SEC Form 10-Q filed by Kadem Sustainable Impact Corporation
$KSI
Consumer Electronics/Appliances
Industrials
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2022
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-40224
(Exact Name of Registrant as Specified in its Charter)
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification Number) | |
(Address of Principal Executive Offices) |
(Zip Code) | |
(917 ) 841-6202
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Trading |
Name of each exchange | |||
| Title of each class |
Symbol(s) |
on which registered | ||
one-half of one warrant |
||||
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. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation Yes ☒ No ☐
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 | ☐ | |||
Non-accelerated filer |
☒ | Smaller reporting company | ||||
| Emerging growth company | ||||||
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 ☒ No ☐
12b-2
of the Exchange Act). Yes As of August 17,500,000 shares of Class A Common Stock, par value $0.0001 per share, and 4,375,000 shares of Class B Common Stock, par value $0.0001 per share, were outstanding.
12
, 2022, Kadem Sustainable Impact Corporation Quarterly
Report on Form
10-Q
For the Quarter Ended June 30, 2022
Table of Contents
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2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
KADEM SUSTAINABLE IMPACT CORPORATION
CONDENSED BALANCE SHEETS
| As of |
As of |
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June 30, 2022 |
December 31, |
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(Unaudited) |
2021 |
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| ASSETS: |
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| Current Assets: |
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| Cash |
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| Deferred offering costs |
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| Prepaid expenses and other assets |
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| Cash equivalents and marketable securities held in trust account |
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| Total assets |
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| LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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| Current Liabilities: |
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| Accounts payable |
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| Accrued expenses |
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| Taxes payable |
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| Working capital loan - related party |
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| Deferred underwriting discount and advisory fee |
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| Warrant liabilities |
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| Total liabilities |
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| COMMITMENTS (NOTE 5) |
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| Class A common stock subject to possible redemption, shares at redemption value as of June 30, 2022 and |
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| Stockholders’ Deficit: |
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| Preferred stock, $ |
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| Class A common stock, $ excluding |
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| Class B common stock, $ outstanding as of June 30, 2022 and December 31, 2021 |
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| Accumulated deficit |
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| Total stockholders’ deficit |
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| Total liabilities and stockholders’ deficit |
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The accompanying notes are an integral part of these condensed financial statements
3
KADEM SUSTAINABLE IMPACT CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, |
Six Months Ended June 30, |
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2022 |
2021 |
2022 |
2021 |
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| Operating expenses |
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| General and administrative expenses |
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| State franchise taxes, other than income tax |
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| Loss from operations |
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| Other (income) expense: |
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| Offering costs allocated to warrant liabilities |
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| Change in fair value of warrant liabilities |
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| Dividends earned and accretion of discount on marketable securities held in trust account |
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| Total other income |
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| Net (loss) income before provision for income taxes |
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| Net (loss) income |
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| Basic and diluted weighted average shares outstanding, Class A common stock subject to possible redemption |
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| Basic and diluted net (loss) income per share, Class A common stock subject to possible redemption |
$ | $ | $ | $ | ||||||||||||
| Basic and diluted weighted average shares outstanding, Class B common |
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| Basic and diluted net (loss) income per share, Class B common stock |
$ | $ | $ | $ | ||||||||||||
The accompanying notes are an integral part of these condensed financial statements
4
KADEM SUSTAINABLE IMPACT CORPORATION
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
(Unaudited)
Class A Common Stock |
Class B Common Stock |
Additional |
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Paid - in |
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Shares |
Amount |
Shares |
Amount |
Capital |
Accumulated Deficit |
Stockholders’ Deficit |
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Balance as of December 31, 2021 |
$ | $ | $ | $ | ( |
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Net income |
— | — | — | — | — | |||||||||||||||||||||||
Balance as of March 31, 2022 (unaudited) |
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Remeasurement of Class A shares subject to possible redemption |
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Net loss |
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Balance as of June 30, 2022 (unaudited) |
$ | $ | $ | $ | ( |
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The accompanying notes are an integral part of these condensed financial statements
5
KADEM SUSTAINABLE IMPACT CORPORATION
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021
(Unaudited)
Class A Common Stock |
Class B Common Stock |
Additional |
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Paid - in |
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Shares |
Amount |
Shares |
Amount |
Capital |
Accumulated Deficit |
Stockholders’ Deficit |
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| Balance as of December 31, 2020 |
$ | $ | $ | $ | $ | |||||||||||||||||||||||
| Class B Common Stock forfeited |
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| Remeasurement of Class A common stock subject to possible redemption |
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| Net l oss |
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| Balance as of March 31, 2021 (unaudited) |
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| Class B Common Stock forfeited |
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| Net i ncome |
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| Balance as of June 30, 2021 (unaudited) |
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The accompanying notes are an integral part of these condensed financial statements
6
KADEM SUSTAINABLE IMPACT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months ended June 30, |
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2022 |
2021 |
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Cash flows from operating activities |
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Net income |
$ | $ | ||||||
Adjustments to reconcile net income to net cash used in operating activities: |
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Dividends earned and accretion of discount on marketable securities held in trust account |
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Change in fair value of warrants |
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Offering costs allocated to warrant liabilities |
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Changes in operating assets and liabilities: |
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Increase in accounts payable and accrued expenses |
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(Decrease) increase in taxes payable |
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Decrease (increase) in prepaid expenses and other assets |
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Net cash used in operating activities |
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Cash flows from investing activities |
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Cash deposited in Trust Account |
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Net cash used in investing activities |
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Cash flows from financing activities |
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Proceeds from issuance of Class A Common Stock and public warrants |
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Proceeds from issuance of private placement warrants |
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Proceeds from issuance of Class B Common Stock |
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Payment of underwriter discount and offering costs |
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Proceeds from working capital loan - related party |
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Net cash provided by financing activities |
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Net (decrease) increase in cash |
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Cash at beginning of period |
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Cash at end of period |
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Supplemental disclosure of non-cash financing activities |
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Initial classification of warrant liability |
$ | — | $ | |||||
Deferred underwriting discount and advisory fee |
$ | — | $ | |||||
Remeasurement of Class A common stock to redemption amount |
$ | $ | ||||||
Offering costs included in accrued expenses |
$ | $ | — | |||||
State franchise tax paid by d ividends and discount earned on marketable securities held in trust account |
$ | $ | — | |||||
The accompanying notes are an integral part of these condensed financial statements
7
KADEM SUSTAINABLE IMPACT CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2022 (Unaudited)
Note 1 — Description of Organization and Business Operations
Organization and General
Kadem Sustainable Impact Corporation (the “Company”) is a blank check company incorporated in Delaware on December 29, 2020. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Initial Business Combination”). The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the “Securities Act,” as modified by the Jumpstart Our Business
Start-ups
Act of 2012 (the “JOBS Act”). As of June 30, 2022, the Company had not commenced any operations. All activity for the period from December 29, 2020 (inception) to June 30, 2022, relates to the Company’s formation and the Initial Public Offering (“IPO”) described below, the identification and evaluation of prospective acquisition targets for an Initial Business Combination and ongoing administrative and compliance matters. The Company will not generate any operating revenues until after the completion of its Initial Business Combination, at the earliest. The Company will generate
non-operating
income in the form of interest income on cash from the proceeds derived from the IPO. The Company has selected December 31st as its fiscal year end. Sponsor and Financing
The Company’s sponsor is Kadem Management, LLC, a Delaware limited liability company (the “Sponsor”). The registration statement for the IPO was declared effective on March 16, 2021 (the “Effective Date”). On March 19, 2021, the Company consummated the IPO of 17,500,000 units (the “Units” and, with respect to the shares of the Company’s Class A common stock, par value $0.0001 per share, the “Class A Common Stock”), included in the Units sold in the IPO, the “Public Shares”), at $10.00 per Unit, generating gross proceeds of $175,000,000 , which is discussed below.
Simultaneously with the closing of the IPO, the Company consummated the sale of 4,875,000 warrants (the “Private Placement Warrants”) at a price of $1.00 per Private Placement Warrant in a private placement (the “Private Placement”) to the Sponsor, generating gross proceeds of $4,875,000 , which is discussed in Note 5.
The Trust Account
Following the closing of the IPO, $175,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the IPO and certain of the proceeds of the Private Placement was placed in a trust account (the “Trust Account”), which can be invested only in U.S. government securities having a maturity of one hundred eighty-five (185) days or less or in money market funds that meet certain conditions under Rule 100 % of the Public Shares if the Company has not consummated an Initial Business Combination within 24 months from the closing of the IPO or (B) with respect to any other material provision relating to the rights of holders of Class A Common Stock or 100 % of the Public Shares if the Company is unable to complete its Initial Business Combination within 24 months from the closing of the IPO.
2a-7
under the Investment Company Act of 1940 which invest only in direct U.S. government treasury obligations. Funds will remain in the Trust Account until the earlier of (i) the consummation of the Initial Business Combination or (ii) the distribution of the Trust Account proceeds as described below. The remaining proceeds outside the Trust Account may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. The Company’s amended and restated certificate of incorporation provides that, except for the withdrawal of interest to pay franchise and income taxes, none of the funds held in the Trust Account (including the interest earned on the funds held in the Trust Account) will be released from the Trust Account until the earliest of: (i) the completion of the Initial Business Combination; (ii) the redemption of Public Shares in connection with a vote seeking to amend the Company’s amended and restated certificate of incorporation (A) to modify the substance or timing of the Company’s obligation to redeem pre-Initial
Business Combination Activity; and (iii) the redemption of The proceeds deposited in the Trust Account could become subject to the claims of the Company’s creditors, if any, which could have priority over the claims of the Company’s public stockholders.
8
Note 1 — Description of Organization and Business Operations (cont.)
Initial Business Combination
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the IPO, although substantially all of the net proceeds of the IPO are intended to be generally applied toward consummating an Initial Business Combination. The Initial Business Combination must occur with one or more target businesses that together have an aggregate fair market value of at least 80 % of the assets held in the Trust Account (excluding the deferred underwriting commissions and taxes payable on income earned on the Trust Account) at the time of the agreement to enter into the Initial Business Combination. Furthermore, there is no assurance that the Company will be able to successfully effect an Initial Business Combination.
The Company, after signing a definitive agreement for an Initial Business Combination, will either (i) seek stockholder approval of the Initial Business Combination at a meeting called for such purpose in connection with which stockholders may seek to redeem their shares, regardless of whether they vote for or against the Initial Business Combination, for cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the Initial Business Combination, including interest but less taxes payable, or (ii) provide stockholders with the opportunity to sell their Public Shares to the Company by means of a tender offer (and thereby avoid the need for a stockholder vote) for an amount in cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the Initial Business Combination, including interest but less taxes payable. The decision as to whether the Company will seek stockholder approval of the Initial Business Combination or will allow stockholders to sell their Public Shares in 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 otherwise require the Company to seek stockholder approval, unless a vote is required by law or under NASDAQ rules. If the Company seeks stockholder approval, it will complete its Initial Business Combination only if a majority of the outstanding shares of common stock voted are voted in favor of the Initial Business Combination. However, in no event will the Company redeem its Public Shares in an amount that would cause its net tangible assets to be less than $5,000,001 . In such case, the Company would not proceed with the redemption of its Public Shares and the related Initial Business Combination, and instead may search for an alternate Initial Business Combination.
If the Company holds a stockholder vote or there is a tender offer for shares in connection with an Initial Business Combination, a public stockholder will have the right to redeem its shares for an amount in cash equal to its pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the Initial Business Combination, including interest but less taxes payable. As a result, such shares of Class A Common Stock have been recorded at redemption amount and classified as temporary equity, in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, “Distinguishing Liabilities from Equity.”
Pursuant to the Company’s amended and restated certificate of incorporation, if the Company is unable to complete the Initial Business Combination within 24 months from the closing of the IPO, 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 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 and not previously released to pay the Company’s franchise and income taxes (less up to $100,000 of interest to pay dissolution expenses and net of taxes payable), divided by the number of then outstanding Public Shares, which redemption will completely extinguish public stockholder’s rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. The Sponsor does not have any rights to liquidating distributions from the Trust Account with respect to any Founder Shares (as defined below) held by it if the Company fails to complete the Initial Business Combination within 24 months of the closing of IPO. However, if the Sponsor or any of the Company’s directors, officers or affiliates acquires shares of Class A Common Stock after the IPO, they will be entitled to liquidating distributions from the Trust Account with respect to such shares if the Company fails to complete the Initial Business Combination within the prescribed time period.
In the event of a liquidation, dissolution or winding up of the Company after an Initial Business Combination, the Company’s stockholders are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities and after provision is made for each class of stock, if any, having preference over the common stock. The Company’s stockholders have no
pre-emptive
or other subscription rights. There are no sinking fund provisions applicable to the common stock, except that the Company will provide its stockholders with the opportunity to redeem their Public Shares for cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account, upon the completion of the Initial Business Combination, subject to the limitations described herein. 9
Note 1 — Description of Organization and Business Operations (cont.)
Liquidity and Capital Resources
As of June 30, 2022, the Company had $37,651 of cash in its operating bank account and negative working capital of $2,028,248 .
Prior to the completion of the Public Offering, the Company’s liquidity needs were satisfied through a capital contribution of $25,000 from the Sponsor in exchange for the issuance of the Founder Shares. Subsequent to the consummation of the Public Offering, the Company’s liquidity needs have been satisfied through the proceeds from the consummation of Private Placement Warrants for $4,875,000 (see Note 4 to the unaudited condensed financial statements described in Note 4 to the unaudited condensed financial statements. The Working Capital Loan will either be repaid upon consummation of a business combination, without interest, or, at the lender’s discretion, up to $1.5 million of such Working Capital Loan may be convertible into warrants of the post-business combination entity at a price of $1.00 per warrant. The warrants would be identical to the Private Placement Warrants. If the Company does not complete a business combination, the Working Capital Loan will not be repaid, and all amounts owed under the Working Capital Loan will be forgiven.
)
, not held in the Trust Account. In addition, in order to finance transaction costs in connection with a business combination, on November 17, 2021, the Company entered into the working capital loan with the Sponsor (Working Capital Loan), as
The Company has incurred and expects to incur additional significant costs in pursuit of its financing and acquisition plans. Also, the Company is subject to mandatory liquidation and subsequent dissolution if no business combination is consummated within twenty-four months from the IPO filing date. In connection with the Company’s assessment of going concern considerations in accordance with FASB ASC
205-40,
“Basis of Presentation – Going Concern,” management has determined that the limited amounts of cash and working capital and risk of mandatory liquidation raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the accompanying unaudited condensed financial statements are issued. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after March 19, 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
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (the
“COVID-19
outbreak”). In March 2020, the WHO classified the COVID-19
outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19
outbreak continues to evolve. The impact of the COVID-19
outbreak on the Company’s financial position will depend on future developments, including the duration and spread of the outbreak and related advisories and restrictions. These developments and the impact of the COVID-19
outbreak on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s financial position may be materially adversely affected. Additionally, the Company’s ability to complete an Initial Business Combination may be materially adversely affected due to significant governmental measures being implemented to contain the COVID-19
outbreak or treat its impact, including travel restrictions, the shutdown of businesses and quarantines, among others, which may limit the Company’s ability to have meetings with potential investors or affect the ability of a potential target company’s personnel, vendors and service providers to negotiate and consummate an Initial Business Combination in a timely manner. The Company’s ability to consummate an Initial Business Combination may also be dependent on the ability to raise additional equity and debt financing, which may be impacted by the COVID-19
outbreak and the resulting market downturn. The accompanying unaudited condensed 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.
10
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form
10-Q
and Article 8 of Regulation S-X
of the Securities and Exchange Commission (the “SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the period presented. The accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2021. The interim results for the three and six months ended June 30, 2022, are not necessarily indicative of the results to be expected for the period ending December 31, 2022, or for any future periods. Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act as modified by the Jumpstart our Business
Start-ups
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 independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in the Company’s periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding
advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. 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 Securities Exchange Act of 1934, as amended) 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 an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s unaudited condensed financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. Use of Estimates
The preparation of unaudited condensed financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
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 insurance coverage of $250,000 . As of June 30, 2022, the Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
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 no
Marketable Securities and Cash Equivalents Held in Trust Account
As of June 30, 2022, the Company’s portfolio of marketable securities held in the Trust Account was comprised of investments in U.S. government securities, classified as held to maturity securities and presented on the unaudited condensed balance sheet at amortized cost. The difference between the purchase prices of the U.S. government securities and the maturity value is accreted to interest income from the date of the purchase to the maturity date using the effective interest method. The U.S. government securities were purchased on February 11, 2022 with proceeds coming from the money market mutual fund which matured and reinvested on May 11, 2022. During the three and six months ended June 30, 2022, $24 and $1,028 , respectively, of dividend income was earned on the previously held money market mutual funds and $395,459 was accreted to marketable securities held in Trust Account and recorded as interest income in the condensed statement of operations.
11
Additionally, the Company had cash equivalents held in the Trust Account comprised of money market mutual funds, classified as trading securities and presented on the condensed balance sheets at fair value at the end of each reporting period with immaterial interest income recorded for the three and six months ended June 30, 2022.
As of December 31, 2021, the Company’s portfolio of marketable securities held in the Trust Account was comprised of money market mutual funds, classified as trading securities and recorded at fair value. Gains and losses resulting from the change in fair value of trading securities are included in the accompanying condensed statement of operations, to which there were none during the three and six months ended June 30, 2021. During the three and six months ended June 30, 2021, $7,386
ex-dividend
date. As of June 30, 2022, the marketable securities held in the Trust Account amortized cost and fair value were $175,246,646 and $175,037,803 , respectively. The face value of the securities is $175,625,000 . 99,238 .
As of June 30, 2022, cash
equivalents held in the Trust Account was $As of December 31, 2021, the marketable securities held in the Trust Account was $175,013,336 .
Offering Costs associated with the Initial Public Offering
The Company complies with the requirements of the FASB ASC and SEC Staff Accounting Bulletin Topic 5A — “Expenses of Offering.” Offering costs consist principally of professional and registration fees incurred through the balance sheet date that are related to the IPO. Accordingly, the Company incurred offering costs in the aggregate of $9,973,542 , consisting of $3,500,000 of underwriting discount (which was offset by an $875,000 fee reimbursement), $6,125,000 of deferred underwriting discount, $875,000 deferred advisory fee and $348,542 of other offering costs. Offering costs have been allocated to the public and private placement warrants issued in the Initial Public Offering based on their relative fair value basis compared to total proceeds received. Offering costs of $487,722 associated with warrant liabilities have been expensed in the condensed statement of operations and offering costs associated with the Class A common stock of $9,485,819 (Note 7) have been charged to condensed stockholders’ deficit, as Remeasurement of Class A Common Stock subject to possible redemption.
340-10-S99-1
Shares of Class A Common Stock Subject to Possible Redemption
The Company accounts for its shares of Class A Common Stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” The Company’s shares of Class A Common Stock feature certain redemption rights that is considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, shares of Class A Common Stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ equity section of the Company’s condensed balance sheet.
Derivative Financial Instruments
Simultaneously with the closing of the IPO, the Sponsor purchased an aggregate of 4,875,000 Private Placement Warrants at a price of $1.00 per whole Warrant ($4,875,000 in the aggregate) in the Private Placement. Each whole Private Placement Warrant is exercisable for one whole share of the Company’s Class A common stock at a price of $11.50 per share, as discussed in Note 4.
Pursuant to the IPO, the Company issued 17,500,000 units at a price of $10.00 per unit for a total of $175,000,000 (the “Units”). Each Unit consists of one Public Share, and 11.50 per share, as discussed in Note 3.
one-half
of one warrant (“Public Warrants”). Each whole Warrant entitles the holder to purchase one share of Class A Common Stock at a price of $The Private Placement Warrants and the shares of common stock issuable upon the exercise of the Private Placement Warrants are not transferable, assignable or salable until after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants are exercisable for cash or on a cashless basis, at the holder’s option, and are
non-redeemable
so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants. The Company evaluated the Public Warrants, Private Placement Warrants and Working Capital Loan conversion option (collectively, the “Instruments”) in accordance with the guidance contained in ASC 50 % or more of the Company’s outstanding shares of Common Stock.
815-40,
Derivatives and Hedging—Contracts in Entity’s Own Equity, and concluded that they do not meet the criteria to be classified in stockholders’ equity and must be recorded as liabilities. Specifically, the exercise of the Public Warrants and Private Placement Warrants may be settled in cash upon the occurrence of a tender offer or exchange that involves Because not all of the Company’s shareholders need to participate in such tender offer or exchange to trigger the potential cash settlement and the Company does not control the occurrence of such an event, the Company concluded that the Public Warrants and Private Placement Warrants do not meet the conditions to be classified in equity. Since the Public Warrants and Private Placement Warrants meet the definition of a derivative under ASC 815, the Company recorded these warrants as liabilities on the condensed balance sheet at its initial fair value, with subsequent changes in their respective fair values recognized in the condensed statement of operations at each reporting date.
12
The conversion feature within the Working Capital Loan gives the Sponsor an option to convert the loan to warrants to purchase shares of the Company’s Class A common stock. This bifurcated feature is assessed at the end of each reporting period to conclude whether additional liability should be recorded.
The Instruments are subjected to
re-measurement
at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s statements of operations. See Note 4 for further discussion of the pertinent terms of the Working Capital Loan.$600,000 was drawn down under the Working Capital Loan as of June 30, 2022.
Net (loss) Income Per Common Share
Net (loss) income per common share is computed by dividing net (loss) income by the weighted-average number of shares of common stock outstanding during the period, excluding shares of common stock forfeited. The Company has not considered both effects of the conversion of the Working Capital Loan warrants to Class A common shares upon merger and the warrants sold in the Initial Public Offering and private placement to purchase an aggregate of 13,625,000 shares, in the calculation of diluted net (loss) income per share, since the exercise of the conversion option and warrants are contingent upon the occurrence of future events and the inclusion of such conversion option and warrants would be anti-dilutive.
The Company’s condensed statement of operations includes a presentation of net (loss) income per share for common shares subject to possible redemption in a manner similar to the
two-class
method of net (loss) income per share. Net (loss) income per common share, basic and diluted, for class A Common stock subject to possible redemption is calculated by dividing the net (loss) income or loss by the weighted average number of shares of Common stock subject to possible redemption outstanding since original issuance. Non-redeemable
common stock includes Founder Shares (which are shares of the Company’s Class B Common Stock) as these shares do not have any redemption features. The following tables reflect the calculation of basic and diluted net (loss) income per common share (in dollars, except per share amounts):
For the three months ended June 30, |
For the six months ended June 30, |
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2022 |
2021 |
2022 |
2021 |
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Class A |
Class B |
Class A |
Class B |
Class A |
Class B |
Class A |
Class B |
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| Basic and diluted net (loss) income per share |
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| Numerator |
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| Allocation of net (loss) income |
$ | ( |
$ | ( |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Denominator |
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| Basic and diluted weighted average shares outstanding |
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| Basic and diluted net income per share |
$ | ( |
$ | ( |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
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Income Taxes
The Company accounts for income taxes under ASC 740, Income Taxes (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. The effective tax rate differs from the statutory tax rate of 21
While ASC 740 identifies usage of an effective annual tax rate for purposes of an interim provision, it allows for estimating individual elements in the current period if they are significant, unusual or infrequent. The effective tax rate for the Company is estimated and may change due to the potential impact of the Company’s change in fair value of warrants (or any other change in fair value of a complex financial instrument), the timing of any potential business combination expenses and the actual interest income that will be recognized during the year. The Company follows the guidance contained in ASC 740-270-25-3 whereby a reasonable estimate of the income tax provision or benefit is reported in the interim period. The Company believes its calculation to be a reliable estimate and allows it to properly take into account the usual elements that can impact its annualized book income and its impact on the effective tax rate. As such, the Company is computing its taxable income or loss and associated income tax provision or benefit based on actual results through June 30, 2022.
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. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of June 30, 2022. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
The Company has identified the United States as its only “major” tax jurisdiction.
The Company is subject to income tax examinations by major taxing authorities since inception. These examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
The Company was formed on December 29, 2020 and expects to file U.S. federal and various state income tax returns. All tax periods since inception remain open to examination by the taxing jurisdictions to which the Company is subject. ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of June 30, 2022. 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’s deferred tax assets were fully offset by valuation allowance as of June 30, 2022 and December 31, 2021.
The Company had an income tax liability
of $31,501 and $0 as of June 30, 2022 and December 31, 2021, respectively.
13
Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update (“ASU”)
No. 2020-06,
Debt—Debt with Conversion and Other Options (Subtopic 470-20)
and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”),
which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. The new standard will become effective for the Company beginning January 1, 2024, using either a modified retrospective or a fully retrospective method of transition and early adoption is permitted. Management is currently evaluating the impact of the new standard on the Company’s unaudited condensed financial statements.
The Company’s management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s unaudited condensed financial statements.
Note 3 — Initial Public Offering
Pursuant to the IPO, the Company issued 17,500,000 units at a price of $10.00 per unit for a total of $175,000,000 (the “Units”). The Sponsor purchased 4,875,000 Private Placement Warrants at a price of $1.00 per warrant in a private placement that closed simultaneously with the IPO.
Each Unit consists of one Public Share, and one share of Class A Common Stock at a price of $11.50 per share. No fractional warrants will be issued upon separation of the Units and only whole Warrants will trade. Each Warrant will become exercisable on the later of 30 days after the completion of the Company’s Initial Business Combination or 12 months from the closing of the IPO and will expire five years after the completion of the Company’s Initial Business Combination or earlier upon redemption or liquidation.
one-half
of oneFollowing the closing of the IPO, $175,000,000 ($10.00 per Unit) was placed in the Trust Account, which can be invested only in U.S. government securities having a maturity of 185 days or less or in money market funds that meet certain conditions under Rule 2a-7 under the Investment Company Act which invests only in direct U.S. government treasury obligations.
The Company granted the underwriters a 45 -day option from March 16, 2021, to purchase up to 2,625,000 additional Units to cover any over- allotments at the initial public offering price less the underwriting discounts and commissions, which expired unexercised.
Note 4 — Related Party Transactions
Founder Shares
On December 29, 2020, the Sponsor purchased 5,750,000 shares of Class B common stock (the “Founder Shares”) for an aggregate price of $25,000 . On January 26, 2021, the Sponsor surrendered an aggregate of 718,750 Founder Shares to the Company at no cost. On May 3, 2021, because the underwriters did not exercise in full their over-allotment option, 656,250 shares of Founder Shares were forfeited, at no cost, so that the total number of Founder Shares outstanding were reduced from 5,031,250 to 4,375,000 shares. As used herein, unless the context otherwise requires, “Founder Shares” shall be deemed to include the shares of Class A Common Stock issuable upon conversion thereof. The Founder Shares are identical to the Public Shares except that the Founder Shares automatically convert into shares of Class A Common Stock at the time of the Initial Business Combination and are subject to certain transfer restrictions, as described in more detail below. Holders of Founder Shares may also elect to convert their Founder Shares into an equal number of shares of Class A common stock, subject to adjustment as provided above, at any time. The Sponsor forfeited 656,250 Founder Shares to the extent that the over-allotment option was not exercised in full by the underwriters, so that the Founder Shares represented 20.0 % of the Company’s issued and outstanding shares after the IPO. The Sponsor does not have any redemption rights with respect to any Founder Shares and any Public Shares held by it in connection with the completion of the Initial Business Combination. If the Initial Business Combination is not completed within 24 months from the closing of the IPO, the Sponsor will not have any rights to liquidating distributions from the Trust Account with respect to any Founder Shares held by it.
The Company’s initial stockholders have agreed, subject to limited exceptions, 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 sale price of the Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30 -trading day period commencing at least 150 days after the Initial Business Combination, or (y) the date on which the Company completes a liquidation, merger, stock exchange or other similar transaction that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property.
14
Private Placement Warrants
Simultaneously with the closing of the IPO, the Sponsor purchased an aggregate of 4,875,000 Private Placement Warrants at a price of $1.00 per whole Warrant ($4,875,000 in the aggregate) in the Private Placement. Each whole Private Placement Warrant is exercisable for one whole share of the Company’s Class A common stock at a price of $11.50 per share. A portion of the purchase price of the Private Placement Warrants was added to the proceeds from the IPO held in the Trust Account such that at the closing of the IPO $175,000,000 was held in the Trust Account.
If the Initial Business Combination is not completed within 24 months from the closing of the IPO, the proceeds from the sale of the Private Placement Warrants held in the Trust Account will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Private Placement Warrants will expire worthless. The Private Placement Warrants will be
non-redeemable
and exercisable on a cashless basis so long as they are held by the initial purchasers of the Private Placement Warrants or their permitted transferees. The Sponsor has agreed, subject to limited exceptions, not to transfer, assign or sell any of its Private Placement Warrants until 30 days after the completion of the Initial Business Combination.
Administrative Support Agreement
Commencing on the date of the closing of the IPO and securities effectively listed on the Stock Exchange (March 19, 2021), the Company agreed to pay an affiliate of the Sponsor a total of $10,000 per month for office space, utilities and secretarial and administrative support. Upon completion of the Initial Business Combination or the Company’s liquidation, the Company will cease paying these monthly fees. For the three and six months ended June 30, 2022, the Company recognized expenses associated with this agreement of $29,671 and $59,260 , respectively. For the three and six months ended June 30, 2021, the Company recognized expenses associated with this agreement of $29,918 and $34,192 , respectively. As of June 30, 2022, the Company had an accounts payable of $10,000 and accrued expenses of $3,945 25,315
related to the administrative support agreement
. As of December 31, 2021, the Company had a prepaid expense of $related to the administrative support agreement
. Related Party Loans
On December 29, 2020, the Company and the Sponsor entered into a loan agreement, whereby the Sponsor agreed to loan the Company an aggregate of $300,000 to cover expenses related to the Proposed Offering pursuant to a promissory note (the “Note”). This loan was no n-interest bearing and payable on the earlier of June 30, 2021 , or the completion of the Proposed Offering (the “Maturity Date”). No amounts were drawn down under the Note
, which was terminated on the closing date of the IPO, March 19, 2021.
On November 17, 2021, the Company issued an unsecured promissory note in the principal amount of $1,500,000 to the Sponsor. The Working Capital Loan does not bear interest and is repayable in full upon consummation of the Initial Business Combination. If the Company does not complete an Initial Business Combination, the Working Capital Loan shall not be repaid, and all amounts owed under it will be forgiven. Upon the consummation of an Initial Business Combination, the Sponsor shall have the option, but not the obligation, to convert all or a portion of the unpaid principal balance of the Working Capital Loan into that number of warrants to purchase one share of Class A Common Stock, $0.0001 par value per share, of the Company (the “Working Capital Warrants”) equal to the principal amount of the Working Capital Loan so converted divided by $1.00 . The conversion option should be bifurcated and accounted for as a derivative in accordance with ASC 815. However, the exercise price of the underlying warrants was greater than the warrant fair value as of June 30, 2022 and when the Working Capital Loan was drawn on. As a result, the Company did not record de minimis liability related to the conversion option.
The terms of the Working Capital Warrants will be identical to the terms of the Private Placement Warrants. The Working Capital Loan is subject to customary events of default, the occurrence of which automatically trigger the unpaid principal balance of the Working Capital Loan and all other sums payable with regard to the Working Capital Loan becoming immediately due and payable. $600,000 was drawn down under the Working Capital Loan as of June 30, 2022.
15
Note 5 — Commitments and Contingencies
Underwriting Agreement
The Company granted the underwriters a 45 -day option from March 16, 2021, to purchase up to 2,625,000 additional Units to cover any over- allotments at the initial public offering price less the underwriting discounts and commissions. The underwriters did no t exercise their over-allotment option.
On March 19, 2021, the Company paid a fixed underwriting discount of $3,500,000 , which was calculated as 2.0 % of the gross proceeds of the IPO, which was offset by an $875,000 fee reimbursement paid by the underwriters to the Company. Additionally, the underwriters will be entitled to a deferred underwriting discount of 3.5 % of the gross offering proceeds of the IPO, or $6,125,000 (the “Deferred Discount”), and BMO Capital Markets Corp. will be entitled to a cash fee (the “Advisory Fee”) equal to 0.5 % of the gross offering proceeds of the IPO, or $875,000 , for providing certain capital markets advisory services to the Company. Each of the Deferred Discount and the Advisory Fee will be payable upon the Company’s completion of its Initial Business Combination. The Deferred Discount will become payable to the underwriters from the amounts held in the Trust Account solely in the event the Company completes its Initial Business Combination.
As of June 30, 2022, the Company recorded in its accrued expenses legal accruals of $2,105,333 which will be payable upon the Company’s completion of its Business Combination.
Registration Rights
The holders of Founder Shares, Private Placement Warrants, and Working Capital Warrants that may be issued upon conversion of Working Capital Loans, if any, will be entitled to registration rights (in the case of the Founder Shares, only after conversion of such shares to shares of Class A common stock) pursuant to a registration rights agreement signed on March 16, 2021. These holders will be entitled to certain demand and “piggyback” registration rights. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Note 6 — Fair Value Measurements
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1: Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2: Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3: Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability
The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair values:
Description |
Level |
As of June 30, 2022 |
As of December 31, 2021 |
|||||||||
Assets: |
||||||||||||
Cash equivalents and marketable securities held in Trust Account—money market funds |
1 | $ | $ | |||||||||
Liabilities: |
||||||||||||
Public Warrants |
1 | $ | $ | |||||||||
Private Placement Warrants |
3 | $ | $ | |||||||||
Transfers to/from Levels 1, 2, and 3 are recognized at the end of the reporting period. The estimated fair value of Public Warrant liability was transferred from a Level 3 fair value measurement to a Level 1, when the Public Warrants were separately listed and traded on May 7, 2021. There were no other transfers to/from Levels 1, 2, or 3 during the three and six months ended June 30, 2022 and the year ended December 31, 2021.
As of June 30, 2022, Level 1 instruments include Public Warrant liability. As of December 31, 2021, Level 1 instruments include investments in money market funds and Public Warrant liability. The Company uses inputs such as actual trade data, benchmark yields, quoted market prices from dealers or brokers, and other similar sources to determine the fair value of its investments. The fair value of Public Warrant liability is measured based on the listed market price of such warrants.
16
Level 3 instruments include Private Placement Warrant liability. The Company measured the Private Placement Warrant liability at fair value based on significant inputs not observable in the market, which caused them to be classified as Level 3 measurements within the fair value hierarchy. The valuation of the Private Placement Warrant liability used assumptions and estimates the Company believed would have been made by a market participant in making the same valuation. The Company assessed these assumptions and estimates on an
on-going
basis as additional data impacting the assumptions and estimates were obtained. Changes in the fair value of the Public and Private Placement Warrant liabilities were recognized within the condensed statements of operations.
For the three and six months ended June 30, 2022, the Company recognized other income in the condensed statements of operations resulting from the decrease in the fair value of its Public Warrant liability of $591,500 and $3,808,000 , respectively, and decrease in the fair value of Private Placement Warrant liability of $366,600 and $2,170,350 , respectively, presented as change in fair value of warrant liabilities.
For the three and six months ended June 30, 2021, the Company recognized other income in the condensed statements of operations resulting from the decrease in the fair value of its Public Warrant liability of $1,487,500 and $1,750,000 , respectively, and decrease in the fair value of Private Placement Warrant liability of $877,500 and $926,250 , respectively, presented as change in fair value of warrant liabilities.
Level 3 Disclosures
The fair value of the Public Warrant Liability was initially measured using a Monte Carlo simulation model. Subsequently, the fair value of Public Warrants is measured based on the listed market price of such warrants, a Level 1 measurement. The Private Placement Warrants outstanding are initially and subsequently measured at fair value using a Modified Black-Scholes Option Pricing model. Inherent in the pricing model are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its Class A common stock warrants based on the historical volatility of select peer company’s Class A common stock that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury
zero-coupon
yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero. The fair value is classified as Level 3 in the fair value hierarchy due to the significant management judgment required for the assumptions underlying the calculation of value.
The following table provides quantitative information regarding Level 3 fair value measurements inputs at their initial and subsequent measurement:
| As of June 30, 2022 |
As of December 31, 2021 |
|||||||
Stock Price |
$ | $ | ||||||
Exercise Price |
||||||||
Expected term |
||||||||
Risk-free rate |
% | % | ||||||
Annual volatility |
% | % | ||||||
Probability of successful acquisition |
% | % | ||||||
Dividend yield |
% | % | ||||||
The following table presents changes in the fair value of warrant liabilities for the three and six months ended June 30, 2022:
Description |
Public Warrants |
Private Placement Warrants |
Warrant Liabilities |
|||||||||
Balance - beginning of period as of January 1, 2022 |
$ | $ | $ | |||||||||
Change in valuation inputs or other assumptions |
( |
) | ( |
) | ( |
) | ||||||
Fair value as of March 31, 2022 |
$ | $ | $ | |||||||||
Change in valuation inputs or other assumptions |
( |
) | ( |
) | ( |
) | ||||||
Fair value as of June 30, 2022 |
$ | $ | $ | |||||||||
17
The following table presents changes in the fair value of warrant liabilities for the three and six months ended June 30, 2021:
| Description |
Public Warrants |
Private Placement Warrants |
Warrant Liabilities |
|||||||||
| Balance—beginning of period as of January 1, 2021 |
$ | $ | $ | |||||||||
| Issuance of Public and Private Placement Warrants |
||||||||||||
| Change in valuation inputs or other assumptions |
( |
) | ( |
) | ( |
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| Fair value as of March 31, 2021 |
$ | $ | $ | |||||||||
| Change in valuation inputs or other assumptions |
( |
) | ( |
) | ( |
) | ||||||
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| Fair value as of June 30, 2021 |
$ | $ | $ | |||||||||
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The Company’s other financial instruments’ fair value, including accounts payable and accrued expenses, approximate their carrying value due to the relatively short maturity of those instruments.
Note 7 — Class A Common Stock Subject to Possible Redemption
The Company’s Class A common stock feature certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of future events. The Company is authorized to issue 250,000,000 shares of Class A common stock with a par value of $0.0001 per share. Holders of the Company’s Class A common stock are entitled to one vote for each share. As of June 30, 2022 and December 31, 2021, there were 17,500,000 The Class A common stock subject to possible redemption reflected on the condensed balance sheet is reconciled on the following table:
As of June 30, 2022 |
As of December 31, 2021 |
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| Gross Proceeds |
$ | $ | ||||||
| Less: |
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| Proceeds allocated to Public Warrants |
( |
) | ||||||
| Class A common stock issuance costs |
( |
) | ||||||
| Plus: |
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| Remeasurement of Class A common stock to redemption amount |
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| Class A common stock subject to possible redemption |
$ | $ | ||||||
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Note 8 — Stockholders’ Equity
Common Stock
The authorized common stock of the Company includes up to 250,000,000 shares of Class A common stock with a par value of $0.0001 per share and 20,000,000 shares of Class B common stock with a par value of $0.0001 per share. If the Company enters into an Initial Business Combination, it may (depending on the terms of such an Initial Business Combination) be required to increase the number of shares of Class A common stock which the Company is authorized to issue at the same time as the Company’s stockholders vote on the Initial Business Combination to the extent the Company seeks stockholder approval in connection with the Initial Business Combination. Holders of the Company’s common stock are entitled to one vote for each share of common stock. As of June 30, 2022 and December 31, 2021, there were 17,500,000 4,375,000 656,250 Founder Shares were forfeited on May 3, 2021, because the underwriters did not exercise in full their over-allotment option. The forfeited shares returned to the authorized but unissued shares of Class B common stock of the Company.
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. As of June 30, 2022 and December 31, 2021, there were no
18
Warrants
Each whole Warrant entitles the holder thereof to purchase one share of our Class A common stock at a price of $11.50 per share, subject to adjustment as described herein. Only whole Warrants are exercisable. The Warrants will become exercisable on the later of 30 days after the completion of the Initial Business Combination or 12 months from the closing of the Proposed Offering and will expire five years after the completion of the Initial Business Combination or earlier upon redemption or liquidation. No fractional Warrants will be issued upon separation of the Units and only whole Warrants will trade.
The exercise price of each Warrant is $11.50 per share, subject to adjustment as described herein. In addition, if (a) the Company issues additional shares of Class A 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 Class A Common Stock (with such issue price or effective issue price to be determined in good faith by the Company’s board and, in the case of any such issuance to the Sponsor or its affiliates, without taking into account any Founder Shares held by the Sponsor or such affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”) and (b) the aggregate gross proceeds from such issuances represent more than 60 % of the total equity proceeds, and interest thereon, available for the funding of the Initial Business Combination (net of redemptions), 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 become exercisable on the later of:
| • | |
| • | |
provided in each case that the Company has an effective registration statement under the Securities Act covering the shares of Class A Common Stock issuable upon exercise of the Warrants and a current prospectus relating to them is available and such shares are registered, qualified or exempt from registration under the securities, or blue sky, laws of the state of residence of the holder (or the Company permits holders to exercise their warrants on a cashless basis under the circumstances specified in the warrant agreement).
The Company has not registered the shares of Class A Common Stock issuable upon exercise of the Warrants. However, the Company has agreed that as soon as practicable, but in no event later than fifteen (15 ) business days, after the closing of the Initial Business Combination, the Company will use its best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the issuance of shares of Class A common stock issuable upon exercise of the Warrants. The Company will use its best efforts to cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration or redemption of the Warrants in accordance with the provisions of the warrant agreement. Notwithstanding the above, if the Class A Common Stock is at the time of any exercise of a Warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Warrants who exercise their Warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, it will not be required to file or maintain in effect a registration statement, but the Company will be required to use its best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
The Warrants will expire at 5:00 p.m., New York City time, five years after the completion of 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.
Once the Warrants become exercisable, the Company may redeem the outstanding Warrants for cash (except as described herein with respect to the Private Placement Warrants):
| • | In whole and not in part; |
| • | At a price of $ |
| • | Upon a minimum of 30 days’ prior written notice of redemption, referred to as the 30-day redemption period; and |
| • | if, and only if, the last sale price of our Class A common stock equals or exceeds $ |
The Company will not redeem the Warrants for cash unless a registration statement under the Securities Act covering the shares of Class A common stock issuable upon exercise of the Warrants is effective and a current prospectus relating to those shares of Class A common stock is available throughout the 30 -day redemption period. If and when the Warrants become redeemable by the Company, it may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
Except as described below, none of the Private Placement Warrants will be redeemable by the Company so long as they are held by the initial purchasers of the Private Placement Warrants or their permitted transferees.
19
Once the Warrants become exercisable, the Company may redeem the outstanding Warrants (except as described below with respect to the Private Placement Warrants):
| • | in whole and not in part; |
| • | at a price of $ |
| • | upon a minimum of |
| • | if, and only if, the last sale price of the Class A Common Stock equals or exceeds $ |
The “fair market value” of the Class A Common Stock shall mean the average reported last sale price of the Class A Common Stock for the 10 trading days immediately following the date on which the notice of redemption is sent to the holders of Warrants.
No fractional shares of Class A Common Stock will be issued upon redemption. If, upon redemption, a holder would be entitled to receive a fractional interest in a share, the Company will round down to the nearest whole number of the number of shares of Class A common stock to be issued to the holder.
Note 9 — Subsequent Events
The Company drew down $100,000 in July 2022 from the Working Capital Loan.
Management has evaluated the impact of subsequent events through the date the unaudited condensed financial statements were issued. The Company did not identify any other subsequent events that would have required adjustment or disclosure in the unaudited condensed financial statements.
20
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this quarterly report on Form
10-Q
(the “Quarterly Report”) to “we,” “us” or the “Company” refer to Kadem Sustainable Impact Corporation. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Kadem Management, LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward looking statements that involve risks and uncertainties. Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Exchange Act that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form
10-Q
including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2021 filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Overview
We are a blank check company incorporated in Delaware on December 29, 2020. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We intend to effectuate our Business Combination using cash derived from the proceeds of the Initial Public Offering and the sale of the Private Placement Warrants, our shares, debt or a combination of cash, shares and debt.
We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues to date. Our only activities from December 29, 2020 (inception) to June 30, 2022, were organizational activities and those necessary to prepare for the Initial Public Offering, described below, the identification and evaluation of prospective acquisition targets for a Business Combination and ongoing administrative and compliance matters. We do not expect to generate any operating revenues until after the completion of our initial Business Combination. We expect to generate
non-operating
income in the form of interest income on marketable securities held after the Initial Public Offering. We expect that we will incur increased 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 searching for, and completing, a Business Combination. For the three and six months ended June 30, 2022, we had a net (loss) income of ($71,495) and $3,930,220, respectively. For the three and six months ended June 30, 2021, we had a net income of $1,865,522 and $1,439,155, respectively. Such net (loss) income consisted of formation and operating costs, net of interest income, change in fair value of Public Warrants liability and Private Placement Warrant liability and provision for income taxes. Liquidity and Capital Resources
On March 19, 2021, the Company consummated the IPO of 17,500,000 units (the “Units”) at $10.00 per Unit, generating gross proceeds of $175,000,000. Each Unit consists of one Public Share, and
one-half
of one warrant which entitles the holder to purchase one share of Class A Common Stock at a price of $11.50 per share. Simultaneously with the closing of the IPO, the Company consummated the sale of 4,875,000 warrants at a price of $1.00 per Private Placement Warrant in a private placement to the Sponsor, generating gross proceeds of $4,875,000.
Following the closing of the IPO, $175,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the IPO and certain of the proceeds of the Private Placement was placed in a trust account. The remaining proceeds outside the Trust Account may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses.
As of June 30, 2022, the Company had $37,651 of cash in its operating bank account and negative working capital of $2,028,248.
21
Prior to the completion of the Public Offering, the Company’s liquidity needs were satisfied through a capital contribution of $25,000 from the Sponsor in exchange for the issuance of the Founder Shares. Subsequent to the consummation of the Public Offering, the Company’s liquidity needs have been satisfied through the proceeds from the consummation of Private Placement Warrants for $4,875,000 (see Note 4 to the unaudited condensed financial statements), not held in the Trust Account. In addition, in order to finance transaction costs in connection with a business combination, on November 17, 2021, the Company entered into the Working Capital Loan with the Sponsor (as described in Note 4 to the unaudited condensed financial statements). The Working Capital Loan will either be repaid upon consummation of a business combination, without interest, or, at the lender’s discretion, up to $1.5 million of such Working Capital Loan may be convertible into warrants of the post-business combination entity at a price of $1.00 per warrant. The warrants would be identical to the Private Placement Warrants. If the Company does not complete a business combination, the Working Capital Loan will not be repaid, and all amounts owed under the Working Capital Loan will be forgiven. $600,000 was drawn down under the Working Capital Loan as of June 30, 2022.
The Company has incurred and expects to incur additional significant costs in pursuit of its financing and acquisition plans. Also, the Company is subject to mandatory liquidation and subsequent dissolution if no business combination is consummated within twenty-four months from the IPO filing date. In connection with the Company’s assessment of going concern considerations in accordance with FASB ASC
205-40,
“Basis of Presentation – Going Concern,” management has determined that the limited amounts of cash and working capital and risk of mandatory liquidation raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the accompanying unaudited condensed financial statements are issued. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after March 19, 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. Critical Accounting Policies
The preparation of unaudited condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements, and income and expenses during the period reported. Actual results could materially differ from those estimates. The Company has identified the following as its critical accounting policies.
Shares of Class A Common Stock Subject to Possible Redemption
The Company accounts for its shares of Class A Common Stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” The Company’s shares of Class A Common Stock feature certain redemption rights that is considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, shares of Class A Common Stock subject to possible redemption are presented at redemption value as temporary equity, outside of the stockholders’ equity (deficit) section of the Company’s condensed balance sheet.
Derivative Financial Instruments
Simultaneously with the closing of the IPO, the Sponsor purchased an aggregate of 4,875,000 Private Placement Warrants at a price of $1.00 per whole Warrant ($4,875,000 in the aggregate) in the Private Placement. Each whole Private Placement Warrant is exercisable for one whole share of the Company’s Class A common stock at a price of $11.50 per share, as discussed in Note 4.
Pursuant to the IPO, the Company sold 17,500,000 units at a price of $10.00 per unit for a total of $175,000,000 (the “Units”). Each Unit consists of one Public Share, and
one-half
of one warrant (“Public Warrants”). Each whole Warrant entitles the holder to purchase one share of Class A Common Stock at a price of $11.50 per share, as discussed in Note 3. The Private Placement Warrants and the shares of common stock issuable upon the exercise of the Private Placement Warrants are not transferable, assignable or salable until after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants are exercisable for cash or on a cashless basis, at the holder’s option, and are
non-redeemable
so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants. The Company evaluated the Public Warrants, Private Placement Warrants and Working Capital Loan conversion option (collectively, the “Instruments”) in accordance with the guidance contained in ASC
815-40,
Derivatives and Hedging—Contracts in Entity’s Own Equity, and concluded that they do not meet the criteria to be classified in stockholders’ equity and must be recorded as liabilities. Specifically, the exercise of the Public Warrants and Private Placement Warrants may be settled in cash upon the occurrence of a tender offer or exchange that involves 50% or more of the Company’s outstanding shares of Common Stock. Because not all of the Company’s shareholders need to participate in such tender offer or exchange to trigger the potential cash settlement and the Company does not control the occurrence of such an event, the Company concluded that the Public Warrants and Private Placement Warrants do not meet the conditions to be classified in equity. Since the Public Warrants and Private Placement Warrants meet the definition of a derivative under ASC 815, the Company recorded these warrants as liabilities on the condensed balance sheet at its initial fair value, with subsequent changes in their respective fair values recognized in the condensed statement of operations at each reporting date.
22
The conversion feature within the Working Capital Loan gives the Sponsor an option to convert the loan to warrants of the Company’s Class A common stock. This bifurcated feature is assessed at the end of each reporting period to conclude whether additional liability should be recorded. The Instruments are subjected to
re-measurement
at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s statements of operations. See Note 4 for further discussion of the pertinent terms of the Working Capital Loan. Net Income (Loss) Per Common Share
Net income (loss) per common share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period, excluding shares of common stock forfeited. The Company has not considered both effects of the conversion of the Working Capital Loan warrants to Class A common shares upon merger and the warrants sold in the Initial Public Offering and private placement to purchase an aggregate of 13,625,000 shares, in the calculation of diluted net income (loss) per share since the exercise of the conversion option and warrants are contingent upon the occurrence of future events and the inclusion of such conversion option and warrants would be anti-dilutive.
The Company’s statement of operations includes a presentation of net income per share for common shares subject to possible redemption in a manner similar to the
two-class
method of net loss per share. Net income (loss) per common share, basic and diluted, for Class A Common stock subject to possible redemption is calculated by dividing the net income or loss by the weighted average number of shares of Common stock subject to possible redemption outstanding since original issuance. Non-redeemable
common stock includes Founder Shares (which are shares of the Company’s Class B common stock) as these shares do not have any redemption features. Recent Accounting Pronouncement
In August 2020, the FASB issued Accounting Standards Update (“ASU”)
No. 2020-06,
Debt—Debt with Conversion and Other Options (Subtopic 470-20)
and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”),
which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. The new standard will become effective for the Company beginning January 1, 2024, using either a modified retrospective or a fully retrospective method of transition and early adoption is permitted. Management is currently evaluating the impact of the new standard on the Company’s unaudited condensed financial statements. The Company’s management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s unaudited condensed financial statements.
Off-Balance
Sheet Financing Arrangements We have no obligations, assets or liabilities, which would be considered
off-balance
sheet arrangements as of June 30, 2022 and December 31, 2021. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance
sheet arrangements. We have not entered into any off-balance
sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial
assets. Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay an affiliate of the Sponsor a monthly fee of $10,000 for office space, utilities and secretarial, and administrative support services provided to the Company. We began incurring these fees on March 19, 2021 and will continue to incur these fees monthly until the earlier of the completion of a Business Combination and the Company’s liquidation.
On November 17, 2021, the Company issued an unsecured promissory note in the principal amount of $1,500,000 to the Sponsor (the “Working Capital Loan”). The Working Capital Loan does not bear interest and is repayable in full upon consummation of the initial business combination. If the Company does not complete an initial business combination, the Working Capital Loan shall not be repaid, and all amounts owed under it will be forgiven. Upon the consummation of an initial business combination, the Sponsor shall have the option, but not the obligation, to convert all or a portion of the unpaid principal balance of the Working Capital Loan into warrants (“Working Capital Warrants”) equal to the principal amount of the Working Capital Loan so converted divided by $1.00. The terms of the Working Capital Warrants will be identical to the terms of the Private Placement Warrants. The Working Capital Loan is subject to customary events of default, the occurrence of which automatically trigger the unpaid principal balance of the Working Capital Loan and all other sums payable with regard to the Working Capital Loan becoming immediately due and payable. No amounts were drawn down under the Working Capital Loan as of December 31, 2021. $600,000 was drawn as of June 30, 2022.
The Company granted the underwriters a
45-day
option from March 16, 2021, to purchase up to 2,625,000 additional Units to cover any over- allotments at the initial public offering price less the underwriting discounts and commissions. The underwriters did not exercise any of the over- allotment units which expired on May 3, 2021. Because the underwriters did not exercise their over-allotment option, 656,250 shares of Class B Common Stock were forfeited at no cost on May 3, 2021, so that total Class B Common Stock were reduced from 5,031,250 to 4,375,000 shares (Note 4). The forfeited shares returned to the authorized but unissued shares of the Class B Common Stock of the Company. 23
The underwriter is entitled to a deferred underwriting discount of 3.5% of the gross offering proceeds of the IPO, or $6,125,000 (the “Deferred Discount”), and BMO Capital Markets Corp. will be entitled to a cash fee (the “Advisory Fee”) equal to 0.5% of the gross offering proceeds of the IPO, or $875,000, for providing certain capital markets advisory services to the Company. Each of the Deferred Discount and the Advisory Fee will be payable upon the Company’s completion of its Initial Business Combination. The Deferred Discount will become payable to the underwriters from the amounts held in the Trust Account solely in the event the Company completes its Initial Business Combination.
The holders of Founder Shares and Working Capital Warrants that may be issued upon conversion of working capital loans, if any, will be entitled to registration rights (in the case of the Founder Shares, only after conversion of such shares to shares of Class A common stock) pursuant to a registration rights agreement signed on March 16, 2021. These holders will be entitled to certain demand and “piggyback” registration rights. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
As of June 30, 2022, the Company recorded in its accrued expenses legal accruals of $2,105,333 which will be payable upon the Company’s completion of its Business Combination.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is a smaller reporting company as defined by Item 10(f) of Regulation
S-K
and is not required to provide the information otherwise required under this item. ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are 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 our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules
13a-15
(b) under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2022. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15
(e) and 15d-15
(e) under the Exchange Act) were not effective as of June 30, 2022, due to a material weakness in internal control over financial reporting related to accounting and classification of complex financial instruments. Changes in Internal Control Over Financial Reporting
Other than as set forth below, there was no change in our internal control over financial reporting that occurred during the quarter ended June 30, 2022, covered by this Quarterly Report on Form
10-Q
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our internal control over financial reporting did not result in the proper accounting and classification of complex financial instruments within our previously issued unaudited condensed financial statements as of March 19, 2021, March 31, 2021 and June 30, 2021. On April 12, 2021, the SEC Staff issued the SEC Staff Statement in which the SEC Staff expressed its view that certain terms and conditions common to SPAC warrants may require the warrants to be classified as liabilities on the SPAC’s balance sheet as opposed to equity. After discussion and evaluation, taking into consideration the SEC Staff Statement, we concluded that our Warrants should be presented as liabilities, instead of equity, with subsequent fair value remeasurement.
In accordance with the SEC and its staff’s guidance on redeemable equity instruments, ASC 480, paragraph
10-S99,
redemption provisions not solely within the control of the Company require common stock subject to redemption to be classified outside of permanent equity. The Company had previously classified a portion of its Class A common stock in permanent equity, or total stockholders’ equity. Although the Company did not specify a maximum redemption threshold, its charter provision does not allow the Company to redeem its public shares in an amount that would cause its net tangible assets to be less than $5,000,001. Management determined, after consultation with its advisors, and in light of SEC comments reported in respect of other special purpose acquisition companies, that the Class A common stock underlying the units issued during the Initial Public Offering can be redeemed or become redeemable subject to the occurrence of future events considered to be outside the Company’s control. Accordingly, the Company’s management concluded that the Company should present all redeemable Class A common stock as temporary equity and recognize remeasurement from the initial book value to redemption value at the time of its Initial Public Offering and in accordance with ASC 480. The Company identified an error related to accounting for underwriter’s overallotment related to Class A common stock subject to redemption. Management has concluded that the error is immaterial and does not require restatement of previously issued unaudited condensed financial statements as of March 19, 2021, March 31, 2021, June 30, 2021 and September 30, 2021.
24
The Company identified an error related to recording the change in the fair value of the Public Warrant liability for the three months ended March 31, 2022. The error was adjusted during the previous quarter.
The Company identified an error related to reclassifying the excess of dividends and discounts earned on marketable securities held in trust account over the paid and accrued state franchise tax and provision for income taxes from Accumulated deficit to Class A common stock subject to possible redemption. The error was adjusted during the current quarter.
To respond to this material weakness, we devoted, and plan to continue to devote, significant effort and resources to the remediation and improvement of our internal control over financial reporting. While we have processes to identify and appropriately apply applicable accounting requirements, we plan to enhance our system of evaluating and implementing the complex accounting standards that apply to our financial statements. Our plans at this time include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and 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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS.
Except as set forth below, as of the date of this Quarterly Report, there have been no material changes with respect to those risk factors previously disclosed in our Annual Report on Form
10-K
for the fiscal year ended December 31, 2021 filed with the SEC. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. Changes in laws or regulations, or a failure to comply with any laws or regulations, may adversely affect our business, investments and results of operations.
We are subject to laws and regulations enacted by national, regional and local governments. In particular, we are required to comply with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business, including our ability to negotiate and complete an initial business combination, and results of operations.
On March 30, 2022, the SEC issued proposed rules relating to, among other items, enhancing disclosures in business combination transactions involving SPACs and private operating companies; amending the financial statement requirements applicable to transactions involving shell companies; effectively limiting the use of projections in SEC filings in connection with proposed business combination transactions; increasing the potential liability of certain participants in proposed business combination transactions; and the extent to which SPACs could become subject to regulation under the Investment Company Act of 1940. These rules, if adopted, whether in the form proposed or in revised form, may materially adversely affect our ability to negotiate and complete our initial business combination and may increase the costs and time related thereto.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Use of Proceeds
On March 19, 2021, we consummated the Public Offering of 17,500,000 Units. Each Unit consists of one share of Class A Common Stock and
one-half
of one redeemable Warrant. Each whole Warrant entitles the holder thereof to purchase one share of Class A Common Stock for $11.50 per share, and only whole Warrants are exercisable. The Warrants will become exercisable on the later of 30 days after the completion of our initial Business Combination and 12 months from the closing of the Public Offering and will expire five years after the completion of our initial Business Combination or earlier upon redemption or liquidation. Subject to certain terms and conditions, we may redeem the warrants after they become exercisable. The units were sold at a price of $10.00 per unit, generating gross proceeds to the Company of $175,000,000. BMO Capital Markets was the sole book-running manager. Academy Securities and AmeriVet Securities acted as
co-managers.
The securities sold in the Public Offering were registered under the Securities Act on a registration statement on Form S-1
(No. 333-253595).
The SEC declared the registration statement effective on March 16, 2021. We paid a total of $3,500,000 in underwriting discount (net of $875,000 fee reimbursement paid by the underwriters to the Company) and $348,542 for other costs and expenses related to the Public Offering. In addition, the underwriter agreed to defer $6,125,000 in underwriting discount and $875,000 deferred advisory fee.
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Unregistered Sales of Equity Securities
Simultaneously with the closing of the Public Offering, pursuant to the Private Placement Warrants Purchase Agreement, the Company completed the private sale of an aggregate of 4,875,000 Private Placement Warrants to Kadem Management, LLC (the “Sponsor”) at a purchase price of $1.00 per Private Placement Warrant, generating gross proceeds to the Company of approximately $4,875,000. Each whole Private Placement Warrant is exercisable for one whole share of the Company’s Class A common stock at a price of $11.50 per share. No underwriting discounts or commissions were paid with respect to such sales. The issuance of the Private Placement Warrants was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
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The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form
10-Q.
| Exhibit Number |
Description | |
| 31.1 | Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) | |
| 31.2 | Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) | |
| 32.1* | Certification of the Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350 | |
| 32.2* | Certification of the Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350 | |
| 101.INS | Inline XBRL Instance Document—the XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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) | |
| * | These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing. |
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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.
| Kadem Sustainable Impact Corporation | ||||||
| (Registrant) | ||||||
| Date: August 12, 2022 | By: | /s/ Charles Gassenheimer | ||||
| Charles Gassenheimer | ||||||
| Chief Executive Officer | ||||||
| (Principal Executive Officer) | ||||||
| Date: August 12, 2022 | By: | /s/ Golchehreh Abtahian | ||||
| Golchehreh Abtahian | ||||||
| Chief Financial Officer | ||||||
| (Principal Financial and Accounting Officer) | ||||||
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