UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
OR
For the transition period from to
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification Number) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, 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 | ||
| The | ||||
| Redeemable warrants, each whole warrant exercisable for one Class A ordinary share at an exercise price of $11.50 | FACT WS | The New York Stock Exchange | ||
| Units, each consisting of one Class A ordinary share and one-fourth of one redeemable warrant | FACT.U | The New York Stock Exchange |
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 | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company | |||
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As
of November 15, 2021,
FREEDOM ACQUISITION I CORP.
Quarterly Report on Form 10-Q
Table of Contents
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
FREEDOM ACQUISITION I CORP.
UNAUDITED CONDENSED BALANCE SHEETS
| September 30, 2021 (Unaudited) | December 31, 2020 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses - short term | ||||||||
| Deferred offering costs associated with IPO | ||||||||
| Total current assets | ||||||||
| Prepaid expenses - long term | ||||||||
| Marketable Securities held in Trust account | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Total current liabilities | ||||||||
| Warrant Liabilities | ||||||||
| Deferred underwriters’ discount payable | ||||||||
| Total liabilities | ||||||||
| Commitments | ||||||||
| Class A Ordinary shares subject to possible redemption | ||||||||
| Shareholders’ equity: | ||||||||
| Preference shares, $ | ||||||||
| Class A ordinary shares, $ | ||||||||
| Class B ordinary shares, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities, redeemable ordinary shares and shareholders’ equity (deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
1
FREEDOM ACQUISITION I CORP.
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
| For the three months ended September 30, 2021 | For the nine months ended September 30, 2021 | |||||||
| Operating costs | $ | $ | ||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income/(expense) | ||||||||
| Foreign currency exchange loss | ( | ) | ( | ) | ||||
| Interest income on marketable securities held in Trust Account | ||||||||
| Change in fair value of warrant liabilities | ||||||||
| Offering expenses related to warrant issuance | ( | ) | ||||||
| Total other income | ||||||||
| Net income | $ | $ | ||||||
| Weighted average shares outstanding, Class A ordinary shares | ||||||||
| Basic and diluted net income per share, Class A ordinary shares | $ | $ | ||||||
| Weighted average shares outstanding, Class B ordinary shares | ||||||||
| Basic and diluted net income per share, Class B ordinary shares | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
2
FREEDOM ACQUISITION I CORP.
UNAUDITED CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
| Ordinary shares | Additional | Accumulated | Total Shareholders’ | |||||||||||||||||||||||||
| Class A | Class B | Paid-In | Earnings | Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | (Deficit) | (Deficit) | ||||||||||||||||||||||
| Balance as of December 31, 2020 | — | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Sale of Units in Initial Public Offering, net of underwriter fee | — | |||||||||||||||||||||||||||
| Sale of private placement, net | — | — | ||||||||||||||||||||||||||
| Class A ordinary shares subject to possible redemption | ( | ) | ( | ) | — | ( | ) | |||||||||||||||||||||
| Accretion of Class A ordinary shares subject to possible redemption | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Restated Balance as of March 31, 2021 (Unaudited), See Note 2 | — | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Restated Balance as of June 30, 2021 (Unaudited), See Note 2 | — | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance as of September 30, 2021 (Unaudited) | — | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
FREEDOM ACQUISITION I CORP.
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
| Cash Flows from Operating Activities: | ||||
| Net income | $ | |||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||
| Interest earned on trust account | ( | ) | ||
| Change in fair value of warrant liabilities | ( | ) | ||
| Offering costs allocated to warrants | ||||
| Changes in current assets and current liabilities: | ||||
| Prepaid assets | ( | ) | ||
| Accounts payable and accrued expenses | ||||
| Net cash used in operating activities | ( | ) | ||
| Cash Flows from Investing Activities: | ||||
| Investment of cash into trust account | ( | ) | ||
| Net cash used in investing activities | ( | ) | ||
| Cash Flows from Financing Activities: | ||||
| Proceeds from Initial Public Offering, net of underwriters’ discount | ||||
| Proceeds from issuance of Private Placement Warrants | ||||
| Repayment of promissory note to related party | ( | ) | ||
| Payments of offering costs | ( | ) | ||
| Net cash provided by financing activities | ||||
| Net Change in Cash | ||||
| Cash - Beginning | ||||
| Cash - Ending | $ | |||
| Supplemental disclosure of noncash financing activities: | ||||
| Initial value of Class A ordinary shares subject to possible redemption | $ | |||
| Initial value of warrant liabilities | $ | |||
| Deferred underwriters’ discount payable charged to additional paid-in capital | $ | |||
| Deferred offering costs paid under promissory note | $ | |||
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
FREEDOM
ACQUISITION I CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1 — Organization and Business Operations
Organization and General
Freedom Acquisition I Corp. (the “Company”) was incorporated in Cayman Islands on December 23, 2020. The Company was formed for the purpose of entering into a merger, capital share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (a “Business Combination”). The Company is not limited to a particular industry or geographic region for purposes of consummating a Business Combination. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies. The Company has selected December 31 as its fiscal year end.
As of September 30, 2021, the Company had not yet commenced any operations. All activity through September 30, 2021, relates to the Company’s formation and the Initial Public Offering (“IPO”) described below. The Company will not generate any operating revenues until after the completion of its initial business combination, at the earliest. The Company will generate non-operating income in the form of interest income on cash and cash equivalents from the proceeds derived from the IPO.
Financing
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
Simultaneously
with the closing of the IPO, the Company consummated the sale of
Transaction
costs amounted to $
Trust Account
Following
the closing of the IPO on March 15, 2021, an amount of $
5
Initial Business Combination
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the IPO, although substantially all of the net proceeds are intended to be generally applied toward consummating a business combination.
The
Company’s business combination must be with one or more target businesses that together have a fair market value equal to at least
The
Company will provide its public shareholders with the opportunity to redeem all or a portion of their public shares upon the completion
of the initial business combination either (i) in connection with a shareholder meeting called to approve the initial business combination
or (ii) by means of a tender offer. The decision as to whether the Company will seek shareholder approval of a proposed initial business
combination or conduct a tender offer will be made by the Company, solely in its discretion. The shareholders will be entitled to redeem
their shares for a pro rata portion of the amount then on deposit in the Trust Account (initially $
The
shares of ordinary shares subject to redemption is recorded at a redemption value and classified as temporary equity upon the completion
of the IPO, in accordance with Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from
Equity.” In such case, the Company will proceed with a business combination if the Company has net tangible assets of at least
$
The
Company will have 24 months from the closing of the IPO (with the ability to extend with shareholder approval) 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’s sponsor, officers and directors have agreed to (i) waive their redemption rights with respect to their founder shares, private placement 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 and public shares in connection with a shareholder 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 placement 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) $
6
Liquidity
As
of September 30, 2021, the Company had cash outside the Trust Account of $
Through
September 30, 2021, the Company’s liquidity needs were satisfied through receipt of $
The
Company anticipates that the $
The Company does not believe it will need to raise additional funds in order to meet the expenditures required for operating its business. However, if the Company’s estimates of the costs of undertaking in-depth due diligence and negotiating business combination is less than the actual amount necessary to do so, the Company may have insufficient funds available to operate its business prior to the business combination. Moreover, the Company will need to raise additional capital through loans from its Sponsor, officers, directors, or third parties. None of the Sponsor, officers or directors are under any obligation to advance funds to, or to invest in, the Company. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of its business plan, and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all.
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.
7
Note 2 — Restatement of Previously Furnished Financial Statements
In
connection with the preparation of the Company’s financial statements as of September 30, 2021, management determined it should
restate its previously reported financial statements. The Company previously determined the ordinary shares subject to possible redemption
to be equal to the redemption value of $
In connection with the change in presentation for the ordinary shares subject to redemption, the Company also restated its earnings per share calculation to allocate net income (loss) evenly to ordinary shares subject to redemption and those that are not subject to redemption. This presentation contemplates a Business Combination as the most likely outcome, in which case, both classes of ordinary shares share pro rata in the income (loss) of the Company. The Company is reporting the restatements to those periods in this Quarterly Report.
There has been no change in the Company’s total assets, liabilities or operating results.
The impact of the restatement on the Company’s financial statements is reflected in the following table:
| As Reported | Adjustment | As Adjusted | ||||||||||
| Balance Sheet as of March 2, 2021 (as restated in footnote 2 of form 10Q filed on May 24, 2021 and May 28, 2021, respectively) | ||||||||||||
| Ordinary shares subject to possible redemption ($) | $ | $ | $ | |||||||||
| Ordinary shares Class A, $0.0001 par value | ( | ) | ||||||||||
| Ordinary shares Class B, $0.0001 par value | ||||||||||||
| Additional Paid in Capital | ( | ) | ||||||||||
| Accumulated Deficit | ( | ) | ( | ) | ( | ) | ||||||
| Total Shareholders' Equity (Deficit) | $ | $ | ( | ) | $ | ( | ) | |||||
| Number of shares subject to redemption | ||||||||||||
| Balance Sheet as of March 31, 2021 (per form 10-Q filed on May 24, 2021) | ||||||||||||
| Ordinary shares subject to possible redemption ($) | $ | $ | $ | |||||||||
| Ordinary shares Class A, $0.0001 par value | ( | ) | ||||||||||
| Ordinary shares Class B, $0.0001 par value | ||||||||||||
| Additional Paid in Capital | ( | ) | ||||||||||
| Retained Earnings (Accumulated Deficit) | ( | ) | ( | ) | ||||||||
| Total Shareholders' Equity (Deficit) | $ | $ | ( | ) | $ | ( | ) | |||||
| Number of shares subject to redemption | ||||||||||||
8
| As Reported | Adjustment | As Adjusted | ||||||||||
| Unaudited Statement of Operations for the
three months ended March 31, 2021 as adjusted for Temporary Equity related to Public Shares | ||||||||||||
| Basic and diluted weighted average shares outstanding, ordinary shares subject to redemption | ||||||||||||
| Basic and diluted weighted average shares outstanding, ordinary shares not subject to redemption | ( | ) | ||||||||||
| EPS - Redeemable Shares | $ | $ | $ | |||||||||
| EPS - Non-Redeemable Shares | $ | $ | ( | ) | $ | |||||||
| Balance Sheet as of June 30, 2021 (per form 10-Q filed on August 16, 2021) | ||||||||||||
| Ordinary shares subject to possible redemption ($) | $ | $ | $ | |||||||||
| Ordinary shares Class A, $0.0001 par value | ( | ) | ||||||||||
| Ordinary shares Class B, $0.0001 par value | ||||||||||||
| Additional Paid in Capital | ( | ) | ||||||||||
| Retained Earnings (Accumulated Deficit) | ( | ) | ( | ) | ||||||||
| Total Shareholders' Equity (Deficit) | $ | $ | ( | ) | $ | ( | ) | |||||
| Number of shares subject to redemption | ||||||||||||
| Unaudited Statement of Operations for the three and six months ended June 30, 2021 as adjusted for Temporary Equity related to Public Shares | ||||||||||||
| Three months ended June 30, 2021 | ||||||||||||
| Basic and diluted weighted average shares outstanding, ordinary shares subject to redemption | ||||||||||||
| Basic and diluted weighted average shares outstanding, ordinary shares not subject to redemption | ( | ) | ||||||||||
| EPS - Redeemable Shares | $ | $ | ( | ) | $ | ( | ) | |||||
| EPS - Non-Redeemable Shares | $ | ( | ) | $ | $ | ( | ) | |||||
| Six months ended June 30, 2021 | ||||||||||||
| Basic and diluted weighted average shares outstanding, ordinary shares subject to redemption | ||||||||||||
| Basic and diluted weighted average shares outstanding, ordinary shares not subject to redemption | ( | ) | ||||||||||
| EPS - Redeemable Shares | $ | $ | $ | |||||||||
| EPS - Non-Redeemable Shares | $ | $ | ( | ) | $ |
9
| As Reported | Adjustment | As Adjusted | ||||||||||
| Cash Flows as of March 31, 2021 (per form 10-Q filed on May 24, 2021) | ||||||||||||
| Supplemental Disclosure of Non-cash Financing Activities: | ||||||||||||
| Initial value of Class A ordinary shares subject to possible redemption | $ | $ | $ | |||||||||
| Initial value of warrant liabilities | $ | $ | ( | ) | $ | |||||||
| Cash Flows as of June 30, 2021 (per form 10-Q filed on August 16, 2021) | ||||||||||||
| Supplemental Disclosure of Non-cash Financing Activities: | ||||||||||||
| Initial value of Class A ordinary shares subject to possible redemption | $ | $ | $ | |||||||||
| Initial value of warrant liabilities | $ | $ | ( | ) | $ | |||||||
10
Note 3 — Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s prospectus for its Initial Public Offering as filed with the SEC on March 1, 2021, as well as the Company’s Current Reports on Form 8-K. The interim results for the three and nine months ended September 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 shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company 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 liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of September 30, 2021 and December 31, 2020.
11
Investment Held in Trust Account
At September 30, 2021, the assets held in the Trust Account were held in cash and U.S. Treasury securities. The Company classifies its United States Treasury securities as held-to-maturity in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 320 “Investments—Debt and Equity Securities.” Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. Held-to-maturity treasury securities are recorded at amortized cost and adjusted for the amortization or accretion of premiums or discounts.
As
of September 30, 2021, investment in the Company’s Trust Account consisted of $
Amortized Cost | Gross | Gross | Fair Value as of September 30, 2021 | |||||||||||||
| U.S. Money Market | $ | $ | $ | $ | ||||||||||||
| U.S. Treasury Securities | ( | ) | ||||||||||||||
| $ | $ | $ | ( | ) | $ | |||||||||||
A decline in the market value of held-to-maturity securities below cost that is deemed to be other than temporary, results in an impairment that reduces the carrying costs to such securities’ fair value. The impairment is charged to earnings and a new cost basis for the security is established. To determine whether an impairment is other than temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and the duration of the impairment, changes in value subsequent to year-end, forecasted performance of the investee, and the general market condition in the geographic area or industry the investee operates in.
Premiums and discounts are amortized or accreted over the life of the related held-to-maturity security as an adjustment to yield using the effective-interest method. Such amortization and accretion is included in the “interest income” line item in the statements of operations. Interest income is recognized when earned.
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 Coverage of $
12
Ordinary Shares Subject to Possible Redemption
The
Company accounts for its Class A ordinary shares subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing
Liabilities from Equity.” Class A ordinary shares subject to mandatory redemption (if any) are classified as a liability instrument
and are measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that
are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s
control) are classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. The Company’s
ordinary shares 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, as of September 30, 2021 and December 31, 2020,
Net Income Per Common Share
The Company has two classes of shares, which are
referred to as Class A ordinary shares and Class B ordinary shares. Earnings and losses are shared pro rata between the two classes of
shares. The
| Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | |||||||||||||||
| Class A | Class B | Class A | Class B | |||||||||||||
| Basic and diluted net income per share: | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Allocation of net income | $ | $ | $ | $ | ||||||||||||
| Denominator: | ||||||||||||||||
| Weighted average shares outstanding | ||||||||||||||||
| Basic and diluted net income per share | $ | $ | ||||||||||||||
Offering Costs
The Company complies 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 and that were charged to shareholders’ equity upon the completion of the IPO. Accordingly, on September 30, 2021,
offering costs totaling $
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under the Financial Accounting Standards Board (“FASB”) ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the balance sheet.
13
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 share 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.
The
Company accounts for its
Income Taxes
The Company accounts for income taxes under FASB 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.
FASB ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of September 30, 2021 and December 31, 2020. The Company’s management determined that the Cayman Islands is the Company’s only major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. As of September 30, 2021 and December 31, 2020, there were no unrecognized tax benefits and no amounts were accrued for the payment of interest and penalties. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
There is currently no taxation imposed on income by the Government of the Cayman Islands. In accordance with Cayman income tax regulations, income taxes are not levied on the Company. Consequently, income taxes are not reflected in the Company’s financial statements. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations or cash flows.
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Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.
Note 4 — Initial Public Offering
Pursuant
to the Initial Public Offering, the Company sold
Note 5 — Private Placement Warrants
Simultaneously
with the closing of the IPO, the Sponsor purchased an aggregate of
The Private Placement Warrants will be identical to the warrants sold in the IPO except that the Private Placement Warrants, so long as they are held by the Sponsor or its permitted transferees, (i) will not be redeemable by the Company, (ii) may not (including the Class A ordinary shares issuable upon exercise of these warrants), subject to certain limited exceptions, be transferred, assigned or sold by the holders until 30 days after the completion of the initial Business Combination, (iii) may be exercised by the holders on a cashless basis and (iv) will be entitled to registration rights.
Note 6 — Related Party Transactions
Founder Shares
On
December 31, 2020, the Sponsor paid $
The Company’s initial
shareholders have agreed not to transfer, assign or sell any of their Founder Shares and any Class A ordinary shares issuable upon conversion
thereof until the earlier to occur of:
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Promissory Note — Related Party
On
December 30, 2020, the Sponsor agreed to loan the Company up to $
Administrative Support Agreement
Commencing
on the date of the IPO, the Company has agreed to pay the Sponsor a total of $
Working Capital Loans
In
addition, in order to finance transaction costs in connection with an intended 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.
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 held in the Trust Account would be used to repay the Working Capital Loans. Up to $
Note 7 — Commitments & Contingencies
Registration Rights
The holders of the (i) Founder Shares, which were issued in a private placement prior to the closing of the IPO, (ii) Private Placement Warrants, which will be issued in a private placement simultaneously with the closing of the IPO and the Class A ordinary shares underlying such Private Placement Warrants and (iii) Private Placement 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. The holders of these securities are entitled to make up to three demands, excluding short form demands, that the Company registers such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the Company’s completion of its initial Business Combination. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriters Agreement
On
March 2, 2021, the Company paid a fixed underwriting discount of $
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Note 8 — Shareholder’s Equity
Preference shares —
The Company is authorized to issue a total of
Class A Ordinary shares — The Company
is authorized to issue a total of
Class B Ordinary shares — The Company is authorized
to issue a total of
Holders of the Class A ordinary shares and holders of the Class B ordinary shares will vote together as a single class on all matters submitted to a vote of the Company’s shareholders, except as required by law; provided that only holders of Class B ordinary shares will have the right to appoint and remove directors in any general meeting held prior to or in connection with the completion of an initial Business Combination. Unless specified in the Company’s amended and restated memorandum and articles of association, or as required by applicable provisions of the Companies Act or applicable stock exchange rules, the affirmative vote of a majority of the Company’s ordinary shares that are voted is required to approve any such matter voted on by its shareholders.
The
Class B ordinary shares will automatically convert into Class A ordinary shares concurrently with or immediately following the
consummation of the initial Business Combination on a one-for-one basis, subject to adjustment for share sub-divisions, share capitalizations,
reorganizations, recapitalizations and the like, and subject to further adjustment as provided herein. In the case that additional Class
A ordinary shares or equity-linked securities are issued or deemed issued in connection with the initial Business Combination, the number
of Class A ordinary shares issuable upon conversion of all Founder Shares will equal, in the aggregate,
Note 9 — Warrants
The Public Warrants will
become exercisable at $
The Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of the initial Business Combination, it will use commercially reasonable efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the Class A ordinary shares issuable upon exercise of the warrants. The Company will use its commercially reasonable efforts to cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration or redemption of the warrants in accordance with the provisions of the warrant agreement. If a registration statement covering the Class A ordinary shares issuable upon exercise of the warrants is not effective by the 60th day after the closing of the initial Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the above, if the Company’s Class A ordinary shares are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy 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, it will not be required to file or maintain in effect a registration statement, and in the event the Company does not so elect, it 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. In such event, each holder would pay the exercise price by surrendering each such warrant for that number of Class A ordinary shares equal to the lesser of (A) the quotient obtained by dividing (x) the product of the number of Class A ordinary shares underlying the warrants, multiplied by the excess of the “fair market value” (defined below) less the exercise price of the warrants by (y) the fair market value and (B) 0.361. The “fair market value” as used in this paragraph shall mean the volume weighted average price of the Class A ordinary shares for the 10 trading days ending on the trading day prior to the date on which the notice of exercise is received by the warrant agent.
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The exercise price and number
of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a share dividend
or recapitalization, reorganization, merger or consolidation.
Redemption of Warrants When the Price per Class A Ordinary Share Equals or Exceeds $18.00
Once the warrants become exercisable, the Company may redeem the outstanding warrants (except with respect to the Private Placement Warrants):
if, and only if, the last reported sale price of the Class A ordinary shares for any 20 trading days within a 30-trading day period ending three business days before the Company sends to the notice of redemption to the warrant holders (the “Reference Value”) equals or exceeds $18.00 per share (as adjusted for share sub-divisions, share capitalizations, reorganizations, recapitalizations and the like). |
Redemption of Warrants When the Price per Class A Ordinary Share Equals or Exceeds $10.00
Once the warrants become exercisable, the Company may redeem the outstanding warrants:
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Note 10 — Fair Value Measurements
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
| ● | Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; | |
| ● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and | |
| ● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. | |
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis at September 30, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| September 30, | Quoted Prices In Active Markets | Significant Other Observable Inputs | Significant Other Unobservable Inputs | |||||||||||||
| 2021 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Description | ||||||||||||||||
| Warrant liabilities – Public warrants | ||||||||||||||||
| Warrant liabilities – Private warrants | ||||||||||||||||
| Total Warrant liabilities | $ | $ | $ | $ | ||||||||||||
The Company utilized a Monte Carlo simulation model for the initial valuation of the Public Warrants. The subsequent measurement of the Public Warrants as of September 30, 2021, is classified as Level 1 due to the use of an observable market quote in an active market.
The Company utilizes a Monte Carlo simulation model to value the private placement warrants at each reporting period, with changes in fair value recognized in the statement of operations. The estimated fair value of the warrant liability is determined using Level 3 inputs. Inherent in a binomial options pricing model are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its ordinary shares based on historical volatility that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero.
The aforementioned warrant liabilities are not subject to qualified hedge accounting.
There were no transfers between Levels 1, 2 or 3 during the quarter ended September 30, 2021, other than the transfer of Public warrants liabilities from Level 3 to Level 1.
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The following table provides quantitative information regarding Level 3 fair value measurements:
| At March 2, 2021 (Initial Measurement) | At September 30, 2021 | |||||||
| Share price | $ | $ | ||||||
| Strike price | $ | $ | ||||||
| Term (in years) | ||||||||
| Volatility | % | % | ||||||
| Risk-free rate | % | % | ||||||
| Dividend yield | % | % | ||||||
The following table presents the changes in the fair value of warrant liabilities:
| Public | Private Placement | Warrant Liabilities | ||||||||||
| Fair value as of January 1, 2021 | $ | $ | $ | |||||||||
| Initial measurement on March 2, 2021 | ||||||||||||
| Change in valuation inputs or other assumptions | ( | ) | ( | ) | ( | ) | ||||||
| Fair value as of June 30, 2021 | $ | $ | $ | |||||||||
| Change in valuation inputs or other assumptions | ( | ) | ( | ) | ( | ) | ||||||
| Fair value as of September 30, 2021 | $ | $ | $ | |||||||||
The Company recognized gains
in connection with changes in the fair value of warrant liabilities of $
The following table presents a summary of the changes in the fair value of level 3 warrant liabilities:
| Private Placement | Public | Total Warrant Liabilities | ||||||||||
| Fair value as of January 1, 2021 | $ | $ | $ | |||||||||
| Initial measurement on March 2, 2021 | ||||||||||||
| Transfer to Level 1 | ( | ) | ( | ) | ||||||||
| Change in fair value | ( | ) | ( | ) | ||||||||
| Fair value as of September 30, 2021 | $ | $ | $ | |||||||||
Note 11 — Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date through 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.
References to the “Company,” “our,” “us” or “we” refer to Freedom Acquisition I Corp. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
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 Securities Exchange Act of 1934, as amended (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 “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” or the negative of such terms or other similar expressions. Such statements include, but are not limited to, possible business combinations and the financing thereof, and related matters, as well as all other statements other than statements of historical fact included in this Form 10-Q. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities and Exchange Commission (“SEC”) filings.
Overview
We are a blank check company incorporated as a Cayman Islands exempted company on December 23, 2020 for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). Our Sponsor is Freedom Acquisition I LLC, a Cayman Islands limited liability company (“Sponsor”).
The registration statement for our initial public offering (the “Initial Public Offering”) became effective on February 25, 2021. On March 2, 2021, we consummated the Initial Public Offering of 34,500,000 units, which included the exercise of the underwriters’ option to purchase an additional 4,500,000 units at the Initial Public Offering price to cover over-allotments (the “Units”, and, with respect to the Class A ordinary shares included in the Units, the “Public Shares” and, with respect to the one-fourth of one redeemable warrant included in the Units, the “Public Warrants”), at $10.00 per Unit, generating gross proceeds of $345.0 million, and incurring offering costs of approximately $19.18 million, inclusive of approximately $12.08 million in deferred underwriting commissions.
Simultaneously with the closing of the Initial Public Offering, we consummated the private placement (“Private Placement”) of 6,266,667 warrants (each, a “Private Placement Warrant” and collectively, the “Private Placement Warrants” and, together with the Public Warrants, the “Warrants”), at a price of $1.50 per Private Placement Warrant with the Sponsor, generating gross proceeds of approximately $9.4 million.
Upon the closing of the Initial Public Offering and the Private Placement, approximately $345.0 million ($10.00 per Unit) of the net proceeds of the Initial Public Offering and certain of the proceeds of the Private Placement were placed in a trust account (“Trust Account”), located in the United States with Continental Stock Transfer & Trust Company acting as trustee, and invested only in United States “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.
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If we have not completed a Business Combination within 24 months from the closing of the Initial Public Offering, or March 2, 2023 (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 our income taxes, if any (less up to $100,000 of interest to pay dissolution expenses) divided by the number of the then-outstanding Public Shares, which redemption will completely extinguish Public Shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any); and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining shareholders and the board of directors, liquidate and dissolve, subject, in each case, to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to our outstanding Warrants, which will expire worthless if we fail to consummate a Business Combination within the Combination Period.
Results of Operations and Known Trends or Future Events
We have neither engaged in any operations nor generated any revenues to date. Our only activities since inception have been organizational activities, those necessary to prepare for our Initial Public Offering and identifying a target company for our initial Business Combination. We do not expect to generate any operating revenues until after completion of our initial Business Combination. We generate non-operating income in the form of interest income on cash and cash equivalents 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 three months ended September 30, 2021, we had a net income of $5,784,507, which consisted of $353,484 of operating costs consisting mostly of general and administrative expenses, foreign currency exchange loss of $183 and unrealized gain on change in fair value of warrant liability of $6,105,583, offset by investment income of $32,591 on our amounts held in the Trust Account.
For the nine months ended September 30, 2021, we had a net income of $6,371,821, which consisted of unrealized gain on change in fair value of warrant liability of $7,892,583 and investment income of $77,833 on our amounts held in the Trust Account, offset by $1,022,553 of operating costs consisting mostly of general and administrative expenses, foreign currency exchange loss of $764 and offering expenses related to warrant issuance of $575,278.
We classify the Warrants issued in connection with our Initial Public Offering and Private Placement as liabilities at their fair value and adjust the warrant instruments to fair value at each reporting period. These liabilities are subject to remeasurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations. As part of the reclassification to warrant liability, we reclassed a portion of the offering costs associated with the Initial Public Offering originally charged to shareholders’ equity, to an expense in the statement of operations in the amount of $575,278 based on a relative fair value basis. For the three months ended September 30, 2021, the change in fair value of the Warrants was a decrease in the liability of $6,105,583. For the period from the Initial Public Offering to September 30, 2021, the change in fair value of the Warrants was a decrease in the liability of approximately $7,892,583.
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Liquidity and Capital Resources
As of September 30, 2021, we had cash outside the Trust Account of $381,890 available for working capital needs. All remaining cash held in the Trust Account are generally unavailable for the Company’s use, prior to an initial Business Combination, and is restricted for use either in a Business Combination or to redeem ordinary shares. As of September 30, 2021, none of the amount in the Trust Account was available to be withdrawn as described above.
Through September 30, 2021, the Company’s liquidity needs were satisfied through receipt of $25,000 from the sale of the founder shares, and the remaining net proceeds from the Initial Public Offering and the sale of Private Placement Warrants.
The Company anticipates that the $381,890 outside of the Trust Account as of September 30, 2021, will be sufficient to allow the Company to operate for at least the next twelve (12) months, assuming that a Business Combination is not consummated during that time. Until consummation of our Business Combination, the Company will be using the funds not held in the Trust Account, and any additional Working Capital Loans (as defined in Note 6 to our financial statements) from the initial shareholders, the Company’s officers and directors, or their respective affiliates (which is described in Note 6 to our financial statements), for identifying and evaluating prospective acquisition candidates, performing business due diligence on prospective target businesses, traveling to and from the offices, plants or similar locations of prospective target businesses, reviewing corporate documents and material agreements of prospective target businesses, selecting the target business to acquire and structuring, negotiating and consummating the Business Combination.
The Company does not believe it will need to raise additional funds in order to meet the expenditures required for operating its business. However, if the Company’s estimates of the costs of undertaking in-depth due diligence and negotiating a Business Combination is less than the actual amount necessary to do so, the Company may have insufficient funds available to operate its business prior to the Business Combination. Moreover, the Company will need to raise additional capital through loans from its sponsor, officers, directors, or third parties. None of the sponsor, officers or directors are under any obligation to advance funds to, or to invest in, the Company. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of its business plan, and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all.
We classify the Warrants issued in connection with our Initial Public Offering and Private Placement as liabilities at their fair value and adjust the warrant instruments to fair value at each reporting period. These liabilities are subject to remeasurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations.
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Contractual Obligations
We do not have any long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations or long-term liabilities other than described below.
We have an agreement to pay the Sponsor a total of up to $10,000 per month for office space, utilities and secretarial and administrative support services. We began incurring these fees on February 25, 2021 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation.
We have an agreement to pay the underwriters of our Initial Public Offering a deferred fee of $12,075,000 in the aggregate, which will become payable to them from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
Critical Accounting Policies
This management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed 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. There have been no significant changes in our critical accounting policies as discussed in the Form 8-K and the final prospectus filed by us with the SEC on March 9, 2021 and March 1, 2021, respectively, except for Amendment No. 1 on Form 8-K/A filed by the Company on May 28, 2021 to amend and restate the Company’s audited balance sheet to reflect the classification of the Company’s Warrants as a liability, in accordance with the SEC’s Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) dated April 12, 2021 (the “SEC Statement”).
Class A Ordinary Shares Subject to Possible Redemption
The Company accounts for its Class A ordinary shares subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Class A ordinary shares subject to mandatory redemption (if any) are classified as a liability instrument and are measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, Class A ordinary shares are classified as shareholders’ equity. The Company’s Class A ordinary shares 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, as of September 30, 2021, 34,500,000 shares of Class A ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’ equity section of the Company’s condensed balance sheet.
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Derivative Warrant Liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. We evaluate all of our financial instruments, including issued share 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 reassessed at the end of each reporting period.
We issued an aggregate of 14,891,667 Warrants in connection with our Initial Public Offering and Private Placement, which are recognized as derivative liabilities in accordance with ASC 815-40. Accordingly, we recognize the Warrants as liabilities at fair value and adjust the instruments to fair value at each reporting period. The liabilities are subject to remeasurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s statement of operations. The fair value of the Private Placement Warrants has been estimated using Monte Carlo simulations at each measurement date. The fair value of the Public Warrants was initially estimated using Monte Carlo simulations. After the Public Warrants were separately traded, the measurement of the Public Warrants will use an observable market quote in an active market.
Net Income (Loss) per Ordinary Share
The Company complies with accounting and disclosure requirements ASC Topic 260, “Earnings Per Share.” The Company’s statements of operations include a presentation of income (loss) per share for Class A ordinary shares subject to possible redemption in a manner similar to the two-class method of income (loss) per share. Net income per ordinary share, basic and diluted, for redeemable Class A ordinary share is calculated by dividing the interest income earned on the Trust Account, by the weighted average number of redeemable Class A ordinary shares outstanding since original issuance. Net income (loss) per ordinary share, basic and diluted, for non-redeemable ordinary shares is calculated by dividing the net income (loss), adjusted for income attributable to redeemable Class A ordinary shares, by the weighted average number of non-redeemable ordinary shares outstanding for the periods. Non-redeemable ordinary shares include the Founder Shares as these ordinary shares do not have any redemption features and do not participate in the income earned on the Trust Account.
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 unaudited condensed financial statements.
Off-Balance Sheet Arrangements
As of September 30, 2021, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” and under the JOBS Act are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing 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, the unaudited condensed financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company,” we choose to rely on such exemptions we may not be 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 CEO’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our Initial Public Offering or until we are no longer an “emerging growth company,” whichever is earlier.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our 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
We determined that we had initially recorded our Warrants as equity instruments instead of as liabilities in our balance sheet as of March 2, 2021, which we filed on Form 8-K on March 9, 2021. Our internal control over financial reporting did not result in the proper accounting classification of certain of the warrants we issued in March 2021. This mistake in classification was brought to our attention only when the SEC issued 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.
On May 28, 2021, the Company filed with the SEC Amendment No. 1 on Form 8-K/A to amend and restate the Company’s audited balance sheet to reflect the classification of the Company’s warrants as a liability, in accordance with the SEC Statement.
In addition, as part of a subsequent review of our accounting for more complex equity situations, we also changed our accounting methodology for our Class A ordinary shares subject to possible redemption to be in accordance with guidance in FASB ASC Topic 480 “Distinguishing Liabilities from Equity.” Redeemable equity instruments (including equity instruments that feature redemption rights that are either with 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. Accordingly, we have determined that all of our outstanding Class A ordinary shares should be presented as temporary equity.
Due to the impact of these errors in the classification of our warrants and Class A ordinary shares, we determined that a material weakness exists in our internal control over financial reporting.
As required by Rules 13a-15f and 15d-15 under the Exchange Act, our principal executive officer and principal financial officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2021. Based upon their evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were not effective as of September 30, 2021.
Changes in Internal Control over Financial Reporting
Other than as described herein, there was no change in our internal control over financial reporting that occurred during the period from June 30, 2021 through September 30, 2021, covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management has identified a material weakness in our internal control over financial reporting related to the accounting of complex financial instruments due to the errors related to the classification of our warrants and Class A ordinary shares, as described above. To respond to this material weakness, we have devoted, and plan to continue to devote, significant effort and resources to the remediation and improvement of our internal control over financial reporting. While we have processes to identify and appropriately apply applicable accounting requirements, we plan to enhance our system of evaluating and implementing the accounting standards that apply to our financial statements, including through enhanced analyses by our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors.
There have been no material changes from the risk factors previously disclosed in the Company’s final prospectus for the Initial Public Offering as filed with the SEC on March 1, 2021 and in the Company’s Form 10-Q as filed with the SEC on May 24, 2021, except for the below:
We have identified a material weakness in our internal control over financial reporting. This material weakness could continue to adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our management is likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses identified through such evaluation in those internal controls. 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 our annual or interim financial statements will not be prevented or detected on a timely basis.
As described elsewhere in this Quarterly Report, we identified a material weakness in our internal control over financial reporting related to the accounting for complex financial instruments as a result of the change in classification of all of our redeemable Class A ordinary shares as temporary equity and the classification of our warrants as liabilities. As a result of this material weakness, our management concluded that our internal control over financial reporting was not effective as of September 30, 2021. This material weakness resulted in a material misstatement of our warrant liabilities, change in fair value of warrant liabilities, additional paid-in capital, accumulated deficit and related financial disclosures.
To respond to this material weakness, we have devoted, and plan to continue to devote, significant effort and resources to the remediation and improvement of our internal control over financial reporting. While we have processes to identify and appropriately apply applicable accounting requirements, we plan to enhance these processes to better evaluate our research and understanding of the nuances of the complex accounting standards that apply to our financial statements. Our plans at this time include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
Any failure to maintain such internal control could adversely impact our ability to report our financial position and results from operations on a timely and accurate basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations. Likewise, if our financial statements are not filed on a timely basis, we could be subject to sanctions or investigations by the stock exchange on which our ordinary shares are listed, the SEC or other regulatory authorities. In either case, there could result a material adverse effect on our business. Failure to timely file will cause us to be ineligible to utilize short form registration statements on Form S-3 or Form S-4, which may impair our ability to obtain capital in a timely fashion to execute our business strategies or issue shares to effect an acquisition. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our securities.
We can give no assurance that the measures we have taken and plan to take in the future will remediate the material weakness identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls. In addition, even if we are successful in strengthening our controls and procedures, in the future those controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our financial statements.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities
Use of Proceeds
On March 2, 2021, we consummated the Initial Public Offering of 34,500,000 units (the “Units” and, with respect to the Class A ordinary shares included in the Units being offered, the “Public Shares”), at $10.00 per Unit, generating gross proceeds of approximately $345.0 million.
In connection with the Initial Public Offering, we incurred offering costs of approximately $19.18 million, inclusive of approximately $12.08 million in deferred underwriting commissions. Other incurred offering costs consisted principally of preparation fees related to the Initial Public Offering. After deducting the underwriting discounts and commissions (excluding the deferred portion, which amount will be payable upon consummation of the Initial Business Combination, if consummated) and the Initial Public Offering expenses, $345.0 million of the net proceeds from our Initial Public Offering and certain of the proceeds from the private placement of the Private Placement Warrants (or $10.00 per Unit sold in the Initial Public Offering) was placed in the Trust Account. The net proceeds of the Initial Public Offering and certain proceeds from the sale of the Private Placement Warrants are held in the Trust Account and invested as described elsewhere in this Quarterly Report on Form 10-Q.
There has been no material change in the planned use of the proceeds from the Initial Public Offering and Private Placement as is described in the Company’s final prospectus related to the Initial Public Offering.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on this 15th day of November, 2021.
| FREEDOM ACQUISITION I CORP. | ||
| By: | /s/ Adam Gishen | |
| Name: | Adam Gishen | |
| Title: | Chief Executive Officer | |
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