The accompanying notes are an integral part of
these unaudited condensed financial statements.
The accompanying notes are an integral part of
these unaudited condensed financial statements.
The accompanying notes are an integral part of
these unaudited condensed financial statements.
The accompanying notes are an integral part of
these unaudited condensed financial statements.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1 — Organization and Business
Operations
Organization and General
Ault Disruptive Technologies
Corporation (the “Company”) is a blank check company organized on February 22, 2021, under the laws of the State of Delaware.
The Company was formed for the purpose of acquiring, engaging in a share exchange, share reconstruction and amalgamation with, purchasing
all or substantially all of the assets of, entering into contractual arrangements with, or engaging in any other similar business combination
with one or more businesses or entities (“Business Combination”). Although the Company is not limited to a particular industry
or geographic region for purposes of consummating a Business Combination, the Company intends to focus on companies with innovative and
emerging technologies, products or services in the United States.
As of March 31, 2022, the
Company had not commenced any operations. All activity for the period from February 22, 2021 (inception) through March 31, 2022, relates
to the Company’s formation, the public offering described below and the search for a Business Combination. The Company will not
generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company will generate
non-operating income in the form of interest income on cash and cash equivalents from the proceeds derived from the Initial Public Offering
(the “IPO” or “Public Offering”). The Company has selected December 31 as its fiscal year end.
The Company’s Sponsor
is Ault Disruptive Technologies Company, LLC (the “Sponsor”).
Financing
The
registration statement for the Company’s IPO was declared effective on December 15, 2021 (the “Effective Date”).
On December 20, 2021, the Company consummated its IPO of 10,000,000 units at $10.00 per unit (the “Units”), which is
discussed in Note 3. Each Unit consists of one share of common stock, par value of $0.001 per share (the “Common Stock”),
and three-fourths of one redeemable warrant (the “Public Warrants”). Each whole warrant entitles the holder to purchase one
share of Common Stock at a price of $11.50 per share. On December 20, 2021, the underwriters exercised their full over-allotment
option and purchased the additional Units available to them. The aggregate Units sold in the IPO and subsequent over-allotment were 11,500,000
and generated gross proceeds of $115,000,000.
Simultaneously
with the consummation of the IPO, the Company consummated the private placement of 6,500,000 warrants (7,100,000 warrants when the underwriters’
over-allotment option was fully exercised on December 20, 2021) (the “Private Placement Warrants”) to the Sponsor, at
a price of $1.00 per Private Placement Warrant in a private placement. The sale of the Private Placement Warrants in connection with the
IPO and subsequent over-allotment option exercise generated gross proceeds of $7,100,000.
Transaction
costs related to the IPO amounted to $6,297,333 consisting of $2,513,333 of underwriting commissions, $3,000,000 of deferred underwriting
commissions, and $784,000 of other offering costs. The underwriters’ exercise of their full over-allotment option generated an additional
$825,000 in transaction costs for aggregate transaction costs of $7,122,333 consisting of $2,888,333 of underwriting commissions, $3,450,000
of deferred underwriting commissions, and $784,000 of other offering costs. In addition, $1,109,623 of cash was held outside of the Trust
Account (as defined below) as of March 31, 2022 and is available for working capital purposes.
Initial Business Combination
The
Company’s management has broad discretion with respect to the specific application of the net proceeds of the IPO and the sale of
Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a
Business Combination.
The
Company must complete one or more initial Business Combinations having an aggregate fair market value of at least 80% of the net assets
held in the Trust Account (as defined below) (excluding the deferred underwriting commissions and taxes payable on the interest earned
on the Trust Account) at the time of signing a definitive agreement in connection with the initial Business Combination. However, the
Company will complete the initial Business Combination only if the post-Business Combination company in which its public shareholders
own shares will own or acquire 50% or more of the outstanding voting securities of the target or is otherwise not required to register
as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”). There is no
assurance that the Company will be able to complete a Business Combination successfully.
Trust Account
Following
the closing of the IPO on December 20, 2021, $116,725,000 from the net proceeds of the sale of the Units in the IPO and the sale
of the Private Placement Warrants was deposited into a trust account (the “Trust Account”). This amount was comprised of $10.15
per Unit for the 11,500,000 Units sold in the IPO. Following the closing of the IPO and the exercise of the underwriters’ full over-allotment
option, $116,725,000 was held in the Trust Account and will only be invested in United States “government securities” within
the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 185 days or less or in money market funds meeting
certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government
treasury obligations. Pursuant to the trust agreement, the trustee is not permitted to invest in other securities or assets. By restricting
the investment of the proceeds to these instruments, and by having a business plan targeted at acquiring and growing businesses for the
long term (rather than buying and selling businesses in the manner of a merchant bank or private equity fund), the Company intends to
avoid being deemed an “investment company” within the meaning of the Investment Company Act. The trust account is intended
as a holding place for funds pending the earliest to occur of: (i) the consummation of the Company’s initial Business Combination;
(ii) the redemption of any public shares properly submitted in connection with a stockholder vote to amend its amended and restated certificate
of incorporation (A) to modify the substance or timing of its obligation to allow redemptions in connection with the Company’s initial
Business Combination or certain amendments to its charter prior thereto or to redeem 100% of the Company’s public shares if the
Company does not consummate its initial Business Combination within 12 months (or up to 15 months or 18 months, as applicable) following
the effectiveness of the Public Offering or (B) with respect to any other provision relating to stockholders’ rights or pre-initial
Business Combination activity; or (iii) absent an initial Business Combination within 12 months (or up to 15 months or 18 months, as applicable)
following the effectiveness of the Public Offering, the Company’s return of the funds held in the trust account to its public stockholders
as part of its redemption of the public shares. If the Company does not invest the proceeds as discussed above, the Company may be deemed
to be subject to the Investment Company Act. If the Company is deemed to be subject to the Investment Company Act, compliance with these
additional regulatory burdens would require additional expenses for which the Company has not allotted funds and may hinder its ability
to consummate an initial Business Combination or may result in its liquidation. If the Company is unable to consummate its initial Business
Combination, the Company’s public stockholders may receive only approximately $10.15 per public share, or $10.25 or $10.35 per public
share, as applicable, on the liquidation of the Company’s trust account and its warrants will expire worthlessly.
The
Company will provide holders (the “Public Shareholders”) of its Common Stock sold in the IPO (the “Public Shares”),
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 general meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as
to whether the Company will seek shareholder approval of a proposed Business Combination or conduct a tender offer will be made by the
Company, solely at 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 shareholder approval under applicable law or stock exchange listing requirement.
The
Company will provide its Public Shareholders with the opportunity to redeem all or a portion of their Common Stock upon the completion
of the initial Business Combination, regardless of whether such shareholder votes on such proposed Business Combination and if they do
vote, regardless of whether they vote for or against such proposed Business Combination, at a per-share price, payable
in cash, equal to the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation
of the initial Business Combination, including interest earned on the funds held in the Trust Account and not previously released to the
Company to pay its income taxes, if any, divided by the number of then-outstanding public shares, subject to the limitations described
herein. The amount in the Trust Account is currently anticipated to be $10.15 per public share.
The
per share amount the Company will distribute to investors who properly redeem their shares will not be reduced by the deferred underwriting
commissions the Company will pay to the underwriters. The redemption rights will include the requirement that a beneficial holder must
identify itself in order to validly redeem its shares. There will be no redemption rights upon the completion of the initial Business
Combination with respect to the Company’s warrants. Further, the Company will not proceed with redeeming the Public Shares, even
if a Public Shareholder has properly elected to redeem its shares if a Business Combination does not close.
The
Common Stock subject to redemption was recorded at a redemption value and classified as temporary equity upon the completion of the Public
Offering, in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”)
Topic 480 “Distinguishing Liabilities from Equity.” In such case, the Company will proceed with a Business Combination if
the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and, if the Company seeks
shareholder approval, a majority of the issued and outstanding shares voted are voted in favor of the Business Combination. The Company’s
amended and restated articles of incorporation provides that the Company will have only 12 months following the effectiveness of the Public
Offering (or up to 18 months following the effectiveness of the Public Offering if the Company extends the period of time to consummate
a Business Combination, subject to the Sponsor depositing additional funds in the Trust Account) (the “Combination Period”)
to consummate its initial Business Combination. If the Company has not consummated an initial 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 income taxes, if any (less up to $50,000 of interest to pay dissolution expenses) divided by the number
of the then-outstanding public shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including
the right to receive further liquidation distributions, if any); and (iii) as promptly as reasonably possible following such redemption,
subject to the approval of the Company’s remaining shareholders and its board of directors, liquidate and dissolve, subject in the
case of clauses (ii) and (iii), to the Company’s obligations under Delaware law to provide for claims of creditors and the
requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to the Company’s
warrants, which will expire worthless if the Company fails to consummate an initial Business Combination within the Combination Period.
The
Sponsor and each member of its management team have entered into an agreement with the Company, pursuant to which they have agreed to
(i) waive their redemption rights with respect to their Founder Shares (defined in Note 5), Private Placement Warrants and Public
Shares held by them (ii) to waive their redemption rights with respect to their Founder Shares, Private Placement Warrants and Public
Shares in connection with a shareholder vote to approve an amendment to the Company’s amended and restated certificate of incorporation
(A) that would modify the substance or timing of the Company’s obligation to provide holders of shares of Common Stock the
right to have their shares redeemed in connection with the initial Business Combination or to redeem 100% of the public shares if the
Company does not complete the initial Business Combination within Combination Period or (B) with respect to any other provision relating
to the rights of holders of shares of Common Stock or pre-initial Business Combination activity and (iii) waive their rights to liquidating
distributions from the Trust Account with respect to any Founder Shares and Private Placement Warrants they hold if the Company fails
to consummate an initial Business Combination within Combination Period (although they will be entitled to liquidating distributions from
the Trust Account with respect to any public shares they hold if the Company fails to complete the initial Business Combination within
the prescribed time frame).
The
Sponsor has agreed to waive its liquidation rights with respect to the Founder Shares and Private Placement Warrants if the Company fails
to consummate a Business Combination within the Combination Period. However, if the Sponsor acquires Public Shares in or after the Public
Offering, such Public Shares will be entitled to liquidating distributions from the Trust Account if the Company fails to consummate a
Business Combination within the Combination Period. The underwriters have agreed to waive their rights to their deferred underwriting
commission (see Note 6) held in the Trust Account in the event the Company does not consummate a Business Combination within the Combination
Period and, in such event, such amounts will be included with the other funds held in the Trust Account that will be available to fund
the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the assets remaining
available for distribution will be less than the Public Offering price per Unit ($10.15, or $10.25 or $10.35 per Public Share, as applicable).
In
order to protect the amounts held in the Trust Account, the Sponsor has agreed to 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 (1) $10.15 per Public Share, or $10.25 or $10.35 per Public Share, as applicable, and (2) the
actual amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account due to reductions in the
value of the trust assets, in each case net of the interest which may be withdrawn to pay the Company’s taxes. This liability will
not apply with respect to any claims by a third party who executed a waiver of any and all rights to seek access to the Trust Account
and except as to any claims under the Company’s indemnity of the underwriters of the Public Offering against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Moreover, in the event that an
executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability
for such third-party claims. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account
due to claims of creditors by endeavoring to have all vendors, service providers (except the Company’s independent registered public
accounting firm), prospective target businesses, or other entities with which the Company does business, execute agreements with the Company
waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
Liquidity and Going
Concern
As of March 31, 2022, the
Company had approximately $1.1 million in its operating bank account and working capital of approximately $1.1 million.
Until
the consummation of a Business Combination, the Company will be using the funds not held in the Trust Account for identifying and evaluating
prospective acquisition candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting
the target business to acquire, and structuring, negotiating and consummating the Business Combination.
The
Company may need to raise additional capital through loans or additional investments from its Sponsor, stockholders, officers, directors,
or third parties. The Company’s officers, directors and Sponsor may, but are not obligated to, loan the Company funds, from time
to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital
needs. Accordingly, the Company may not be able to obtain additional financing. 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 a potential transaction, 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. In addition, if the Company is unable to consummate
the Business Combination within 12 months following the effectiveness of the Initial Public Offering, which is December 15, 2022, the
Company may, but is not obligated to, extend the period of time to complete the Business Combination up to two times by an additional
three months each time (for a total of up to 18 months to consummate an initial business combination). If the period of time is not extended,
the Company will be required to cease all operations except for the purpose of winding up. These conditions raise substantial doubt about
the Company’s ability to continue as a going concern for at least one year from the date that the financial statement were issued.
These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the
liabilities that might be necessary should the Company be unable to continue as a going concern.
Risks and Uncertainties
The
Company has a limited operating history and has not yet generated revenue from intended operations. The Company’s business and operations
are sensitive to general business and economic conditions in the U.S. along with local, state, and federal government policy decisions.
A host of factors beyond the Company’s control could cause fluctuations in these conditions, including but not limited to, credit
risk, and changes to regulations governing the Company’s industry. Adverse developments in this general business and economic conditions
could have a material adverse effect on the Company’s financial condition and the results of its operations.
Management
is currently evaluating 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 searching for a target
company, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Note 2 — Summary of Significant Accounting
Policies
Basis of Presentation
The
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States
of America (“US GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Accordingly,
they do not include all of the information and footnotes required by GAAP. In the opinion of management, the unaudited condensed financial
statements reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the balances
and results for the periods presented. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the
results that may be expected through December 31, 2022.
The
accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto
included in the Annual Report on Form 10-K filed by the Company with the SEC on April 15, 2022.
Emerging Growth Company Status
The Company is
an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are
eligible to 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 independent registered
public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote
on executive compensation and stockholder approval of any golden parachute payments not previously approved. If some investors find our
securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities
may be more volatile.
In addition, Section
107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided
in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging
growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
The Company intends to take advantage of the benefits of this extended transition period.
The Company will
remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the
effectiveness of the Initial Public Offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which
we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds
$700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities
during the prior three-year period.
Additionally, the
Company is a “smaller reporting company” as defined in Rule 10(f)(1) of Regulation S-K. Smaller reporting companies may take
advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements.
We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our common stock held
by non-affiliates equals or exceeds $250 million as of the end of the prior June 30th, or (2) our annual revenues equaled or exceeded
$100 million during such completed fiscal year and the market value of our common stock held by non-affiliates exceeds $700 million as
of the prior June 30th.
Use of Estimates
The preparation
of the financial statements are in conformity with U.S. GAAP requires the Company’s 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.
Accounting Policy on Redeemable
Shares
The Company will
account for its Common Stock subject to possible redemption in accordance with the guidance in FASB ASC Topic 480 “Distinguishing
Liabilities from Equity.” Common stock subject to mandatory redemption (if any) will be classified as a liability instrument and
measured at fair value. Conditionally redeemable shares of common stock (including shares of 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) will be classified as temporary equity. At all other times, shares of common stock will be classified as shareholders’
equity. 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, common stock subject to possible redemption are presented at redemption
value as temporary equity, outside of the shareholders’ equity section of the Company’s balance sheet. Accordingly, 11,500,000
shares of Common Stock are subject to possible redemption, which are presented at redemption value as temporary equity, outside of the
shareholders’ equity section of the Company’s balance sheet.
The Company recognizes
changes in redemption value immediately as they occur and adjusts the carrying value of the shares of Common Stock to equal the redemption
value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable shares of Common Stock are affected
by charges against additional paid-in capital and accumulated deficit.
As
of March 31, 2022, the shares of common stock reflected in the balance sheet are reconciled in the following table:
| |
| | |
Gross proceeds | |
$ | 115,000,000 | |
Less: | |
| | |
Proceeds allocated to Public Warrants | |
| (4,312,500 | ) |
Issuance costs allocated to common stock | |
| (6,866,913 | ) |
Plus: | |
| | |
Remeasurement of carrying value to redemption value | |
| 12,904,413 | |
Common stock subject to possible redemption | |
$ | 116,725,000 | |
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 had $1,109,623
in cash and no cash equivalents as of March 31, 2022.
Marketable Securities Held in Trust
Account
As of March 31,
2022, the Company held $116,736,920, which was invested 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 which invest only in direct U.S. government treasury
obligations. All of the Company’s investments held in the Trust Account are classified as trading securities. Trading securities
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 investments held in the Trust Account are included in interest earned on marketable securities held in Trust Account in the accompanying
statement of operations. The estimated fair values of investments held in Trust Account are determined using available market information.
During the three months ended March 31, 2022, the Company did not withdraw any interest income from the Trust Account to pay its tax obligations.
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.
Fair Value of Financial Instruments
The fair value
of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair Value Measurements
and Disclosures,” approximates the carrying amounts represented in the balance sheet, primarily due to its short-term nature.
Offering Costs associated with the
Initial Public Offering
Offering costs
consist of underwriting, legal, accounting, and other expenses incurred through the balance sheet date that are directly related to the
IPO. The Company complies with the requirements of the ASC 340-10-S99-1. Offering costs are allocated ratably with the
redeemable and non-redeemable shares. Offering costs associated with warrants and shares of Common Stock not subject to redemption
are charged to shareholders’ deficit. Deferred underwriting commissions 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.
Warrant Instruments
The Company will
account for the 8,625,000 Public Warrants and the 7,100,000 Private Placement Warrants issued in connection with the IPO and Private Placement
in accordance with the guidance contained in ASC 480, “Distinguishing Liabilities from Equity” and ASC 815 “Derivatives
and Hedging”. The assessment considers whether the instruments are freestanding financial instruments pursuant to ASC 480, meet
the definition of a liability pursuant to ASC 480, or whether the instruments meet all of the requirements for equity classification under
ASC 815, including whether the instruments are indexed to the Company’s own Common Stock and whether the holders could potentially
require "net cash settlement" in a circumstance outside of the Company’s control, among other conditions for equity classification.
The Public and Private Placement Warrants were deemed to meet equity classification.
Net Loss per Share of Common Stock
The Company complies
with accounting and disclosure requirements of the Financial Accounting Standards Board (‘FASB”) ASC Topic 260, Earnings Per
Share. Net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during
the period, excluding common stock subject to forfeiture. Remeasurement associated with the redeemable shares of common stock is excluded
from net loss per share as the redemption value approximates fair value. At March 31, 2022, we did not have any dilutive securities and
other contracts that could, potentially, be exercised or converted into shares of common stock and then share in our earnings. As a result,
diluted income per share is the same as basic income per share for the period presented.
The following table reflects the calculation
of basic and diluted net loss per common share (in dollars, except per share amounts):
| |
For the Three Months Ended March 31, 2022 | |
| |
Common Stock Subject to Redemption | | |
Non- Redeemable Common Stock | |
Basic and diluted net loss per common stock | |
| | |
| |
Numerator: | |
| | |
| |
Allocation of net loss, as adjusted | |
$ | (230,560 | ) | |
$ | (57,640 | ) |
Denominator: | |
| | | |
| | |
Basic and diluted weighted average shares outstanding | |
| 11,500,000 | | |
| 2,875,000 | |
| |
| | | |
| | |
Basic and diluted net loss per common stock | |
$ | (0.02 | ) | |
$ | (0.02 | ) |
Income Taxes
The Company uses
the liability method of accounting for income taxes as set forth in ASC 740, Income Taxes. Under the liability method, deferred taxes
are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates
expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is unlikely
that the deferred tax assets will not be realized.
The Company assesses
its income tax positions and records tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances,
and information available at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than
50% likelihood that a tax benefit will be sustained, the Company’s policy is to record the largest amount of tax benefit that is
more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.
For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit will be recognized
in the financial statements. 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 March 31, 2022.
The Company expects
to file a U.S. federal tax return. The Company was formed in 2021 and has not been required to file any tax returns. All tax periods since
inception remain open to examination by the taxing jurisdictions to which the Company is subject.
Recent Accounting Pronouncements
In August 2020,
the FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to
simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of
beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance
pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures
for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends
the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective
January 1, 2022, and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1,
2021. The Company adopted ASU 2020-06 on January 1, 2022 and the adoption did not have an impact on its financial position,
results of operations or cash flows.
Management does
not believe that any other recently issued, but not effective, accounting standards, if currently adopted, would have a material effect
on the Company’s financial statement.
Note 3 — Initial Public Offering
On December 20,
2021, the Company consummated its IPO of 10,000,000 Units at a purchase price of $10.00 per Unit. Each Unit that the Company is offering
has a price of $10.00 and consists of one share of Common Stock and three-fourths of one redeemable warrant. Each whole warrant entitles
the holder to purchase one share of Common Stock at a price of $11.50 per share, subject to adjustment (see Note 7). On December 20,
2021, the underwriters exercised their full over-allotment option and purchased the additional Units available to them. The aggregate
Units sold in the IPO and subsequent over-allotment were 11,500,000 and generated gross proceeds of $115,000,000.
Following the closing
of the IPO on December 20, 2021, $116,725,000 from the net proceeds of the sale of the Units in the IPO and the sale of the Private
Placement Warrants was deposited into the Trust Account. This amount was comprised of $10.15 per Unit for the 11,500,000 Units sold in
the IPO. Following the closing of the IPO and the exercise of the underwriters’ full over-allotment option, $116,725,000 ($10.15
per Unit) was placed in a Trust Account and will be invested only in U.S. government treasury obligations 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 which invest only
in direct U.S. government treasury obligations.
Note 4 — Private Placement
Simultaneously
with the closing of the IPO, the Company’s Sponsor purchased an aggregate of 6,500,000 Private Placement Warrants (7,100,000 Private
Placement Warrants when the underwriters’ over-allotment option was fully exercised on December 20, 2021), each exercisable
to purchase one share of Common Stock at $11.50 per share, at a price of $1.00 per Private Placement Warrant. The sale of the Private
Placement Warrants in connection with the IPO and subsequent over-allotment option exercise generated gross proceeds of $7,100,000.
The Private Placement
Warrants are not transferable, assignable or salable (and the shares of Common Stock issuable upon exercise of the Private Placement Warrants
are not transferable, assignable or salable until 30 days after the completion of the initial Business Combination).
If the Private
Placement Warrants are held by holders other than the Sponsor or its permitted transferees, the Private Placement Warrants are redeemable
by the Company in all redemption scenarios and exercisable by the holders on the same basis as the warrants included in the Units sold
in the Public Offering. Any amendment to the terms of the Private Placement Warrants or any provision of the warrant agreement with respect
to the Private Placement Warrants requires a vote of holders of at least 50% of the number of the then outstanding Private Placement Warrants.
Note 5 — Related Party Transactions
Founder Shares
On February 23,
2021, the Company issued the Sponsor an aggregate of shares of the Company’s common stock, par value $0.001 per share
(the “Founder Shares”) for an aggregate purchase price of $. The Sponsor has agreed, subject to certain limited exceptions,
not to transfer, assign or sell any of the Founder Shares until the earlier to occur of: (A) one year following the date of the consummation
of the Company’s initial Business Combination or (B) the date on which the Company completes a liquidation, merger, capital stock
exchange or other similar transaction that results in all of the Public Shareholders having the right to exchange their shares of Common
Stock for cash, securities or other property. Notwithstanding the foregoing, all Founder Shares will be released from the lock-up if (1)
the last reported sale price of the Company’s Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock
dividends, reorganizations, recapitalizations and other similar transactions) for any 20 trading days within any 30-trading day period
commencing at least 150 days after the Company’s initial Business Combination or (2) if after a Business Combination there is a
transaction whereby all of the Company’s stockholders have the right to exchange their shares for cash, securities or other property.
Private Placement Warrants
The Sponsor purchased an aggregate of
Private Placement Warrants, which includes the 600,000 Private Placement Warrants purchased by the Sponsor to account for the underwriters’
exercise of the over-allotment option, at a price of $per warrant, for an aggregate purchase price of $. Each Private Placement
Warrant is identical to the Public Warrants, except as described below. There will be no redemption rights or liquidating distributions
from the trust account with respect to the Founder Shares, Private Placement Warrants or placement rights, which will expire worthless
if the Company does not consummate a Business Combination within 12 months (or up to 15 months or 18 months, as applicable) following
the effectiveness of the Initial Public Offering.
Related Party Loans
In order to finance
transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor or certain of the Company’s
directors and officers may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”).
The terms of the Working Capital Loans have not been determined nor have any written agreements been executed with respect thereto. The
Working Capital Loan totaling $366,000 was repaid out of the offering proceeds not held in the Trust Account. As of March 31, 2022 and
December 31, 2021, the Working Capital Loans were repaid in full.
Administrative Services Agreement
The Company’s
Sponsor through the earlier of the Company’s consummation of a Business Combination and its liquidation, makes available to the
Company certain general and administrative services, including office space, utilities, and administrative services, as the Company may
require from time to time. The Company has agreed to pay the Sponsor $ per month for these services. The Company incurred $30,000
in operating cost associated with the administrative service fees for the three months ended March 31, 2022.
Note 6 — Commitments and Contingencies
In the course of
normal operations, the Company may be involved in various claims and litigation that management intends to defend. The range of loss,
if any, from potential claims cannot be reasonably estimated.
Registration and Shareholder Rights
The holders of
the Founder Shares, Public Warrants, and Private Placement 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, including those issued upon conversion of the working
capital loans and upon conversion of the Founder Shares) will be entitled to registration rights pursuant to a registration rights agreement
signed on the effective date of the IPO requiring the Company to register such securities for resale (in the case of the Founder Shares,
only after conversion to shares of 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, the holders have certain “piggy-back”
registration rights with respect to registration statements filed subsequent to the Company’s completion of the initial Business
Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. However,
the registration rights agreement provides that no sales of these securities will be effected until after the expiration of the applicable
lock-up period, as described herein. The Company will bear the expenses incurred in connection with the filing of any such registration
statements.
Underwriting Agreement
The underwriters
had a 45-day option from the date of the IPO to purchase up to an additional 1,500,000 Units to cover over-allotments if any.
On December 20, 2021, the underwriters fully exercised the over-allotment option.
The underwriters
were paid at the closing of the IPO an underwriting commission of $0.25 per Unit sold in the IPO or $2,513,333. Following the exercise
of the underwriters’ over-allotment option on December 20, 2021, the underwriters earned an additional $375,000 for an aggregate
of $2,888,333 in underwriting commissions related to the IPO and over-allotment.
In addition, $3,000,000
is payable to the underwriters for deferred underwriting commissions related to the Units sold in the IPO. Following the exercise of the
underwriters’ over-allotment option on December 20, 2021, the underwriters earned an additional $450,000 for an aggregate of
$3,450,000 in deferred underwriting commissions related to the IPO and over-allotment. The deferred underwriting commission will become
payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination,
subject to the terms of the underwriting agreement.
Note 7 — Stockholders’ Equity
Preferred Stock
The Company is
authorized to issue 1,000,000 preferred shares with a par value of $0.001 and with such designations, voting, and other rights and preferences
as may be determined from time to time by the Company’s board of directors. As of March 31, 2022, there were no preferred shares
issued or outstanding.
Common Stock
The Company is
authorized to issue 100,000,000 shares of Common Stock with a par value of $0.001 per share. As of March 31, 2022, there were 2,875,000
shares of Common Stock outstanding, excluding 11,500,000 shares of Common Stock subject to possible redemption issued.
Founder Shares
On February 23, 2021, the Sponsor purchased
the 2,875,000 Founder Shares for an aggregate price of $25,000.
The holders of the Founder Shares will agree,
subject to limited exceptions, not to transfer, assign or sell their Founder Shares, for a period ending on the date that is the earlier
of (A) one year following the date of the consummation of the Company’s initial Business Combination or (B) the date on
which the Company completes a liquidation, merger, capital stock exchange or other similar transaction that results in all of the Public
Shareholders having the right to exchange their shares of Common Stock for cash, securities or other property. Notwithstanding the foregoing,
all Founder Shares will be released from the lock-up if (1) the last reported sale price of the Company’s Common Stock equals or
exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and other similar transactions)
for any 20 trading days within any 30-trading day period commencing at least 150 days after the Company’s initial Business Combination
or (2) if after a Business Combination there is a transaction whereby all of the Company’s stockholders have the right to exchange
their shares for cash, securities or other property.
Public Warrants and Private Placement Warrants
Public Warrants may only be exercised for
a whole number of shares. No fractional Public Warrants were issued upon separation of the Units and only whole Public Warrants trade.
The Public Warrants will become exercisable on the later of (a) one year after the date that the registration statement for the offering
is declared effective by the SEC and (b) the consummation of a Business Combination; provided in each case that the Company has an effective
registration statement under the Securities Act covering the shares of common stock issuable upon exercise of the Public Warrants and
a current prospectus relating to them is available.
The Public Warrants have an exercise price
of $11.50 per share, subject to adjustment as described herein. In addition, if (x) the Company issues additional shares of Common Stock
or equity-linked securities for capital raising purposes in connection with the consummation of the Company’s initial Business Combination
at an issue price or effective issue price of less than $9.20 per share of 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) (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 Company’s initial Business Combination on the date of the consummation of the Company’s
initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Company’s Common Stock
during the 20 trading day period starting on the trading day prior to the day on which the Company consummates its initial Business Combination
(such price, 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 below under “Redemption of warrants” will be adjusted (to the nearest cent) to be equal to 180% of the greater
of the Market Value and the Newly Issued Price.
If a registration statement covering the
issuance of the shares of Common Stock issuable upon exercise of the warrants is not effective by the 60th business day following the
consummation of the Company’s 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. If that exemption, or another
exemption, is not available, holders will not be able to exercise their warrants on a cashless basis.
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 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 days before the Company sends the notice of redemption to the
warrant holders. |
The Company will not redeem the warrants
as described above unless a registration statement under the Securities Act covering the issuance of the shares of Common Stock issuable
upon exercise of the warrants is then effective and a current prospectus relating to those shares of Common Stock is available throughout
the 30-day redemption period, except if the warrants may be exercised on a cashless basis and such cashless exercise is exempt from
registration under the Securities Act. If and when the warrants become redeemable by the Company, the Company may not exercise its redemption
right if the issuance of shares of Common Stock upon exercise of the warrants is not exempt from registration or qualification under applicable
state blue sky laws or the Company is unable to effect such registration or qualification. The Company will use its best efforts to register
or qualify such shares of Common Stock under the blue sky laws of the state of residence in those states in which the warrants were offered
by the Company in the Public Offering.
If the Company calls the warrants for redemption
as described above, the Company’s management 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 Company’s management will consider, among other factors, its cash position, the number of outstanding warrants and the dilutive
effect on the Company’s stockholders of issuing the maximum number of shares of Common Stock issuable upon the exercise of the Company’s
warrants. In such an event, each holder would pay the exercise price by surrendering the warrants for that number of shares of Common
Stock equal to the quotient obtained by dividing (x) the product of the number of shares of Common Stock underlying the warrants, multiplied
by the difference between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market
value. The “fair market value” for this purpose shall mean the average reported last sale price of the Common Stock for the
10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants.
The Sponsor purchased an aggregate of
Private Placement Warrants, which includes the Private Placement Warrants purchased by the Sponsor to account for the underwriters’
exercise of the over-allotment option, at a price of $ per warrant, for an aggregate purchase price of $. Each Private Placement
Warrant is identical to the Public Warrants except as described below. There will be no redemption rights or liquidating distributions
from the trust account with respect to the Founder Shares, Private Placement Warrants or placement rights, which will expire worthless
if the Company does not consummate a Business Combination within 12 months (or up to 15 months or 18 months, as applicable) following
the effectiveness of the Public Offering. The Company’s initial stockholders have agreed to waive their redemption rights with respect
to any Founder Shares or Private Placement Warrants (i) in connection with the consummation of a Business Combination, (ii) in connection
with a stockholder vote to amend its amended and restated certificate of incorporation to modify the substance or timing of its obligation
to allow redemption in connection with the Company’s initial Business Combination or certain amendments to its charter prior thereto,
to redeem 100% of the Company’s Public Shares if the Company does not consummate its initial Business Combination within 12 months
(or up to 15 months or 18 months, as applicable) following the effectiveness of the Public Offering or with respect to any other provision
relating to stockholders’ rights or pre-initial Business Combination activity and (iii) if the Company fails to consummate
a Business Combination within 12 months (or up to 15 months or 18 months, as applicable) following the effectiveness of the Public
Offering or if the Company liquidates prior to the expiration of the 12-month period (or 15-month period or 18-month period, as applicable).
However, the Company’s initial stockholders will be entitled to redemption rights with respect to any Public Shares held by them
if the Company fails to consummate a Business Combination or liquidate within the 12-month period (or 15-month period or 18-month
period, as applicable).
All warrants meet the requirements for equity classification
and the Company accounts for the warrants as equity instruments in accordance with ASC 815, "Derivatives and Hedging", effective
with the Public Offering.
Note 8 - Fair Value Measurements
Fair
value is defined as the price that would be received for the sale of an asset or paid for the transfer of a liability, in an orderly transaction
between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets
or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
| ● | Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in
active markets; |
| ● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly
observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets
that are not active; and |
| ● | Level 3, is 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 March 31,
2022 and December 31, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair
value:
| |
March 31, | | |
Quoted Prices In Active Markets | | |
Significant Other Observable Inputs | | |
Significant Other Unobservable Inputs | |
| |
2022 | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Description | |
| | |
| | |
| | |
| |
Assets: | |
| | |
| | |
| | |
| |
U.S. Money Market Funds held in Trust Account | |
$ | 116,736,920 | | |
$ | 116,736,920 | | |
$ | - | | |
$ | - | |
Total | |
$ | 116,736,920 | | |
$ | 116,736,920 | | |
$ | - | | |
$ | - | |
| |
December 31, | | |
Quoted Prices In Active Markets | | |
Significant Other Observable Inputs | | |
Significant Other Unobservable Inputs | |
| |
2021 | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Description | |
| | |
| | |
| | |
| |
Assets: | |
| | |
| | |
| | |
| |
U.S. Money Market Funds held in Trust Account | |
$ | 116,725,166 | | |
$ | 116,725,166 | | |
$ | - | | |
$ | - | |
Total | |
$ | 116,725,166 | | |
$ | 116,725,166 | | |
$ | - | | |
$ | - | |
There were no transfers
between Levels 1, 2 or 3 from inception to December 31, 2021 and during the three months ended March 31, 2022.
Note 9 — Subsequent Events
The Company evaluated subsequent events
and transactions that occurred after the condensed balance sheet date up to the date that the unaudited condensed financial statements
were issued. The Company did not identify any subsequent events that would have required adjustment or disclosure in the unaudited condensed
financial statement.