UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
For the transition period from to
Commission File No.
| (Exact name of registrant as specified in its charter) |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| |
| (Address of Principal Executive Offices, including zip code) |
| (Registrant’s telephone number, including area code) |
| N/A |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Units, each consisting of one share of Class A Common Stock and one-third of one Redeemable Warrant | TWLVU | The Nasdaq Stock Market LLC | ||
| The | ||||
| Redeemable Warrants, each whole warrant exercisable for one share of Class A Common Stock at an exercise price of $11.50 | TWLVW | The Nasdaq Stock Market LLC |
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Indicate by check mark whether
the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☐ Large accelerated filer | ☐ Accelerated filer | |
| ☒ | ||
If an emerging growth company,
indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes
As of August August 16, 2021 there
were
TWELVE SEAS INVESTMENT COMPANY II
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2021
TABLE OF CONTENTS
i
Item 1. Financial Statements
TWELVE SEAS INVESTMENT CO. II
CONDENSED BALANCE SHEETS
| June 30, 2021 | December 31, 2020 | |||||||
| (unaudited) | ||||||||
| Assets: | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Deferred offering costs | ||||||||
| Marketable Securities held in Trust Account | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accrued offering costs and expenses | $ | $ | ||||||
| Promissory note – related party | ||||||||
| Total current liabilities | ||||||||
| Warrant liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock, $ | ||||||||
| Class A common stock, $ | ||||||||
| Class B common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
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TWELVE SEAS INVESTMENT CO. II
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
| For the Three Months Ended June 30, 2021 | For the Six Months Ended June 30, 2021 | |||||||
| Formation and operating costs | $ | $ | ||||||
| Loss from Operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest earned on cash and marketable securities held in Trust Account | ||||||||
| Offering costs allocated to warrants | ( | ) | ||||||
| Change in fair value of warrant liabilities | ( | ) | ( | ) | ||||
| Total other income | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding of redeemable Class A common stock | ||||||||
| Basic and diluted net loss per share, redeemable Class A common stock | $ | $ | ||||||
| Weighted average shares outstanding of Class A and Class B non-redeemable common stock(1) | ||||||||
| Basic and diluted net loss per share, Class A and Class B non-redeemable common stock | $ | ( | ) | $ | ( | ) | ||
| (1) |
The accompanying notes are an integral part of these unaudited condensed financial statements.
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TWELVE SEAS INVESTMENT CO. II
UNAUDITED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2021
| Class A | Class B | Additional | Total | |||||||||||||||||||||||||
| Common stock | Common stock | Paid-in | Accumulated | Stockholder’s | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance as of January 1, 2021 | — | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Sale of | — | |||||||||||||||||||||||||||
| Sale of | — | |||||||||||||||||||||||||||
| Issuance of representative shares | ||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Common stock subject to possible redemption | ( | ) | ( | ) | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of March 31, 2021 (unaudited) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Change in Common stock subject to possible redemption | — | |||||||||||||||||||||||||||
| Balance as of June 30, 2021 (unaudited) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
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TWELVE SEAS INVESTMENT CO. II
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2021
| For the Six Months Ended June 30, 2021 | ||||
| Cash flows from operating activities: | ||||
| Net loss | $ | ( | ) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||
| Interest earned on marketable securities held in Trust Account | ( | ) | ||
| Offering costs allocated to warrants | ||||
| Change in fair value of warrant liabilities | ||||
| Changes in operating assets and liabilities: | ||||
| Prepaid Expenses | ( | ) | ||
| Accrued offering costs and expenses | ||||
| Net cash used in operating activities | ( | ) | ||
| Cash Flows from Investing Activities: | ||||
| Investment of cash in Trust Account | ( | ) | ||
| Net cash used in investing activities | ( | ) | ||
| Cash Flows from Financing Activities: | ||||
| Proceeds from sale of Units, net of underwriters’ discount | ||||
| Proceeds from issuance of Private Placement | ||||
| Repayment of promissory note – related party | ( | ) | ||
| Payment of offering costs | ( | ) | ||
| Net cash provided by financing activities | ||||
| Net change in cash | ||||
| Cash, beginning of period | ||||
| Cash, end of the period | $ | |||
| Supplemental disclosure of cash flow information: | ||||
| Initial value of Class A common stock subject to possible redemption | $ | |||
| Change in Class A common stock subject to possible redemption | $ | |||
| Fair Value of representative shares issued for no consideration | $ | |||
The accompanying notes are an integral part of these unaudited condensed financial statements.
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TWELVE SEAS INVESTMENT CO. II
NOTES TO FINANCIAL STATEMENTS
Note 1 — Organization and Business Operations
Twelve Seas Investment Company II (the “Company”) is a newly organized blank check company incorporated in Delaware on July 21, 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 (“Business Combination”). The Company has not selected any specific business combination target and the Company has not, nor has anyone on its behalf, initiated any substantive discussions, directly or indirectly, with any business combination target with respect to the Business Combination.
The Company has selected December 31 as its fiscal year end.
As of June 30, 2021, the Company had not commenced any operations. All activity for the period from July 21, 2020 (inception) through June 30, 2021 relates to the Company’s formation and the initial public offering (“IPO”), which is described below. The Company will not generate any operating revenues until after the completion of a Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income from the proceeds derived from the IPO.
The Company’s sponsor is Twelve Seas Sponsor II LLC, a Delaware limited liability company (the “Sponsor”).
The registration statement for the Company’s
IPO was declared effective on February 25, 2021 (the “Effective Date”). On March 2, 2021, the Company consummated the
IPO of
The underwriters had a 45-day option from the
date of the IPO (March 2, 2021) to purchase up to an additional
Simultaneously with the closing of the IPO, the
Company completed the private sale (the “Private Placement”) of an aggregate of
Transaction costs amounted to $
As of June 30, 2021, $
Following the closing of the IPO and the over-allotment
option, which was fully exercised,
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The Company will have 24 months from the closing
of the IPO, or until March 2, 2023, to consummate a Business Combination (the “Combination Period”). However, if the Company
is unable to complete a Business Combination within the Combination Period, the Company will redeem
The Company will only proceed with a Business
Combination if the Company has net tangible assets of at least $
The Sponsor, officers and directors and Representatives have agreed to (i) waive their redemption rights with respect to their founder shares, private shares, and public shares in connection with the completion of the initial business combination, (ii) waive their redemption rights with respect to their founder shares, private shares, and public shares in connection with a stockholder vote to approve an amendment to the Company’s amended and restated certificate of incorporation, and (iii) waive their rights to liquidating distributions from the trust account with respect to their founder shares and private shares if the Company fails to complete the initial business combination within the Combination Period.
The Company’s Sponsor has agreed that it
will be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company,
or a prospective target business with which the Company has entered into a written letter of intent, confidentiality or similar agreement
or business combination agreement, reduce the amount of funds in the trust account to below the lesser of (i) $
Risks and Uncertainties
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 financial statement does not include any adjustments that might result from the outcome of this uncertainty.
6
Liquidity and Capital Resources
As of June 30, 2021, the Company had $
The Company does not believe it will need to raise additional funds in order to meet the expenditures required for operating our business. However, if the 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, the Company may have insufficient funds available to operate its business prior to our Business Combination. Moreover, the Company may need to obtain additional financing or draw on the Working Capital Loans (as defined below) either to complete a Business Combination or because it becomes obligated to redeem a significant number of the public shares upon consummation of our Business Combination, in which case the Company may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, the Company would only complete such financing simultaneously with the completion of our Business Combination. If the Company is unable to complete the Business Combination because it does not have sufficient funds available, the Company will be forced to cease operations and liquidate the Trust Account. In addition, following the Business Combination, if cash on hand is insufficient, the Company may need to obtain additional financing in order to meet our obligations.
Subsequent to the consummation of the Initial Public Offering and Private Placement, the Company’s liquidity needs have been satisfied through the proceeds from the consummation of the Private Placement not held in the Trust Account.
Based on the foregoing, management believes that the Company will have sufficient working capital and borrowing capacity to meet its needs through the earlier of the consummation of a Business Combination or one year from this filing. Over this time period, the Company will be using these funds for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.
Note 2 — Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for financial information and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP. In the opinion of management, the unaudited condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. The interim results for the three and six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any future interim periods.
Emerging Growth Company Status
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
7
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and warrant liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates. One of the more significant accounting estimates included in these unaudited condensed financial statements is the determination of the fair value of the warrant liability.
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 $
Marketable Securities Held in Trust Account
The funds in the Trust Accounts are invested in
United States government securities within the meaning of Section 2(a)(16) of the Investment Company Act of 1940, as amended, having a
maturity of
The fair value of the Company’s certain
assets and liabilities, which qualify as financial instruments under ASC 820, “Fair Value Measurements and Disclosures,” approximates
the carrying amounts represented in the condensed balance sheet as of June 30, 2021. The fair values of cash and cash equivalents, prepaid
assets, accounts payable and accrued expenses are estimated to approximate the carrying values as of June 30, 2021 and December 31,
2020 due to the short maturities of such instruments. At June 30, 2021, the Company had $
Concentration of Credit Risk
Financial instruments that potentially subject
the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal
Depository Insurance Corporation Coverage of $
Fair Value of Financial Instruments
The Company follows the guidance in ASC 820, “Fair Value Measurement,” for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
| Level 1 — | Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not being applied. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment. |
| Level 2 — | Valuations based on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived principally from or corroborated by market through correlation or other means. |
| Level 3 — | Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
See Note 7 for additional information on assets and liabilities measured at fair value.
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Derivative warrant liabilities
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815-15. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
Derivative assets and liabilities are classified on the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument is required within 12 months of the balance sheet date. The Company has determined that both the private and public warrants are a derivative instrument.
The Company evaluated the Public Warrants and Private Placement Warrants (collectively, “Warrants”, which are discussed in Note 3, Note 4 and Note 6) in accordance with ASC 815-40, “Derivatives and Hedging — Contracts in Entity’s Own Equity”, and concluded that a provision in the Warrant Agreement related to certain tender or exchange offers 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, the Warrants are recorded as derivative liabilities on the Condensed Balance Sheet and measured at fair value at inception (on the date of the IPO) and at each reporting date in accordance with ASC 820, “Fair Value Measurement”, with changes in fair value recognized in the Condensed Statement of Operations in the period of change.
Offering Costs Associated with the Initial Public Offering
The Company complies with the requirements of the ASC 340-10-S99-1. Offering costs consisted of legal, accounting, underwriting fees and other costs incurred through the Initial Public Offering that were directly related to the Initial Public Offering. Offering costs are allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared to total proceeds received. Offering costs associated with warrant liabilities are expensed as incurred, presented as non-operating expenses in the statement of operations. Offering costs associated with the Class A common stock were charged to stockholders’ equity upon the completion of the Initial Public Offering.
Class A Common Stock Subject to Possible Redemption
The Company accounts for its Class A common
stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.”
Class A common stock subject to mandatory redemption (if any) is classified as liability instruments and are measured at fair value.
Conditionally redeemable Class A common stock (including Class A common stock that features redemption rights that are
either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s
control) are classified as temporary equity. At all other times, Class A common stock is classified as stockholders’ equity.
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 uncertain future events. Accordingly, at June 30, 2021,
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.
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of June 30, 2021 and December 31, 2020. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
9
The Company has identified the United States as its only “major” tax jurisdiction.
The Company may be subject to potential examination by federal and state taxing authorities in the areas of income taxes. These potential 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.
Net Loss Per Common Share
Net loss per common stock is computed by dividing
net loss by the weighted average number of common stock outstanding for each of the periods. The calculation of diluted income per common
stock does not consider the effect of the warrants issued in connection with the (i) IPO, (ii) exercise of over-allotment and
(iii) Private Placement since the exercise contingency of the warrants would make the warrants anti-dilutive. The warrants are exercisable
to purchase
The Company’s statement of operations includes a presentation of income per share for Common Stock subject to possible redemption in a manner similar to the two-class method of income per common stock. Net loss per common stock, basic and diluted, for redeemable Class A Common Stock is calculated by dividing the interest income earned on the Trust Account, by the weighted average number of redeemable Class A Common Stock outstanding since original issuance. Net loss per common stock, basic and diluted, for non-redeemable Class A and Class B Common Stock is calculated by dividing the net loss, adjusted for income attributable to redeemable Class A Common Stock, by the weighted average number of non-redeemable Class A and Class B Common Stock outstanding for the periods. Non-redeemable Class A and Class B Common Stock include the Founder Shares as these common stocks do not have any redemption features and do not participate in the income earned on the Trust Account.
Reconciliation of Net Loss per Common Share
The Company’s condensed statement of operations includes a presentation of loss per share for common stock subject to redemption in a manner similar to the two-class method of income (loss) per share. Accordingly, basic and diluted loss per common share of Class A common stock and Class B common stock is calculated as follows:
| Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | |||||||
| Net loss per share for Class A common stock: | ||||||||
| Interest income earned on securities held in the Trust Account | $ | $ | ||||||
| Less: Interest income available to the Company for taxes | ( | ) | ( | ) | ||||
| Adjusted net loss | $ | $ | ||||||
| Weighted average shares outstanding of Class A common stock | ||||||||
| Basic and diluted net loss per share, Class A common stock | $ | $ | ||||||
| Net Loss per share for Class B common stock: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Less: Income attributable to Class A common stock | ||||||||
| Adjusted net loss | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding of Class A and Class B non-redeemable common stock | ||||||||
| Basic and diluted net loss per share, Class A and Class B non-redeemable common stock | $ | ( | ) | $ | ( | ) | ||
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): 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 scope exception, and it simplifies the diluted earnings per share calculation in certain areas. The Company is reviewing the impact adoptoin would have, if any, on its financial statements.
Management does not believe that any other recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.
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Note 3 — Initial Public Offering
On March 2, 2021, the Company consummated the
IPO of
The underwriters had a 45-day option from the
date of the IPO (March 2, 2021) to purchase up to an additional
Note 4 — Private Placement
Simultaneously with the closing of the IPO, the
Sponsor and the Representatives purchased an aggregate of
In connection with the closing of the purchase
of the Over-Allotment Units, the Company sold an additional
The Company’s Sponsor, officers, directors,
and Representative agreed to (i) waive their redemption rights with respect to their founder shares, private shares, and public shares
in connection with the completion of the Company’s initial business combination, (ii) waive their redemption rights with respect
to the founder shares, private shares, and public shares in connection with a stockholder vote to approve an amendment to the Company’s
amended and restated certificate of incorporation (A) to modify the substance or timing of the Company’s obligation to redeem
Note 5 — Related Party Transactions
Founder Shares
In August 2020, the Company issued
The Sponsor agreed not to transfer, assign or
sell its founder shares until the earlier to occur of (A) one year after the completion of the Company’s initial business combination
or (B) subsequent to the Company’s initial business combination, (x) if the last sale price of the Company’s Class A
common stock equals or exceeds $
11
Promissory Note — Related Party
On July 21, 2020, the Company issued an unsecured
promissory note to the Sponsor, pursuant to which the Company may borrow up to an aggregate principal amount of $
Related Party Loans
In order to finance transaction costs in connection
with a Business Combination, the Sponsor or an affiliate of the Sponsor or certain of the Company’s officers and directors may,
but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a
Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company.
Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination
does not close, the Company may use a portion of the working capital held outside the Trust Account to repay the Working Capital Loans
but no proceeds from the Trust Account would be used to repay the Working Capital Loans. Up to $
Administrative Service Fee
The Company has agreed, commencing on the Effective
Date of the IPO, March 2, 2021, to pay an affiliate of the Company’s Sponsor a monthly fee of an aggregate of $
Note 6 — Warrant Liabilities
The Company has outstanding warrants to purchase
an aggregate of
Each whole warrant entitles the registered holder
to purchase one share of the Company’s Class A common stock at a price of $
The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act covering the issuance of the shares of Class A common stock issuable upon exercise of the warrants is then effective and a current prospectus relating to those shares of Class A common stock is available, subject to the Company satisfying its obligations with respect to registration, or a valid exemption from registration is available. No warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of residence of the exercising holder, or an exemption from registration is available.
The Company has agreed that as soon as practicable, but in no event later than 20 business days after the closing of a Business Combination, the Company will use its commercially reasonable efforts to file, and within 60 business days following a Business Combination to have declared effective, a registration statement covering the issuance of the shares of Class A common stock issuable upon exercise of the warrants and to maintain a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed. 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 Public 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, the Company will not be required to file or maintain in effect a registration statement, but will use its commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
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Redemption of Warrants When the Price per Share
of Class A Common Stock Equals or Exceeds $
Once the warrants become exercisable, the Company may redeem the outstanding warrants:
| ● | in whole and not in part; |
| ● | upon not less than 30 days’ prior written notice of redemption (the “30-day redemption period”) to each warrant holder; and |
If and when the warrants become redeemable by the Company, the Company may exercise the redemption right even if it is unable to register or qualify the underlying securities or sale under all applicable state securities laws.
Redemption of Warrants When the Price per Share
of Class A Common Stock Equals or Exceeds $
Once the warrants become exercisable, the Company may redeem the outstanding warrants:
| ● | at a price of $0.10 per warrant provided that the holder will be able to exercise their warrants on cashless basis prior to redemption and receive that number of shares based on the redemption date and the fair market value of the Class A common stock; |
| ● | upon a minimum of 30 days’ prior written notice of redemption; |
| ● | if, and only if, the last reported sale price of the Class A common stock equals or exceeds $10.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders; and |
If the Company calls the Public Warrants for redemption, as described above, its management will have the option to require any holder that wishes to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement.
In addition, if (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of a Business Combination at an issue price or effective issue price of less than $9.20 per share (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors 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”), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of a Business Combination on the date of the consummation of a Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Company’s common stock during the 20 trading day period starting on the trading day prior to the day on which the Company consummates a Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, and the $18.00 per share redemption trigger price described above will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price, and the $10.00 per share redemption trigger described above will be adjusted (to the nearest cent) to be equal to the higher of the Market Value and the Newly Issued Price.
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The warrant agreement contains an Alternative Issuance provision that if less than 70% of the consideration receivable by the holders of the ordinary shares in the Business Combination is payable in the form of common equity in the successor entity, and if the holders of the warrants properly exercises the warrants within thirty days following the public disclosure of the consummation of Business Combination by the Company, the warrant price shall be reduced by an amount equal to the difference (but in no event less than zero) of (i) the warrant price in effect prior to such reduction minus (ii) (A) the Per Share Consideration (as defined below) minus (B) the Black-Scholes Warrant Value (as defined below). The “Black-Scholes Warrant Value” means the value of a Warrant immediately prior to the consummation of the Business Combination based on the Black-Scholes Warrant Model for a Capped American Call on Bloomberg Financial Markets. “Per Share Consideration” means (i) if the consideration paid to holders of the ordinary shares consists exclusively of cash, the amount of such cash per ordinary shares, and (ii) in all other cases, the volume weighted average price of the ordinary shares as reported during the ten-trading day period ending on the trading day prior to the effective date of the Business Combination.
The Company believes that the Alternative Issuance provision and the adjustments to the exercise price of the warrants is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 – 40, and thus the warrants are not eligible for an exception from derivative accounting.
The accounting treatment of derivative financial
instruments requires that the Company record a derivative liability upon the closing of the IPO. Accordingly, the Company has classified
each warrant as a liability at its fair value and the warrants were allocated a portion of the proceeds from the issuance of the Units
equal to its fair value determined by the Monte Carlo simulation. This liability is subject to re-measurement at
each balance sheet date. With each such re-measurement, the warrant liability will be adjusted to fair value, with the change
in fair value recognized in the Company’s statement of operations. The Company will reassess the classification at each balance
sheet date. If the classification changes as a result of events during the period, the warrants will be reclassified as of the date of
the event that causes the reclassification. As such, the Company recorded $
Note 7 — Fair Value Measurements
The following table presents information about the Company’s assets and liabilities that are measured on a recurring basis as of June 30, 2021 and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value:
| June 30, 2021 | Quoted Prices In Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||||||
| Assets: | ||||||||||||||||
| Marketable Securities held in Trust Account | $ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant liability - Public Warrants | $ | $ | $ | $ | ||||||||||||
| Warrant liability – Private Warrants | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period. As of June 30, 2021, the public warrant liabilities were transferred from Level 3 to Level 1 inputs as a result of the warrants becoming separately tradeable and thus on an active market.
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The change in fair value of the Level 3 warrant liabilities is summarized as follows:
| Fair Value, January 1, 2021 | $ | |||
| Initial measurement on March 2, 2021, as adjusted for over-allotment (as restated) | $ | |||
| Change in fair value of warrant liabilities | ||||
| Less: Transfer of public warrant liabilities to Level 1 | ( | ) | ||
| Warrant liabilities at June 30, 2021 | $ |
The estimated fair value of the warrant liability at March 2, 2021, was determined using Level 3 inputs. Inherent in a Monte Carlo options 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 common stock based on projected volatility of comparable public companies 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 based on management assumptions regarding the timing and likelihood of completing a business combination. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero.
Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period. As of June 30, 2021, the public warrant liabilities were transferred from Level 3 to Level 1 inputs as a result of the warrants becoming separately tradeable and thus on an active market.
The following table provides quantitative information regarding Level 3 fair value measurements of the Company’s private warrant liabilities as of June 30, 2021.
| June 30, 2021 | ||||
| Exercise price | $ | |||
| Stock price | $ | |||
| Volatility | % | |||
| Expected life of the options to convert | ||||
| Risk-free rate | % | |||
| Dividend yield | % | |||
| Likelihood of completing a business combination | % | |||
Note 8 — Commitments and Contingencies
Registration Rights
The holders of the founder shares, private placement warrants, and warrants that may be issued upon conversion of working capital loans will have registration rights to require the Company to register a sale of any of its securities held by them pursuant to a registration rights agreement to be signed prior to or on February 25,2021. These holders will be entitled to make up to three demands, excluding short form registration demands, that the Company registers such securities for sale under the Securities Act. In addition, these holders will have “piggy-back” registration rights to include their securities in other registration statements filed by the Company.
Underwriters Agreement
The underwriters had a 45-day option from
March 2, 2021 to purchase up to an additional
On March 2, 2021, the Company paid an underwriting
discount of $
On March 10, 2021,
Business Combination Marketing Agreement
The Company has engaged Mizuho as an advisor in
connection with its business combination to assist the Company in holding meetings with its stockholders to discuss the potential business
combination and the target business’ attributes, introduce the Company to potential investors that are interested in purchasing
the Company’s securities in connection with its initial business combination, assist the Company in obtaining stockholder approval
for the business combination and assist the Company with its press releases and public filings in connection with the business combination.
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Representative Shares
On March 2, 2021, the Company issued the underwriter
(and/or its designees) (the “Representative”)
Note 9 — Stockholders’ Equity
Preferred Stock — The
Company is authorized to issue a total of
Class A Common Stock —
The Company is authorized to issue a total of
Class B Common Stock —
The Company is authorized to issue a total of
The Company’s initial stockholders have
agreed not to transfer, assign or sell its founder shares until the earlier to occur of (A) one year after the completion of the
Company’s initial business combination or (B) subsequent to the Company’s initial business combination, (x) if the
last sale price of the Company’s Class A common stock equals or exceeds $
The shares of Class B common stock will automatically
convert into shares of the Company’s Class A common stock at the time of its initial business combination on a one-for-one basis,
subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like, and subject to further adjustment
as provided herein. In the case that additional shares of Class A common stock, or equity-linked securities, are issued or deemed
issued in excess of the amounts offered in this prospectus and related to the closing of the initial business combination, the ratio at
which shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders
of a majority of the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance
or deemed issuance) so that the number of shares of Class A common stock issuable upon conversion of all shares of Class B common
stock will equal, in the aggregate, on an as-converted basis,
Holders of the Class A common stock and holders of the Class B common stock will vote together as a single class on all matters submitted to a vote of the Company’s stockholders, with each share of common stock entitling the holder to one vote.
Note 10 — Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other SEC filings.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities through June 30, 2021 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and, after our Initial Public Offering, 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 generate 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 six months ended June 30, 2021, there was $6,108 interest earned from the Trust account.
For the six months ended June 30, 2021, we had loss from operations of $252,398 which consisted of general and administrative costs, and net loss of $1,755,916, which included warrant issuance costs of $260,113 and a net loss from the change in the fair value of warrants of $1,501,911, offset by interest income of $6,108. We are required to revalue our liability-classified warrants at the end of each reporting period and reflect in the statement of operations a gain or loss from the change in fair value of the warrant in the period in which the change occurred.
For the three months ended June 30, 2021, we had loss from operations of $169,440 which consisted of general and administrative costs, and net loss of $1,750,283, which included a net loss from the change in the fair value of warrants of $1,755,527, and interest income of $5,244. We are required to revalue our liability-classified warrants at the end of each reporting period and reflect in the statement of operations a gain or loss from the change in fair value of the warrant in the period in which the change occurred.
Liquidity and Capital Resources
On March 2, 2021, we consummated an Initial Public Offering of 30,000,000 Units at a price of $10.00 per Unit, generating gross proceeds of $300,000,000. In connection with the Initial Public Offering, the underwriters were granted a 30-day option from the date of the prospectus to purchase up to 4,500,000 additional units to cover over-allotment, if any. On March 8, 2021, the underwriters fully exercised the over-allotment option, generating gross proceeds of $45,000,000.
Simultaneously with the initial closing and over-allotment closing of the Initial Public Offering, we consummated the sale of 890,000 Private Placement Units to the Sponsor at a price of $10.00 per unit, generating gross proceeds of $8,900,000.
Following the Initial Public Offering, the exercise of the over-allotment option and the sale of the Private Placement Units, a total of $345,000,000 was placed in the Trust Account.
As of June 30, 2021, we had marketable securities held in the Trust Account of $345,006,108. Interest income on the balance in the Trust Account may be used by us to pay taxes. For the six months ended June 30, 2021, there was $6,108 interest income earned from the Trust account.
For the six months ended June 30, 2021, cash used in operating activities was $348,795.
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 June 30, 2021 we had cash of $1,194,395 held outside the Trust Account. 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 initial stockholders 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 loans may be convertible into warrants identical to the private placement warrants, at a price of $1.00 per warrant at the option of the lender.
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We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, 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. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our Business Combination. If we are unable to complete our Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. In addition, following our Business Combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of June 30, 2021.
Contractual obligations
At June 30, 2021, we did not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities. On February 25, 2021, we entered into an administrative support agreement pursuant to which we have 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 the earlier of the completion of the Business Combination and the Company’s liquidation, we will cease paying these monthly fees. For the six months ended June 30, 2021, we incurred expenses of $40,000 under this agreement. For the three months ended June 30, 2021, we incurred $30,000 under this agreement.
We have engaged Mizuho as an advisor in connection with our initial business combination to assist us in holding meetings with our stockholders to discuss the potential business combination and the target business’ attributes, introduce us to potential investors that are interested in purchasing our securities in connection with our initial business combination, assist us in obtaining stockholder approval for the initial business combination and assist us with our press releases and public filings in connection with the initial business combination. We will pay Mizuho a cash fee for such services upon the consummation of our initial business combination in an amount equal to 3.5% of the gross proceeds of the Initial Public Offering ($10,500,000).
Critical Accounting Policies
The preparation of 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 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 policies:
Class A Common stock subject to possible redemption
We account for Class A common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Class A Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable Class A common stock (including Class A common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, Class A common stock is classified as stockholders’ equity. Our Class A common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, Class A common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ equity section of our condensed balance sheets.
Derivative warrant liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. We evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815-15. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
18
We account for our 11,796,667 common stock warrants issued in connection with our Initial Public Offering (11,500,000) and Private Placement (296,667) as derivative warrant liabilities in accordance with ASC 815-40. Accordingly, we recognize the warrant instruments as liabilities at fair value and adjust the instruments to fair value at each reporting period. The liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations. The fair value of Private Placement Warrants issued by the Company in connection with the Public Offering and Private Placement has been estimated using Monte-Carlo simulations at each measurement date. The fair value of Public Warrants issued with the Public Offering was initially measured using Monte-Carlo simulations and then measured based trading price once they commenced trading on March 29, 2021.
Offering Costs associated with the Initial Public Offering
We allocated with the requirements of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) 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 Public Offering.
We allocated the offering costs between common stock and public warrants using relative fair value method, the offering costs allocated to the public warrants will be expensed immediately, and offering costs allocated to common stock were charged to stockholders’ equity upon the completion of the IPO.
Net loss per share of common stock
We apply the two-class method in calculating earnings per share. Net loss per common stock, basic and diluted, for redeemable Class A Common Stock is calculated by dividing the interest income earned on the Trust Account, by the weighted average number of redeemable Class A Common Stock outstanding since original issuance. Net loss per common stock, basic and diluted, for non-redeemable Class B Common Stock is calculated by dividing the net income adjusted for income attributable to redeemable Class A Common Stock, by the weighted average number of non-redeemable Class B Common Stock outstanding for the periods. Non-redeemable Class B Common Stock include the Founder Shares as these common stocks do not have any redemption features and do not participate in the income earned on the Trust Account.
Recent accounting standards
In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): 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 scope exception, and it simplifies the diluted earnings per share calculation in certain areas. The Company is reviewing the impact adoption would have, if any, on its financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on our condensed financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company”, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15 and 15d-15 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, 2021. Based upon their evaluation, and in light of the material weakness in internal controls described below, our Chief Executive Officer and Chief Financial Officer concluded that, solely due to the reclassification of the Private Warrants as described in this Quarterly Report on Form 10-Q, a material weakness existed and 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, 2021.
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A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of June 30, 2021, our disclosure controls and procedures were not effective: (i) ineffective controls over period end financial disclosure and reporting processes.
Our internal control over financial reporting did not result in the proper accounting classification of the Warrants which, due to its impact on our financial statements, we determined to be a material weakness. This mistake in classification was brought to our attention only when the SEC issued a Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) dated April 12, 2021 (the “SEC Statement”). The SEC Statement addresses certain accounting and reporting considerations related to warrants of a kind similar to those we issued at the time of our initial public offering in March 2021.
Changes in Internal Control over Financial Reporting
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The Chief Executive Officer and Chief Financial Officer performed additional accounting and financial analyses and other post-closing procedures including consulting with subject matter experts related to accounting for the Public Warrant and Private Warrants. The Company’s management has expended, and will continue to expend, a substantial amount of effort and resources for the remediation and improvement of our internal control over financial reporting. While we have processes to properly identify and evaluate the appropriate accounting technical pronouncements and other literature for all significant or unusual transactions, we have expanded and will continue to improve these processes to ensure that the nuances of such transactions are effectively evaluated in the context of the increasingly complex accounting standards.
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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 on Form 10-Q, there have been no material changes to the risk factors disclosed in our final prospectus dated February 25, 2021 filed with the SEC. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
Our warrants are accounted for as liabilities and the changes in value of our warrants could have a material effect on our financial results.
On April 12, 2021, the Acting Director of the Division of Corporation Finance and Acting Chief Accountant of the SEC together issued a statement regarding the accounting and reporting considerations for warrants issued by special purpose acquisition companies entitled “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (the “SEC Statement”). Specifically, the SEC Statement focused on certain settlement terms and provisions related to certain tender offers following a business combination, which terms are similar to those contained in the warrant agreement governing our warrants.
As a result, included on our balance sheet as of June 30, 2021 contained elsewhere in this report are derivative liabilities related to embedded features contained within our warrants. Accounting Standards Codification 815, Derivatives and Hedging (“ASC 815”) provides for the remeasurement of the fair value of such derivatives at each balance sheet date, with a resulting non-cash gain or loss related to the change in the fair value being recognized in earnings in the statements of operations. As a result of the recurring fair value measurement, our financial statements and results of operations may fluctuate quarterly based on factors which are outside of our control. Due to the recurring fair value measurement, we expect that we will recognize non-cash gains or losses on our warrants each reporting period and that the amount of such gains or losses could be material.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Use of Proceeds
On March 2 2021, we consummated our initial public offering of 30,000,000 units. Each unit consists of one public share and one-third of one public warrant, with each whole public warrant entitling the holder thereof to purchase one public share for $11.50 per share. The units were sold at a price of $10.00 per unit, generating gross proceeds to the Company of $300,000,000. On March 3, 2021, simultaneously with the consummation of our initial public offering, we completed the private sale of an aggregate of 800,000 private placement units to our sponsor at a purchase price of $10.00 per private placement unit, generating gross proceeds of $8,000,000.
On March 8, 2021, the underwriters exercised the over-allotment option in full to purchase 4,500,000 units. On March 8, 2021, simultaneously with the closing of the underwriters’ full exercise of the over-allotment option, we completed the private sale of an aggregate of 90,000 private placement warrants to our sponsor, at a purchase price of $10.00 per private placement unit, generating gross proceeds of $900,000.
Following the closing of our initial public offering on March 2, 2021 and the underwriters’ full exercise of over-allotment option on March 8, 2021, $345,000,000 from the net proceeds of the sale of the units in our initial public offering, the exercise of the over-allotment option and the sale of the private placement units was placed in a trust account established for the benefit of our public stockholders and maintained by Continental Stock Transfer & Trust Company, as trustee. The proceeds held in the trust account may be invested by the trustee only in U.S. government securities with a maturity of 185 days or less or in money market funds investing solely in U.S. government treasury obligations and meeting certain conditions under Rule 2a-7 under the Investment Company Act.
There has been no material change in the planned use of the proceeds from our initial public offering and the private placement as is described in the Company’s final prospectus related to our initial public offering.
21
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| * | Filed herewith. |
| ** | Furnished. |
| (1) | Incorporated by reference to the Company’s Form S-1, originally filed with the SEC on February 1, 2021, as amended. |
| (2) | Incorporated by reference to the Company’s Form 8-K, filed with the SEC on March 3, 2021. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| TWELVE SEAS INVESTMENT COMPANY II | ||
| Date: August 16, 2021 | By: | /s/ Dimitri Elkin |
| Name: | Dimitri Elkin | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: August 16, 2021 | By: | /s/ Jonathan Morris |
| Name: | Jonathan Morris | |
| Title: | Chief Financial Officer | |
| (Principal Accounting and Financial Officer) | ||
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