The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with our audited financial
statements and the notes related thereto which are included in "Item 8.
Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
Certain information contained in the discussion and analysis set forth below
includes forward-looking statements. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of many
factors, including those set forth under "Special Note Regarding Forward-Looking
Statements," "Item 1A. Risk Factors" and elsewhere in this Annual Report on Form
10-K.
Overview
We are a blank check company formed under the laws of the State of Delaware on
November 5, 2020 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 from the proceeds of the Initial Public Offering and the
sale of the Private Placement Warrants, our capital stock, debt or a combination
of cash, stock and debt.
As of the date of this Report, we have signed a non-binding letter of intent
with the Potential Target, but we have not signed a business combination
agreement, or similar definitive binding agreement, with the Potential Target.
Any business combination with the Potential Target would be subject to a minimum
cash condition and other customary closing conditions. Our obligation to close
will also be subject to customary closing conditions. We also expect to continue
to incur significant costs in the pursuit of our acquisition plans, and we
cannot assure you that our plans to complete a Business Combination will be
successful.
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On February 28, 2023 we held an Extension Meeting where the date by which we
have to consummate a business combination was extended from March 4, 2023 to the
Extension Date In connection with the extension vote, 24,304,187 Class A common
stock were redeemed for an aggregate redemption amount of $247,259,068. After
the satisfaction of such redemptions, the balance in our trust account was
approximately 45,229,556.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities through December 31, 2022 were organizational activities,
those necessary to prepare for the initial public offering, described below, and
identifying a target company for a Business Combination. We do not expect to
generate any operating revenues until after the completion of our Business
Combination. We historically have generated non-operating income in the form of
interest income on marketable securities held in the Trust Account. We incur
expenses as a result of being a public company (for legal, financial reporting,
accounting and auditing compliance), as well as for due diligence expenses.
For the year ended December 31, 2022, we had net income of $13,521,299, which
consists of income of $11,881,250 derived from changes in fair value of the
warrant liabilities and interest income earned on investments held in the Trust
Account of $3,945,497, offset by general and administrative costs of $1,555,038
and provision for income taxes of $750,410.
For the year ended December 31, 2021, we had net income of $4,844,863, which
consists of income of $8,680,000 derived from changes in fair value of the
warrant liabilities and interest income earned on investments held in the trust
account of $23,634, offset by general and administrative costs of $3,858,771.
Liquidity and Capital Resources
On March 4, 2021, we consummated the initial public offering of 28,750,000 Units
which includes the full exercise by the underwriter of its over-allotment option
in the amount of 3,750,000 Units, at $10.00 per Unit, generating gross proceeds
of $287,500,000. Simultaneously with the closing of the initial public offering,
we consummated the sale of 8,250,000 Private Placement Warrants at a price of
$1.00 per Private Placement Warrant in a private placement to Arrowroot
Acquisition LLC, generating gross proceeds of $8,250,000.
Following the initial public offering, the full exercise of the over-allotment
option, and the sale of the Private Units, a total of $287,500,000 was placed in
the Trust Account. We incurred $16,392,714 in transaction costs related to the
initial public offering, consisting of $5,750,000 in cash underwriting fees, net
of reimbursements, $10,062,500 of deferred underwriting fees and $580,214 of
other offering costs.
For the year ended December 31, 2022, cash used in operating activities was
$1,597,905. Net income of $13,521,299 was affected by income of $11,881,250
derived from changes in fair value of the warrant liabilities and interest
income earned on investments held in the Trust Account of $3,945,497. Net
changes in operating assets and liabilities provided $707,543 of cash for
operating activities.
For the year ended December 31, 2021, cash used in operating activities was
$2,436,432. Net income of $4,844,863 was affected by income related to the
change in fair value of the warrant liabilities of $8,680,000, transaction costs
allocable to warrants of $760,022 and interest earned on marketable securities
held in trust account of $23,634. Net changes in operating assets and
liabilities provided $662,317 of cash for operating activities.
As of December 31, 2022, we had cash and marketable securities held in the trust
account of $290,737,917 (including $3,945,497 of interest) consisting of money
market funds which invest primarily in U.S. Treasury Bills with a maturity of
185 days or less. Interest income on the balance in the trust account may be
used by us to pay taxes. Through December 31, 2022, we withdrew an amount of
$731,214 interest earned from the trust account to pay franchise and income
taxes.
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We intend to use substantially all of the funds held in the trust account,
including any amounts representing interest earned on the trust account (less
income taxes payable), to complete our business combination. To the extent that
our capital stock or debt is used, in whole or in part, as consideration to
complete our business combination, the remaining proceeds held in the trust
account will be used as working capital to finance the operations of the target
business or businesses, make other acquisitions and pursue our growth
strategies.
As of December 31, 2022, we had cash of $145,980. We intend to use the funds
held outside the trust account primarily to identify and evaluate target
businesses, perform business due diligence on prospective target businesses,
travel to and from the offices, plants or similar locations of prospective
target businesses or their representatives or owners, review corporate documents
and material agreements of prospective target businesses, and structure,
negotiate and complete a business combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a business combination, the sponsor, or certain of our officers
and directors or their affiliates may, but are not obligated to, loan us funds
as may be required. If we complete a business combination, we would repay such
loaned amounts. In the event that a business combination does not close, we may
use a portion of the working capital held outside the trust account to repay
such loaned amounts but no proceeds from our trust account would be used for
such repayment. Up to $1,500,000 of such Working Capital Loans may be
convertible into warrants of the post-business combination entity at a price of
$1.00 per warrant. The warrants would be identical to the private placement
warrants.
On December 21, 2020, the sponsor issued an unsecured promissory note to the
Company (the "First Promissory Note"), pursuant to which the Company may borrow
up to an aggregate principal amount of $300,000. The outstanding balance under
the First Promissory Note of $149,992 was repaid at the closing of the initial
public offering on March 4, 2021.
On December 29, 2021, the Company issued an unsecured promissory note (the
"Second Promissory Note") in the principal amount of up to $1,500,000 to its
sponsor, of which $750,000 was funded by the sponsor upon execution of the
Second Promissory Note and an additional amount of $200,000 was drawn down on
March 17, 2022. On April 21, 2022, the Company drew down the remaining $550,000
pursuant to the terms of the Second Promissory Note issued on December 29, 2021.
Following this draw down, the full $1,500,000 available under the Second
Promissory Note was outstanding. There are no remaining funds available under
the Second Promissory Note for future drawdowns. As of December 31, 2022 and
2021, $1,500,000 and $750,000 were drawn down on this Second Promissory Note,
respectively.
The Second Promissory Note does not bear interest. The principal balance of the
Second Promissory Note will be payable on the earliest to occur of (i) the date
on which the Company consummates its initial business combination or (ii) the
date that the winding up of the Company is effective (such date, the "Maturity
Date"). In the event the Company consummates its initial business combination,
the sponsor has the option on the Maturity Date to convert all or any portion of
the principal outstanding under the Second Promissory Note into that number of
warrants ("Working Capital Warrants") equal to the portion of the principal
amount of the Second Promissory Note being converted divided by $1.00, rounded
up to the nearest whole number. The terms of the Working Capital Warrants, if
any, would be identical to the terms of the private placement warrants issued by
the Company at the time of its initial public offering, as described in the
prospectus for the initial public offering dated March 1, 2021 and filed with
the SEC, including the transfer restrictions applicable thereto. The Third
Promissory Note is not convertible into Working Capital Warrants or any other
security. The Promissory Notes are subject to customary events of default, the
occurrence of certain of which automatically triggers the unpaid principal
balance of the Promissory Notes and all other sums payable with regard to the
Promissory Notes becoming immediately due and payable.
On February 23, 2023, the Company issued an unsecured promissory note in the
principal amount of $500,000 in favor of the sponsor (the "Third Promissory
Note" and together with the Second Promissory Note, the "Promissory Notes"),
which was funded in full by the sponsor upon execution of the Third Promissory
Note. The Third Promissory Note is not convertible into Working Capital Warrants
or any other security.
On March 6, 2023, in connection with the approval by the Company's stockholders
of the Extension Date at the Extension Meeting, the Lender made a $1,760,000
deposit into the trust account in exchange for an unsecured promissory note that
matures upon the Company closing its initial business combination (the "Fourth
Promissory Note"). If the Company completes an initial business combination, the
Company will, at the option of the Lender, repay the amounts loaned under the
Fourth Promissory Note or convert a portion or all of the amounts loaned under
such promissory note into warrants, which warrants will be identical to the
private placement warrants issued in connection with the Company's initial
public offering. If the Company does not complete an initial business
combination by the Extension date Date, such promissory note will be repaid only
from funds held outside of the Trust Account or will be forfeited, eliminated or
otherwise forgiven.
All of the Company's outstanding promissory notes are subject to customary
events of default, the occurrence of certain of which automatically triggers the
unpaid principal balance of the promissory notes and all other sums payable with
regard to the promissory notes becoming immediately due and payable.
If our estimate of the costs of identifying a target business, undertaking
in-depth due diligence and negotiating a business combination are less than the
actual amount necessary to do so, we may have insufficient funds available to
operate our business prior to our business combination. Moreover, we may need to
obtain additional financing either to complete our business combination or
because we become obligated to redeem a significant number of our public shares
upon consummation of our business combination, in which case we may issue
additional securities or incur debt in connection with such business
combination.
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Based on the foregoing, management has determined that we do not have sufficient
liquidity to meet our anticipated obligations for at least twelve months after
the financial statements are available to be issued, as such, the events and
circumstances raise substantial doubt about our ability to continue as a going
concern, as discussed further below. The accompanying financial statements have
been prepared on a going concern basis and do not include any adjustments that
might arise as a result of uncertainties about our ability to continue as a
going concern.
Going Concern
In connection with the Company's assessment of going concern considerations in
accordance with FASB's Accounting Standards Update ("ASU") 2014-15, "Disclosures
of Uncertainties about an Entity's Ability to Continue as a Going Concern,"
management has determined that if the Company is unable to raise additional
funds to alleviate liquidity needs, obtain approval for an extension of the
deadline or complete a Business Combination by July 6, 2023 (or such later date
as permitted by the Company's Amended and Restated Certificate of Incorporation)
but no later than February 4, 2024, then the Company will cease all operations
except for the purpose of liquidating. The liquidity condition and date for
mandatory liquidation and subsequent dissolution raise substantial doubt about
the Company's ability to continue as a going concern. No adjustments have been
made to the carrying amounts of assets or liabilities should the Company be
required to liquidate after the Extension Date.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of December 31, 2022. 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 the sponsor
a monthly fee of $20,000 for office space, utilities and secretarial and
administrative support services. We began incurring these fees on March 4, 2021
and will continue to incur these fees monthly until the earlier of the
completion of the Business Combination and our liquidation.
The underwriter is entitled to a deferred fee of $0.35 per Unit, or $10,062,500
in the aggregate. The deferred fee will become payable to the underwriter from
the amounts held in the Trust Account solely in the event that the Company
completes a Business Combination, subject to the terms of the underwriting
agreement.
Critical Accounting Estimate
The preparation of 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 financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting estimate:
Warrant Liabilities
We account for the Warrants in accordance with the guidance contained in ASC
815-40 under which the Warrants do not meet the criteria for equity treatment
and must be recorded as liabilities. Accordingly, we classify the Warrants as
liabilities at their fair value and adjust the Warrants to fair value at each
reporting period. This liability is subject to re-measurement at each balance
sheet date until exercised, and any change in fair value is recognized in our
statements of operations. The Private Warrants and the Public Warrants for
periods where no observable traded price was available are valued using a Monte
Carlo simulation. For periods subsequent to the detachment of the Public
Warrants from the Units, the Public Warrant quoted market price was used as the
fair value as of each relevant date.
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