NOTES
TO FINANCIAL STATEMENTS (UNAUDITED)
Note
1 - Organization and Business Operations
Shelter
Acquisition Corporation I (the “Company”) is a blank check company incorporated as a Delaware corporation on December 11,
2020. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization
or similar business combination with one or more businesses (“Business Combination”). The Company is an early stage and emerging
growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies. The
Company’s sponsor is Shelter Sponsor LLC, a Delaware limited liability company (the “Sponsor”).
The
Company is not limited to a particular industry or sector for purposes of consummating a Business Combination, however, the Company intends
to concentrate on identifying businesses that provide technologically innovative solutions to the real estate industry, broadly defined
as “PropTech.”
As
of September 30, 2021, the Company had not commenced any operations. All activity for the period from December 11, 2020 (inception) through
September 30, 2021, relates to the Company’s formation and its initial public offering (the “Initial Public Offering”)
as described below. The Company will not generate any operating revenues until after the completion of a Business Combination, at the
earliest. The Company will generate non-operating income in the form of interest income on cash and cash equivalents from the proceeds
derived from the Initial Public Offering. The Company has selected December 31 as its fiscal year end.
The
registration statement for the Company’s Initial Public Offering was declared effective on June 29, 2021. On July 2, 2021,
the Company consummated its Initial Public Offering of 20,000,000 units (the “Units”). Each Unit consists of one share of
Class A common stock, par value $0.0001 per share (“Class A common stock” and shares thereof sold in the Initial Public Offering,
“Public Shares”), and one-half of one redeemable warrant of the Company (“Public Warrant”), each whole Public
Warrant exercisable into one share of Class A common stock at an exercise price of $11.50 per share. The Units were sold at a price of
$10.00 per unit, generating gross proceeds to the Company of $200,000,000, which is discussed in Note 4.
Simultaneously
with the consummation of the Initial Public Offering and the sale of the Units, the Company consummated the sale of 6,250,000 warrants
(each, a “Private Placement Warrant” and collectively, the “Private Placement Warrants”), at a price of $1.00
per Private Placement Warrant to the Sponsor, in a private placement (the “Private Placement”) generating gross proceeds
of $6,250,000, which is discussed in Note 5.
On
July 14, 2021, the Company issued an additional 2,164,744 Units in connection with the partial exercise by the underwriters of their
over-allotment option, generating gross proceeds of $21,647,440, which is discussed in Note 4. Simultaneously with the closing of the
underwriters’ partial exercise of the over-allotment option, the Company sold an additional 432,949 Private Placement Warrants,
at a price of $1.00 per Private Placement Warrant, to the Sponsor in a private placement (together with the Private Placement, the “Private
Placements”) generating gross proceeds of $432,949, which is discussed in Note 5.
Transaction costs of the Initial Public Offering amounted to $12,879,739,
consisting of $4,432,949 of underwriting discount, $7,757,660 of deferred underwriting discount and $689,130 of other offering costs.
Of the transaction costs upon the closing of the Initial Public Offering and the underwriters’ partial exercise of the over-allotment
option, the Company recorded $12,183,237 of offering costs as a reduction of equity in connection with the Class A common stock included
in the Units, and immediately expensed $696,502 of offering costs in connection with the warrants that were classified as liabilities.
Following
the closing of the Initial Public Offering on July 2, 2021, and the partial exercise of the over-allotment option on July 14, 2021, a
total of $221,647,440 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and pursuant to
the partial exercise of the over-allotment option, together with certain of the proceeds from the sale of the Private Placement Warrants
in the Private Placements, was placed in a trust account (the “Trust Account”) located in the United States with Continental
Stock Transfer & Trust Company, acting as trustee, and invested only in U.S. government securities with a maturity of 185 days or
less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended (the “Investment
Company Act”), which invest only in direct U.S. government treasury obligations. Except with respect to interest earned on the
funds held in the Trust Account that may be released to the Company to pay its franchise and income tax obligations (less up to $100,000
of interest to pay dissolution expenses), the proceeds from the Initial Public Offering and the sale of the Private Placement Warrants
will not be released from the Trust Account until the earliest of (a) the completion of a Business Combination, (b) the redemption of
any Public Shares properly submitted in connection with a stockholder vote to amend the Company’s amended and restated certificate
of incorporation (i) to modify the substance or timing of the Company’s obligation to redeem 100% of the Public Shares if the Company
does not complete a Business Combination within 18 months from the closing of the Initial Public Offering (ii) with respect to any other
provision relating to stockholders’ rights or pre-Business Combination activity, and (c) the redemption of the Public Shares if
the Company is unable to complete a Business Combination within 18 months of the closing of the Initial Public Offering. The proceeds
deposited in the Trust Account could become subject to the claims of the Company’s creditors, if any, which could have priority
over the claims of the holders of Public Shares (“public stockholders”).
The Company will provide its public stockholders with
the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either: (i) in connection
with a stockholder meeting called to approve the Business Combination; or (ii) by means of a tender offer. The decision as to whether
the Company will seek stockholder approval of a proposed Business Combination or conduct a tender offer will be made by the Company, solely
in its discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction
would require the Company to seek stockholder approval under applicable law or stock exchange listing requirement. The public stockholders
will be entitled to redeem all or a portion of their Public Shares upon the completion of a Business Combination at a per share price,
payable in cash, equal to the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation
of a Business Combination, including interest earned on the funds held in the Trust Account and not previously released to the Company
to pay its franchise and income taxes, divided by the number of then outstanding Public Shares, subject to the limitations described herein.
The
Company will have only 18 months from the closing of the Initial Public Offering (the “Combination Period”) to complete a
Business Combination. If the Company is unable to complete a Business Combination within the Combination Period, the Company will: (i)
cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days
thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust
Account including interest earned on the funds held in the Trust Account and not previously released to the Company to pay its franchise
and income taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares,
which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further
liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption,
subject to the approval of the Company’s remaining stockholders and the board of directors, dissolve and liquidate, subject in
each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable
law.
The
Sponsor, officers, directors and certain stockholders of the Company have entered into a letter agreement with the Company, pursuant
to which they have agreed to: (i) waive their redemption rights with respect to any founder shares (as defined below) and Public Shares
held by them, as applicable, in connection with the completion of a Business Combination, (ii) waive their redemption rights with respect
to any founder shares and Public Shares held by them, as applicable, in connection with a stockholder vote to approve an amendment to
the Company’s amended and restated certificate of incorporation (A) to modify the substance or timing of the Company’s obligation
to redeem 100% of the Public Shares if the Company does not complete a Business Combination within the Combination Period or (B) with
respect to any other provision relating to stockholders’ rights or pre-initial Business Combination activity and (iii) waive their
rights to liquidating distributions from the Trust Account with respect to any founder shares they hold if the Company fails to complete
a Business Combination within the Combination Period, although they will be entitled to liquidating distributions from the Trust Account
with respect to any Public Shares they hold if we fail to complete a Business Combination within the Combination Period. If the Company
submits a Business Combination to the public stockholders for a vote, the Sponsor, officers, directors and certain stockholders have
agreed to vote any founder shares and any Public Shares held by them in favor of a Business Combination.
The
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) $10.00
per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust
Account, if less than $10.00 per share due to reductions in the value of the trust assets, less taxes payable, provided that such liability
will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies
held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under the Company’s indemnity
of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933,
as amended (the “Securities Act”). However, the Company has not asked the Sponsor to reserve for such indemnification obligations,
nor have we independently verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations and believe that the
Sponsor’s only assets are securities of the Company. Therefore, the Company cannot assure you that the Sponsor would be able to
satisfy those obligations.
Note
2 — Revision of Previously Issued Financial Statements
In connection with the preparation
of the Company’s financial statements as of September 30, 2021, management determined it should revise its previously reported
financial statements. The Company previously determined the Class A common stock subject to possible redemption to be equal to the
redemption value of $10.00 per Class A common stock while also taking into consideration its charter’s requirement that a redemption
cannot result in net tangible assets being less than $5,000,001. Upon review of its financial statements for the period ended September
30, 2021, the Company reevaluated the classification of the Class A common stock and determined that the Class A common stock issued
during the Initial Public Offering and pursuant to the exercise of the underwriters’ overallotment can be redeemed or become redeemable
subject to the occurrence of future events considered outside the Company’s control under the Financial Accounting Standards Board’s
(“FASB”) Accounting Standards Codification (“ASC”) 480-10-S99. Therefore, management concluded that the carrying
value should include all Class A common stock subject to possible redemption, resulting in the Class A common stock subject
to possible redemption being classified as temporary equity in its entirety. As a result, management has noted a reclassification adjustment
related to temporary equity and permanent equity. This resulted in an adjustment to the initial carrying value of the Class A common
stock subject to possible redemption with the offset recorded to additional paid-in capital (to the extent available), accumulated deficit
and Class A common stock.
In
connection with the change in presentation for the Class A common stock subject to redemption, the Company also revised its earnings
per share calculation to allocate net income (loss) evenly to Class A and Class B common stock. This presentation contemplates a Business
Combination as the most likely outcome, in which case, both classes of common stock share pro rata in the income (loss) of the Company.
There
has been no change in the Company’s total assets, liabilities or operating results.
The
impact of the revision on the Company’s financial statements is reflected in the following table.
Audited Balance Sheet at July 2, 2021
|
|
As
Previously
Reported
|
|
|
Adjustments
|
|
|
As Revised
|
|
Class A common stock subject to possible redemption
|
|
$
|
172,478,210
|
|
|
$
|
27,521,790
|
|
|
$
|
200,000,000
|
|
Class A common stock
|
|
|
275
|
|
|
|
(275
|
)
|
|
|
-
|
|
Class B common stock
|
|
|
575
|
|
|
|
|
|
|
|
575
|
|
Additional paid-in capital
|
|
|
6,040,962
|
|
|
|
(6,040,962
|
)
|
|
|
-
|
|
Accumulated deficit
|
|
|
(1,041,808
|
)
|
|
|
(21,480,553
|
)
|
|
|
(22,522,361
|
)
|
Total Stockholders’ Equity (Deficit)
|
|
$
|
5,000,004
|
|
|
$
|
(27,521,790
|
)
|
|
$
|
(22,521,786
|
)
|
Number of shares subject to redemption
|
|
|
17,247,821
|
|
|
|
2,752,179
|
|
|
|
20,000,000
|
|
Note
3 - Summary of Significant Accounting Policies
Basis
of Presentation
The accompanying unaudited condensed financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”)
for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the U.S. Securities
and Exchange Commission (the “SEC”). Certain information or footnote disclosures normally included in 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 statement of the financial position, operating results
and cash flows for the periods presented. The interim results for the three and nine months ended September 30, 2021 are not necessarily
indicative of the results that may be expected for the year ended December 31, 2021 or for any future interim period.
The
accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements contained in
Company’s prospectus for its Initial Public Offering, as filed with the SEC on July 1, 2021, and the Company’s Current Report
on Form 8-K, as filed with the SEC on July 12, 2021.
Emerging
Growth Company
The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart
our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting
requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not
being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure
obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding
a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
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 Securities Exchange Act of 1934, as amended) are required to comply with the
new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period
and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The
Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has
different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised
standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements
with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the
extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use
of Estimates
The preparation of financial statements in conformity
with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the
reporting period. Actual results could differ from those estimates. One of the more significant accounting estimates included in these
condensed financial statements is the determination of the fair value of warrant liabilities.
Cash
and Cash Equivalents
The Company considers all short-term investments
with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents
as of September 30, 2021.
Investments
Held in Trust Account
The
Company’s portfolio of investments held in the Trust Account is comprised of U.S. government securities, within the meaning set
forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less, or investments in money market funds that
invest in U.S. government securities and generally have a readily determinable fair value, or a combination thereof. Such securities
and investments in money market funds are presented on the balance sheet at fair value at the end of each reporting period. Gains and
losses resulting from the change in fair value of these securities are included in income from investments held in the Trust Account
in the statement of operations. The estimated fair values of investments held in the Trust Account are determined using available market
information.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution,
which, at times, may exceed the Federal Depository Insurance Coverage of $250,000. The Company has not experienced losses on these accounts,
and management believes it is not exposed to significant risk on such accounts.
Financial
Instruments
The
fair value of the Company’s assets and liabilities, other than the warrant liabilities, which qualify as financial instruments
under FASB ASC Topic 820, “Fair Value Measurement”, approximates the carrying amounts represented in the accompanying balance
sheet, primarily due to their short-term nature.
Fair
Value Measurement
Fair
value is defined as the price which would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. A three-tier fair value hierarchy which prioritizes the inputs used in the valuation methodologies
is as follows:
Level
1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to
access at the measurement date.
Level
2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.
These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets
or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as
interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market
data by correlation or other means.
Level
3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions
about the assumptions that market participants would use in pricing the assets or liabilities.
Offering
Costs Associated with Initial Public Offering
The Company complies with the requirements of the
ASC 340-10-S99-1 and SEC Staff Accounting Bulletin Topic 5A—”Expenses of Offering”. Offering costs consist principally
of professional and registration fees incurred that are related to the Initial Public Offering. Offering costs are charged to stockholders’
equity or the statement of operations based on the relative value of the Public Warrants and the Private Placement Warrants to the proceeds
received from the Units sold upon the completion of the Initial Public Offering. Accordingly, of the $12,879,739 transaction costs upon
the closing of the Initial Public Offering and the underwriters’ partial exercise of the over-allotment option (consisting of $4,432,949
of underwriters’ discount, $7,757,660 of deferred underwriters’ discount and $689,130 of other offering costs), the Company
recorded $12,183,237 of offering costs as a reduction of equity in connection with the Class A common stock included in the Units, and
immediately expensed $696,502 of offering costs in connection with the warrants that were classified as liabilities.
Class
A Common Stock Subject to Possible Redemption
All of the 22,164,744 Class A common stock sold as
part of the Units in the Initial Public Offering contain a redemption feature which allows for the redemption of such public shares in
connection with the Company’s liquidation, if there is a stockholder vote or tender offer in connection with the Business Combination
and in connection with certain amendments to the Company’s amended and restated certificate of incorporation. In accordance with
guidance from the staff of the SEC on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions
not solely within the control of the Company require common stock subject to redemption to be classified outside of permanent equity.
Therefore, all Class A common stock has been classified outside of permanent equity.
The
Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to
equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock
are affected by charges against additional paid in capital and accumulated deficit.
Derivative
Warrant Liabilities
The Company does not use derivative instruments
to hedge exposures to cash flow, market, or foreign currency risk. The Company evaluates all of its financial instruments to
determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with FASB ASC
Topic 480, “Distinguishing Liabilities from Equity” (“ASC 480”) and FASB ASC Topic 815, “Derivatives
and Hedging” (“ASC 815”). For derivative financial instruments that are accounted for as liabilities, the
derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with
changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether
such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.
The
Company accounts for the 17,765,321 warrants issued in connection with the Initial Public Offering (including the partial exercise of
the underwriters’ over-allotment option) and Private Placements as derivative liabilities in accordance with the guidance contained
in ASC 815. Accordingly, the Company classifies the warrant instruments as liabilities at fair value and adjusts the instruments to fair
value at each reporting period. The liabilities will be re-measured at each balance sheet date until the warrants are exercised or expire,
and any change in fair value will be recognized in the Company’s statements of operations. The fair value of Private Placement
Warrants are estimated using an internal valuation model. The valuation model utilizes inputs and other assumptions and may not be reflective
of the price at which they can be settled. Such warrant classification is also subject to re-evaluation at each reporting period. Derivative
warrant liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of current
assets or require the creation of current liabilities.
Net
Income Per Share of Common Stock
The
Company has two classes of common stock, which are referred to as Class A common stock and Class B common stock. Earnings and losses
are shared pro rata between the two classes of common stock. The 17,765,321 shares of common stock issuable upon the exercise
of the Company’s outstanding warrants were excluded from diluted earnings per share for the three and nine months ended September
30, 2021 because the warrants are contingently exercisable, and the contingencies have not yet been met. As a result, diluted net loss
per common share is the same as basic net loss per common share for the periods. The table below presents a reconciliation of the
numerator and denominator used to compute basic and diluted net income per share for each class of common stock:
|
|
For the Three Months Ended
September 30, 2021
|
|
|
For the Nine Months Ended
September 30, 2021
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Class A
|
|
|
Class B
|
|
Basic and diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of net income
|
|
$
|
6,412,079
|
|
|
$
|
1,635,587
|
|
|
$
|
4,664,676
|
|
|
$
|
3,334,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
21,400,544
|
|
|
|
5,458,832
|
|
|
|
7,211,905
|
|
|
|
5,154,625
|
|
Basic and diluted net income per share
|
|
$
|
0.30
|
|
|
$
|
0.30
|
|
|
$
|
0.65
|
|
|
$
|
0.65
|
|
Income
Taxes
The
Company accounts for income taxes under FASB 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 financial statement and tax
basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC
740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax
assets will not be realized. Deferred tax assets as of September 30, 2021, were deemed immaterial.
ASC
740 prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be
sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties,
accounting in interim period, disclosure and transition. The provision for income taxes was deemed to be immaterial for the nine months
ended September 30, 2021.
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, 2021 and December 31, 2020. The Company is currently
not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
The
Company is subject to income tax examinations by major taxing authorities since inception. These 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. The Company has identified the United States as its only “major” tax jurisdiction.
Recent
Accounting Standards
In
August 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging -
Contracts in Entity’s Own Equity (Subtopic 815-40). The new guidance eliminates the beneficial conversion and cash conversion accounting
models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently
accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible
instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. This guidance is effective
as of January 1, 2022 (Early adoption is permitted effective January 1, 2021). The Company is currently evaluating the effect the updated
standard will have on its financial position, results of operations or financial statement disclosure.
The
Company’s management does not believe that any other recently issued, but not yet effective, accounting standards if currently
adopted would have a material effect on the accompanying financial statements.
Note 4
- Initial Public Offering
Public
Units
On
July 2, 2021, Company consummated its Initial Public Offering of 20,000,000 “Units”. Each Unit consists of one share of Class
A common stock and one-half of one Public Warrant, each whole Public Warrant entitling the holder thereof to purchase one Class A common
stock for $11.50 per share. The Units were sold at a price of $10.00 per unit, generating gross proceeds to the Company of $200,000,000.
On
July 14, 2021, the Company issued an additional 2,164,744 Units in connection with the partial exercise by the underwriters of their
over-allotment option, generating gross proceeds of $21,647,440.
All of the 21,164,744 shares
of Class A common stock sold as part of the Units in the Initial Public Offering contain a redemption feature which allows for the redemption
of such Public Shares in connection with the Company’s liquidation, if there is a stockholder vote or tender offer in connection
with the Business Combination and in connection with certain amendments to the Company’s certificate of incorporation. Given that
the Class A common stock was issued with other freestanding instruments (i.e., public warrants), the initial carrying value of the Class
A common stock was classified as temporary equity is the allocated proceeds based on the guidance in ASC 470-20.
If it is probable that
the equity instrument will become redeemable, the Company has the option to either accrete changes in the redemption value over the period
from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest
redemption date of the instrument or to recognize changes in the redemption value immediately as they occur and adjust the carrying amount
of the instrument to equal the redemption value at the end of each reporting period. The Company recognizes changes in redemption value
immediately as they occur. Immediately upon the closing of the Initial Public Offering, the Company recognized the accretion from initial
book value to redemption amount value. The change in the carrying value of redeemable Class A common stock resulted in charges against
additional paid-in capital and accumulated deficit.
As
of September 30, 2021, the Class A common stock reflected on the balance sheet are reconciled in the following table:
Gross proceeds from Initial Public Offering
|
|
$
|
221,647,440
|
|
Less:
|
|
|
|
|
Proceeds allocated to Public Warrants
|
|
|
(11,680,978
|
)
|
Class A shares issuance costs
|
|
|
(12,183,237
|
)
|
Plus:
|
|
|
|
|
Accretion of carrying value to redemption value
|
|
|
23,864,215
|
|
Income from investments held in Trust Account
|
|
|
2,670
|
|
Contingently redeemable Class A common stock
|
|
$
|
221,650,110
|
|
Note
5 - Related Party Transactions
Founder
Shares
On
December 18, 2020, the Sponsor paid $25,000 to cover certain offering costs in consideration for the issuance of 5,750,000 shares of
Class B common stock, par value $0.001 per share, of the Company (“founder shares”). The number of founder shares outstanding
was determined based on the expectation that the total size of the Initial Public Offering would be a maximum of 23,000,000 units if
the underwriters’ over-allotment option is exercised in full, and therefore that such founder shares would represent 20% of the
outstanding shares after the Initial Public Offering. Up to 750,000 of the founder shares were subject to forfeiture depending on the
extent to which the underwriters’ over-allotment option is exercised. As a result of the underwriters’ election to partially
exercise their over-allotment option, 208,814 founder shares were forfeited for no consideration on August 13, 2021, resulting in 5,541,186
founder shares outstanding.
With
certain limited exceptions, the founder shares are not transferable, assignable or salable (except to the Company’s officers and
directors and other persons or entities affiliated with the Sponsor, each of whom will be subject to the same transfer restrictions)
until the earlier of (A) one year after the completion of the Company’s initial Business Combination or (B) subsequent
to the Company’s initial Business Combination, (x) if the reported closing price of Class A common stock equals or exceeds
$12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading
days within any 30-trading day period commencing at least 150 days after the Company’s initial Business Combination or (y) the
date, following the completion of the Company’s initial Business Combination, on which the Company completes a liquidation, merger,
capital stock exchange, reorganization or other similar transaction that results in all of the Company’s stockholders having the
right to exchange their shares of common stock for cash, securities or other property.
Private
Placement Warrants
Simultaneously
with the closing of the Initial Public Offering, the Sponsor purchased 6,250,000 Private Placement Warrants at a price of $1.00
per Private Placement Warrant, generating total proceeds of $6,250,000. Simultaneously with the closing of the underwriters’ partial
exercise of the over-allotment option, the Sponsor purchased an additional 432,949 Private Placement Warrants at a price of $1.00 per
Private Placement Warrant, generating gross proceeds of $432,949.
The
Private Placement Warrants are non-redeemable in certain circumstances so long as they are held by the Sponsor or its permitted
transferees. The Private Placement Warrants may also be exercised by the Sponsor and its permitted transferees for cash or on a “cashless
basis”. Otherwise, the Private Placement Warrants have terms and provisions that are identical to those of the Public Warrants,
including as to exercise price, exercisability and exercise period. No underwriting discounts or commissions were paid with respect to
such sale. The issuance of the Private Placement Warrants was made pursuant to the exemption from registration contained in Section 4(a)(2)
of the Securities Act.
Related
Party Loans
The
Sponsor agreed to loan the Company up to $300,000 to be used for a portion of the expenses of the Initial Public Offering pursuant to
a promissory note (the “Promissory Note”). The Promissory Note was non-interest bearing, unsecured and due at the earlier
of September 30, 2021 or the closing of the Initial Public Offering. The Company borrowed $240,000 under the Promissory Note and repaid
it in full upon the closing of the Initial Public Offering.
In
addition, in order to finance transaction costs in connection with an initial Business Combination, the Sponsor, an affiliate of the
Sponsor or certain of the Company’s officers and directors may, but is not obligated to, loan the Company funds as may be required
(the “Working Capital Loans”). If the Company completes a Business Combination, the Company would repay such Working Capital
Loans out of the proceeds of the Trust Account released to the Company. Otherwise, such Working Capital Loans would be repaid only out
of funds held outside the Trust Account. In the event that a Business Combination does not close, the Company may use a portion of the
funds held outside the Trust Account to repay such Working Capital Loans but no proceeds from the Trust Account would be used to repay
such loaned amounts. Up to $1,500,000 of Working Capital Loans may be convertible into Private Placement 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 issued to the Sponsor. As of September 30, 2021 and December 31, 2020, no Working Capital Loans were outstanding.
Administrative
Support Agreement
The
Company has agreed to pay the Sponsor or one or more of its affiliates, commencing on the date of the final prospectus for the Company’s
Initial Public Offering, a total of $20,000 per month for office space and administrative and support services. Payments for such services
began on June 29, 2021. Upon completion of a Business Combination or its liquidation, the Company will cease paying these monthly fees.
Note
6 - Commitments and Contingencies
Registration
and Stockholder Rights
Pursuant
to a registration rights agreement entered into in connection with the Initial Public Offering, the holders of the founder shares, Private
Placement Warrants, and warrants that may be issued upon conversion of Working Capital Loans (and any shares of common stock issuable
upon the exercise of the Private Placement Warrants or warrants issued upon conversion of the Working Capital Loans and upon conversion
of the founder shares) will be entitled to registration rights requiring the Company to register such securities for resale (in the case
of the founder shares, only after conversion to shares of Class A common stock). The holders of these securities will be entitled
to make up to three demands, excluding short form registration demands, that the Company registers such securities. In addition, these
holders will have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the
completion of a Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415
under the Securities Act. The Company will bear the expenses incurred with the filing of any such registration statements.
Underwriting
Agreement
The
Company granted the underwriters a 45-day option to purchase up to 3,000,000 additional Units to cover over-allotments, if any, at the
Initial Public Offering price less the underwriting discounts and commissions.
On
July 2, 2021, the Company paid a fixed underwriting discount of $4,000,000, which was calculated as two percent (2%) of the gross proceeds
of the Initial Public Offering. On July 14, 2021, the underwriters partially executed their over-allotment option to purchase an additional
2,164,744 Units at a price of $10.00 per Unit, and were paid a fixed underwriting discount of $432,949.
Additionally,
the underwriters will be entitled to a deferred underwriting discount of 3.5% of the gross proceeds of the Initial Public Offering and
over-allotment held in the Trust Account, or $7,757,660, upon the completion of the Company’s initial Business Combination.
Risks
and Uncertainties
Management
continues to evaluate the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that
the virus 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 the financial statement. The financial statement does not
include any adjustments that might result from the outcome of this uncertainty.
Note
7 - Derivative Warrant Liabilities
The Company accounted for the Public Warrants
and Private Placement Warrants as liabilities in accordance with the guidance contained in ASC 815-40, Derivatives and Hedging—Contracts
in Entity’s Own Equity. Because the Company does not control the occurrence of events, such as a tender offer or exchange that may
trigger cash settlement of the warrants where not all of the stockholders also receive cash, the warrants do not meet the criteria for
equity treatment thereunder, and as such, the warrants must be recorded as derivative liabilities.
Additionally, certain adjustments to the settlement
amount of the Private Placement Warrants are based on a variable that is not an input to the fair value of a “fixed-for-fixed”
option as defined under ASC 815-40, and thus the Private Placement Warrants are not considered indexed to the Company’s own stock
and not eligible for an exception from derivative accounting.
Each
whole warrant entitles the registered holder to purchase one share of the Class A common stock at a price of $11.50 per share, subject
to adjustment as discussed below, at any time commencing on the later of 12 months from the effective date of the registration statement
for the Initial Public Offering and 30 days after the completion of a Business Combination. Pursuant to the warrant agreement, a warrant
holder may exercise its warrants only for a whole number of shares of Class A common stock. This means that only a whole warrant may
be exercised at any given time by a warrant holder. No fractional warrants will be issued upon separation of the units and only whole
warrants will trade. The warrants will expire five years after the completion of the Company’s initial Business Combination, at
5:00 p.m., New York City time, or earlier upon redemption or liquidation.
The
Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of its initial Business
Combination, the Company will use its best efforts to file with the SEC a registration statement covering the shares of Class A common
stock issuable upon exercise of the warrants, to cause such registration statement to become effective and to maintain a current prospectus
relating to those shares of Class A common stock until the warrants expire or are redeemed, as specified in 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 60th
business day after the closing of a 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
foregoing, if a registration statement covering the Class A common stock issuable upon exercise of the warrants is not effective within
a specified period following the consummation of a Business Combination, warrant holders may, until such time as there is an effective
registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise
warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities Act provided that such exemption
is available.
Redemption
of warrants when the price per share of Class A common stock equals or exceeds $18.00. Once the warrants become
exercisable, the Company may redeem the outstanding warrants (except as described herein with respect to the Private Placement Warrants):
|
●
|
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 given after the warrants
become exercisable (the “30-day redemption period”) to each warrant holder; and
|
|
●
|
if, and only if, the reported last sale price of the Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period commencing once the warrants become exercisable and ending three business days before we send 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 a Business Combination at a Newly Issued 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 Sponsor or its affiliates, without taking into account any founder shares held by the Sponsor or such
affiliates, as applicable, prior to such issuance), (y) the aggregate gross proceeds from such issuances represent more than 60% of the
total equity proceeds, and interest thereon, available for the funding of a Business Combination on the date of the consummation of a
Business Combination (net of redemptions), and (z) the Market Value is below $9.20 per share, then the exercise price of the warrants
will be adjusted (to the nearest cent) to be equal to 115% of the greater 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 115% of the greater 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 greater of the Market Value and the Newly Issued Price.
Redemption
of warrants when the price per share of Class A common stock equals or exceeds $10.00. Once the warrants become
exercisable, the Company may call the Public Warrants for redemption:
|
●
|
in
whole and not in part;
|
|
●
|
at
a price of $0.10 per warrant;
|
|
●
|
upon
a minimum of 30 days’ prior written notice of redemption, or the 30-day redemption
period, to each warrant holder;
|
|
●
|
if,
and only if, the closing price of our Class A common stock equals or exceeds $10.00 per public
share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations
and the like) for any 20 trading days within the 30-trading day period ending three trading
days before the Company sends the notice of redemption to the warrant holders; and
|
|
●
|
if the closing price of the Class A common stock for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders is less than $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like), the Private Placement Warrants must also be concurrently called for redemption on the same terms as the outstanding Public Warrants, as described above; provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares determined by reference to the table below, based on the redemption date and the “fair market value” (as defined below) of our Class A common stock.
|
If
the warrants become redeemable, the Company may exercise the redemption right even if the Company is unable to register or qualify the
underlying securities for sale under all applicable state securities laws.
The
Company has established the last of the redemption criterion discussed above to prevent a redemption call unless there is at the time
of the call a significant premium to the warrant exercise price. If the foregoing conditions are satisfied and the Company issues a notice
of redemption of the warrants, each warrant holder will be entitled to exercise his, her or its warrant prior to the scheduled redemption
date. However, the price of the Class A common stock may fall below the $18.00 redemption trigger price as well as the $11.50 warrant
exercise price after the redemption notice is issued.
Redemption
Procedures and Cashless Exercise. If the Company calls the warrants for redemption as described above, the Company will
have the option to require all holders that wish to exercise warrants to do so on a “cashless basis.” In determining whether
to require all holders to exercise their warrants on a “cashless basis,” the management will consider, among other factors,
the cash position, the number of warrants that are outstanding and the dilutive effect on the stockholders of issuing the maximum number
of shares of Class A common stock issuable upon the exercise of the warrants. In such event, each holder would pay the exercise price
by surrendering warrants in exchange for a number of shares of Class A common stock equal to the lesser of (A) the quotient obtained
by dividing (x) the product of (a) the number of shares of Class A common stock underlying the warrants and (b) the excess of the “fair
market value” of the Class A common stock over the exercise price of the warrants by (y) such fair market value and (B) the product
of the number of warrants surrendered and 0.361, subject to adjustment. The fair market value means the volume weighted average price
of Class A common stock as reported during the ten-trading day period ending on the trading day prior to the first date on which the
shares of Class A common stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive
such rights.
Note
8 - Stockholders’ Equity
Preferred
Stock - The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share. As of September
30, 2021 and December 31, 2020, there were no shares of preferred stock issued or outstanding.
Class
A common stock - The Company is authorized to issue 500,000,000 shares of Class A common stock with a par value of $0.0001 per
share. Holders of Class A common stock are entitled to one vote for each share. As of September 30, 2021, there were 21,164,744 shares
of Class A common stock issued and subject to possible redemption. The Class A common stock is presented at redemption value as temporary
equity, outside of the stockholders’ equity section of the balance sheet. As of December 31, 2020 there were no shares of Class
A common stock issued or outstanding.
Class
B common stock - The Company is authorized to issue 50,000,000 shares of Class B common stock with a par value of $0.0001 per
share. Holders of the Class B common stock are entitled to one vote for each common stock. At September 30, 2021 and December 31, 2020,
there were 5,541,186 and 5,750,000 shares of Class B common stock issued and outstanding, respectively.
The
shares of Class B common stock will automatically convert into shares of the Company’s Class A common stock at the time
of a Business Combination on a one-for-one basis, subject to adjustment. In the case that additional shares of Class A common
stock or equity-linked securities are issued or deemed issued in excess of the amounts sold in the Initial Public Offering and related
to the closing of a Business Combination, the ratio at which shares of Class B common stock shall convert into shares of Class A
common stock will be adjusted (unless the holders of a majority of the outstanding shares of Class B common stock agree to waive
such anti-dilution adjustment with respect to any such issuance or deemed issuance) so that the number of shares of Class A
common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate, on an as-converted basis,
20% of the total number of all shares of common stock outstanding upon completion of the Initial Public Offering plus all shares of Class A
common stock and equity-linked securities issued or deemed issued in connection with a Business Combination (net of the number of
shares of Class A common stock redeemed in connection with a Business Combination), excluding any shares or equity-linked securities
issued, or to be issued, to any seller in a Business Combination in consideration for such seller’s interest in the Business Combination
target and any Private Placement Warrants issued upon the conversion of Working Capital Loans made to the Company.
Holders
of the Class B common stock and holders of the Class A common stock will vote together as a single class, except as required
by applicable law or stock exchange rule.
Note
9 –Fair Value Measurements
The
following table presents information about the Company’s asset and liabilities that were measured at fair value on a recurring
basis as of September 30, 2021, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine
such fair value.
Description
|
|
September
30,
2021
|
|
Quoted
Prices In
Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Other
Unobservable
Inputs
(Level 3)
|
Asset:
|
|
|
|
|
|
|
|
|
Investments held in Trust Account
|
|
$
|
221,650,110
|
|
|
$
|
221,650,110
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Warrant Liability - Private Placement Warrants
|
|
|
3,368,470
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,368,470
|
|
Derivative Warrant Liability - Public Warrants
|
|
|
5,536,754
|
|
|
|
5,536,754
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
8,905,224
|
|
|
$
|
5,536,754
|
|
|
$
|
-
|
|
|
$
|
3,368,470
|
|
The
Public Warrants and Private Placement Warrants are accounted for as liabilities in accordance with ASC 815-40 and are presented within
warrant liabilities on the condensed balance sheet. The warrant liabilities are measured at fair value at inception and on a recurring
basis, with changes in fair value presented within change in fair value of warrants in the condensed statements of operations.
Initial
Measurement
The Company established the initial fair value of
the Public Warrants and Private Placement Warrants on July 2, 2021, the date of the Company’s Initial Public Offering, using a Monte
Carlo simulation model. The Public Warrants and Private Placement Warrants were classified as Level 3 at the initial measurement date
due to the use of unobservable inputs.
The
key inputs into the Monte Carlo simulation model for the Public Warrants and Private Placement Warrants were as follows at initial measurement:
Risk-free interest rate
|
|
|
0.98
|
%
|
Expected term (years)
|
|
|
5.71
|
|
Expected volatility
|
|
|
19.0
|
%
|
Stock price
|
|
$
|
9.47
|
|
Strike price
|
|
$
|
11.50
|
|
Subsequent
Measurement
The
warrants are measured at fair value on a recurring basis. The subsequent measurement of the Public Warrants as of September 30, 2021,
is classified as Level 1 due to the use of an observable market quote in an active market. As of September 30, 2021, the aggregate value
of Public Warrants was $5,536,754.
The
subsequent measurement of the Private Placement Warrants was calculated using a Monte Carlo simulation model which is considered a Level
3 measurement.
The
key inputs into the Monte Carlo simulation model for the Private Placement Warrants were as follows as of September 30, 2021:
Risk-free interest rate
|
|
|
1.09
|
%
|
Expected term (years)
|
|
|
5.62
|
|
Expected volatility
|
|
|
10.6
|
%
|
Stock price
|
|
$
|
9.72
|
|
Strike price
|
|
$
|
11.50
|
|
The
following table sets forth a summary of the changes in the fair value of the Level 3 liability for the nine months ended September 30,
2021:
|
|
Warrant
Liability
|
Fair value as of December 31, 2020
|
|
$
|
-
|
|
Initial fair value of warrant liability
|
|
|
18,751,655
|
|
Transfer out of Level 3 to Level 1
|
|
|
(5,536,754
|
)
|
Change in fair value
|
|
|
(9,846,431
|
)
|
|
|
|
|
|
Fair value as of September 30, 2021
|
|
$
|
3,368,470
|
|
Note
10 - Subsequent Events
The
Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed financial
statements were issued. Except as described in these condensed financial statements, the Company did not identify any subsequent events
that would have required adjustment or disclosure in the financial statements.