACTORS.
As of the date of this Report, other than as set forth below, there have been no material changes with respect to those risk factors previously disclosed in our (i) Registration Statement, (ii) Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on April 15, 2022 and (iii) Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021, September 30, 2021, March 31, 2022 and June 30, 2022, as filed with the SEC on May 24, 2021, November 22, 2021, May 23, 2022, and August 16, 2022 respectively. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risks could arise that may also affect our business or ability to consummate an initial Business Combination. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.
A new 1% U.S. federal excise tax could be imposed on us in connection with future redemptions by public stockholders of our shares.
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases (including redemptions) of stock by publicly traded domestic corporations and certain domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its stockholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension vote or otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax in connection with a Business Combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business Combination but issued within the same taxable year of a Business Combination) and (iv) the content of regulations and other guidance from the U.S. Department of the Treasury. In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business Combination and in the Company’s ability to complete a Business Combination.
25
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None. For a description of the use of proceeds generated in our Initial Public Offering and Private Placement, see Part II, Item 2 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, as filed with the SEC on May 24, 2021. There has been no material change in the planned use of proceeds from our IPO and Private Placement as described in the Registration Statement.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
26
ITEM 6. EXHIBITS.
The following exhibits are filed as part of, or incorporated by reference into, this Report.
No. | Description of Exhibit | |
31.1* | ||
31.2* | Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | |
32.1** | Certification of the Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2** | Certification of the Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS* | Inline XBRL Instance Document. | |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* | Filed herewith. |
** | Furnished herewith. |
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: November 14, 2022 | CLARIM ACQUISITION CORP. | |
By: | /s/ James F. McCann | |
James F. McCann | ||
Chief
Executive Officer and Chairman of the Board | ||
(Principal Executive Officer) |
Dated: November 14, 2022 | By: | /s/ Jaymin Patel |
Jaymin Patel | ||
Chief Financial Officer, President and Director | ||
(Principal Accounting and Financial Officer) |
28