Item 1A. Risk Factors
Item 1A. Risk Factors.
Other than the risks discussed in this Item 1A,
as of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors disclosed in our Annual
Report on Form 10-K filed with the SEC on March 30, 2022.
We have identified material weaknesses
in our internal control over financial reporting. If we are unable to develop and maintain an effective system of internal control over
financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor
confidence in us and materially and adversely affect our business and operating results, and we may face litigation as a result.
In connection with the preparation of our financial
statements as of September 30, 2021, we reevaluated the classification of the Class A common stock subject to possible redemption. This
revaluation was due to a recent notification from the SEC that SPAC’s must not report possible redemption of stock as permanent
equity. After consultation with the chairman of our audit committee, our management concluded that the previously issued audited balance
sheet dated as of August 17, 2021 related to the consummation of our IPO, which should be restated to report all Class A common stock
subject to possible redemption as temporary equity. As part of such process, we identified a material weakness in our internal control
over financial reporting related to the lack of ability to account for complex financial instruments. During the quarter ended December
31, 2021, management identified a material weakness in internal control relating to the over-allotment option. During the quarter ended
June 30, 2022, management identified a material weakness for improper recording of accrued liabilities which affected the quarter ended
March 31, 2022. 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 and corrected, on a timely basis. Effective internal controls are necessary for us to provide reliable financial reports and
prevent fraud, and material weakness could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could
result in a material misstatement of our annual or interim financial statements. In such a case, we may be unable to maintain compliance
with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements,
investors may lose confidence in our financial reporting, our securities price may decline and we may face litigation as a result. We
continue to evaluate steps to remediate the material weaknesses. These remediation measures may be time consuming and costly and there
is no assurance that these initiatives will ultimately have the intended effects. However, we cannot assure you that the measures we have
taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.
Changes in laws or regulations, or a failure
to comply with any laws and regulations, may adversely affect our business, investments and results of operations.
We are subject to laws and regulations enacted
by national, regional and local governments. In particular, we will be required to comply with certain SEC and other legal requirements.
Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations
and their interpretation and application also may change from time to time and those changes could have a material adverse effect on
our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted
and applied, could have a material adverse effect on our business, including our ability to complete our initial business combination,
and results of operations.
26
On March 30, 2022, the SEC issued proposed rules
that would, among other items, impose additional disclosure requirements in business combination transactions involving SPACs and private
operating companies; amend the financial statement requirements applicable to business combination transactions involving such companies;
update and expand guidance regarding the general use of projections in SEC filings, as well as when projections are disclosed in connection
with proposed business combination transactions; increase the potential liability of certain participants in proposed business combination
transactions; and impact the extent to which SPACs could become subject to regulation under the Investment Company Act of 1940.
These rules, if adopted, whether in the form proposed or in revised form, may materially adversely affect our business, including our
ability to negotiate and complete our initial business combination and may increase the costs and time related thereto.
The ongoing military action between Russia
and Ukraine could adversely affect our business, financial condition and results of operations.
In February of 2022, Russian military forces invaded
Ukraine, and sustained conflict and disruption in the region is likely. Although the length, impact and outcome of the ongoing military
conflict in Ukraine is highly unpredictable, this conflict could lead to significant market and other disruptions, including significant
volatility in commodity prices and supply of energy resources, instability in financial markets, higher inflation, supply chain interruptions,
political and social instability, changes in consumer or purchaser preferences as well as increase in cyberattacks and espionage. As a
result of the invasion and ongoing military conflict, governments in the European Union, the United States, Canada and other countries
have implemented and may implement additional sanctions, export controls or other measures against Russia, Belarus and other countries,
regions, officials, individuals or industries in the respective territories. Such sanctions, and other measures, as well as the existing
and potential further responses from Russia or other countries to such sanctions, supply chain disruptions, tensions and military actions,
could adversely affect the global economy and financial markets and could adversely affect our business, financial condition and results
of operations, and could also aggravate the other risk factors that we identify herein.
The new 1% U.S. federal excise tax on repurchases
of corporate stock included in the Inflation Reduction Act of 2022 (the “IR Act”) could cause a reduction in the value of
our Class A Common Stock or reduce the amount received by our stockholders if we are unable to complete this or another business combination
and are required to redeem all existing shares after December 31, 2022.
On August 16, 2022, the IR Act was signed into
law. The IR Act provides for, among other changes, a new 1% U.S. federal excise tax on certain repurchases (including redemptions) of
stock by publicly traded U.S. corporations after December 31, 2022. The excise tax is imposed on the repurchasing corporation itself,
not on its shareholders from whom the shares are repurchased. The amount of the excise tax is generally 1% of any positive difference
between the fair market value of any shares repurchased by the repurchasing corporation during a taxable year and the fair market value
of certain new stock issuances by the repurchasing corporation during the same taxable year.
In addition, a number of exceptions will apply
to this excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulations and
other guidance to carry out, and prevent the abuse or avoidance of, this excise tax.
Although the application of this excise tax is
not entirely clear, any redemption or other repurchase effected by us that occurs after December 31, 2022, whether in connection with
the business combination or otherwise, may be subject to this excise tax. Whether and to what extent we would be subject to the excise
tax in connection with the business combination would depend on a number of factors, including (i) whether the business combination closes
after December 31, 2022, (ii) the fair market value of any stock redeemed or repurchased in connection with the business combination,
(iii) the nature and amount of the PIPE Financing (or any other equity issuances within the same taxable year as that of the business
combination) and (iv) the content of any regulations and other guidance from the Treasury. In addition, because the excise tax would be
payable by us and not by the redeeming holder, it could cause a reduction in the value of our Class A Common Stock.
Further, the application of the excise tax in
the event of a complete liquidation of a publicly traded U.S. corporation is uncertain and has not been addressed by the Treasury in regulations
or other guidance. If we are unable to complete this or another business combination and are required to redeem all of our existing shares
after December 31, 2022, whether such redemptions are subject to this excise tax may depend on how such redemptions are structured and
whether we are liquidated. If this excise tax were to apply to such redemptions, it is possible that the proceeds held in the Trust Account
could be used to pay any excise tax owed by us, in which case the amount that would otherwise be received by our stockholders in connection
with our liquidation would be reduced.
The excise tax would not apply to the extent that
the business combination and any related redemptions occur before December 31, 2022.
27
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.