Cautionary Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Report
including, without limitation, statements in this section regarding our
financial position, business strategy and the plans and objectives of management
for future operations, are forward- looking statements. When used in this
Report, words such as "anticipate," "believe," "estimate," "expect," "intend"
and similar expressions, as they relate to us or our management, identify
forward-looking statements. Such forward-looking statements are based on the
beliefs of our management, as well as assumptions made by, and information
currently available to, our management. Actual results could differ materially
from those contemplated by the forward-looking statements as a result of certain
factors detailed in our filings with the SEC. All subsequent written or oral
forward-looking statements attributable to us or persons acting on our behalf
are qualified in their entirety by this paragraph.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the financial statements and the
notes thereto contained elsewhere in this Report.
18
Overview
We are a blank check company incorporated in Delaware on November 23, 2020 for
the purpose of effecting a business combination with one or more businesses. Our
sponsor is FinServ Holdings II LLC, a Delaware limited liability company.
The Registration Statement was declared effective on February 17, 2021. On
February 22, 2021, we consummated the IPO of 30,000,000 units, at $10.00 per
unit, generating gross proceeds of $300.0 million, and incurring offering costs
of approximately $16.8 million, inclusive of $10.5 million in deferred
underwriting commissions.
Simultaneously with the closing of the IPO, we consummated the private placement
of 800,000 private placement units at a price of $10.00 per unit to the sponsor,
generating gross proceeds of approximately $8.0 million.
Upon the closing of the IPO and the private placement on February 22, 2021,
$300.0 million ($10.00 per unit) of the net proceeds of the sale of the units in
the IPO and the private placement was placed in the trust account, a trust
account located in the United States with Continental, and invested only in U.S.
"government securities," within the meaning of Section 2(a)(16) of the
Investment Company Act, having a maturity of 185 days or less or in money market
funds meeting certain conditions under Rule 2a-7 promulgated under the
Investment Company Act, which invest only in direct U.S. government treasury
obligations, as determined by us, until the earlier of (i) the completion of a
business combination and (ii) the distribution of the trust account as described
below.
If we have not completed an initial business combination during the Combination
Period, we will (i) cease all operations except for the purpose of winding up,
(ii) as promptly as reasonably possible but not more than ten business days
thereafter, redeem the public shares, at a per-share price, payable in cash,
equal to the aggregate amount then on deposit in the trust account, including
interest earned on the funds held in the trust account and not previously
released to us to pay its taxes (less up to $100,000 of interest to pay
dissolution expenses), divided by the number of then outstanding public shares,
which redemption will completely extinguish public stockholders' rights as
stockholders (including the right to receive further liquidating distributions,
if any), and (iii) as promptly as reasonably possible following such redemption,
subject to the approval of the remaining stockholders and our board of
directors, liquidate and dissolve, subject in each case to our obligations under
Delaware law to provide for claims of creditors and the requirements of other
applicable law.
Recent Developments
On January 30, 2023, we issued an aggregate of 7,499,999 shares of Class A
common stock to our sponsor upon the conversion of an equal number of shares of
Class B common stock. These conversion shares are subject to the same
restrictions as applied to the Class B common stock before the conversion,
including, among other things, certain transfer restrictions, waiver of
redemption rights and the obligation to vote in favor of an initial business
combination as described in the prospectus for our initial public offering.
Following the conversion, our sponsor was the beneficial owner of 8,299,999
shares of our Class A common stock and one share of our Class B common stock.
On February 9, 2023, we entered into a non-redemption agreement with the sponsor
and with one or more unaffiliated parties in exchange for such parties'
agreement not to redeem an aggregate of 4,850,000 public shares in connection
with the Special Meeting. In exchange for the agreement not to redeem their
shares, the sponsor agreed to transfer to the unaffiliated parties an aggregate
of 1,000,000 shares of our common stock held by the sponsor immediately
following the consummation of an initial business combination if they continue
to hold such non-redeemed shares through the Special Meeting. In addition, we
agreed that, to mitigate the current uncertainty surrounding the implementation
of the Inflation Reduction Act of 2022, funds held in the trust account,
including any interest thereon, will not be used to pay for any excise tax
liabilities with respect to any future redemptions prior to or in connection
with the extension of the Combination Period to August 22, 2023, an initial
business combination or our liquidation.
On February 20, 2023, we held the Special Meeting, at which our stockholders
approved the Charter Amendment to extend the end of the Combination Period from
February 22, 2023, to August 22, 2023, or such earlier date as determined by our
board of directors. We filed the Charter Amendment with the Secretary of State
of the State of Delaware on February 21, 2023. In connection with the Charter
Amendment, stockholders holding 25,040,997 shares of Class A common stock
exercised their right to redeem such shares for a pro rata portion of the funds
in the trust account. As a result, $254,201,239.56 (approximately $10.15 per
share) was removed from the trust account to pay such holders.
On February 21, 2023, we instructed Continental to liquidate
the investments held in the trust account and instead to hold the funds in the
trust account in an interest-bearing demand deposit account at Morgan Stanley,
with Continental continuing to act as trustee, until the earlier of the
consummation of our initial business combination or our liquidation. As a
result, following the liquidation of investments in the trust account, the
remaining proceeds from the initial public offering and private placement are no
longer invested in U.S. government securities or money market funds.
Results of Operations
For the year ended December 31, 2022, we had net income of approximately $7.3
million, which included a gain from the change in fair value of warrant
liability of approximately $4.7 million and interest earned on cash and
marketable securities held in trust account of approximately $4.3 million,
offset by a loss on investment in mutual funds of $29,388, a loss from
operations of $836,341, and provision for income taxes of $808,562.
For the year ended December 31, 2021, we had net income of approximately $2.5
million, which consisted of a $3.6 million unrealized gain on change in fair
value of warrant liability, $25,647 of interest earned on cash and marketable
securities held in trust account, offset by approximately $0.6 million of
formation and operating costs, approximately $0.5 in million offering costs, and
$1,204 on loss on investment in mutual funds.
Our business activities from inception to December 31, 2022 consisted primarily
of our formation and completing our IPO, and since the offering, our activity
has been limited to identifying and evaluating prospective acquisition targets
for a business combination.
19
Liquidity and Capital Resources
As of December 31, 2022, we had approximately $0.06 million in our operating
bank account and money market funds and working capital of approximately $0.6
million (excluding tax payable).
Our liquidity needs up to February 22, 2021 had been satisfied through a capital
contribution from the sponsor of $25,000 for the founder shares and the loan
under an unsecured promissory note from the Sponsor which was paid in full on
February 22, 2021 from the IPO proceeds. Subsequent to the consummation of the
IPO, our liquidity needs have been satisfied through the net proceeds from the
consummation of the private placement not held in the trust account. In
addition, in order to finance transaction costs in connection with an initial
business combination, our sponsor or an affiliate of our sponsor, or certain of
our officers and directors may, but are not obligated to, provide us Working
Capital Loans. As of December 31, 2022, there were no amounts outstanding under
any Working Capital Loan.
We have until August 22, 2023 to complete our initial business combination. If
we do not complete our initial business combination by August 22, 2023, the end
of the Combination Period, we will begin mandatory liquidation proceedings,
including the cessation of all operations and redemption of the public shares,
unless the term is extended and subject to stockholder approval.
Based on the foregoing, management believes that we will have sufficient working
capital and borrowing capacity to meet our needs through the earlier of the
consummation of an initial business combination or one year from this filing.
Over this time period, we will be using these funds held outside of the trust
account for paying existing accounts payable, identifying and evaluating
prospective initial business combination candidates, performing due diligence on
prospective target businesses, paying for travel expenditures, selecting the
target business to merge with or acquire, and structuring, negotiating and
consummating the business combination. However, in light of the mandatory
liquidation that could potentially occur within one year from the date of this
filing, management believes there is substantial doubt as to our ability to
continue as a going concern if we do not consummate our initial business
combination before August 22, 2023.
Administrative Services Agreement
We entered into an agreement whereby, commencing on April 1, 2021 through the
earlier of the consummation of an initial business combination or our
liquidation, we pay the sponsor a monthly fee of up to $10,000 for office space,
utilities and administrative support. Upon completion of an initial business
combination or our liquidation, we will cease paying these monthly fees. For
year ended December 31, 2022, we did not incur fees for these services.
Consulting Agreement
On August 12, 2022, we entered into an agreement with the Advisor to perform
such services as requested by us from time to time. The principal of the Advisor
is our Chief Financial Officer. The term of the agreement commenced on August
12, 2022 and will terminate upon the earlier of (a) termination of this
engagement at will in accordance with the terms of the agreement; or (b) the
consummation of a business combination. As full compensation for the services on
behalf of the Company, or any of its officers, directors, shareholders, or
employees, we pay a quarterly fee of $30,000 to the Advisor. During the year
ended December, 2022, we paid and recorded $60,000 such fees.
Contractual Obligations
We do not have any long-term debt obligations, capital lease obligations,
operating lease obligations, purchase obligations or long-term liabilities.
Critical Accounting Estimates
This management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
accordance with U.S. GAAP. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and the disclosure of contingent
assets and liabilities in our financial statements. On an ongoing basis, we
evaluate our estimates and judgments, including those related to fair value of
financial instruments and accrued expenses. We base our estimates on historical
experience, known trends and events and various other factors that we believe to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Except as set forth below, there have been no significant changes in our
critical accounting estimates as discussed in the Annual Report on Form 10-K/A
for the fiscal year ended March 31, 2021, as filed with the SEC on April 1,
2022.
Class A Common Stock Subject to Possible Redemption
All of the shares of Class A common stock sold as part of the units in the
initial public offering contain a redemption feature which allows for the
redemption of such public shares in connection with our liquidation, if there is
a stockholder vote or tender offer in connection with the business combination
and in connection with certain amendments to our second amended and restated
certificate of incorporation. In accordance with SEC and its staff's guidance on
redeemable equity instruments, which has been codified in ASC Topic 480-10-S99,
("ASC 480"), redemption provisions not solely within our control require common
stock subject to redemption to be classified outside of permanent equity.
Ordinary liquidation events, which involve the redemption and liquidation of all
of the entity's equity instruments, are excluded from the provisions of ASC 480.
Accordingly, at December 31, 2022 and 2021, all shares of Class A common stock
subject to possible redemption are presented as temporary equity, outside of the
stockholders' deficit section of our balance sheets.
20
We recognize any subsequent changes in redemption value immediately as they
occur and adjust the carrying value of redeemable Class A common stock to the
redemption value at the end of each reporting period. Immediately upon the
closing of the initial public offering, we recognized the accretion from initial
book value to redemption amount value of redeemable Class A common stock. This
method would view the end of the reporting period as if it were also the
redemption date for the security. The change in the carrying value of redeemable
Class A common stock also resulted in charges against additional paid-in capital
and accumulated deficit.
Warrant Liability
We evaluated the warrants in accordance with ASC Topic 815-40, "Derivatives and
Hedging - Contracts in Entity's Own Equity" ("ASC 815"), and concluded that a
provision in the Warrant Agreement related to certain tender or exchange offers
as well as provisions that provided for potential changes to the settlement
amounts dependent upon the characteristics of the holder of the warrant,
precludes the warrants from being accounted for as components of equity. As the
warrants meet the definition of a derivative as contemplated in ASC 815 and are
not eligible for an exception from derivative accounting, the warrants are
recorded as derivative liabilities on the balance sheets and measured at fair
value at inception (on the date of the IPO) and at each reporting date in
accordance with ASC Topic 820, "Fair Value Measurement", with changes in fair
value recognized in the statements of operations in the period of change.
Net Income (Loss) per Share of Common Stock
We comply with accounting and disclosure requirements of ASC Topic 260,
"Earnings Per Share." We have two classes of shares, which are referred to as
Class A common stock and Class B common stock. Income and losses are shared pro
rata between the two classes of shares. Net income per share is computed by
dividing net income by the weighted average number of shares outstanding during
the period, excluding shares subject to forfeiture. We have not considered the
effect of the warrants sold in the IPO and the private placement to purchase an
aggregate of 7,700,000 shares of our Class A common stock in the calculation of
diluted income per share, since the exercise of the warrants are contingent upon
the occurrence of future events. As a result, diluted net income per share is
the same as basic net income per share for the periods presented.
Recent Accounting Pronouncements
Our management does not believe that any recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.
JOBS Act
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains
provisions that, among other things, relax certain reporting requirements for
qualifying public companies. We qualify as an "emerging growth company" under
the JOBS Act and are allowed to comply with new or revised accounting
pronouncements based on the effective date for private (not publicly traded)
companies. We elected to delay the adoption of new or revised accounting
standards, and as a result, we may not comply with new or revised accounting
standards on the relevant dates on which adoption of such standards is required
for non-emerging growth companies. As a result, our financial statements may not
be comparable to companies that comply with new or revised accounting
pronouncements as of public company effective dates.
As an "emerging growth company," we are not required to, among other things, (i)
provide an auditor's attestation report on our system of internal controls over
financial reporting pursuant to Section 404, (ii) provide all of the
compensation disclosure that may be required of non-emerging growth public
companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act,
(iii) comply with any requirement that may be adopted by the PCAOB regarding
mandatory audit firm rotation or a supplement to the auditor's report providing
additional information about the audit and the financial statements (auditor
discussion and analysis), and (iv) disclose certain executive compensation
related items such as the correlation between executive compensation and
performance and comparisons of the chief executive officer's compensation to
median employee compensation. These exemptions will apply for a period of five
years following the completion of our IPO or until we are no longer an "emerging
growth company," whichever is earlier.
Factors That May Adversely Affect Our Results of Operations
Our results of operations and our ability to complete an initial business
combination may be adversely affected by various factors that could cause
economic uncertainty and volatility in the financial markets, many of which are
beyond our control. Our business could be impacted by, among other things,
downturns in the financial markets or in economic conditions, increases in oil
prices, inflation, increases in interest rates, supply chain disruptions,
declines in consumer confidence and spending, the ongoing effects of the
COVID-19 pandemic, including resurgences and the emergence of new variants, and
geopolitical instability, such as the military conflict in Ukraine. We cannot at
this time fully predict the likelihood of one or more of the above events, their
duration or magnitude or the extent to which they may negatively impact our
business and our ability to complete an initial business combination.
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