Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
We are a blank check company incorporated as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We have not identified any business combination target. We intend to effectuate our initial business combination using cash from the proceeds from our IPO and the Private Placement, our capital stock, debt or a combination of cash, capital stock and debt.
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On December 14, 2021, we completed our IPO of 23,000,000 units (including 3,000,000 units pursuant to the exercise in full of the underwriter’s over-allotment option) and the Private Placement of an aggregate of 11,700,000 private placement warrants. An aggregate of $234,600,000 in proceeds from our IPO and the Private Placement has been placed in the Trust Account.
For the year ended December 31, 2022, we had net income of $18,132,948, which consisted of formation and operating expenses of $1,577,543 and a provision for income tax of $362,282, offset by a gain of $16,688,950 for the change in fair value of the warrant liability and dividend income of $3,383,823 on marketable securities held in trust. In comparison, for the period from April 13, 2021 (inception) through December 31, 2021, we had net income of $2,325,692, which consisted of formation and operating expenses of $838,998, offset by a gain of $3,164,000 for the change in fair value of the warrant liability and an unrealized gain of $690 on marketable securities held in the Trust Account.
Results of Operations and Known Trends or Future Events
We did not commence operations until after the closing of our IPO in December 2021, and we have not engaged in any significant operations nor generated any operating revenues to date. We will not generate any operating revenues until after completion of our initial business combination. We will generate non-operating income in the form of interest income on cash and cash equivalents. There has been no material adverse change in our financial condition since the date of our audited financial statements. We have incurred and expect to continue to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
Liquidity, Capital Resources and Going Concern
As of December 31, 2022, we had $50,858 in operating cash and a working capital deficit of $929,527, compared to $1,950,543 in operating cash and working capital of $1,010,298 as of December 31, 2021.
Until the completion of the initial public offering, our only source of liquidity was an initial purchase of founder shares by our sponsor for $25,000 and up to $350,000 in loans from our sponsor.
On December 14, 2021, we completed the initial public offering of 23,000,000 units, at $10.00 per unit, which included the full exercise by the underwriter of its over-allotment option in the amount of 3,000,000 units, generating gross proceeds of $230,000,000.
Simultaneously with the closing of the initial public offering, we completed the private sale of an aggregate of 11,700,000 private placement warrants to our sponsor at a purchase price of $1.00 per private placement warrants, generating gross proceeds to the Company of $11,700,000.
A total of $234,600,000 of the proceeds from the initial public offering and the sale of the private placement warrants was placed in a U.S.-based Trust Account at JPMorgan Chase Bank, N.A. maintained by Continental Stock Transfer & Trust Company, acting as trustee.
Transaction costs of the initial public offering amounted to $13,935,218, consisting of $4,600,000 of underwriting discount, $8,050,000 of deferred underwriting discount, and $1,285,218 of actual offering costs. Of these amounts, $13,325,704 was recorded to additional paid-in capital and $609,514 included in accumulated deficit as an allocation for public warrants and the private placement warrants. On August 22, 2022, the underwriter delivered a letter to the Company pursuant to which the underwriter waived its entitlement to the payment of the deferred underwriting fee.
For the year ended December 31, 2022, net cash provided by operating activities was $396,482. Net income of $18,132,948 was adjusted by $759,525 of accrued dividends on marketable securities held in trust, $16,688,950 change in fair value of warrant liability, and $287,991 of changes in operating assets.
As of December 31, 2022, we had marketable securities held in the Trust Account of $237,984,513, consisting of securities held in a money market fund that invests in U.S. Treasury securities with a maturity of 185 days or less.
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As of December 31, 2022, we had cash of $50,858 held outside the Trust Account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a business combination.
We do not believe we will have sufficient funds in order to meet the expenditures required for operating our business prior to our initial business combination. We expect to incur significant costs related to identifying a target business, undertaking in-depth due diligence and negotiating an initial business combination. These conditions raise substantial doubt about our ability to continue as a going concern for a period of time within one year after the date that the financial statements are issued. In order to fund working capital deficiencies or finance transaction costs in connection with an intended initial business combination, our sponsor or an affiliate of our sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete our initial business combination, we would repay such loaned amounts. In the event that our initial business combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants of the post-business combination entity at a price of $1.00 per warrant at the option of the lender. The warrants would be identical to the private placement warrants. The terms of such loans, if any, have not been determined and no written agreements exist with respect to such loans. Prior to the completion of our initial business combination, we do not expect to seek loans from parties other than our sponsor or an affiliate of our sponsor as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our Trust Account.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of December 31, 2022 and 2021. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities as of December 31, 2022 or 2021.
Pursuant to the underwriting agreement for our IPO, the underwriter was entitled to a deferred fee of $0.35 per unit sold, or $8,050,000 in the aggregate, payable to the underwriter from the amounts held in the Trust Account solely in the event that we complete a business combination within the prescribed time period. However, on August 22, 2022, the underwriter delivered a letter to the Company pursuant to which the underwriter waived its entitlement to the payment of the deferred underwriting fee.
We have entered into a letter agreement with our sponsor pursuant to which we are required to pay our sponsor a total of $15,000 per month for office space, utilities, and secretarial and administrative services, commencing on December 10, 2021, the date that our securities were first listed on the NYSE, through the earlier of our initial business combination and our liquidation.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have not identified any critical accounting estimates as of December 31, 2022.
Recent Accounting Standards
Refer to Note 3. Summary of Significant Accounting Policies of the Notes to the Financial Statements.
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