☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2022
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Cayman Islands | 001-39865 | 98-1574497 | ||
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (IRS Employer Identification No.) |
Albany Financial Center, South Ocean Blvd, Suite #507, P.O. Box SP-63158, New Providence, Nassau, The Bahamas | n/a | |
(Address Of Principal Executive Offices) | (Zip Code) |
☐
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||
Emerging growth company | ☒ |
March 31, 2021 | December 31, 2020 | |||||||
(Unaudited) | ||||||||
Assets: | ||||||||
Current assets: | ||||||||
Cash | $ | 723,611 | $ | — | ||||
Prepaid expenses | 808,616 | 16,771 | ||||||
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Total current assets | 1,532,227 | 16,771 | ||||||
Investments held in Trust Account | 375,004,727 | — | ||||||
Deferred offering costs associated with the initial public offering | — | 381,478 | ||||||
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Total Assets | $ | 376,536,954 | $ | 398,249 | ||||
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Liabilities and Shareholders’ Equity (Deficit): | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 70,006 | $ | — | ||||
Accounts payable - related party | 26,452 | — | ||||||
Accrued expenses | 99,500 | 245,000 | ||||||
Note payable - related party | — | 162,127 | ||||||
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Total current liabilities | 195,958 | 407,127 | ||||||
Deferred underwriting commissions | 13,125,000 | — | ||||||
Warrant liabilities | 12,031,250 | — | ||||||
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Total liabilities | 25,352,208 | 407,127 | ||||||
Commitments and Contingencies (Note 6) | ||||||||
Class A ordinary shares, $0.0001 par value; 34,618,474 shares subject to possible redemption at $10.00 per share as of March 31, 2021 | 346,184,740 | — | ||||||
Shareholders’ Equity (Deficit): | ||||||||
Preference shares, $0.0001 par value; 5,000,000 shares authorized; none issued and outstanding | — | — | ||||||
Class A ordinary shares, $0.0001 par value; 500,000,000 shares authorized; 2,881,526 shares issued and outstanding (excluding 34,618,474 shares subject to possible redemption) as of March 31, 2021 | 288 | — | ||||||
Class B ordinary shares, $0.0001 par value; 50,000,000 shares authorized; 9,375,000 and 10,062,500 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively (1) | 937 | 1,006 | ||||||
Additional paid-in capital | 5,361,604 | 23,994 | ||||||
Accumulated deficit | (362,823 | ) | (33,878 | ) | ||||
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Total shareholders’ equity (deficit) | 5,000,006 | (8,878 | ) | |||||
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Total Liabilities and Shareholders’ Equity (Deficit) | $ | 376,536,954 | $ | 398,249 | ||||
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March 31, 2022 | December 31, 2021 | |||||||
(Unaudited) | ||||||||
Assets: | ||||||||
Current assets: | ||||||||
Cash | $ | 82,737 | $ | 160,991 | ||||
Prepaid expenses | 418,450 | 454,459 | ||||||
Total current assets | 501,187 | 615,450 | ||||||
Investments held in Trust Account | 375,042,232 | 375,032,984 | ||||||
Total Assets | $ | 375,543,419 | $ | 375,648,434 | ||||
Liabilities, Class A Ordinary Shares Subject to Possible Redemption and Shareholders’ Deficit | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 220,067 | $ | 66,516 | ||||
Accounts payable - related party | 71,954 | — | ||||||
Total current liabilities | 292,021 | 66,516 | ||||||
Deferred underwriting commissions | 13,125,000 | 13,125,000 | ||||||
Warrant liabilities | 5,454,167 | 9,304,167 | ||||||
Total liabilities | 18,871,188 | 22,495,683 | ||||||
Commitments and Contingencies | 0 | 0 | ||||||
Class A ordinary shares subject to possible redemption, $0.0001 par value; 37,500,000 shares issued and outstanding at $10.00 per share redemption value as of March 31, 2022 and December 31, 2021 | 375,000,000 | 375,000,000 | ||||||
Shareholders’ Deficit: | ||||||||
Preference shares, $0.0001 par value; 5,000,000 shares authorized; NaN issued or outstanding as of March 31, 2022 and December 31, 2021 | — | 0— | ||||||
Class A ordinary shares, $0.0001 par value; 500,000,000 shares authorized; 0 non-redeemable shares issued or outstanding as of March 31, 2022 and December 31, 2021 | — | 0 | ||||||
Class B ordinary shares, $0.0001 par value; 50,000,000 shares authorized; 9,375,000 shares issued and outstanding as of March 31, 2022 and December 31, 2021 | 937 | 937 | ||||||
Accumulated deficit | (18,328,706 | ) | (21,848,186 | ) | ||||
Total shareholders’ deficit | (18,327,769 | ) | (21,847,249 | ) | ||||
Total Liabilities, Class A Ordinary Shares Subject to Possible Redemption and Shareholders’ Deficit | $ | 375,543,419 | $ | 375,648,434 | ||||
For the Three Months Ended March 31, 2021 | ||||
Operating expenses | ||||
General and administrative expenses | $ | 429,621 | ||
Administrative fee - related party | 26,452 | |||
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Loss from Operations | (456,073 | ) | ||
Change in fair value of warrant liabilities | 547,917 | |||
Offering costs associated with issuance of warrants | (425,516 | ) | ||
Net gain from investments held in Trust Account | 4,727 | |||
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Net loss | $ | (328,945 | ) | |
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Weighted average shares outstanding of Class A ordinary shares, basic and diluted | 37,500,000 | |||
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Basic and diluted net income per share, Class A ordinary shares | $ | 0.00 | ||
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Weighted average shares outstanding of Class B ordinary shares, basic and diluted | 9,298,611 | |||
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Basic and diluted net loss per share, Class B ordinary shares | $ | (0.04 | ) | |
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For the Three Months Ended | ||||||||
March 31, 2022 | March 31, 2021 | |||||||
Operating expenses | ||||||||
General and administrative expenses | $ | 309,768 | $ | 429,621 | ||||
General and administrative expenses—related party | 30,000 | 26,452 | ||||||
Loss from operations | (339,768 | ) | (456,073 | ) | ||||
Other income (expenses): | ||||||||
Change in fair value of warrant liabilities | 3,850,000 | 547,917 | ||||||
Offering costs associated with issuance of warrants | — | (425,516 | ) | |||||
Net gain from investments held in Trust Account | 9,248 | 4,727 | ||||||
Net income (loss) | $ | 3,519,480 | $ | (328,945 | ) | |||
Weighted average shares outstanding of Class A ordinary shares, basic and diluted | 37,500,000 | 32,916,667 | ||||||
Basic and diluted net income (loss) per Class A ordinary share | $ | 0.08 | $ | (0.01 | ) | |||
Weighted average shares outstanding of Class B ordinary shares, basic and diluted | 9,375,000 | 9,298,611 | ||||||
Basic and diluted net income (loss) per Class B ordinary share | $ | 0.08 | $ | (0.01 | ) | |||
DEFICIT
Ordinary Shares | Additional | Total | ||||||||||||||||||||||||||
Class A | Class B | Paid-in | Accumulated | Shareholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
Balance - December 31, 2021 | 0 | $ | 0 | 9,375,000 | $ | 937 | $ | 0 | $ | (21,848,186 | ) | $ | (21,847,249 | ) | ||||||||||||||
Net income | — | — | — | — | — | 3,519,480 | 3,519,480 | |||||||||||||||||||||
Balance - March 31, 2022 (unaudited) | 0 | $ | 0 | 9,375,000 | $ | 937 | $ | 0 | $ | (18,328,706 | ) | $ | (18,327,769 | ) | ||||||||||||||
Ordinary Shares | Additional | Total | ||||||||||||||||||||||||||
Class A | Class B | Paid-in | Accumulated | Shareholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares (1) | Amount | Capital | Deficit | Equity (Deficit) | ||||||||||||||||||||||
Balance - December 31, 2020 | — | $ | — | 10,062,500 | $ | 1,006 | $ | 23,994 | $ | (33,878 | ) | $ | (8,878 | ) | ||||||||||||||
Sale of units in initial public offering, less fair value of warrant liabilities for public warrants | 37,500,000 | 3,750 | — | — | 367,683,750 | — | 367,687,500 | |||||||||||||||||||||
Offering costs | — | — | — | — | (20,898,264 | ) | — | (20,898,264 | ) | |||||||||||||||||||
Excess cash received over the fair value of the private warrants | — | — | — | — | 4,733,333 | — | 4,733,333 | |||||||||||||||||||||
Class B ordinary shares forfeited | — | — | (687,500 | ) | (69 | ) | 69 | — | — | |||||||||||||||||||
Class A ordinary shares subject to possible redemption | (34,618,474 | ) | (3,462 | ) | — | — | (346,181,278 | ) | — | (346,184,740 | ) | |||||||||||||||||
Net loss | — | — | — | — | — | (328,945 | ) | (328,945 | ) | |||||||||||||||||||
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Balance - March 31, 2021 (unaudited) | 2,881,526 | $ | 288 | 9,375,000 | $ | 937 | $ | 5,361,604 | $ | (362,823 | ) | $ | 5,000,006 | |||||||||||||||
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Ordinary Shares | Additional | Total | ||||||||||||||||||||||||||
Class A | Class B | Paid-in | Accumulated | Shareholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
Balance - December 31, 2020 | 0 | $ | 0 | 10,062,500 | $ | 1,006 | $ | 23,994 | $ | (33,878 | ) | $ | (8,878 | ) | ||||||||||||||
Excess cash received over the fair value of the private warrants | — | — | — | — | 4,733,333 | — | 4,733,333 | |||||||||||||||||||||
Class B ordinary shares forfeited | — | — | (687,500 | ) | (69 | ) | 69 | — | — | |||||||||||||||||||
Accretion on Class A ordinary shares subject to possible redemption amount | — | — | — | — | (4,757,396 | ) | (23,453,368 | ) | (28,210,764 | ) | ||||||||||||||||||
Net loss | — | — | — | — | — | (328,945 | ) | (328,945 | ) | |||||||||||||||||||
Balance - March 31, 2021 (unaudited) | 0 | $ | 0 | 9,375,000 | $ | 937 | $ | 0 | $ | (23,816,191 | ) | $ | (23,815,254 | ) | ||||||||||||||
For the Three Months Ended | ||||
March 31, 2021 | ||||
Cash Flows from Operating Activities: | ||||
Net loss | $ | (328,945 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: | ||||
Change in fair value of warrant liabilities | (547,917 | ) | ||
Offering costs associated with issuance of warrants | 425,516 | |||
Net gain from investments held in Trust Account | (4,727 | ) | ||
Change in operating assets: | ||||
Prepaid expenses | (791,845 | ) | ||
Accounts payable | 70,006 | |||
Accounts payable - related party | 26,452 | |||
Accrued expenses | 14,500 | |||
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Net cash used in operating activities | (1,136,960 | ) | ||
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Cash Flows from Investing Activities: | ||||
Cash deposited in Trust Account | (375,000,000 | ) | ||
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Net cash used in investing activities | (375,000,000 | ) | ||
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Cash Flows from Financing Activities: | ||||
Proceeds from note payable to related party | 6,604 | |||
Repayment of note payable to related party | (168,731 | ) | ||
Proceeds received from initial public offering, gross | 375,000,000 | |||
Proceeds received from private placement | 10,000,000 | |||
Offering costs paid | (7,977,302 | ) | ||
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Net cash provided by financing activities | 376,860,571 | |||
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Net change in cash | 723,611 | |||
Cash - beginning of the period | — | |||
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Cash - end of the period | $ | 723,611 | ||
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Supplemental disclosure of noncash activities: | ||||
Offering costs included in accrued expenses | $ | 85,000 | ||
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Deferred underwriting commissions | $ | 13,125,000 | ||
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Forfeiture of Class B ordinary shares | $ | 69 | ||
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Initial value of Class A ordinary shares subject to possible redemption | $ | 346,074,800 | ||
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Change in value of Class A ordinary shares subject to possible redemption | $ | 109,940 | ||
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For the Three Months Ended | ||||||||
March 31, 2022 | March 31, 2021 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net income (loss) | $ | 3,519,480 | $ | (328,945 | ) | |||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Change in fair value of warrant liabilities | (3,850,000 | ) | (547,917 | ) | ||||
Offering costs associated with issuance of warrants | — | 425,516 | ||||||
Net gain from investments held in Trust Account | (9,248 | ) | (4,727 | ) | ||||
Change in operating assets: | ||||||||
Prepaid expenses | 36,009 | (791,845 | ) | |||||
Accounts payable | 153,551 | 70,006 | ||||||
Accounts payable - related party | 71,954 | 26,452 | ||||||
Accrued expenses | — | 14,500 | ||||||
Net cash used in operating activities | (78,254 | ) | (1,136,960 | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Cash deposited in Trust Account | — | (375,000,000 | ) | |||||
Net cash used in investing activities | — | (375,000,000 | ) | |||||
Cash Flows from Financing Activities: | ||||||||
Proceeds from note payable to related party | — | 6,604 | ||||||
Repayment of note payable to related party | — | (168,731 | ) | |||||
Proceeds received from initial public offering, gross | — | 375,000,000 | ||||||
Proceeds received from private placement | — | 10,000,000 | ||||||
Offering costs paid | — | (7,977,302 | ) | |||||
Net cash provided by financing activities | — | 376,860,571 | ||||||
Net change in cash | (78,254 | ) | 723,611 | |||||
Cash - beginning of the period | 160,991 | 0 | ||||||
Cash - end of the period | $ | 82,737 | $ | 723,611 | ||||
Supplemental disclosure of noncash activities: | ||||||||
Offering costs included in accrued expenses | $ | — | $ | 85,000 | ||||
Deferred underwriting commissions | $ | — | $ | 13,125,000 | ||||
Forfeiture of Class B ordinary shares | $ | — | $ | 69 | ||||
and Going Concern
Going Concern
$209,000.
However, in connection with the Company’s assessment of going concern considerations in accordance with FASB accounting Standards Update (“ASU”)
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Annual Report on Form
2021.
As
not reasonably expected to require the use of current assets or require the creation of current liabilities.
current assets or require the creation of current liabilities.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of the Class A ordinary shares subject to possible redemption to equal the redemption value at the end of each reporting period. This method would view the end of the reporting period as if it were also the redemption date for the security. Effective with the closing of the Initial Public Offering, the Company recognized the accretion from initial book value to redemption amount, which resulted in charges against
For the Three Months Ended March 31, 2022 | For the Three Months Ended March 31, 2021 | |||||||||||||||
Class A | Class B | Class A | Class B | |||||||||||||
Numerator: | ||||||||||||||||
Allocation of net income (loss) | $ | 2,815,584 | $ | 703,896 | $ | (256,489 | ) | $ | (72,456 | ) | ||||||
Denominator: | ||||||||||||||||
Weighted average ordinary shares outstanding, basic and diluted | 37,500,000 | 9,375,000 | 32,916,667 | 9,298,611 | ||||||||||||
Basic and diluted net income (loss) per ordinary share | $ | 0.08 | $ | 0.08 | $ | (0.01 | ) | $ | (0.01 | ) | ||||||
Net Income (Loss) per Ordinary Share
Net income (loss) per ordinary share is computed by dividing net income (loss) applicable to shareholders by the weighted average number of ordinary shares outstanding during the period. The Company has not considered the effect of the warrants sold in the Initial Public Offering and the Private Placement to purchase an aggregate of 16,041,667 ordinary shares in the calculation of diluted income per share, because their inclusion would be anti-dilutive under the treasury stock method.
The Company’s unaudited condensed statement of operations includes a presentation of income (loss) per ordinary shares subject to redemption in a manner similar to the two-class method of income (loss) per share. Net income per ordinary share, basic and diluted for Class A ordinary shares is calculated by dividing the investment income earned on the Trust Account of approximately $5,000 by the weighted average number of Class A ordinary shares outstanding for the three months ended March 31, 2021. Net loss per ordinary share, basic and diluted for Class B ordinary shares is calculated by dividing the net loss of approximately $329,000 for the three months ended March 31, 2021, less income attributable to Class A ordinary shares of approximately $5,000, by the weighted average number of Class B ordinary shares outstanding.
Derivative warrant liabilities
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815-15. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
The Company accounts for its 16,041,667 warrants issued in connection with its Initial Public Offering (9,375,000) and Private Placement (6,666,667), as derivative warrant liabilities in accordance with ASC 815-40. Accordingly, the Company recognizes the warrant instruments as liabilities at fair value and adjusts the instruments to fair value at each reporting period. The liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s statement of operations. The fair value of warrants issued in connection with the Private Placement has been estimated using Monte-Carlo simulations at each balance sheet date. The fair value of the warrants issued in connection with the Initial Public Offering was initially measured using a Monte-Carlo simulation model at each measurement date and subsequently been measured based on the market price when separately listed and traded.
In August 2020, the FASB issued ASU No. 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): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. The Company adopted ASU 2020-06 on January 1, 2021. Adoption of the ASU did not impact the Company’s financial position, results of operations or cash flows.
Recent Issued Accounting Standards
Subsequent to the repayment, the facility was no longer available to the Company.
The underwriters were entitled to an underwriting discount of $0.20 per unit, or $7.5 million in the aggregate, paid upon the closing of the Initial Public Offering. In addition, $0.35 per unit, or approximately $13.1 million in the aggregate will be payable to the underwriters for deferred underwriting commissions. The deferred fee 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.
-Warrants
Gross proceeds received from Initial Public Offering | $ | 375,000,000 | ||
Less: | ||||
Fair value of Public Warrants at issuance | (7,312,500 | ) | ||
Offering costs allocated to Class A ordinary shares | (20,898,264 | ) | ||
Plus: | ||||
Accretion on Class A ordinary shares to redemption value | 28,210,764 | |||
Class A ordinary shares subject to possible redemption | $ | 375,000,000 | ||
Deficit
(see Note 8).
outstanding.
Fair Value Measured as of March 31, 2021 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets | ||||||||||||||||
Investments held in Trust Account - U.S. Treasury Securities | $ | 375,004,727 | $ | — | $ | — | $ | 375,004,727 | ||||||||
Liabilities: | ||||||||||||||||
Warrant liabilities - public warrants | 7,031,250 | — | 7,031,250 | |||||||||||||
Warrant liabilities - private warrants | — | — | 5,000,000 | 5,000,000 | ||||||||||||
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Fair Value Measured as of March 31, 2022 | ||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments held in Trust Account - U.S. Treasury Securities | $ | 375,042,232 | $ | — | $ | 0 | ||||||
Liabilities: | ||||||||||||
Warrant liabilities - public warrants | $ | 3,187,500 | $ | — | $ | 0 | ||||||
Warrant liabilities - private placement warrants | $ | — | $ | — | $ | 2,266,667 |
Fair Value Measured as of December 31, 2021 | ||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments held in Trust Account - U.S. Treasury Securities | $ | 375,032,984 | $ | — | $ | — | ||||||
Liabilities: | ||||||||||||
Warrant liabilities - public warrants | $ | 5,437,500 | $ | — | $ | — | ||||||
Warrant liabilities - private placement warrants | $ | — | $ | — | $ | 3,866,667 |
The Company utilizes a binomial Monte-Carlo simulation to estimatetraded in March 2021.
Warrant liabilities at January 1, 2021 | $ | — | ||
Issuance of Public and Private Warrants | 12,579,167 | |||
Public Warrants transfer to Level 1 | (7,312,500 | ) | ||
Change in fair value of warrant liabilibites | (266,667 | ) | ||
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Warrant liabilities at March 31, 2021 | $ | 5,000,000 | ||
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Warrant liabilities as of January 1, 2022 | $ | 3,866,667 | ||
Change in fair value of warrant liabilities | (1,600,000 | ) | ||
Warrant liabilities as of March 31, 2022 | $ | 2,266,667 | ||
Warrant liabilities as of January 1, 2021 | $ | 0 | ||
Issuance of Public and Private Placement Warrants | 12,579,167 | |||
Public Warrants transferred to Level 1 | (7,312,500 | ) | ||
Change in fair value of warrant liabilities | (266,667 | ) | ||
Warrant liabilities as of March 31, 2021 | $ | 5,000,000 | ||
Any changes in these assumptions can change the valuation significantly.
March 31, 2021 | January 12, 2021 | |||||||
Exercise price | $ | 11.50 | $ | 11.50 | ||||
Stock Price | $ | 9.72 | $ | 9.80 | ||||
Term (in years) | 5.76 | 5.97 | ||||||
Volatility | 13.50 | % | 14.20 | % | ||||
Risk-free interest rate | 1.10 | % | 0.66 | % | ||||
Dividend yield | — | — |
Note 10 — Revision to Prior Period Financial Statements
During the course of preparing the quarterly report on Form 10-Q for the three-month period ended March 31, 2021, the Company identified a misapplication of accounting guidance related to the Company’s warrants in the Company’s previously issued audited balance sheet dated January 12, 2021, filed on Form 8-K on January 19, 2021 (the “Post-IPO Balance Sheet”).
On April 12, 2021, the staff of the Securities and Exchange Commission (the “SEC Staff”) issued a public statement entitled “Staff Statement on Accounting and Reporting Considerations for Warrants issued by Special Purpose Acquisition Companies (“SPACs”)” (the “SEC Staff Statement”). In the SEC Staff Statement, the SEC Staff expressed its view that certain terms and conditions common to SPAC warrants may require the warrants to be classified as liabilities on the SPAC’s balance sheets as opposed to equity. Since their issuance on January 12, 2021, the Company’s warrants have been accounted for as equity within the Company’s previously reported balance sheet. After discussion and evaluation, including with the Company’s independent registered public accounting firm and the Company’s audit committee, management concluded that the warrants should be presented as liabilities with subsequent fair value remeasurement.
The warrants were reflected as a component of equity in the Post-IPO Balance Sheet as opposed to liabilities on the balance sheets, based on the Company’s application of FASB ASC Topic 815-40,Derivatives and Hedging, Contracts in Entity’s Own Equity (“ASC 815-40). The views expressed in the SEC Staff Statement were not consistent with the Company’s historical interpretation of the specific provisions within its warrant agreement and the Company’s application of ASC 815-40 to the warrant agreement. The Company reassessed its accounting for Warrants issued on January 12, 2021, in light of the SEC Staff’s published views. Based on this reassessment, management determined that the warrants should be classified as liabilities measured at fair value upon issuance, with subsequent changes in fair value reported in the Company Statement of Operations each reporting period.
The Company concluded that the misstatement was not material to the Post-IPO Balance Sheet and the misstatement had no material impact to any prior interim period. The effect of the revisions to the Post-IPO Balance Sheet is as follows:
As of January 12, 2021 | ||||||||||||
As Previously | Restatement | |||||||||||
Reported | Adjustment | As Restated | ||||||||||
Balance Sheet | ||||||||||||
Total assets | $ | 377,545,296 | $ | — | $ | 377,545,296 | ||||||
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Liabilities and shareholders’ equity | ||||||||||||
Total current liabilities | $ | 766,319 | $ | — | $ | 766,319 | ||||||
Deferred underwriting commissions | 13,125,000 | — | 13,125,000 | |||||||||
Warrant liabilities | — | 12,579,167 | 12,579,167 | |||||||||
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Total liabilities | 13,891,319 | 12,579,167 | 26,470,486 | |||||||||
Class A ordinary shares, $0.001 par value; shares subject to possible redemption | 358,653,970 | (12,579,170 | ) | 346,074,800 | ||||||||
Shareholders’ equity | ||||||||||||
Preference shares - $0.0001 par value | — | — | — | |||||||||
Class A ordinary shares - $0.001 par value | 164 | 126 | 290 | |||||||||
Class B ordinary shares - $0.001 par value | 1,006 | — | 1,006 | |||||||||
Additional paid-in-capital | 5,046,081 | 425,393 | 5,471,474 | |||||||||
Accumulated deficit | (47,244 | ) | (425,516 | ) | (472,760 | ) | ||||||
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Total shareholders’ equity | 5,000,007 | 3 | 5,000,010 | |||||||||
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Total liabilities and shareholders’ equity | $ | 377,545,296 | $ | — | $ | 377,545,296 | ||||||
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March 31, 2022 | December 31, 2021 | |||||||
Exercise price | $ | 11.50 | $ | 11.50 | ||||
Stock Price | $ | 9.80 | $ | 9.75 | ||||
Term (in years) | 5.76 | 5.75 | ||||||
Volatility | 4.70 | % | 10.00 | % | ||||
Risk-free interest rate | 2.38 | % | 1.32 | % | ||||
Dividend yield | 0 | 0 |
Going Concern
$209,000.
However, in connection with our assessment of going concern considerations in accordance with FASB Accounting Standards Update
Our unaudited condensed statement of operations includes a presentation of income (loss) per ordinary shares subject to redemption in a manner similar to Accretion associated with the two-class method of income (loss) per share. Net income per ordinary share, basic and diluted forredeemable Class A ordinary shares is calculated by dividingexcluded from earnings per share as the investment income earned on the Trust Account of approximately $5,000 by the weighted average number of Class A ordinary shares outstanding for the three months ended March 31, 2021. Net loss per ordinary share, basic and diluted for Class B ordinary shares is calculated by dividing the net loss of approximately $329,000 for the three months ended March 31, 2021, less income attributable to Class A ordinary shares of approximately $5,000, by the weighted average number of Class B ordinary shares outstanding.
redemption value approximates fair value.
Warrant Liabilities
Recent Adopted Accounting Standards
In August 2020, the FASB issued ASU No. 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): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. We adopted ASU 2020-06 on January 1, 2021. Adoptiondetermination of the ASU didfair value of the warrant liability may be subject to change as more current information becomes available and accordingly the actual results could differ significantly. Derivative warrant liabilities are classified as
require the creation of current liabilities.
Pronouncements
We have not engaged in any hedging activities since our inception and we do not expect to engage in any hedging activities with respect to the market risk to which we are exposed.
On April 12, 2021, the staff at the Securities and Exchange Commission (the “SEC staff”) issued a statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) (the “SEC Statement”). In the SEC Statement, the SEC staff noted that certain provisions in the typical SPAC warrant agreement may require that the warrants be classified as a liability measured at fair value, with changes in fair value reported each period in earnings, as compared to the historical treatment of the warrants as equity, which has been the practice of most SPACs, including us. We had previously classified our private placement warrants and public warrants as equity (for a full description of our private placement warrants and public warrants, refer to the registration statement on Form S-1 (File No. 333- 249676), filed in connection with the Company’s initial public offering, declared effective by the SEC on October 26, 2020).After considering the SEC Statement, we concluded that there were misstatements in the January 12, 2021 audited closing balance sheet we filed with the SEC on Form 8-K on January 19, 2021. Based on the guidance in Accounting Standards Codification (“ASC”) 815-40, “Derivatives and Hedging — Contracts in Entity’s Own Equity”, we concluded that provisions in the warrant agreement preclude the warrants from being accounted for as components of equity. As the warrants meet the definition of a derivative as contemplated in ASC 815, the warrants should have been recorded as derivative liabilities on the balance sheet and measured at fair value at inception and at each reporting date in accordance with ASC 820, “Fair Value Measurement”, with changes in fair value recognized in the statement of operations in the period of change. Further, ASC 815 requires that upfront costs and fees related to items for which the fair value option is elected (our warrant liabilities) should have been recognized as expense as incurred.
We have corrected the accounting for the warrants in this Quarterly Report on Form 10-Q. The effect of the restatement on specific line items in our January 12, 2021 audited closing date balance sheet can be found in Note 10 of the Notes to unaudited condensed financial statements.
In connection
Our warrants are accounted for as liabilities and the changes
On April 12, 2021, the SEC Staff issued the SEC Statement, wherein the SEC Staff expressed its view that certain terms and conditions commonfailure to SPAC warrants may require the warrants to be classified as liabilities on the SPAC’s balance sheet as opposed to being treated as equity. Specifically, the SEC Statement focused on certain settlement terms and provisions related to certain tender offers following a business combination, which terms are similar to those contained in the warrant agreement governing our warrants. As a result of the SEC Statement, we reevaluated the accounting treatment of our warrants, and pursuant to the guidance in ASC 815, Derivatives and Hedging, determined the warrants should be classified as derivative liabilities measured at fair value on our balance sheet,comply with any changes in fair value to be reported each period in earnings on our statement of operations.
As a result of the recurring fair value measurement, our financial statementslaws and regulations, may fluctuate quarterly, based on factors which are outside of our control. Due to the recurring fair value measurement, we expect that we will recognize non-cash gains or losses on our warrants each reporting period and that the amount of such gains or losses could be material.
We have identified a material weakness in our internal control over financial reporting. This material weakness could continue to adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our management is likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses identified through such evaluation in those internal controls. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
As described elsewhere in this Quarterly Report, we identified a material weakness in our internal control over financial reporting related to the accounting for the warrants we issued in connection with our Initial Public Offering and private placement in January 2021. As a result of this material weakness, our management concluded that our disclosure controls and procedures were not effective as of March 31, 2021. This material weakness resulted in a misstatement of our warrant liabilities, additional paid-in capital and accumulated deficit in our previously issued audited balance sheet dated January 12, 2021, filed on a Current Report on Form 8-K on January 19, 2021.
Any failure to maintain effective internal control over financial reporting or disclosure controls and procedures could adversely impactbusiness, including our ability to reportnegotiate and complete our financial positioninitial business combination, and results from operations on a timely and accurate basis. If our financial statementsof operations.
We can give no assurance that the measures we have taken and plan to take in the future will remediate the material weakness identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls. In addition, even ifparticular, we are successful in strengthening our controls and procedures, in the future those controls and procedures may not be adequaterequired to prevent or identify irregularities or errors or to facilitate the fair presentation of our financial statements.
We may face litigationcomply with certain SEC and other risks as a resultlegal requirements. Compliance with, and monitoring of, the material weakness in our internal control over financial reporting.
We identified a material weakness in our internal controls over financial reporting. As a result of such material weakness, theapplicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change in accounting for our warrants,from time to time and other matters raised or that may in the future be raised by the SEC, we face potential for litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the material weaknesses in our internal control over financial reporting and the preparation of our financial statements. As of the date of this Quarterly Report, we have no knowledge of any such litigation or dispute. However, we can provide no assurance that such litigation or dispute will not arise in the future. Any such litigation or dispute, whether successful or not,those changes could have a material adverse effect on our business, investments and results of operationsoperations. In addition, a failure to comply with applicable laws or regulations, as interpreted and financial conditionapplied, could have a material adverse effect on our business, including our ability to negotiate and complete our initial business combination, and results of operations.
Use of Proceeds
On January 12, 2021, we consummated its Initial Public Offering of 37,500,000 Units, including 2,500,000 additional Units to partially cover over-allotments. The Units were sold at an offering price of $10.00 per Unit, generating total gross proceeds of $375.0 million. Each Unit consists of one Class A ordinary share,and one-fourth of one redeemable warrant. Each warrant entitles the holder to purchase one Class A ordinary share at a price of $11.50 per share, subject to adjustment. The securities sold in the offering were registered under the Securities Act on registration statement on Form S-1 (No. 333-249676). The SEC declared the registration statement effective on January 7, 2021.
Of the gross proceeds received from the Initial Public Offering and sale of the Private Placement Warrants, $375.0 million was placed in the Trust Account.
We paid a total of $19.3 million in underwriting discounts and commissions and approximately $699,000 for other offering costs and expenses related to the Initial Public Offering. In addition, the underwriters agreed to defer approximately $8.1 million in underwriting discounts and commissions.
For a description of the use of the proceeds generated in our Initial Public Offering, see Part I, Item 2 of this Form 10-Q.
* | These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing. |
Dated: | LEO HOLDINGS CORP. II | |||||
| By: | /s/ Lyndon Lea | ||||
Name: | Lyndon Lea | |||||
Title: | President and Chief Executive Officer (Principal Executive |
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