UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 1)
(Mark One)
For the quarterly period ended
For the transition period from to
Commission File No.
| (Exact name of registrant as specified in its charter) |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 228 Park Avenue S. |
| (Address of Principal Executive Offices, including zip code) |
| (Registrant’s telephone number, including area code) |
| N/A |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Units, each consisting of one share of Class A Common Stock and one-third of one Redeemable Warrant | TWLVU | The | ||
| The Nasdaq Stock Market LLC | ||||
| Redeemable Warrants, each whole warrant exercisable for one share of Class A Common Stock at an exercise price of $11.50 | TWLVW | The Nasdaq Stock Market LLC |
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Indicate by check mark whether
the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☐ Large accelerated filer | ☐ Accelerated filer | |
| ☒ | ||
If an emerging growth company,
indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes
As of November 15, 2021 there
were
TWELVE SEAS INVESTMENT COMPANY II
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2021
TABLE OF CONTENTS
i
EXPLANATORY NOTE
References throughout this Amendment No. 1 to the Quarterly Report on Form 10-Q to “we,” “us,” the “Company” or “our company” are to Twelve Seas Investment Company II unless the context otherwise indicates.
The Original Filing included a section within Note 2, “Revision to Previously Issued Financial Statements”, that described a revision to the Company’s classification of its Class A common stock subject to redemption issued as part of the units sold in the Company’s initial public offering (the “IPO”) on March 2, 2021. As described in Note 2 within the Original Filing, upon its IPO, the Company classified a portion of the Class A common stock as permanent equity. After discussion and evaluation, the Company has concluded that all of its redeemable Class A common stock should be classified as temporary equity. This resulted in an adjustment to the initial carrying value of the Class A common stock subject to possible redemption with the offset recorded to additional paid-in capital (to the extent available), accumulated deficit and Class A common stock.
In connection with the change in presentation for the Class A common stock subject to possible redemption, the Company revised its earnings per share calculation to allocate income and losses pro rata between the two classes of common stock. This presentation differs from the previously presented method of earnings per share, which was similar to the two-class method.
The Company determined the changes were not qualitatively material to the Company’s previously reported financial statements and did not restate its financial statements. Instead, the Company revised its previously reported financial statements within Note 2 to its Original Filing. Although the qualitative factors that management assessed tended to support a conclusion that the misstatements were not material, these factors were not strong enough to overcome the significant quantitative errors in the financial statements. Management concluded that the misstatement was of such magnitude that it is probable that the judgment of a reasonable person relying upon the financial statements would have been influenced by the inclusion or correction of the foregoing items. As such, upon further consideration of the change, the Company determined the change in classification of the Class A common stock and change to its presentation of earnings per share is material quantitatively and it should restate its previously issued financial statements.
Therefore, on March 9, 2022, the Company’s management and the audit committee of the Company’s board of directors concluded that the Company’s previously reported amounts in the (i) audited balance sheet as of March 2, 2021 included in the Company’s Current Report on Form 8-K, filed with the SEC on March 8, 2021 (the “Audited Balance Sheet”), (ii) unaudited interim financial statements for the quarterly period ended March 31, 2021, initially reported in the Company’s Form 10-Q for the quarterly period ended March 31, 2021 filed with the SEC on July 22, 2021; and (iii) unaudited interim financial statements initially reported in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021, filed with the SEC on August 16, 2021 (collectively, the “Affected Periods”), should be restated to report all Public Shares (as defined below) as temporary equity and should no longer be relied upon. As such, the Company has restated the unaudited interim financial statements for the quarterly periods ended March 31, 2021 and June 30, 2021 in this Amendment No. 1. The Company has restated the audited balance sheet as of March 2, 2021 in its Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Since the Company’s IPO, the Company has considered its Class A common stock subject to possible redemption to be equal to the redemption value of $10.00 per Class A common stock while also taking into consideration that a redemption cannot result in net tangible assets being less than $5,000,001. Previously, the Company did not consider redeemable shares classified as temporary equity as part of net tangible assets. Upon further analysis, the Company’s management has determined that the Class A common stock issued in the IPO can be redeemed or become redeemable subject to the occurrence of future events considered outside of the Company’s control. Therefore, the Company’s management concluded that the redemption value should include all Class A common stock subject to possible redemption, resulting in the Class A common stock subject to possible redemption being equal to their redemption value.
The restatement does not have an impact on the Company’s cash position and cash held in the trust account established in connection with the Company’s IPO (the “Trust Account”).
After re-evaluation, the Company’s management has concluded that in light of the errors described above, a material weakness existed in the Company’s internal control over financial reporting during the Affected Periods and that the Company’s disclosure controls and procedures were not effective. The Company’s remediation plan with respect to such material weakness is described in more detail in Item 4 – Controls and Procedures, contained in this Amendment No. 1.
We are filing this Amendment No. 1 to amend and restate the Original Filing with modifications as necessary to reflect the restatements. The following items have been amended to reflect the restatements:
Part I, Item 1. Condensed Financial Statements
Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Part I, Item 4. Controls and Procedures
Part II, Item 1A. Risk Factors
In addition, the Company’s Chief Executive Officer and Chief Financial Officer have provided new certifications dated as of the date of this filing in connection with this Amendment No. 1 (Exhibits 31.1, 31.2, 32.1 and 32.2).
Except as described above, no other information included in the Original Filing is being amended or updated by this Amendment No. 1 and, other than as described herein, this Amendment No. 1 does not purport to reflect any information or events subsequent to the Original Filing. We have not amended our previously filed Quarterly Reports on Form 10-Q for the periods affected by the restatement. This Amendment No. 1 continues to describe the conditions as of the date of the Original Filing and, except as expressly contained herein, we have not updated, modified or supplemented the disclosures contained in the Original Filing. Accordingly, this Amendment No. 1 should be read in conjunction with the Original Filing and with our filings with the SEC subsequent to the Original Filing.
ii
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
TWELVE SEAS INVESTMENT Company II
CONDENSED BALANCE SHEETS
| September 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| Assets: | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Deferred offering costs | ||||||||
| Marketable Securities held in Trust Account | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities, Class A Common Stock Subject to Possible Redemption and Stockholders’ Equity (Deficit) | ||||||||
| Current liabilities: | ||||||||
| Accrued offering costs and expenses | $ | $ | ||||||
| Promissory note – related party | ||||||||
| Total current liabilities | ||||||||
| Warrant liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Common Stock subject to possible redemption, | ||||||||
| Stockholders’ Equity (Deficit): | ||||||||
| Preferred stock, $ | ||||||||
| Class A common stock, $ | ||||||||
| Class B common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ||||||
| Total Liabilities, Class A Common Stock Subject to Redemption and Stockholders’ Equity (Deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
1
TWELVE SEAS INVESTMENT Company II
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
| For the Three Months Ended September 30, 2021 | For the Nine Months Ended September 30, 2021 | For the period from July 21, 2020 (inception) through September 30, 2020 | ||||||||||
| Formation and operating costs | $ | $ | $ | |||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ||||||
| Other income (expense): | ||||||||||||
| Interest earned on cash and marketable securities held in Trust Account | ||||||||||||
| Offering costs allocated to warrants | ( | ) | ||||||||||
| Change in fair value of warrant liabilities | ||||||||||||
| Total other income | ||||||||||||
| Net income (loss) | $ | $ | $ | ( | ) | |||||||
| Weighted average shares outstanding of Class A common stock | ||||||||||||
| Basic and diluted net income per share, Class A common stock | $ | $ | $ | |||||||||
| Weighted average shares outstanding of Class B common stock | ||||||||||||
| Basic and diluted net income (loss) per share, Class B common stock | $ | $ | $ | ( | ) | |||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
2
TWELVE SEAS INVESTMENT Company II
UNAUDITED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2021
| Common Stock | Additional | Total Stockholders’ | ||||||||||||||||||||||||||
| Class A | Class B | Paid-in | Accumulated | Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance as of January 1, 2021 | — | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Sale of | ||||||||||||||||||||||||||||
| Issuance of representative shares | ||||||||||||||||||||||||||||
| Accretion of Class A common stock subject to redemption | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of March 31, 2021 (unaudited), as restated (see Note 2) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of June 30, 2021 (unaudited), as restated (see Note 2) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance as of September 30, 2021 (unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
FOR THE PERIOD FROM JULY 21, 2020 (INCEPTION) THROUGH SEPTEMBER 30, 2020
| Common Stock | Additional | Total Stockholders’ | ||||||||||||||||||||||||||
| Class A | Class B | Paid-in | Accumulated | Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance as of July 21, 2020 (inception) | — | $ | — | $ | $ | $ | $ | |||||||||||||||||||||
| Issuance of Founder Shares | — | |||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of September 30, 2020 (unaudited) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
TWELVE SEAS INVESTMENT Company II
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND FOR THE PERIOD FROM JULY 21, 2020
(INCEPTION) THROUGH SEPTEMBER 30, 2020
| For the Nine Months Ended September 30, 2021 | For the period from July 21, 2020 (inception) through September 30, 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Interest earned on marketable securities held in Trust Account | ( | ) | ||||||
| Offering costs allocated to warrants | ||||||||
| Change in fair value of warrant liabilities | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ( | ) | ||||||
| Accrued offering costs and expenses | ||||||||
| Net cash used in operating activities | ( | ) | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Investment of cash in Trust Account | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from sale of Units, net of underwriters’ discount | ||||||||
| Proceeds from issuance of Private Placement | ||||||||
| Proceeds from sale of Founder Shares to Sponsor | ||||||||
| Proceeds from promissory note – related party | ||||||||
| Repayment of promissory note – related party | ( | ) | ||||||
| Payment of offering costs | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net change in cash | ||||||||
| Cash, beginning of period | ||||||||
| Cash, end of the period | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
TWELVE SEAS INVESTMENT Company II
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1 — Organization and Business Operations
Twelve Seas Investment Company II (the “Company”) is a blank check company incorporated in Delaware on July 21, 2020. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (“Business Combination”). The Company has not selected any specific business combination target and the Company has not, nor has anyone on its behalf, initiated any substantive discussions, directly or indirectly, with any business combination target with respect to the Business Combination.
As of September 30, 2021, the Company had not commenced any operations. All activity for the period from July 21, 2020 (inception) through September 30, 2021 relates to the Company’s formation and the initial public offering (“IPO”), which is described below. The Company will not generate any operating revenues until after the completion of a Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income from the proceeds derived from the IPO.
The Company’s sponsor is Twelve Seas Sponsor II LLC, a Delaware limited liability company (the “Sponsor”).
The registration statement for the Company’s
IPO was declared effective on February 25, 2021 (the “Effective Date”). On March 2, 2021, the Company consummated the
IPO of
The underwriters had a 45-day option from the
date of the IPO (March 2, 2021) to purchase up to an additional
Simultaneously with the closing of the IPO, the
Company completed the private sale (the “Private Placement”) of an aggregate of
On March 2, 2021, the Company also issued the
underwriter (and/or its designees) (the “Representative”)
Transaction costs amounted to $
As of September 30, 2021, $
Following the closing of the IPO and the over-allotment
option, which was fully exercised,
5
The Company will have 24 months from the closing
of the IPO, or until March 2, 2023, to consummate a Business Combination (the “Combination Period”). However, if the Company
is unable to complete a Business Combination within the Combination Period, the Company will redeem
The Company will only proceed with a Business
Combination if the Company has net tangible assets of at least $
The Sponsor, officers and directors and Representatives have agreed to (i) waive their redemption rights with respect to their founder shares, private shares, and Public Shares in connection with the completion of the initial business combination, (ii) waive their redemption rights with respect to their founder shares, private shares, and Public Shares in connection with a stockholder vote to approve an amendment to the Company’s amended and restated certificate of incorporation, and (iii) waive their rights to liquidating distributions from the trust account with respect to their founder shares and private shares if the Company fails to complete the initial business combination within the Combination Period.
The Company’s Sponsor has agreed that it
will be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company,
or a prospective target business with which the Company has entered into a written letter of intent, confidentiality or similar agreement
or business combination agreement, reduce the amount of funds in the trust account to below the lesser of (i) $
Risks and Uncertainties
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (the “COVID-19 outbreak”). In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve. The impact of the COVID-19 outbreak on the Company’s financial position will depend on future developments, including the duration and spread of the outbreak and related advisories and restrictions. These developments and the impact of the COVID-19 outbreak on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s financial position may be materially adversely affected. Additionally, the Company’s ability to complete an initial Business Combination may be materially adversely affected due to significant governmental measures being implemented to contain the COVID-19 outbreak or treat its impact, including travel restrictions, the shutdown of businesses and quarantines, among others, which may limit the Company’s ability to have meetings with potential investors or affect the ability of a potential target company’s personnel, vendors and service providers to negotiate and consummate an initial Business Combination in a timely manner. The Company’s ability to consummate an initial Business Combination may also be dependent on the ability to raise additional equity and debt financing, which may be impacted by the COVID-19 outbreak and the resulting market downturn. The financial statement does not include any adjustments that might result from the outcome of this uncertainty.
6
Liquidity and Capital Resources
As of September 30, 2021, the Company had
$
The Company does not believe it will need to raise additional funds in order to meet the expenditures required for operating our business. However, if the estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, the Company may have insufficient funds available to operate its business prior to our Business Combination. Moreover, the Company may need to obtain additional financing or draw on the Working Capital Loans (as defined below) either to complete a Business Combination or because it becomes obligated to redeem a significant number of the Public Shares upon consummation of our Business Combination, in which case the Company may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, the Company would only complete such financing simultaneously with the completion of our Business Combination. If the Company is unable to complete the Business Combination because it does not have sufficient funds available, the Company will be forced to cease operations and liquidate the Trust Account. In addition, following the Business Combination, if cash on hand is insufficient, the Company may need to obtain additional financing in order to meet our obligations.
Subsequent to the consummation of the IPO and Private Placement, the Company’s liquidity needs have been satisfied through the proceeds from the consummation of the Private Placement not held in the Trust Account.
Based on the foregoing, management believes that the Company will have sufficient working capital and borrowing capacity to meet its needs through the earlier of the consummation of a Business Combination or one year from this filing. Over this time period, the Company will be using these funds for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.
Note 2 — Restatement of Previously Issued Financial Statements
In the Company’s previously issued financial statements, a portion
of the Public Shares were classified as permanent equity to maintain net tangible assets greater than $
Management re-evaluated the Company’s application of ASC 480-10-99 to its accounting classification of Public Shares. Upon re-evaluation, management determined that the Public Shares, including those issued as part of the exercise of the underwriters’ over-allotment option, include certain provisions that require classification of the Public Shares as temporary equity regardless of the minimum net tangible asset required by the Company to complete its initial Business Combination.
In accordance with SEC Staff Accounting Bulletin No. 99, “Materiality,” and SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” the Company evaluated the corrections and has determined that the related impact was material to the previously files financial statements that contained the error, reported in the Company’s Form 10-Q for the quarterly periods ended March 31, 2021 and June 30, 2021 (the “Affected Quarterly Periods”). Therefore, the Company, in consultation with its Audit Committee, concluded that the Affected Quarterly Periods should be restated to present all Class A common stock subject to possible redemption as temporary equity and to recognize accretion from the initial book value to redemption value at the time of its IPO. In connection with the change in presentation for the Class A common stock subject to redemption, the Company also restated its income (loss) per common share calculation to allocate net income (loss) pro rata between Class A and Class B common stock). This presentation contemplates a Business Combination as the most likely outcome, in which case, both classes of common stock share pro rata in the income (loss) of the Company. As such, the Company is reporting these restatements to those periods in this quarterly report.
7
Impact of the Restatement
The following tables summarize the effect of the restatement on each financial statement line item as of the dates, and for the periods, indicated:
Financial Statements as of March 31, 2021 (unaudited)
| As Previously Reported | Adjustment | As Restated | ||||||||||
| Balance Sheet (unaudited) | ||||||||||||
| Class A common stock subject to possible redemption | $ | $ | $ | |||||||||
| Class A common stock, $ | $ | ( | ) | |||||||||
| Class B common stock, $ | ||||||||||||
| Additional Paid-in Capital | ( | ) | ||||||||||
| Accumulated Deficit | ( | ) | ( | ) | ( | ) | ||||||
| Total Stockholders’ Equity (Deficit) | $ | $ | ( | ) | $ | ( | ) | |||||
| Number of shares subject to redemption | ||||||||||||
Statement of Operations (unaudited) | ||||||||||||
| Weighted average shares outstanding of Class A common stock | ( | ) | ||||||||||
| Basic and diluted net loss per share, Class A common stock | $ | $ | $ | |||||||||
| Weighted average shares outstanding of Class B common stock | ( | ) | ||||||||||
| Basic and diluted net loss per share, Class B common stock | $ | ( | ) | $ | $ | |||||||
Financial Statements as of June 30, 2021 (unaudited)
| As Previously Reported | Adjustment | As Restated | ||||||||||
| Balance Sheet (unaudited) | ||||||||||||
| Class A common stock subject to possible redemption | $ | $ | $ | |||||||||
| Class A common stock, $ | $ | ( | ) | |||||||||
| Class B common stock, $ | ||||||||||||
| Additional Paid-in Capital | ( | ) | ||||||||||
| Accumulated Deficit | ( | ) | ( | ) | ( | ) | ||||||
| Total Stockholders’ Equity (Deficit) | $ | $ | ( | ) | $ | ( | ) | |||||
| Number of shares subject to redemption | ||||||||||||
Statement of Operations Three Months ended June 30, 2021 (unaudited) | ||||||||||||
| Weighted average shares outstanding of Class A common stock | ( | ) | ||||||||||
| Basic and diluted net loss per share, Class A common stock | $ | $ | ( | ) | $ | ( | ) | |||||
| Weighted average shares outstanding of Class B common stock | ( | ) | ||||||||||
| Basic and diluted net loss per share, Class B common stock | $ | ( | ) | $ | $ | ( | ) | |||||
| Six Months ended June 30, 2021 (unaudited) | ||||||||||||
| Weighted average shares outstanding of Class A common stock | ( | ) | ||||||||||
| Basic and diluted net loss per share, Class A common stock | $ | $ | ( | ) | $ | ( | ) | |||||
| Weighted average shares outstanding of Class B common stock | ( | ) | ||||||||||
| Basic and diluted net loss per share, Class B common stock | $ | ( | ) | $ | $ | ( | ) | |||||
Statement of Cashflows Three Months ended March 31, 2021 (unaudited) | ||||||||||||
| Initial value of shares subject to possible redemption | $ | $ | ( | ) | $ | |||||||
| Change in value of shares subject to possible redemption | ( | ) | ||||||||||
| Six Months ended June 30, 2021 (unaudited) | ||||||||||||
| Initial value of shares subject to possible redemption | $ | $ | ( | ) | $ | |||||||
| Change in value of shares subject to possible redemption | ( | ) | ||||||||||
8
Going Concern
Subsequent to the previously issued Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 2021, as filed with the SEC on November 15, 2021, in connection with
the Company’s assessment of going concern considerations in accordance with Financial Accounting Standards Board’s Accounting
Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going
Concern,” management has determined that if the Company is unable to complete a Business Combination by March 2, 2023 (or 24 months
from the closing of the IPO), then the Company will cease all operations except for the purpose of liquidating. The date for mandatory
liquidation, and subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern. No
adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after the Combination
Period. However, if the Company is unable to complete a business combination within the Combination Period, the Company will redeem
Note 3 — Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for financial information and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by U.S. 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. The interim results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any future interim periods.
Emerging Growth Company Status
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
9
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and warrant liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. One of the more significant accounting estimates included in these unaudited condensed financial statements is the determination of the fair value of the warrant liability. Accordingly, the actual results could differ significantly from those estimates.
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 no cash equivalents as of September 30, 2021 and December 31, 2020.
Marketable Securities Held in Trust Account
The funds in the Trust Accounts are invested in
United States government securities within the meaning of Section 2(a)(16) of the Investment Company Act of 1940, as amended, having a
maturity of
The fair value of the Company’s certain
assets and liabilities, which qualify as financial instruments under ASC 820, “Fair Value Measurements and Disclosures,” approximates
the carrying amounts represented in the condensed balance sheet as of September 30, 2021. The fair values of cash and cash equivalents,
prepaid assets, accounts payable and accrued expenses are estimated to approximate the carrying values as of September 30, 2021 and December 31,
2020 due to the short maturities of such instruments. At September 30, 2021, the Company had $
Concentration of Credit Risk
Financial instruments that potentially subject
the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal
Depository Insurance Corporation Coverage of $
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Fair Value of Financial Instruments
The Company follows the guidance in ASC 820, “Fair Value Measurement,” for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
| Level 1 — | Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not being applied. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment. |
| Level 2 — | Valuations based on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived principally from or corroborated by market through correlation or other means. |
| Level 3 — | Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
See Note 8 for additional information on assets and liabilities measured at fair value.
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.
Derivative assets and liabilities are classified on the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument is required within 12 months of the balance sheet date. The Company has determined that both the private and public warrants are a derivative instrument.
The Company evaluated the Public Warrants and Private Placement Warrants (collectively, “Warrants”, which are discussed in Note 4, Note 5 and Note 7) in accordance with ASC 815-40, “Derivatives and Hedging — Contracts in Entity’s Own Equity”, and concluded that a provision in the Warrant Agreement related to certain tender or exchange offers precludes 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 are recorded as derivative liabilities on the Condensed Balance Sheet and measured at fair value at inception (on the date of the IPO) and at each reporting date in accordance with ASC 820, “Fair Value Measurement”, with changes in fair value recognized in the Condensed Statement of Operations in the period of change.
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Offering Costs Associated with the Initial Public Offering
The Company complies with the requirements of the ASC 340-10-S99-1. Offering costs consisted of legal, accounting, underwriting fees and other costs incurred through the IPO that were directly related to the IPO. Offering costs are allocated to the separable financial instruments issued in the IPO based on a relative fair value basis, compared to total proceeds received. Offering costs associated with warrant liabilities are expensed as incurred, presented as non-operating expenses in the statement of operations. Offering costs associated with the Class A common stock, including the cost of the Class A warrants, were charged to Class A common stock subject to possible redemption upon the completion of the IPO and immediately accreted.
Class A Common Stock Subject to Possible Redemption
The Company accounts for its Class A common
stock subject to possible redemption in accordance with the guidance in ASC Topic 480, “Distinguishing Liabilities from Equity.”
Class A common stock subject to mandatory redemption (if any) is classified as liability instruments and are measured at fair value.
Conditionally redeemable Class A common stock (including Class A common stock that features 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) are classified as temporary equity. At all other times, Class A common stock is classified as stockholders’ equity
(deficit). The Company’s Class A 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, at September 30, 2021,
Additionally, the Company has issued Class A Representative Shares (see Note 9). The Representative has waived their redemption rights, and as such these shares remain in permanent equity (deficit).
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common shares to equal the redemption value at the end of each accounting period. This method would view the end of the reporting period as if it were also the redemption date for the security. Immediately upon the closing of the IPO, the Company recognized the accretion from initial book value to redemption amount. Increases or decreases in the carrying amount of redeemable common stock are affected by charges against additional paid-in capital and accumulated deficit.
As of September 30, 2021, the Class A common stock reflected in the condensed balance sheet are reconciled in the following table:
| Gross Proceeds | $ | |||
| Less: | ||||
| Proceeds allocated to public warrants | ( | ) | ||
| Issuance costs related to Class A common stock | ( | ) | ||
| Plus: | ||||
| Accretion of carrying value to redemption value | ||||
| Contingently redeemable Class A common stock | $ |
Income Taxes
The Company accounts for income taxes under ASC 740, “Income Taxes” (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of September 30, 2021 and December 31, 2020. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
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The Company has identified the United States as its only “major” tax jurisdiction.
The Company may be subject to potential examination by federal and state taxing authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
Net Income Per Common Share
The Company complies with accounting and disclosure
requirements of FASB ASC Topic 260, “Earnings Per Share”. Net income per common stock is computed by dividing net income by
the weighted average number of common stock outstanding for the period. The Company has two classes of shares, which are referred to as
Class A common stock and Class B common stock. Income and losses are shared pro rata between the two classes of shares. Accretion associated
with the redeemable shares of Class A common stock is excluded from earnings per share as the redemption value approximates fair value.
The calculation of diluted income (loss) per share does not consider the effect of the warrants issued in connection with the (i) IPO
and (ii) the private placement since the exercise of the warrants is contingent upon the occurrence of future events. The warrants are
exercisable to purchase
The following table reflects the calculation of basic and diluted net income (loss) per common share (in dollars, except per share amounts):
For
the Three Months Ended | For
the Nine Months Ended | For
the Period | ||||||||||||||||||||||
| Class A | Class B | Class A | Class B | Class A | Class B | |||||||||||||||||||
| Basic and diluted net income (loss) per common stock | ||||||||||||||||||||||||
| Numerator: | ||||||||||||||||||||||||
| Allocation of net income (loss), as adjusted | $ | $ | $ | $ | $ | $ | ( | ) | ||||||||||||||||
| Denominator: | ||||||||||||||||||||||||
| Basic and diluted weighted average shares outstanding | $ | $ | $ | |||||||||||||||||||||
| Basic and diluted net income (loss) per common stock | $ | $ | $ | $ | ||||||||||||||||||||
Recent Accounting Pronouncements
In August 2020, the FASB issued 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): 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 scope exception, and it simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective January 1, 2024 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is reviewing the impact adoption would have, if any, on its financial statements.
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 statements.
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Note 4 — Initial Public Offering
On March 2, 2021, the Company consummated the
IPO of
The underwriters had a 45-day option from the
date of the IPO (March 2, 2021) to purchase up to an additional
Note 5 — Private Placement
Simultaneously with the closing of the IPO, the
Sponsor and the Representatives purchased an aggregate of
In connection with the closing of the purchase
of the Over-Allotment Units, the Company sold an additional
The Company’s Sponsor, officers, directors,
and Representative agreed to (i) waive their redemption rights with respect to their founder shares, private shares, and Public
Shares in connection with the completion of the Company’s initial business combination, (ii) waive their redemption rights
with respect to the founder shares, private shares, and Public Shares in connection with a stockholder vote to approve an amendment to
the Company’s amended and restated certificate of incorporation (A) to modify the substance or timing of the Company’s
obligation to redeem
Note 6 — Related Party Transactions
Founder Shares
In August 2020, the Company issued
The Sponsor agreed not to transfer, assign or
sell its founder shares until the earlier to occur of (A) one year after the completion of the Company’s initial business combination
or (B) subsequent to the Company’s initial business combination, (x) if the last sale price of the Company’s Class A
common stock equals or exceeds $
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Promissory Note — Related Party
On July 21, 2020, the Company issued an unsecured
promissory note to the Sponsor, pursuant to which the Company may borrow up to an aggregate principal amount of $
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 officers and directors may,
but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a
Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company.
Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination
does not close, the Company may use a portion of the working capital held outside the Trust Account to repay the Working Capital Loans
but no proceeds from the Trust Account would be used to repay the Working Capital Loans. Up to $
Administrative Service Fee
The Company has agreed, commencing on the Effective
Date of the IPO, March 2, 2021, to pay an affiliate of the Company’s Sponsor a monthly fee of an aggregate of $
Note 7 — Warrant Liabilities
The Company has outstanding warrants to purchase
an aggregate of
Each whole warrant entitles the registered holder
to purchase one share of the Company’s Class A common stock at a price of $
The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act covering the issuance of the shares of Class A common stock issuable upon exercise of the warrants is then effective and a current prospectus relating to those shares of Class A common stock is available, subject to the Company satisfying its obligations with respect to registration, or a valid exemption from registration is available. No warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of residence of the exercising holder, or an exemption from registration is available.
The Company has agreed that as soon as practicable, but in no event later than 20 business days after the closing of a Business Combination, the Company will use its commercially reasonable efforts to file, and within 60 business days following a Business Combination to have declared effective, a registration statement covering the issuance of the shares of Class A common stock issuable upon exercise of the warrants and to maintain a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed. Notwithstanding the above, if the Class A common stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement, but will use its commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
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Redemption of Warrants When the Price per Share
of Class A Common Stock Equals or Exceeds $
Once the warrants become exercisable, the Company may redeem the outstanding warrants:
| ● | at a price of $0.01 per warrant; |
| ● | upon not less than 30 days’ prior written notice of redemption (the “30-day redemption period”) to each warrant holder; and |
If and when the warrants become redeemable by the Company, the Company may exercise the redemption right even if it is unable to register or qualify the underlying securities or sale under all applicable state securities laws.
Redemption of Warrants When the Price per Share
of Class A Common Stock Equals or Exceeds $
Once the warrants become exercisable, the Company may redeem the outstanding warrants:
| ● | at a price of $0.10 per warrant provided that the holder will be able to exercise their warrants on cashless basis prior to redemption and receive that number of shares based on the redemption date and the fair market value of the Class A common stock; |
| ● | upon a minimum of 30 days’ prior written notice of redemption; |
| ● | if, and only if, the last reported sale price of the Class A common stock equals or exceeds $10.00 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 ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders; and |
If the Company calls the Public Warrants for redemption, as described above, its management will have the option to require any holder that wishes to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement.
In addition, if (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of a Business Combination at an issue price or effective issue price of less than $9.20 per share (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 a Business Combination on the date of the consummation of a 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 a Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, and the $18.00 per share redemption trigger price described above will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price, and the $10.00 per share redemption trigger described above will be adjusted (to the nearest cent) to be equal to the higher of the Market Value and the Newly Issued Price.
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The warrant agreement contains an Alternative
Issuance provision that if less than
The Company believes that the Alternative Issuance provision and the adjustments to the exercise price of the warrants is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 – 40, and thus the warrants are not eligible for an exception from derivative accounting.
The accounting treatment of derivative financial
instruments requires that the Company record a derivative liability upon the closing of the IPO. Accordingly, the Company has classified
each warrant as a liability at its fair value and the warrants were allocated a portion of the proceeds from the issuance of the Units
equal to its fair value determined by the Monte Carlo simulation. This liability is subject to re-measurement at
each balance sheet date. With each such re-measurement, the warrant liability will be adjusted to fair value, with the change
in fair value recognized in the Company’s statement of operations. The Company will reassess the classification at each balance
sheet date. If the classification changes as a result of events during the period, the warrants will be reclassified as of the date of
the event that causes the reclassification. As such, the Company recorded $
Note 8 — Fair Value Measurements
The following table presents information about the Company’s assets and liabilities that are measured on a recurring basis as of September 30, 2021 and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value:
| September 30, 2021 | Quoted Prices In Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||||||
| Assets: | ||||||||||||||||
| Marketable Securities held in Trust Account | $ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant liability - Public Warrants | $ | $ | $ | $ | ||||||||||||
| Warrant liability – Private Warrants | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period. For the three months ended September 30, 2021, there were no transfers between levels.
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The change in fair value of the Level 3 warrant liabilities is summarized as follows:
| Fair Value, January 1, 2021 | $ | |||
| Initial measurement on March 2, 2021, as adjusted for over-allotment | ||||
| Change in fair value of warrant liabilities | ( | ) | ||
| Less: Transfer of public warrant liabilities to Level 1 | ( | ) | ||
| Warrant liabilities at September 30, 2021 | $ |
The estimated fair value of the warrant liability at March 2, 2021, was determined using Level 3 inputs. Inherent in a Monte Carlo options pricing model are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock based on projected volatility of comparable public companies that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is based on management assumptions regarding the timing and likelihood of completing a business combination. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero.
The following table provides quantitative information regarding Level 3 fair value measurements of the Company’s private warrant liabilities as of September 30, 2021.
| September 30, 2021 | ||||
| Exercise price | $ | |||
| Stock price | $ | |||
| Volatility | % | |||
| Expected life of the options to convert | ||||
| Risk-free rate | % | |||
| Dividend yield | % | |||
| Likelihood of completing a business combination | % | |||
Note 9 — Commitments and Contingencies
Registration Rights
The holders of the founder shares, private placement warrants, and warrants that may be issued upon conversion of working capital loans will have registration rights to require the Company to register a sale of any of its securities held by them pursuant to a registration rights agreement to be signed prior to or on February 25, 2021. These holders will be entitled to make up to three demands, excluding short form registration demands, that the Company registers such securities for sale under the Securities Act. In addition, these holders will have “piggy-back” registration rights to include their securities in other registration statements filed by the Company.
Underwriters Agreement
The underwriters had a 45-day option from
March 2, 2021 to purchase up to an additional
On March 2, 2021, the Company paid an underwriting
discount of $
On March 10, 2021,
Business Combination Marketing Agreement
The Company has engaged Mizuho as an advisor in
connection with its business combination to assist the Company in holding meetings with its stockholders to discuss the potential business
combination and the target business’ attributes, introduce the Company to potential investors that are interested in purchasing
the Company’s securities in connection with its initial business combination, assist the Company in obtaining stockholder approval
for the business combination and assist the Company with its press releases and public filings in connection with the business combination.
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Representative Shares
On March 2, 2021, the Company issued the underwriter
(and/or its designees) (the “Representative”)
Note 10 — Stockholders’ Equity (Deficit)
Preferred Stock — The
Company is authorized to issue a total of
Class A Common Stock —
The Company is authorized to issue a total of
Class B Common Stock —
The Company is authorized to issue a total of
The Company’s initial stockholders have
agreed not to transfer, assign or sell its founder shares until the earlier to occur of (A) one year after the completion of the
Company’s initial business combination or (B) subsequent to the Company’s initial business combination, (x) if the
last sale price of the Company’s Class A common stock equals or exceeds $
The shares of Class B common stock will automatically
convert into shares of the Company’s Class A common stock at the time of its initial business combination on a one-for-one basis,
subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like, and subject to further adjustment
as provided herein. In the case that additional shares of Class A common stock, or equity-linked securities, are issued or deemed
issued in excess of the amounts offered in this prospectus and related to the closing of the initial business combination, the ratio at
which shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders
of a majority of the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance
or deemed issuance) so that the number of shares of Class A common stock issuable upon conversion of all shares of Class B common
stock will equal, in the aggregate, on an as-converted basis,
Holders of the Class A common stock and holders of the Class B common stock will vote together as a single class on all matters submitted to a vote of the Company’s stockholders, with each share of common stock entitling the holder to one vote.
Note 11 — Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Based upon this review, other than the restatements discussed in Note 2, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q/A includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other SEC filings.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities through September 30, 2021 were organizational activities, those necessary to prepare for the IPO, described below, and, after our IPO, identifying a target company for a Business Combination. We do not expect to generate any operating revenues until after the completion of our Business Combination. We generate non-operating income in the form of interest income on marketable securities held in the Trust Account. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses. For the nine months ended September 30, 2021, there was $11,409 interest earned from the Trust account.
For the nine months ended September 30, 2021, we had a loss from operations of $523,784 which consisted of formation and operating costs, and net income of $486,956, which included warrant issuance costs of $260,113 offset by a net gain from the change in the fair value of warrants of $1,259,444, and interest income of $11,409. We are required to revalue our liability-classified warrants at the end of each reporting period and reflect in the statement of operations a gain or loss from the change in fair value of the warrant in the period in which the change occurred.
For the three months ended September 30, 2021, we had a loss from operations of $271,386 which consisted of formation and operating costs, and net income of $2,495,270, which included a net gain from the change in the fair value of warrants of $2,761,355 and interest income of $5,301. We are required to revalue our liability-classified warrants at the end of each reporting period and reflect in the statement of operations a gain or loss from the change in fair value of the warrant in the period in which the change occurred.
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Liquidity and Capital Resources
On March 2, 2021, we consummated an IPO of 30,000,000 Units at a price of $10.00 per Unit, generating gross proceeds of $300,000,000. In connection with the IPO, the underwriters were granted a 30-day option from the date of the prospectus to purchase up to 4,500,000 additional units to cover over-allotment, if any. On March 8, 2021, the underwriters fully exercised the over-allotment option, generating gross proceeds of $45,000,000.
Simultaneously with the initial closing and over-allotment closing of the IPO, we consummated the sale of 890,000 Private Placement Units to the Sponsor at a price of $10.00 per unit, generating gross proceeds of $8,900,000.
Following the IPO, the exercise of the over-allotment option and the sale of the Private Placement Units, a total of $345,000,000 was placed in the Trust Account.
As of September 30, 2021, we had marketable securities held in the Trust Account of $345,011,409. Interest income on the balance in the Trust Account may be used by us to pay taxes. For the nine months ended September 30, 2021, there was $11,409 interest income earned from the Trust account.
For the nine months ended September 30, 2021, cash used in operating activities was $511,052.
We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less income taxes payable), to complete our Business Combination. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
As of September 30, 2021 we had cash of $1,032,138 held outside the Trust Account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination.
In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, the initial stockholders or their affiliates may, but are not obligated to, loan us funds as may be required. If we complete a Business Combination, we would repay such loaned amounts. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants identical to the private placement warrants, at a price of $1.00 per warrant at the option of the lender.
We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our Business Combination. Moreover, we may need to obtain additional financing either to complete our Business Combination or because we become obligated to redeem a significant number of our Public Shares upon consummation of our Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our Business Combination. If we are unable to complete our Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. In addition, following our Business Combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
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Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2021.
Contractual Obligations
At September 30, 2021, we did not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities. On February 25, 2021, we entered into an administrative support agreement pursuant to which we have agreed to pay an affiliate of the Sponsor a total of $10,000 per month for office space, utilities and secretarial and administrative support. Upon the earlier of the completion of the Business Combination and the Company’s liquidation, we will cease paying these monthly fees. For the nine months ended September 30, 2021, we incurred expenses of $70,000 under this agreement. For the three months ended September 30, 2021, we incurred $30,000 under this agreement.
We have engaged Mizuho as an advisor in connection with our initial business combination to assist us in holding meetings with our stockholders to discuss the potential business combination and the target business’ attributes, introduce us to potential investors that are interested in purchasing our securities in connection with our initial business combination, assist us in obtaining stockholder approval for the initial business combination and assist us with our press releases and public filings in connection with the initial business combination. We will pay Mizuho a cash fee for such services upon the consummation of our initial business combination in an amount equal to 3.5% of the gross proceeds of the IPO ($10,500,000).
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Class A Common stock subject to possible redemption
We account for Class A common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480, “Distinguishing Liabilities from Equity.” Class A Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable Class A common stock (including Class A common stock that features 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) is classified as temporary equity. At all other times, Class A common stock is classified as stockholders’ equity (deficit). Our Class A common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, Class A common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ equity (deficit) section of our condensed balance sheets.
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Derivative warrant liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. We evaluate 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.
We account for our 11,796,667 common stock warrants issued in connection with our IPO (11,500,000) and Private Placement (296,667) as derivative warrant liabilities in accordance with ASC 815-40. Accordingly, we recognize the warrant instruments as liabilities at fair value and adjust 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 our statement of operations. The fair value of Private Placement Warrants issued by the Company in connection with the Public Offering and Private Placement has been estimated using Monte-Carlo simulations at each measurement date. The fair value of Public Warrants issued with the Public Offering was initially measured using Monte-Carlo simulations and then measured based trading price once they commenced trading on March 29, 2021.
Offering costs associated with the Initial Public Offering
We allocated with the requirements of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A - “Expenses of Offering”. Offering costs consist principally of professional and registration fees incurred through the balance sheet date that are related to the Public Offering.
We allocated the offering costs between common stock and public warrants using relative fair value method, the offering costs allocated to the public warrants will be expensed immediately, and offering costs allocated to common stock were charged to stockholders’ equity (deficit) upon the completion of the IPO.
Net income per share of common stock
We compute net income (loss) per common stock by dividing net income (loss) by the weighted average number of common stock outstanding for the period. We have two classes of shares, which are referred to as Class A common stock and Class B common stock. Income and losses are shared pro rata between the two classes of shares. Accretion associated with the redeemable shares of Class A common stock is excluded from earnings per share as the redemption value approximates fair value.
Recent accounting standards
In August 2020, the FASB issued 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): 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 scope exception, and it simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective January 1, 2024 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is reviewing the impact adoption would have, if any, on its financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on our condensed financial statements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company”, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the fiscal quarter ended September 30, 2021. Based upon their evaluation, and in light of the material weakness in internal controls described below, our Chief Executive Officer and Chief Financial Officer concluded that, due to the material weakness in our internal control over financial reporting related to our accounting for complex financial instruments, a material weakness existed and our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were not effective as of September 30, 2021.
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 the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, the management has concluded that our internal control around the interpretation and accounting for certain complex financial instruments was not effectively designed or maintained. This material weakness resulted in the restatement of the Company’s audited balance sheet as of March 2, 2021 included in the Company’s current report on Form 8K, and interim financial statements for the quarters ended March 31, 2021 and June 30, 2021.
Also, in the Company’s previously issued financial statements, a portion of the Public Shares were classified as permanent equity to maintain net tangible assets greater than $5,000,000 on the basis that the Company will consummate its initial business combination only if the Company has net tangible assets of at least $5,000,001. Thus, the Company has historically classified a portion of Class A common stock in permanent equity to satisfy the $5,000,000 net tangible asset requirement. However, management re-assessed the Company’s application of ASC 480-10-S99-3A to its accounting classification of Public Shares. Upon re-evaluation, management determined that the Public Shares include certain provisions that require classification of the Public Shares (as defined below) as temporary equity regardless of the minimum net tangible asset required by the Company to complete its initial business combination. Pursuant to such re-evaluation, the Company’s management has, after taking appropriate professional advice, determined that the public shares include certain provisions that require classification of all of the public shares as temporary equity regardless of the net tangible assets redemption limitation contained in the Certificate of Incorporation. In addition, in connection with the change in presentation for the Public Shares, the Company determined it should restate its earnings per share calculation to allocate net income (loss) evenly to redeemable and non-redeemable common stock. This presentation contemplates a business combination as the most likely outcome, in which case, both classes of common stock share pro rata in the income (loss) of the Company.
Changes in Internal Control over Financial Reporting
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The Chief Executive Officer and Chief Financial Officer performed additional accounting and financial analyses and other post-closing procedures including consulting with subject matter experts related to accounting for complex financial instruments. The Company’s management has expended, and will continue to expend, a substantial amount of effort and resources for the remediation and improvement of our internal control over financial reporting. While we have processes to properly identify and evaluate the appropriate accounting technical pronouncements and other literature for all significant or unusual transactions, we have expanded and will continue to improve these processes to ensure that the nuances of such transactions are effectively evaluated in the context of the increasingly complex accounting standards.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
Except as set forth below, as of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors disclosed in our final prospectus dated February 25, 2021 filed with the SEC, and in the Form 10-Q for the Quarterly Period ended June 30, 2021 and filed with the SEC on August 16, 2021. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
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 a significant and unusual transaction related to the improper valuation of our Class A common stock subject to possible redemption at the closing of our IPO. As a result of this material weakness, our management concluded that our internal control over financial reporting was not effective as of September 30, 2021. This material weakness resulted in a material misstatement of the initial carrying value of the Class A common stock subject to possible redemption for the affected periods.
To respond to this material weakness, we have devoted, and plan to continue to devote, significant effort and resources to the remediation and improvement of our internal control over financial reporting. While we have processes to identify and appropriately apply applicable accounting requirements, we plan to enhance these processes to better evaluate our research and understanding of the nuances of the complex accounting standards that apply to our financial statements. Our plans at this time include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. For a discussion of management’s consideration of the material weakness identified related to our accounting for a significant and unusual transaction related to the improper valuation of our Class A common stock subject to possible redemption and the restatement of our earnings per share calculation, see Note 2 to the accompanying condensed financial statements, as well as Part I, Item 4: Controls and Procedures included in this Quarterly Report.
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Any failure to maintain such internal control could adversely impact our ability to report our financial position and results from operations on a timely and accurate basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations. Likewise, if our financial statements are not filed on a timely basis, we could be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC or other regulatory authorities. In either case, there could result a material adverse effect on our business. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
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 if we are successful in strengthening our controls and procedures, in the future those controls, and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our financial statements.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Use of Proceeds
On March 2, 2021, we consummated our IPO of 30,000,000 units. Each unit consists of one Public Share and one-third of one public warrant, with each whole public warrant entitling the holder thereof to purchase one Public Share for $11.50 per share. The units were sold at a price of $10.00 per unit, generating gross proceeds to the Company of $300,000,000. On March 3, 2021, simultaneously with the consummation of IPO, we completed the private sale of an aggregate of 800,000 private placement units to our sponsor at a purchase price of $10.00 per private placement unit, generating gross proceeds of $8,000,000.
On March 8, 2021, the underwriters exercised the over-allotment option in full to purchase 4,500,000 units. On March 8, 2021, simultaneously with the closing of the underwriters’ full exercise of the over-allotment option, we completed the private sale of an aggregate of 90,000 private placement warrants to our sponsor, at a purchase price of $10.00 per private placement unit, generating gross proceeds of $900,000.
Following the closing of our IPO on March 2, 2021 and the underwriters’ full exercise of over-allotment option on March 8, 2021, $345,000,000 from the net proceeds of the sale of the units in our IPO, the exercise of the over-allotment option and the sale of the private placement units was placed in a trust account established for the benefit of our public stockholders and maintained by Continental Stock Transfer & Trust Company, as trustee. The proceeds held in the trust account may be invested by the trustee only in U.S. government securities with a maturity of 185 days or less or in money market funds investing solely in U.S. government treasury obligations and meeting certain conditions under Rule 2a-7 under the Investment Company Act.
There has been no material change in the planned use of the proceeds from our IPO and the private placement as is described in the Company’s final prospectus related to our IPO.
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Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| * | Filed herewith. |
| ** | Furnished. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| TWELVE SEAS INVESTMENT COMPANY II | ||
| Date: March 31, 2022 | By: | /s/ Dimitri Elkin |
| Name: | Dimitri Elkin | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: March 31, 2022 | By: | /s/ Jonathan Morris |
| Name: | Jonathan Morris | |
| Title: | Chief Financial Officer | |
| (Principal Accounting and Financial Officer) | ||
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