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
Commission File Number:
(Exact name of registrant as specified in its charter)
(State
or other jurisdiction of | (I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code)
(Registrant’s telephone number, including area code)
Not Applicable
(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 | MACC.U | The New York Stock Exchange | ||
| The | ||||
| Warrants, each exercisable for one share of Class A Common Stock for $11.50 per share | MACC.W | 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 | |
| ☒ | ||
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 10, 2022, there were
MISSION ADVANCEMENT CORP.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
i
GLOSSARY OF TERMS
Unless otherwise stated in this Report (as defined below), or the context otherwise requires, references to:
| ● | “ASC” are to the FASB (as defined below) Accounting Standards Codification; |
| ● | “ASU” are to the FASB Accounting Standards Update; |
| ● | “board of directors,” “board” or “directors” are to the board of directors of the Company (as defined below); |
| ● | “business combination” are to a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses; |
| ● | “charter” are to the Company’s amended and restated certificate of incorporation dated March 2, 2021; |
| ● | “Class A common stock” are to the shares of Class A common stock of the Company, par value $0.0001 per share; |
| ● | “Class B common stock” are to the shares of Class B common stock of the Company, par value $0.0001 per share; |
| ● | “Combination Period” are to the 24-month period, from the closing of the IPO (as defined below) to March 5, 2023, that the Company has to consummate a business combination; |
| ● | “common stock” are to the Class A common stock and the Class B common stock; |
| ● | “Company,” “our Company,” “we” or “us” are to Mission Advancement Corp., a Delaware corporation; |
| ● | “DGCL” are to the Delaware General Corporation Law; |
| ● | “Exchange Act” are to the Securities Exchange Act of 1934, as amended; |
| ● | “FASB” are to the Financial Accounting Standards Board; |
| ● | “founder shares” are to the shares of Class B common stock initially purchased by our sponsor (as defined below) in the private placement (as defined below) and the shares of Class A common stock that will be issued upon the automatic conversion of the shares of Class B common stock at the time of our business combination as described herein (for the avoidance of doubt, such Class A common stock will not be “public shares” (as defined below); |
| ● | “IR Act” are to the Inflation Reduction Act of 2022; |
| ● | “initial public offering” or “IPO” are to the initial public offering that was consummated by the Company on March 5, 2021; |
| ● | “initial stockholders” are to holders of our founder shares prior to our initial public offering; |
| ● | “Investment Company Act” are to the Investment Company Act of 1940, as amended; |
| ● | “JOBS Act” are to the Jumpstart Our Business Startups Act of 2012; |
1
| ● | “Note” are to the promissory note in the principal amount of up to $1,500,000 issued by the Company to the sponsor on December 1, 2021; |
| ● | “private placement” are to the private placement of warrants that occurred simultaneously with the closing of our initial public offering; |
| ● | “private placement warrants” are to the warrants issued to our sponsor in the private placement; |
| ● | “public shares” are to the shares of Class A common stock sold as part of the units in our initial public offering (whether they were purchased in our initial public offering or thereafter in the open market); |
| ● | “public stockholders” are to the holders of our public shares, including our initial stockholders and management team to the extent our initial stockholders and/or members of our management team purchase public shares, provided that each initial stockholder’s and member of our management team’s status as a “public stockholder” will only exist with respect to such public shares; |
| ● | “public warrants” are to the redeemable warrants sold as part of the units in our initial public offering (whether they were subscribed for in our initial public offering or purchased in the open market); |
| ● | “Redemption Event” are to a business combination or other stockholder vote pursuant to which stockholders would have a right to submit their shares of common stock for redemption; |
| ● | “Registration Statement” are to the Registration Statement on Form S-1 initially filed with the SEC (as defined below) on February 9, 2021, as amended, and declared effective on March 2, 2021 (File No. 333-252918); |
| ● | “Report” are to this Quarterly Report on Form 10-Q for the quarter ended September 30, 2022; |
| ● | “Sarbanes-Oxley Act” are to the Sarbanes-Oxley Act of 2002; |
| ● | “SEC” are to the U.S. Securities and Exchange Commission; |
| ● | “Securities Act” are to the Securities Act of 1933, as amended; |
| ● | “Special Meeting” are to the upcoming special meeting of the Company’s stockholders to be held on December 6, 2022 at 12:00 p.m. Eastern Time; |
| ● | “sponsor” are to Mission Advancement Sponsor LLC, a Delaware limited liability company; |
| ● | “Treasury Department” are to the U.S. Department of the Treasury; |
| ● | “trust account” are to the U.S.-based trust account in which an amount of $345,000,000 from the net proceeds of the sale of the units in the initial public offering and the private placement warrants was placed following the closing of the initial public offering; |
| ● | “units” are to the units sold in our initial public offering, which consist of one public share and one-third of one public warrant; |
| ● | “US GAAP” are to the accounting principles generally accepted in the United States of America; and |
| ● | “Working Capital Loans” are to funds that, in order to finance transaction costs in connection with a business combination, the initial stockholders or an affiliate of the initial stockholders or certain of the Company’s directors and officers may, but are not obligated to, loan the Company. |
2
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
MISSION ADVANCEMENT CORP.
CONDENSED BALANCE SHEETS AS OF SEPTEMBER 30, 2022 (UNAUDITED) AND DECEMBER 31, 2021 (AUDITED)
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | (Audited) | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Prepaid expenses – non-current portion | ||||||||
| Investments held in trust account | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities, Common Stock Subject to Possible Redemption and Stockholders’ Deficit | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Income taxes payable | — | |||||||
| Sponsor loans | ||||||||
| Total Current Liabilities | ||||||||
| Warrant liabilities | ||||||||
| Deferred underwriters’ discount | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 6) | ||||||||
| Class A Common stock subject to possible redemption, | ||||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock, $ | ||||||||
| Class A common stock, $ | ||||||||
| Class B common stock, $ | ||||||||
| Additional paid-in capital | — | |||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities, Common Stock Subject to Possible Redemption and Stockholders’ Deficit | $ | $ | ||||||
See accompanying notes to condensed financial statements.
3
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
MISSION ADVANCEMENT CORP.
For
the Three Months Ended | For
the Nine Months Ended | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Formation and operating costs | $ | $ | $ | $ | ||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income: | ||||||||||||||||
| Interest income on trust account | ||||||||||||||||
| Change in fair value of warrant liabilities | ||||||||||||||||
| Offering expenses related to warrant issuance | ( | ) | ||||||||||||||
| Total other income, net | ||||||||||||||||
| Income before benefit from income taxes | ||||||||||||||||
| Income tax expense | ( | ) | ( | ) | ||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Weighted average shares outstanding, Class A common stock subject to possible redemption | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Weighted average shares outstanding, Class B common stock | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
See accompanying notes to unaudited condensed financial statements.
4
UNAUDITED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
MISSION ADVANCEMENT CORP.
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
| Common Stock | Additional | Total | ||||||||||||||||||||||||||
| Class A | Class B | Paid-In | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Change in Class A common stock subject to possible redemption | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Change in Class A common stock subject to possible redemption | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Change in Class A common stock subject to possible redemption | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
| Common Stock | Additional | Total Stockholder’ | ||||||||||||||||||||||||||
| Class A | Class B | Paid-In | Accumulated | 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 and fair value of public warrants | — | |||||||||||||||||||||||||||
| Excess of cash received over fair value of private placement warrants | — | — | ||||||||||||||||||||||||||
| Deferred underwriting discount | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Other offering cost charged to Stockholders’ deficit | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Class A common stock subject to possible redemption | ( | ) | ( | ) | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Change in Class A common stock subject to possible redemption | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Change in Class A common stock subject to possible redemption | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
See accompanying notes to unaudited condensed financial statements.
5
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
MISSION ADVANCEMENT CORP.
| For the Nine Months Ended September 30, 2022 | 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 | ( | ) | ||||||
| Income tax expense | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Investment of cash in trust account | ( | ) | ||||||
| Cash withdrawn from trust account to pay franchise taxes | ||||||||
| Net cash provided by (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 | ( | ) | ||||||
| Borrowings from sponsor | ||||||||
| Payments of offering costs | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net Change in Cash | ( | ) | ||||||
| Cash - Beginning | ||||||||
| Cash - Ending | $ | $ | ||||||
| Supplemental Disclosure of Non-cash Financing Activities: | ||||||||
| Initial value of Class A common stock subject to possible redemption | $ | $ | ||||||
| Initial value of warrant liabilities | $ | $ | ||||||
| Change in value of Class A common stock subject to possible redemption | $ | $ | ||||||
| Deferred underwriters’ discount payable charged to additional paid-in capital | $ | $ | ||||||
See accompanying notes to unaudited condensed financial statements
6
MISSION ADVANCEMENT CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1 — Organization and Business Operations
Organization and General
Mission Advancement Corp. was incorporated in Delaware on December 22, 2020. The Company was formed for the purpose of entering into 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 emerging growth company and, as such, the Company is subject to all of the risks associated with emerging growth companies.
As of September 30, 2022, the Company had not yet engaged in any operations or generated any revenues to date. All activity through September 30, 2022, relates to the Company’s formation and the initial public offering (described below) and identifying a target company for our initial business combination. The Company will not generate any operating revenues until after the completion of its initial business combination, at the earliest. The Company generates 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 March 2, 2021. On March 5, 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 5, 2021, an amount of $
7
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 stockholders 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 stockholder 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 stockholder approval of a proposed initial business combination or conduct
a tender offer will be made by the Company, solely in its discretion. The stockholders 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 common stock
subject to redemption is recorded at a redemption value and classified as temporary equity upon the completion of the IPO, in accordance
with ASC Topic 480, “Distinguishing Liabilities from Equity” (“ASC 480”). In such case, the Company will proceed
with a business combination if the Company has net tangible assets of at least $
The Company has until March
5, 2023, 24 months from the closing of the IPO, to consummate a business combination. However, if the Company is unable to complete a
business combination within the Combination Period, the Company will redeem
The Company’s sponsor, Mission Advancement Sponsor LLC, officers and directors have agreed to (i) waive their redemption rights with respect to their (x) founder shares, (y) shares underlying their private placement warrants (“private placement shares”) and (z) 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 stockholder vote to approve an amendment to the Company’s charter, 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) $
8
Liquidity and Capital Resources
As of September 30, 2022,
the Company had cash outside the trust account of $
Through September 30, 2022,
the Company’s liquidity needs were satisfied through receipt of $
Going Concern
The Company anticipates that
the $
The Company can raise additional capital through Working Capital Loans from the initial stockholders, the Company’s officers, directors, or their respective affiliates (which is described in Note 5), or through loans from 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. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time, which is considered to be one year from the issuance date of the financial statements.
The Company has until March 5, 2023, 24 months from the closing of the IPO, to consummate a business combination. It is uncertain that we will be able consummate a business combination within the Combination Period. If a business combination is not consummated within the Combination Period, there will be a mandatory liquidation and subsequent dissolution. In connection with the Company’s assessment of going concern considerations in accordance with the authoritative guidance ASU Topic 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern”, management has determined that mandatory liquidation, and subsequent dissolution, should the Company be unable to complete a business combination, raises substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets and liabilities should the Company be required to liquidate after March 5, 2023.
Risks and Uncertainties
Management is currently evaluating the impact of the COVID-19 pandemic and the Russia-Ukraine war and has concluded that while it is reasonably possible that the virus and war could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of these unaudited condensed financial statements. The accompanying unaudited condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
9
Note 2 — Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with US GAAP for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in unaudited condensed financial statements prepared in accordance with US 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 Form 10-K for the year ended December 31, 2021 as filed with the SEC on April 1, 2022, which contains the audited financial statements and notes thereto. The interim results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 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, as modified by 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.
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 unaudited condensed financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of unaudited condensed financial statements in conformity with 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 unaudited condensed financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Inflation Reduction Act of 2022
On August 16, 2022, the IR
Act was signed into federal law. The IR Act provides for, among other things, a new U.S. federal
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Redemption Event may be subject to the excise tax. Whether and to what extent we would be subject to the excise tax in connection with a Redemption Event would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Redemption Event, (ii) the structure of the business combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with the business combination (or otherwise issued not in connection with the Redemption Event but issued within the same taxable year of the business combination) and (iv) the content of regulations and other guidance from the Treasury Department. In addition, because the excise tax would be payable by us, and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a business combination and in our ability to complete a business combination.
Marketable Securities Held in Trust Account
At September 30, 2022 and
December 31, 2021, the trust account had $
10
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 480. Class A common stock subject to mandatory
redemption (if any) are classified as a liability instrument and are measured at fair value. Conditionally redeemable common stock (including
common stock 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, common stock
is classified as stockholders’ deficit. The Company’s 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, as of September 30, 2022
and December 31, 2021,
Net Income per Common Stock
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 per share for Class A common stock subject to possible redemption in a manner similar to the two-class method of income per share. The contractual formula utilized to calculate the redemption amount approximates fair value. The Class A common stock feature to redeem at fair value means that there is effectively only one class of stock. Changes in fair value are not considered a dividend of the purposes of the numerator in the earnings per share calculation. Net income per share is computed by dividing the pro rata net income between the Class A shares and the Class B shares by the weighted average number of shares outstanding for each of the periods. The calculation of diluted income per share does not consider the effect of the warrants and rights issued in connection with the IPO since the exercise of the warrants and rights are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive.
The Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into common stock and then share in the earnings of the Company. As a result, diluted income per share is the same as basic income per share for the period presented.
Below is a reconciliation of the net income per common stock:
| For the Three Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Redeemable Class A common stock | ||||||||
| Numerator: | ||||||||
| Net income allocable to Class A common stock subject to possible redemption | $ | $ | ||||||
| Denominator: | ||||||||
| $ | $ | |||||||
| Non-redeemable common stock | ||||||||
| Numerator: | ||||||||
| Net income allocable to non-redeemable Class B common stock | $ | $ | ||||||
| Denominator: | ||||||||
| Weighted average non-redeemable Class B common stock | ||||||||
| $ | $ | |||||||
11
| For the Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Redeemable Class A common stock | ||||||||
| Numerator: | ||||||||
| Net income allocable to Class A common stock subject to possible redemption | $ | $ | ||||||
| Denominator: | ||||||||
| $ | $ | |||||||
| Non-redeemable common stock | ||||||||
| Numerator: | ||||||||
| Net income allocable to non-redeemable Class B common stock | $ | $ | ||||||
| Denominator: | ||||||||
| Weighted average non-redeemable Class B common stock | ||||||||
| $ | $ | |||||||
Offering Costs
The Company complies with
the requirements of the ASC Topic 340-10-S99-1 and SEC Staff Accounting Bulletin Topic 5A, “Expenses of Offering”. Offering
costs consist principally of professional and registration fees incurred through the balance sheet date that are related to the initial
public offering and that were charged to stockholders’ deficit upon the completion of the IPO. Accordingly, on March 5, 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 ASC Topic 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the balance sheet.
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”. US 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”. |
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 Topic 815-15, “Derivatives and Hedging”. 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.
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The Company accounts for
its
Income Taxes
The Company accounts for income taxes under ASC Topic 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 unaudited condensed financial statements 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. As of September 30, 2022 and December 31, 2021, the Company’s deferred tax asset had a full valuation allowance recorded against it.
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 annual period, disclosure and transition.
ASC
740-270-25-2 requires that an annual effective tax rate be determined and such annual effective rate applied to year to date income in
interim periods under ASC 740-270-30-5. Our effective tax rate was
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 September 30, 2022, and December 31, 2021. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
The Company 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.
Recent Accounting Standards
The Company’s management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
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Note 3 — Initial Public Offering
Pursuant to the IPO, the
Company sold
Note 4 — Private Placement Warrants
Simultaneously with the closing
of the IPO, the sponsor purchased an aggregate of
The private placement warrants will not be redeemable by the Company so long as they are held by the initial purchasers or their permitted transferees. The initial purchasers, or their permitted transferees, have the option to exercise the private placement warrants on a cashless basis. If the private placement warrants are held by holders other than initial purchasers or their permitted transferees, the private placement warrants will be redeemable by the Company and exercisable by the holders on the same basis as the warrants included in the units sold in the initial public offering. Otherwise, the private placement warrants have terms and provisions that are identical to those of the warrants being sold as part of the units in the initial public offering.
Note 5 — Related Party Transactions
Founder Shares
On December 22, 2020, the
sponsor paid $
The Company’s initial
stockholders have agreed not to transfer, assign or sell any of their founder shares until the earlier to occur of (A) one year after
the completion of the Company’s initial business combination and (B) the date on which the Company completes a liquidation,
merger, capital stock exchange or other similar transaction after the Company’s initial business combination that results in all
of the Company’s stockholders having the right to exchange their Class A common stock for cash, securities or other property;
except to certain permitted transferees and under certain circumstances. Any permitted transferees will be subject to the same restrictions
and other agreements of the Company’s initial stockholders with respect to any founder shares. The Company refers to such transfer
restrictions as the “lock-up”.
On September 14, 2022, the
terms of the share assignment of the Founders Shares to directors were modified further to include additional restrictions. This modification
resulted in the incremental value of $
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Promissory Note — Related Party
On
December 22, 2020, the sponsor agreed to loan the Company up to $
Working Capital Loans
In addition, in order to
finance transaction costs in connection with a business combination, the initial stockholders or an affiliate of the initial stockholders
or certain of the Company’s directors and officers may, but are not obligated to, loan the Company 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 proceeds 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. Except for the foregoing, the terms
of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working
Capital Loans would either be repaid upon consummation of a business combination, without interest, or, at the lender’s discretion,
up to $
On December 1, 2021, the
Company issued the Note, a promissory note in the principal amount of up to $
The conversion feature included in the Note is considered an embedded derivate and is remeasured at the end of each reporting period. The value is de minimis.
Administrative Support Agreement
Commencing
on the date of the IPO, the Company has agreed to pay the sponsor a total of $
Note 6 — Commitments & Contingencies
Registration Rights
The holders of the founder shares, private placement warrants and warrants that may be issued upon conversion of Working Capital Loans (and any Class A common stock issuable upon the exercise of the private placement warrants and warrants issued upon conversion of the Working Capital Loans) will be entitled to registration rights pursuant to a registration rights agreement that was signed prior to or on the effective date of the IPO. The holders of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to consummation of a business combination. However, the registration rights agreement provides that the Company will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable lockup period. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
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Underwriters Agreement
On March 5, 2021,
Note 7 — Stockholders’ Equity (Deficit)
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
Holders of Class A common stock and holders of Class B common stock will vote together as a single class on all matters submitted to a vote of the Company’s stockholders except as required by law. Unless specified in the Company’s charter, or as required by applicable provisions of the DGCL or applicable stock exchange rules, the affirmative vote of a majority of the Company’s shares of common stock that are voted is required to approve any such matter voted on by its stockholders.
The Class B common stock
will automatically convert into Class A common stock upon the consummation of the 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.
In the case that additional shares of Class A common stock or equity-linked securities are issued or deemed issued in connection
with the initial business combination, the number of Class A common stock issuable upon conversion of all founder shares will equal,
in the aggregate, on an as-converted basis,
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Note 8 — Warrants
Each whole warrant entitles
the holder to purchase one share of Class A common stock at a price of $
The Company has agreed that as soon as practicable, but in no event later than fifteen (15) business days after the closing of the initial business combination, it will use its best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the Class A common stocks issuable upon exercise of the warrants. The Company will use its best efforts to cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration or redemption of the warrants in accordance with the provisions of the warrant agreement. If a registration statement covering the shares of Class A common stock issuable upon exercise of the warrants is not effective by the sixtieth (60th) business 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 common stock 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 best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Once the warrants become exercisable, the Company may call the warrants for redemption for cash:
| ● | in whole and not in part; | |
| ● | at a price of $0.01 per warrant; | |
| ● | upon not less than 30 days’ prior written notice of redemption to each warrant holder; and | |
| ● | if, and only if, the closing price of the common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period commencing once the warrants become exercisable and ending three business days before the Company sends to the notice of redemption to the warrant holders. |
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 its initial business combination at an issue price or effective issue price of less than $9.20 per share of Class A common stock (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance to the initial stockholders or their affiliates, without taking into account any founder shares held by the initial stockholders 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 the initial business combination on the date of the consummation of the initial business combination (net of redemptions), and (z) the volume weighted average trading price of the Company’s Class A common stock during the 20 trading day period starting on the trading day after the day on which it consummates its initial 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.
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Note 9 — 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. US 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, 2022 and December 31, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| September 30, 2022 | Quoted Prices In Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||||||
| Description | ||||||||||||||||
| Assets: | ||||||||||||||||
| Mutual Funds held in trust account | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant liabilities | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| December 31, 2021 | Quoted Prices In Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||||||
| Description | ||||||||||||||||
| Assets: | ||||||||||||||||
| Mutual Funds held in trust account | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant liabilities | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
At September 30, 2022 and December 31, 2021, the Company use the quoted stock price in the active market to value the public warrants and a Monte Carlo simulation model to value the private placement warrants with changes in fair value charged to the statements of operations. The estimated fair value of the private placement 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 shares of common stock 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.
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Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period. There were no transfers between levels for the three and nine months ended September 30, 2022. During the year ended December 31, 2021, there was a transfer of the public warrants from Level 3 to Level 1 due to a valuation of the public warrants using the quoted stock price in the active market.
The following table provides quantitative information regarding assumptions used to determine Level 3 fair value measurements:
At September 30, 2022 | At December 31, | |||||||
| Stock price | $ | $ | ||||||
| Strike price | $ | $ | ||||||
| Term (in years) | ||||||||
| Volatility | % | % | ||||||
| Risk-free rate | % | % | ||||||
| Dividend yield | % | % | ||||||
The following table provides a reconciliation of changes in fair value of the beginning and ending balances for our assets and liabilities classified as level 3 (private placement warrants):
| Warrant | ||||
| Liability | ||||
| Fair value at January 1, 2022 | $ | |||
| Change in fair value | ( | ) | ||
| Fair value at March 31, 2022 | ||||
| Change in fair value | ( | ) | ||
| Fair value at June 30, 2022 | $ | |||
| Change in fair value | ( | ) | ||
| Fair value at September 30, 2022 | $ | |||
| Warrant Liability | ||||
| Fair value at January 1, 2021 | $ | |||
| Initial value at IPO date | ||||
| Change in fair value | ||||
| Fair value at March 31, 2021 | ||||
| Transfer of public warrants from level 3 to level 1 | ( | ) | ||
| Change in fair value | ( | ) | ||
| Fair Value at June 30, 2021 | ||||
| Change in fair value | ( | ) | ||
| Fair Value at September 30, 2021 | $ | |||
Note 10 — Subsequent Events
On November 10, 2022, the Company filed a definitive proxy statement for the Special Meeting to, among other things, approve proposals to amend the Company’s charter and trust agreement to change the date by which the Company would be required to consummate a business combination from March 5, 2023 to a date to be determined by the board, in its sole discretion, no later than December 30, 2022.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Report including, without limitation, statements under this “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this Report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those contemplated by the forward- looking statements as a result of certain factors detailed in our filings with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto included in this Report under “Item 1 Financial Statements”. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Overview
We are a Delaware corporation structured as a blank check company formed for the purpose of effecting a business combination. We intend to effectuate our initial business combination using cash from the proceeds of the IPO and the sale of the private placement warrants, our capital stock, debt or a combination of cash, stock and debt. We are an emerging growth company and, as such, we are subject to all of the risks associated with emerging growth companies.
We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to raise capital or to complete our initial business combination will be successful.
Recent Developments
On November 10, 2022, the Company filed a definitive proxy statement for the Special Meeting to, among other things, approve proposals to amend the Company’s charter and trust agreement to change the date by which the Company would be required to consummate a business combination from March 5, 2023 to a date to be determined by the board, in its sole discretion, no later than December 30, 2022.
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 IPO 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, 2022, we had net income of $1,886,769, due primarily to a decrease in the fair value of our warrants of $926,390, income tax expense of $309,851, and interest income from the trust account of $1,525,480, partially offset by $255,250 of formation and operating costs, consisting primarily of general and administrative expenses.
For the nine months ended September 30, 2022, we had net income of $9,303,006, due primarily to a decrease in the fair value of our warrants of $8,562,175, income tax expense of $351,422, and interest income from the trust account of $1,999,536, partially offset by $907,283 of formation and operating costs, consisting primarily of general and administrative expenses.
For the three months ended September 30, 2021, we had a net income of $4,038,765. We incurred $573,577 of formation and operating costs consisting mostly of general and administrative expenses. We had investment income of $5,210 on our amounts held in Trust and in the fair value of our warrants of $4,607,132.
For the nine months ended September 30, 2021, we had a net income of $11,006,215. We incurred $1,085,707 of formation and operating costs consisting mostly of general and administrative expenses and offering expense related to warrant issuance of $864,511. We had investment income of $11,666 on our amounts held in Trust and change in the fair value of our warrants of $12,944,767.
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We reclassified a portion of the offering costs associated with the IPO originally charged to temporary equity, to an expense in the statements of operations in the amount of $864,511 based on a relative fair value basis. The change in the fair value of the warrants was a decrease in the liability of $926,390 and an increase in the liability of $4,607,132, respectively, for the three months ended September 30, 2022 and 2021. The change in the fair value of the warrants was a decrease in the liability of $8,562,175 and an increase in the liability of $12,944,767, respectively, for the nine months ended September 30, 2022 and 2021.
Liquidity and Capital Resources
As of September 30, 2022, we had cash held outside the trust account of $132,012 available for working capital needs, respectively. All remaining cash held in the trust account is generally unavailable for our use, prior to an initial business combination, and is restricted for use either in a business combination or to redeem common stock. As of September 30, 2022, none of the amount in the trust account was available to be withdrawn as described above.
Through September 30, 2022, our liquidity needs were satisfied through receipt of $25,000 from the sale of the founder shares, and the remaining net proceeds from the IPO and the sale of private placement warrants.
On December 1, 2021, we issued the Note to our sponsor in the principal amount of up to $1,500,000. The Note was issued in connection with advances the sponsor has made, and may make in the future, to us for working capital expenses. As of September 30, 2022 and December 31, 2021, the outstanding balance of the Note was $950,000 and $550,000, respectively.
As of September 30, 2022 and December 31, 2021, we did not have any off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as “variable interest entities”, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Going Concern
We anticipate that the $132,012 held outside of the trust account as of September 30, 2022, might not be sufficient to allow us to operate until March 5, 2023, the end of the Combination Period and the period we have to consummate an initial business combination, assuming that a business combination is not consummated during that time. Until consummation of our business combination, we will use the funds not held in the trust account, and any additional Working Capital Loans from the initial stockholders, our officers and directors, or their respective affiliates (which is described in Note 5 to our unaudited condensed 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.
We can raise additional capital through Working Capital Loans from the initial stockholders, our officers, directors, or their respective affiliates (which is described in Note 5 to our unaudited condensed financial statements) or through loans from third parties. None of the sponsor, officers or directors are under any obligation to advance funds to, or to invest in us. If we are 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. We cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about our ability to continue as a going concern for a reasonable period of time, which is considered to be one year from the issuance date of the financial statements.
Our Combination Period is until March 5, 2023, meaning we have 24 months from the closing of the IPO, to consummate a business combination. However, if we are unable to complete a business combination within the Combination Period, we will redeem 100% of the outstanding public shares for a pro rata portion of the funds held in the trust account, 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, divided by the number of then outstanding public shares, subject to applicable law and as further described in the registration statement, and then seek to dissolve and liquidate. There is a possibility that a business combination might not happen within the Combination Period.
21
Contractual Obligations
As of September 30, 2022 and December 31, 2021, we did not have any long-term debt, capital or operating lease obligations.
We entered into an administrative support agreement pursuant to which we pay our sponsor for office space and secretarial and administrative services provided to members of our management team, in an amount not to exceed $10,000 per month. Since March 5, 2021, we have paid the sponsor a total of $10,000 per month for office space and administrative support services. Upon completion of the initial business combination or our liquidation, we will cease paying these monthly fees. We incurred $30,000 in such fees for the three months ended September 30, 2022 and 2021. We incurred $90,000 and $69,677 in such fees for the nine months ended September 30, 2022 and 2021, respectively.
Critical Accounting Estimates
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 stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to the ASC Topic 480, “Distinguishing Liabilities from Equity” and ASC Topic 815-15, “Derivatives and Hedging”. 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.
Derivative Warrant Liabilities
We issued an aggregate of 17,433,333 warrants in connection with our IPO and private placement, which, are recognized as derivative liabilities in accordance with ASC Topic 815-40, “Derivatives and Hedging”. 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 our statements of operations. At the IPO, we utilized a Monte Carlo simulation model to determine the initial value of the public warrants and private warrants. At September 30, 2022 and December 31, 2021, we used the quoted stock price in the active market to value the public warrants and a Monte Carlo simulation model to value the private warrants with changes in fair value charged to the statements of operations.
Conversion Feature of Promissory Note
On December 1, 2021, we issued the Note to our sponsor. The Note was issued in connection with advances the sponsor has made, and may make in the future, to us for working capital expenses. The lender may elect to convert up to $1,500,000 of the unpaid principal balance of the Note into warrants, each warrant exercisable for one share of our Class A common stock upon the consummation of an initial business combination. This embedded conversion feature is subject to remeasurement at each balance sheet date until exercised, and any change in fair value is recognized in our statements of operations. It is valued using the Geske compound valuation model and at both issuance date and September 30, 2022, its value was de minimis.
Recent Accounting Standards
Our management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
22
Factors That May Adversely Affect Our Results of Operations
Our results of operations and our ability to complete an initial business combination may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond our control. Our business could be impacted by, among other things, downturns in the financial markets or in economic conditions, increases in oil prices, inflation, increases in interest rates, supply chain disruptions, declines in consumer confidence and spending, the ongoing effects of the COVID-19 pandemic, including resurgences and the emergence of new variants, and geopolitical instability, such as the military conflict in Ukraine. We cannot at this time fully predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact our business and our ability to complete an initial business combination.
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 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 management, including our Chief Executive Officer and Chief Financial Officer (together, the “Certifying Officers”), or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our Certifying Officers, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officers concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Report, due to the material weakness in our internal control over financial reporting related to accounting for complex financial instruments.
In Amendment No. 1 of our Quarterly Report on Form 10-Q/A for the period ended September 30, 2021, as filed with the SEC on January 10, 2022, we restated our previously filed (i) balance sheet as of March 5, 2021 filed as Exhibit 99.1 to our Current Report on Form 8-K filed with the SEC on March 11, 2021and (ii) unaudited financial statements for the three months ended March 31, 2021 and for the six months ended June 30, 2021 contained in our Quarterly Reports on Form 10-Q filed with the SEC on May 17, 2021 and August 12, 2021, respectively. This restatement constitutes a material weakness in our internal control over financial reporting. In light of this material weakness, we performed additional analysis as deemed necessary to ensure that our annual financial statements were prepared in accordance with US GAAP. Accordingly, management believes that the financial statements included in this Report present fairly in all material respects our financial position, results of operations and cash flows for the period presented.
In addition, during the fourth quarter of 2021, we determined that deferred legal representation fees should have been recognized as liability and recorded in our statements of operations. Amounts that should have been recognized prior to the fourth quarter of 2021 were recorded as of December 31, 2021. This represented an additional material weakness.
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In light of this material weakness, we have enhanced our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our financial statements including making greater use of 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. We believe our efforts will enhance our controls relating to accounting for complex financial transactions, but we can offer no assurance that our controls will not require additional review and modification in the future as industry accounting practice may evolve over time.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
Other than as discussed above, there have been no changes to our internal control over financial reporting during the quarter ended September 30, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
To the knowledge of our management team, there is no litigation currently pending or contemplated against us, any of our officers or directors in their capacity as such or against any of our property.
Item 1A. Risk Factors.
As of the date of this Report, other than as set forth below, there have been no material changes with respect to those risk factors previously disclosed in our (i) Registration Statement, (ii) Quarterly Reports on Forms 10-Q and 10-Q/A for the quarters ended March 31, 2021, September 30, 2021 and June 30, 2022, as filed with the SEC on May 17, 2021, January 10, 2022 and August 9, 2022, respectively, and (iii) Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on April 1, 2022. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risks could arise that may also affect our business or ability to consummate an initial business combination. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.
A new 1% U.S. federal excise tax could be imposed on us in connection with redemptions by us of our shares in connection with a business combination or other stockholder vote pursuant to which stockholders would have a right to submit their shares for redemption (a “Redemption Event”).
On August 16, 2022, the IR Act was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases (including redemptions) of stock by publicly traded domestic (i.e., U.S.) corporations and certain domestic subsidiaries of publicly traded foreign corporations. The excise tax is imposed on the repurchasing corporation itself, not its stockholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The Treasury Department has been given authority to provide regulations and other guidance to carry out, and prevent the abuse or avoidance of the excise tax. The IR Act applies only to repurchases that occur after December 31, 2022.
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Redemption Event may be subject to the excise tax. Whether and to what extent we would be subject to the excise tax in connection with a Redemption Event would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Redemption Event, (ii) the structure of the business combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with the business combination (or otherwise issued not in connection with the Redemption Event but issued within the same taxable year of the business combination) and (iv) the content of regulations and other guidance from the Treasury Department. In addition, because the excise tax would be payable by us, and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a business combination and in our ability to complete a business combination.
To mitigate the risk that we might be deemed to be an investment company for purposes of the Investment Company Act, we may, at any time, instruct the trustee to liquidate the securities held in the trust account and instead to hold the funds in the trust account in cash items until the earlier of the consummation of our initial business combination or our liquidation. As a result, following the liquidation of securities in the trust account, we would likely receive minimal interest, if any, on the funds held in the trust account, which would reduce the dollar amount our public stockholders would receive upon any redemption or liquidation of the Company.
The funds in the trust account have, since our initial public offering, been held only in U.S. government treasury obligations 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. However, to mitigate the risk of us being deemed to be an unregistered investment company (including under the subjective test of Section 3(a)(1)(A) of the Investment Company Act) and thus subject to regulation under the Investment Company Act, we may, at any time, instruct Continental Stock Transfer & Trust Company, the trustee with respect to the trust account, to liquidate the U.S. government treasury obligations or money market funds held in the trust account and thereafter to hold all funds in the trust account as cash items until the earlier of the consummation of our initial business combination or the liquidation of the Company. Following such liquidation, we would likely receive minimal interest, if any, on the funds held in the trust account. However, interest previously earned on the funds held in the trust account still may be released to us to pay our taxes, if any, and certain other expenses as permitted. As a result, any decision to liquidate the securities held in the trust account and thereafter to hold all funds in the trust account in cash items would reduce the dollar amount our public stockholders would receive upon any redemption or liquidation of the Company.
In the event that we may be deemed to be an investment company, we may be required to liquidate the Company.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None. For a description of the use of proceeds generated in our IPO and private placement, see Part II, Item 2 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 filed with the SEC on May 17, 2021. There has been no material change in the planned use of proceeds from our IPO and private placement as described in our final prospectus related to the IPO, dated March 5, 2021.
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 Report.
| * | Filed herewith. |
| ** | Furnished herewith. |
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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.
| Dated: November 10, 2022 | MISSION ADVANCEMENT CORP. | |
| By: | /s/ Peter Keane | |
| Peter Keane | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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