UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(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 | (I.R.S.
Employer |
| (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 Class A Ordinary Share and one-third of one Redeemable Warrant | ISOS.U | The New York Stock Exchange | ||
| Redeemable Warrants, each whole warrant exercisable for one Class A Ordinary Share at an exercise price of $11.50 | ISOS WS | The New York Stock Exchange |
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 August 13, 2021, there were
ISOS ACQUISITION CORPORATION
FORM 10-Q FOR THE QUARTER ENDED June 30, 2021
TABLE OF CONTENTS
| Page | ||||
| PART 1 – FINANCIAL INFORMATION | ||||
| Item 1. | Financial Statements | 1 | ||
| Condensed Balance Sheets (unaudited) | 1 | |||
| Condensed Statements of Operations (unaudited) | 2 | |||
| Condensed Statements of Changes in Stockholder’s Equity (unaudited) | 3 | |||
| Condensed Statement of Cash Flows (unaudited) | 4 | |||
| Notes to Condensed Financial Statements (unaudited) | 5 | |||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 | ||
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 21 | ||
| Item 4. | Control and Procedures | 21 | ||
| PART II – OTHER INFORMATION | ||||
| Item 1. | Legal Proceedings | 23 | ||
| Item 1A. | Risk Factors | 23 | ||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 23 | ||
| Item 3. | Defaults Upon Senior Securities | 23 | ||
| Item 4. | Mine Safety Disclosures | 23 | ||
| Item 5. | Other Information | 23 | ||
| Item 6. | Exhibits | 24 | ||
| SIGNATURES | 25 | |||
i
Item 1. Financial Statements
ISOS ACQUISITION CORPORATION
CONDENSED BALANCE SHEETS
| June 30, 2021 | December 31, 2020 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Deferred offering costs | ||||||||
| Total current assets | ||||||||
| Marketable securities held in Trust Account | ||||||||
| Prepaid expenses, non-current | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accrued offering costs and expenses | $ | $ | ||||||
| Due to related party | ||||||||
| Promissory note – related party | ||||||||
| Total current liabilities | ||||||||
| Forward Purchase Agreement liability | ||||||||
| Warrant liability | ||||||||
| Deferred underwriting discount | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 8) | ||||||||
| Class A ordinary shares subject to possible redemption, | ||||||||
| Shareholders’ Equity: | ||||||||
| Preference shares, $ | ||||||||
| Class A ordinary shares, $ | ||||||||
| Class B ordinary shares, $ | ||||||||
| Additional paid-in capital | ||||||||
| Retained Earnings (Accumulated deficit) | ( | ) | ||||||
| Total shareholders’ equity | ||||||||
| Total Liabilities and Shareholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
1
ISOS ACQUISITION CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| Three months ended June 30, 2021 | Six months ended June 30, 2021 | |||||||
| Formation and operating costs | $ | $ | ||||||
| Loss from Operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Trust interest income | ||||||||
| Warrant issuance costs | ( | ) | ||||||
| Unrealized loss on change in fair value of FPA | ( | ) | ( | ) | ||||
| Unrealized gain on change in fair value of warrants | ||||||||
| Total other income | ||||||||
| Net income | $ | $ | ||||||
| Basic and diluted weighted average shares outstanding, ordinary share subject to redemption | ||||||||
| Basic and diluted net income per share | $ | $ | ||||||
| Basic and diluted weighted average shares outstanding, ordinary share | ||||||||
| Basic and diluted net income per share | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
2
ISOS ACQUISITION CORPORATION
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited)
| Class A Ordinary Shares | Class B Ordinary Shares | Additional Paid-in | (Accumulated Deficit) / Retained | Total Shareholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Sale of | — | |||||||||||||||||||||||||||
| Sale of | — | |||||||||||||||||||||||||||
| Sale of | — | — | ||||||||||||||||||||||||||
| Underwriting fee | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Deferred underwriting fee | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Offering costs charged to the shareholders’ equity | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Initial classification of warrant liability | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Reclassification of offering costs related to warrants | — | — | ||||||||||||||||||||||||||
| Initial classification of FPA liability | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Forfeiture of founder shares | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Change in Class A ordinary shares subject to possible redemption | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Change in Class A ordinary shares subject to possible redemption | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | $ | $ | |||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
ISOS ACQUISITION CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
| For the six months ended June 30, 2021 | ||||
| (unaudited) | ||||
| Cash flows from Operating Activities: | ||||
| Net income | $ | |||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||
| Trust interest income | ( | ) | ||
| Unrealized loss on change in fair value of FPA | ||||
| Unrealized gain on change in fair value of warrants | ( | ) | ||
| Warrant issuance costs | ||||
| Changes in operating assets and liabilities: | ||||
| Prepaid expenses | ( | ) | ||
| Accrued offering cost and expenses | ||||
| Due to related party | ||||
| Net cash used in operating activities | ( | ) | ||
| Cash Flows from Investing Activities: | ||||
| Investment held in Trust Account | ( | ) | ||
| Net cash used in investing activities | ( | ) | ||
| Cash flows from Financing Activities: | ||||
| Proceeds from Initial Public Offering, net of underwriters’ fees | ||||
| Proceeds from private placement | ||||
| Repayment to promissory note to related party | ( | ) | ||
| Payments of offering costs | ( | ) | ||
| Net cash provided by financing activities | ||||
| Net change in cash | ||||
| Cash, beginning of the period | ||||
| Cash, end of the period | $ | |||
| Supplemental disclosure of noncash investing and financing activities: | ||||
| Deferred underwriting commissions charged to additional paid in capital | $ | |||
| Initial value of Class A ordinary shares subject to possible redemption | $ | |||
| Change in value of Class A ordinary shares subject to possible redemption | $ | |||
| Forfeiture of founder shares | $ | |||
| Deferred offering costs paid by Sponsor loan | $ | |||
| Initial classification of warrant liability | $ | |||
| Initial classification of FPA liability | $ | |||
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
ISOS
ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1 — Organization and Business Operations
Organization and General
Isos Acquisition Corporation (the “Company”) was incorporated as a Cayman Islands exempted company on December 29, 2020. The Company was incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities (the “Business Combination”). On July 1, 2021, the Company entered into a business combination agreement (the “BCA”) with Bowlero Corp. (“Bowlero”) pursuant to which Bowerlo will merge with and into the Company (as described below).
The Company’s sponsor is Isos Acquisition Sponsor LLC, a Delaware limited liability company (the “Sponsor”).
The Company has selected December 31 as its fiscal year end.
As of June 30, 2021, the Company had not commenced any operations. All activity for the period from December 29, 2020 (inception) through June 30, 2021 relates to the Company’s formation and the Initial Public Offering (“IPO”) described below, and, since the closing of the IPO, the search for a prospective Business Combination and its negotiation of the Business Combination Agreement. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income on cash and cash equivalents from the proceeds derived from the IPO and will recognize changes in the fair value of warrant liability as other income (expense).
On July 1, 2021, the Company (which shall transfer by way of continuation to and domesticate as a Delaware corporation) entered into the Business Combination Agreement with Bowlero, the world’s largest owner and operator of bowling centers as well as owner of the Professional Bowlers Association. Following the Business Combination, the Company will be renamed “Bowlero” and its common stock and warrants are expected to remain listed on the New York Stock Exchange under the new ticker symbol “BOWL” and “BOWL WS”, respectively. The Business Combination is structured as a merger of the Company and Bowlero, with Bowlero merging with and into the Company, with the Company surviving, following the Company domesticating as a Delaware corporation. Bowlero’s stockholders will receive, as consideration for the Business Combination, a mix of cash, shares of the Company’s common stock and shares of the Company’s preferred stock.
It is anticipated that, immediately following consummation of the Business Combination,
Financing
The
registration statement for the Company’s IPO was declared effective on March 2, 2021 (the “Effective Date”). On March
5, 2021, the Company consummated the IPO of
Simultaneously
with the closing of the IPO, the Company consummated the sale of
The
Company granted the underwriters in the IPO a 45-day option to purchase up to
Transaction
costs amounted to $
Trust Account
Following
the closing of the IPO on March 5, 2021 and the underwriters’ partial exercise of over-allotment option on March 10, 2021,
$
5
The
Trust Account is intended as a holding place for funds pending the earliest to occur of either: (i) the completion of the initial Business
Combination; (ii) the redemption of any public shares properly tendered in connection with a shareholder vote to amend the Company’s
amended and restated memorandum and articles of association (A) to modify the substance or timing of the Company’s obligation to
provide holders of the Class A ordinary shares the right to have their shares redeemed in connection with the initial Business Combination
or to redeem
Initial Business Combination
The
Company must complete one or more initial Business Combinations having an aggregate fair market value of at least
The
Class A ordinary shares subject to redemption were recorded at a redemption value and classified as temporary equity upon the completion
of the IPO, in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”)
Topic 480 “Distinguishing Liabilities from Equity.” In such case, the Company will proceed with a Business Combination if
the Company has net tangible assets of at least $
If
the Company is unable to complete the initial Business Combination within the Combination Period, the Company will (i) cease all operations
except for the purpose of winding up, (ii) as promptly as reasonably possible, but not more than ten business days thereafter, redeem
the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including
interest earned on the funds held in the Trust Account and not previously released to the Company to pay income taxes, if any (less up
to $
The
Sponsor and the Company’s founding team have entered into a letter agreement with the Company, pursuant to which they have agreed
to waive their redemption rights with respect to their founder shares (as described in Note 6) and any public shares purchased during
or after the IPO in connection with (i) the completion of the initial Business Combination and (ii) a shareholder vote to approve an
amendment to the amended and restated memorandum and articles of association (A) that would modify the substance or timing of the Company’s
obligation to provide holders of the Class A ordinary shares the right to have their shares redeemed in connection with the initial Business
Combination or to redeem
The
Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party (excluding the Company’s
independent registered public accounting firm) for services rendered or products sold to the Company, or a prospective partner business
with which the Company has discussed entering into a transaction agreement, reduce the amounts in the Trust Account to below the lessor
of (i) $
6
Liquidity and Capital Resources
As
of June 30, 2021, the Company had approximately $
Prior
to the completion of the IPO, the Company’s liquidity needs had been satisfied through a capital contribution from the Sponsor
of $
In addition, in order to finance transaction costs in connection with a Business Combination, the Company’s Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, provide the Company Working Capital Loans (see Note 6). To date, there were no amounts outstanding under any Working Capital Loans.
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, paying for travel expenditures, and consummating the Business Combination with Bowlero.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations, cash flows and/or search for a target company, the specific impact is not readily determinable as of the date of the condensed financial statements. The condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 2 — Revision of Previously Issued Financial Statements
On
April 12, 2021, the Staff of the Securities and Exchange Commission together issued a statement regarding the accounting and reporting
considerations for warrants issued by special purpose acquisition companies entitled “Staff Statement on Accounting and Reporting
Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”)” (the “SEC Statement”).
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, dated as of March 2, 2021, between the Company and
Continental Stock Transfer & Trust Company, a New York corporation, as warrant agent (the “Warrant Agreement”).
In further consideration of the guidance in Accounting Standards Codification (“ASC”) 815-40, Derivatives and Hedging; Contracts in Entity’s Own Equity (“ASC 815-40”), the Company 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 815-40, the Warrants should be recorded as derivative liabilities on the 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 statement of operations in the period of change.
The Company’s management and the audit committee of the Company’s Board of Directors concluded that it is appropriate to revise the Company’s previously issued audited balance sheet as of March 5, 2021 as previously reported in its Form 8-K.
| As Previously Reported | Adjustment | As Revised | ||||||||||
| Balance Sheet at March 5, 2021, as restated | ||||||||||||
| Forward Purchase Agreement liability | $ | $ | $ | |||||||||
| Warrant Liability | ||||||||||||
| Class A ordinary shares subject to possible redemption | ( | ) | ||||||||||
| Class A ordinary share | ||||||||||||
| Additional paid-in capital | ||||||||||||
| Accumulated deficit | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
7
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 (“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 GAAP. In the opinion of management, the unaudited condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected through December 31, 2021.
The accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Form 8-K and the final prospectus filed by the Company with the SEC on March 12, 2021 and March 4, 2021, respectively.
Emerging Growth Company Status
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the 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 shareholder approval of any golden parachute payments not previously approved.
8
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 these unaudited condensed financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet. Actual results could differ from those estimates.
Marketable securities held in Trust Account
At June 30, 2021, the assets held in the Trust Account were substantially held in mutual funds comprised of U.S. Treasury Bills, classified as trading securities. Trading securities are presented on the balance sheet at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of these securities are included in Trust interest income in the statement of operations. The estimated fair values of investments held in the Trust Account are determined using available market information.
Fair Value Measurements
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
| ● | Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; |
| ● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| ● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
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 balance sheet. The fair values of cash and cash equivalents, prepaid expenses, due to related party are estimated to approximate the carrying values as of June 30, 2021 due to the short maturities of such instruments.
The Company’s Private Placement Warrants liability and forward purchase agreements (FPA) liability are based on a valuation model utilizing management judgment and pricing inputs from observable and unobservable markets with less volume and transaction frequency than active markets. Significant deviations from these estimates and inputs could result in a material change in fair value. The fair value of the warrant liability and FPA liability is classified as level 3. See Note 7 for additional information on assets and liabilities measured at fair value.
9
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 Coverage of $
Ordinary Shares Subject to Possible Redemption
The Company accounts for its ordinary shares subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Ordinary shares subject to mandatory redemption (if any) is classified as a liability instrument and is measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, ordinary shares is classified as shareholders’ equity. The Company’s ordinary shares feature certain redemption rights that is considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, ordinary shares subject to possible redemption is presented at redemption value as temporary equity, outside of the shareholders’ equity section of the Company’s balance sheet.
Net Income Per Ordinary Share
Net
income per ordinary share is computed by dividing net income by the weighted average number of ordinary shares outstanding for each of
the periods. The calculation of diluted income per ordinary share does not consider the effect of the warrants issued in connection with
the (i) IPO, (ii) exercise of overallotment and (iii) Private Placement since the exercise price of the warrants is higher than the market
price. The warrants are exercisable to purchase
The Company’s statement of operations includes a presentation of income per share for ordinary shares subject to possible redemption in a manner similar to the two-class method of income per ordinary share. Net income per ordinary share, basic and diluted, for redeemable ordinary shares is calculated by dividing the interest income earned on the Trust Account, by the weighted average number of redeemable ordinary shares outstanding since original issuance. Net income per ordinary share, basic and diluted, for non-redeemable ordinary shares is calculated by dividing the net income, adjusted for income attributable to redeemable ordinary shares, by the weighted average number of non-redeemable ordinary shares outstanding for the periods. Non-redeemable ordinary shares include the founder shares as these ordinary shares do not have any redemption features and do not participate in the income earned on the Trust Account.
| Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | |||||||
| Redeemable Class A Ordinary Shares | ||||||||
| Numerator: Earnings allocable to redeemable Class A ordinary shares | ||||||||
| Interest earned on marketable securities held in Trust Account | $ | $ | ||||||
| Less: Company portion available to pay taxes | ( | ) | ( | ) | ||||
| Net income allocable to shares subject to possible redemption | $ | $ | ||||||
| Denominator: weighted average redeemable Class A ordinary shares | ||||||||
| Basic and diluted weighted average shares outstanding | ||||||||
| Basic and diluted net income per share | $ | $ | ||||||
| Non-Redeemable Class A and Class B Ordinary Shares | ||||||||
| Numerator: Net income minus net earnings | ||||||||
| Net income | $ | $ | ||||||
| Less: Income allocable to ordinary shares subject to possible redemption | ||||||||
| Non-redeemable net income | $ | $ | ||||||
| Weighted average shares outstanding, basic and diluted | ||||||||
| Basic and diluted net income per common share | $ | $ | ||||||
10
Offering Costs associated with the Initial Public Offering
The Company complies 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 IPO and were charged to shareholders’ equity upon the completion of 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 is expensed, and offering costs associated with the Class A ordinary shares are charged to the shareholders’ equity.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. Derivative instruments are recorded at fair value on the grant date and re-valued at each reporting date, with changes in the fair value reported in the statements of operations. 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 could be required within 12 months of the balance sheet date. The Company has determined the warrants are a derivative instrument.
FASB ASC 470-20, Debt with Conversion and Other Options addresses the allocation of proceeds from the issuance of convertible debt into its equity and debt components. The Company applies this guidance to allocate IPO proceeds from the Units between Class A ordinary shares and warrants, using the residual method by allocating IPO proceeds first to fair value of the warrants and then the Class A ordinary shares.
Income Taxes
The Company accounts for income taxes under FASB 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. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. Since the Company was incorporated on December 29, 2020, the evaluation was performed for upcoming 2021 tax year which will be the only period subject to examination.
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 June 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.
There is currently no taxation imposed on income by the Government of the Cayman Islands. In accordance with Cayman federal income tax regulations, income taxes are not levied on the Company.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed financial statement.
Note 4 — Initial Public Offering
Pursuant
to the IPO, the Company sold
11
On
March 10, 2021, the underwriters partially exercised the over-allotment option to purchase
Following
the closing of the IPO on March 5, 2021 and the underwriters’ partial exercise of over-allotment option on March 10, 2021, $
Public Warrants
Each
whole warrant entitles the holder to purchase one Class A ordinary share at a price of $
The warrants will become exercisable on the later of one year from the closing of the IPO and 30 days after the completion of its initial Business Combination, and will expire five years after the completion of the Company’s initial Business Combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.
The Company has agreed that as soon as practicable, but in no event later than 20 business days after the closing of the initial Business Combination, the Company will use the commercially reasonable efforts to file with the SEC a registration statement covering the Class A ordinary shares issuable upon exercise of the warrants, and the Company will use the commercially reasonable efforts to cause the same to become effective within 60 business days after the closing of the initial Business Combination and to maintain the effectiveness of such registration statement, and a current prospectus relating to those Class A ordinary shares until the warrants expire or are redeemed, as specified in the warrant agreement; provided that if the Class A ordinary shares are, at the time of any exercise of a warrant, not listed on a national securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at the Company’s 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 appoint, the Company will not be required to file or maintain in effect a registration statement. If a registration statement covering the Class A ordinary shares issuable upon exercise of the warrants is not effective by the 60th day after the closing of the initial Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption, but the Company will use the best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Redemptions of warrants for cash when the price per Class A ordinary share equals or exceeds $18.00.
Once the warrants become exercisable, the Company may redeem the outstanding warrants (except as described herein with respect to the Private Placement Warrants):
| ● | in whole and not in part; |
| ● | at a price of $0.01 per warrant; |
| ● | upon not less than 30 days’ prior written notice of redemption (the “30-day redemption period”); and |
12
Redemption of warrants for Class A ordinary shares when the price per Class A ordinary share equals or exceeds $10.00.
Once the warrants become exercisable, the Company may redeem the outstanding warrants:
| ● | in whole and not in part; |
| ● | at $0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption; provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares determined based on the redemption date and the “fair market value” (as defined below) of the Class A ordinary shares; |
| ● | if, and only if, the closing price of the Class A ordinary shares equals or exceeds $10.00 per public share (as adjusted per share subdivisions, share dividends, reorganizations, recapitalizations and the like) on the trading day before the Company sends the notice of redemption to the warrant holders; and |
The
“fair market value” of the Class A ordinary shares shall mean the volume-weighted average price of the Class A ordinary shares
for the 10 trading days immediately following the date on which the notice of redemption is sent to the holders of warrants. This redemption
feature differs from the typical warrant redemption features used in other blank check offerings. The Company will provide the warrant
holders with the final fair market value no later than one business day after the 10-day trading period described above ends. In no event
will the warrants be exercisable in connection with this redemption feature for more than
Note 5 — Private Placement
Simultaneously
with the closing of the IPO, the Sponsor purchased
Pursuant
to the underwriters’ partial exercise of the over-allotment option on March 10, 2021, the Sponsor purchased an additional
The
Private Placement Warrants (including the Class A ordinary shares issuable upon exercise of the Private Placement Warrants) will not
be transferable, assignable or saleable until 30 days after the completion of the initial Business Combination and they will not be redeemable
by the Company (except as described below in Note 7 Redemption of warrants when the price per Class A ordinary share equals or exceeds
$
Note 6 — Related Party Transactions
Founder Shares
In
December 2020, the Sponsor paid $
13
The
Sponsor and the Company’s founding team have entered into a letter agreement with the Company, pursuant to which they have agreed
to waive their redemption rights with respect to their founder shares (as described in Note 6) and any public shares purchased during
or after the IPO in connection with (i) the completion of the initial Business Combination and (ii) a shareholder vote to approve an
amendment to the amended and restated memorandum and articles of association (A) that would modify the substance or timing of the Company’s
obligation to provide holders of the Class A ordinary shares the right to have their shares redeemed in connection with the initial Business
Combination or to redeem
Except as described herein, the Sponsor and the founding team have agreed not to transfer, assign or sell any of their founder shares until the earliest of: (1) one year after the completion of the initial Business Combination; and (2) subsequent to the initial Business Combination (x) if the closing price of the Class A ordinary shares equals or exceeds $12.00 per share (as adjusted for share divisions, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the initial Business Combination or (y) the date on which the Company completes a liquidation, merger, share exchange, reorganization or other similar transaction that results in all of the public shareholders having the right to exchange their ordinary shares for cash, securities or other property.
Due to Related Party
The
Company’s Sponsor overfunded to the Trust Account of $
Promissory Note — Related Party
On
December 30, 2020, the Sponsor agreed to loan the Company up to $
The
Company received $
Working Capital Loans
In
addition, in order to finance transaction costs in connection with an intended 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 the initial Business Combination, the Company may repay the Working Capital
Loans out of the proceeds of the Trust Account released to the Company. In the event that the initial 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
Commencing
on the date the securities of the Company were first listed on The New York Stock Exchange, the Company has paid an affiliate of the
Sponsor $
14
Note 7 — Fair Value Measurements
The following table presents information about the Company’s asset and liabilities that were measured at fair value on a recurring basis as of June 30, 2021, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.
| June 30, 2021 | Quoted Prices In Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||||||
| Asset: | ||||||||||||||||
| Money Market Funds held in Trust Account | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| FPA Liability | $ | $ | $ | $ | ||||||||||||
| Warrant Liability – Private Placement Warrants | ||||||||||||||||
| Warrant Liability – Public Warrants | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
The Warrants are accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on the Condensed Balance Sheet. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrants in the Condensed Statements of Operations.
Initial Measurement
The Company established the initial fair value of the Public Warrants and Private Placement Warrants on March 5, 2021, the date of the Company’s IPO and on March 10, 2021 for the additional purchase of Private Placement Warrants. The initial fair value of the Public Warrants and Private Placement Warrants were established using a Monte Carlo simulation model. The Warrants were classified as Level 3 at the initial measurement date due to the use of unobservable inputs.
The key inputs into the Monte Carlo simulation as of March 5, 2021 and March 10, 2021 were as follows:
| Input | Warrant Liability | FPA Liability | ||||||
| Expected term (years) | ||||||||
| Expected volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Stock price | $ | $ | ||||||
Subsequent Measurement
The
fair value of the Public Warrants at June 30, 2021 is classified as Level 1 due to the use of an observable market quote in an active
market. As of June 30, 2021, the aggregate value of Public Warrants was $
The fair value of the Private Placement Warrants and FPA liability were established using a Monte Carlo simulation model.
The key inputs into the Monte Carlo simulation as of June 30, 2021 were as follows:
| Input | Warrant Liability | FPA Liability | ||||||
| Expected term (years) | ||||||||
| Expected volatility | % | |||||||
| Risk-free interest rate | % | % | ||||||
| Stock price | $ | $ | ||||||
| Warrant value | $ | |||||||
15
The following table sets forth a summary of the changes in the fair value of the Level 3 liability for the six months ended June 30, 2021:
| Warrant Liability | FPA Liability | |||||||
| Fair value as of December 31, 2020 | $ | $ | ||||||
| Initial fair value of warrant liability and FPA liability | ||||||||
| Transfer out of Level 3 to Level 1 | ( | ) | ||||||
| Change in fair value | ( | ) | ||||||
| Fair value as of June 30, 2021 | $ | $ | ||||||
Note 8 — Commitments and Contingencies
Registration and Shareholder Rights
The holders of the founder shares, Private Placement Warrants, Class A ordinary shares underlying the Private Placement Warrants, any warrants that may be issued on conversion of Working Capital Loans (and any Class A ordinary shares issuable upon the exercise of the Private Placement Warrants or warrants issued upon conversion of the Working Capital Loans), and securities issuable pursuant to the forward purchase agreement (as described below) will be entitled to registration rights pursuant to a registration and shareholder rights agreement signed on March 2, 2021. The holders of these securities are entitled to make up to three demands, excluding short form demands, that the Company registers such securities. Notwithstanding anything to the contrary, LionTree Partners LLC may only make a demand on one occasion and only during the five-year period beginning on March 2, 2021. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of the initial Business Combination; provided, however, that LionTree Partners LLC may participate in a “piggy-back” registration only during the seven-year period beginning on March 2, 2021.
Underwriting Agreement
The
Company granted the underwriters a 45-day option from March 2, 2021 to purchase up to an additional
On
March 5, 2021, the Company paid a fixed underwriting discount of $
On
March 8, 2021, the underwriters partially exercised the over-allotment option to purchase
Forward Purchase Agreement
The FPA is accounted as either assets or liabilities in accordance with ASC 815-40 and are presented as FPA asset on the Balance Sheet. The FPA is measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of FPA in the Statement of Operations.
Business Combination Agreement
On July 1, 2021, the Company (which shall transfer by way of continuation to and domesticate as a Delaware corporation) entered into a business combination agreement (the “Business Combination Agreement”) with Bowlero Corp. (“Bowlero”). Following the Business Combination, the Company will be renamed “Bowlero” and its common stock and warrants are expected to remain listed on the New York Stock Exchange under the new ticker symbol “BOWL” and “BOWL WS”, respectively. The Business Combination is structured as a merger of the Company and Bowlero, with Bowlero merging with and into the Company, with the Company surviving, following the Company domesticating as a Delaware corporation. Bowlero’s stockholders will receive, as consideration for the Business Combination, a mix of cash, shares of the Company’s common stock and shares of the Company’s preferred stock.
16
Note 9 — Shareholders’ Equity
Preference
Shares—The Company is authorized to issue
Class A Ordinary Shares—The
Company is authorized to issue
Class B
Ordinary Shares—The Company is authorized to issue
Holders of Class A ordinary shares and holders of Class B ordinary shares will vote together as a single class, which each share entitling the holder to one vote.
The
Class B ordinary shares will automatically convert into Class A ordinary shares immediately following the consummation of the initial
Business Combination at a ratio such that the number of Class A ordinary shares issuable upon conversion of all founder shares will equal,
in the aggregate, on an as-converted basis,
Note 10 — 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, except for the Business Combination Agreement with Bowlero described in Note 1, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References to the “Company,” “Isos Acquisition Corporation,” “our,” “us” or “we” refer to Isos Acquisition Corporation. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (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 Securities and Exchange Commission (“SEC”) filings.
Overview
We are a blank check company incorporated on December 29, 2020 as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. We have not selected any business combination partner and we have not, nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly, with any business combination partner. We intend to effectuate our initial business combination using cash from the proceeds of this offering and the sale of the private placement warrants, our shares, debt or a combination of cash, equity and debt.
The issuance of additional shares in a business combination:
| ● | may significantly dilute the equity interest of investors in this offering, which dilution would increase if the anti-dilution provisions in the Class B ordinary shares resulted in the issuance of Class A ordinary shares on a greater than one-to-one basis upon conversion of the Class B ordinary shares; |
| ● | may subordinate the rights of holders of Class A ordinary shares if preference shares are issued with rights senior to those afforded our Class A ordinary shares; |
| ● | could cause a change in control if a substantial number of our Class A ordinary shares are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; |
| ● | may have the effect of delaying or preventing a change of control of us by diluting the share ownership or voting rights of a person seeking to obtain control of us; |
| ● | may adversely affect prevailing market prices for our units, Class A ordinary shares and/or warrants; and |
| ● | may not result in adjustment to the exercise price of our warrants. |
18
Similarly, if we issue debt or otherwise incur significant debt, it could result in:
| ● | default and foreclosure on our assets if our operating revenues after an initial business combination are insufficient to repay our debt obligations; |
| ● | acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant; |
| ● | our immediate payment of all principal and accrued interest, if any, if the debt is payable on demand; |
| ● | our inability to obtain necessary additional financing if the debt contains covenants restricting our ability to obtain such financing while the debt is outstanding; |
| ● | our inability to pay dividends on our Class A ordinary shares; |
| ● | using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our Class A ordinary shares if declared, expenses, capital expenditures, acquisitions and other general corporate purposes; |
| ● | limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate; |
| ● | increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and |
| ● | limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt. |
We expect to incur significant costs in the pursuit of our initial business combination. We cannot assure you that our plans to raise capital or to complete our initial business combination will be successful.
Proposed Business Combination
As more fully described in Note 1 to the unaudited condensed consolidated financial statements included as Item 1 to this Quarterly Report on Form 10-Q, on July 1, 2021, we entered into a business combination agreement (as amended, the “Business Combination Agreement”) with Bowlero Corp. (“Bowlero”). Pursuant to the Business Combination Agreement, following the Company domesticating as a Delaware corporation, Bowlero will merge with and into the Company, with the Company surviving. Bowlero’s stockholders will receive, as consideration for the Business Combination, a mix of cash, shares of the Company’s common stock and shares of the Company’s preferred stock.
For additional information regarding the Business Combination Agreement and Bowlero, see the Form 8-K filed by the Company with the SEC on July 1, 2021 and the Form S-4 filed by the Company with the SEC on July 22, 2021, as it may be amended.
Results of Operations
As of June 30, 2021, we have not commenced any operations. All activity for the period from December 29, 2020 (inception) through June 30, 2021 relates to our formation and initial public offering. We will not generate any operating revenues until after the completion of our initial business combination, at the earliest. We will generate non-operating income in the form of interest income from the proceeds derived from the initial public offering and placed in the trust account.
For the three months ended June 30, 2021, we had net income of $2,803,140 which was comprised of operating costs of $380,526, trust interest income of $3,541, unrealized gain on change in fair value of warrants of $4,889,502, and unrealized loss on change in fair value of FPA of $1,709,377.
For the six months ended June 30, 2021, we had net income of $1,886,252 which was comprised of operating costs of $475,353, trust interest income of $3,541, warrant issuance costs of $638,847, unrealized gain on change in fair value of warrants of $4,455,365, and unrealized loss on change in fair value of FPA of $1,458,454.
19
Liquidity and Capital Resources
As of June 30, 2021, we had approximately $1.8 million in our operating bank account, and working capital of approximately $1.9 million.
Prior to the completion of the Initial Public Offering, our liquidity needs had been satisfied through a capital contribution from the Sponsor of $25,000, to cover certain offering costs, for the founder shares, the loan under an unsecured promissory note from the Sponsor of $125,267. The promissory note from the Sponsor was paid in full on March 15, 2021. Subsequent to the consummation of the Initial Public Offering and Private Placement, our liquidity needs have been satisfied through the proceeds from the consummation of the Private Placement not held in the Trust Account.
In addition, in order to finance transaction costs in connection with a Business Combination, our Sponsor or an affiliate of the Sponsor, or certain of our officers and directors may, but are not obligated to, provide us Working Capital Loans. To date, there were no amounts outstanding under any Working Capital Loans.
Based on the foregoing, management believes that we will have sufficient working capital and borrowing capacity to meet our needs through the earlier of the consummation of a Business Combination or one year from this filing. Over this time period, we 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.
Critical Accounting Policies and Estimates
The preparation of the unaudited condensed 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 liabilities at the date of the unaudited condensed financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. We have identified the following as our critical accounting policies:
Ordinary Shares Subject to Possible Redemption
The Company accounts for its ordinary shares subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Ordinary shares subject to mandatory redemption (if any) is classified as a liability instrument and is measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, ordinary shares is classified as shareholders’ equity. The Company’s ordinary shares feature certain redemption rights that is considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, ordinary shares subject to possible redemption is presented at redemption value as temporary equity, outside of the shareholders’ equity section of the Company’s balance sheet.
Net Income Per Ordinary Share
Net income per ordinary share is computed by dividing net income by the weighted average number of ordinary shares outstanding for each of the periods. The calculation of diluted income per ordinary share does not consider the effect of the warrants issued in connection with the (i) IPO, (ii) exercise of the overallotment and (iii) the Private Placement since the exercise price of the warrants is higher than the market price. The warrants are exercisable to purchase 13,892,395 shares of ordinary shares in the aggregate.
20
Derivative Financial Instruments
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The initial fair value of the Private and Public Warrants was estimated using a Monte Carlo simulation (see Note 7).
Off-Balance Sheet Arrangements
As of June 30, 2021, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
JOBS Act
The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We will qualify as an “emerging growth company” and under the JOBS Act will be allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company,” we choose to rely on such exemptions we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis) and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our initial public offering or until we are no longer an “emerging growth company,” whichever is earlier.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
On April 12, 2021, the Acting Director of the Division of Corporation Finance and Acting Chief Accountant of the SEC together issued a public statement (the “SEC Warrant Accounting Statement”) on accounting and reporting considerations for warrants issued by special purpose acquisition companies (“SPACs”). The SEC Warrant Accounting Statement discussed “certain features of warrants issued in SPAC transactions” that “may be common across many entities.” The SEC Warrant Accounting Statement indicated that when one or more of such features is included in a warrant, the warrant “should be classified as a lability measured at fair value, with changes in fair value each period reported in earnings.”
21
The warrant agreement governing the Company’s warrants includes a provision that provides for potential changes to the settlement amounts dependent on the characteristics of the holder of the warrant. Upon review of the statement, the Company’s management further evaluated the warrants under Accounting Standards Codification (“ASC”) Subtopic 815-40, Contracts in Entity’s Own Equity. ASC Section 815-40-15 addresses equity versus liability treatment and classification of equity-linked financial instruments, including warrants, and states that a warrant may be classified as a component of equity only if, among other things, the warrant is indexed to the issuer’s ordinary shares. Under ASC Section 815-40-15, a warrant is not indexed to the issuer’s ordinary shares if the terms of the warrant require an adjustment to the exercise price upon a specified event and that event is not an input to the fair value of the warrant.
The Company previously classified the public warrants and private placement warrants issued in connection with the Company’s initial public offering as equity instruments. Upon further consideration of the rules and guidance, management of the Company concluded that the warrants are precluded from equity classification. As a result, the warrants should be recorded as liabilities on the balance sheet and measured at fair value at inception and on a recurring basis in accordance with ASC 820, Fair Value Measurement, with changes in fair value recognized in the statement of operations.
On May 24, 2021, the Company’s management and the Audit Committee of the Company’s board of directors, after consultation with management, concluded that its balance sheet as of March 5, 2021 should no longer be relied upon based on the correction of an error as described above and such financial statement was revised.
Evaluation of Disclosure 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.
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 June 30, 2021. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, solely due to the events that led to the Company’s revision of its financial statements described above, 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.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fiscal quarter of 2021 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. In light of the material weakness, we have enhanced our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand 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.
22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
As of the date of this report, there have been no material changes from the risk factors previously disclosed in our final prospectus dated March 2, 2021 and filed with the SEC on March 4, 2021, and in the Form 10-Q/A for the Quarterly Period ended March 31, 2021, dated July 16, 2021 and filed with the SEC on July 19, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
23
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. |
| (1) | Incorporated by reference to the Company’s Form 8-K, filed with the SEC on July 1, 2021. |
24
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.
| ISOS ACQUISITION CORPORATION | ||
| Date: August 16, 2021 | By: | /s/ Michelle Wilson |
| Name: | Michelle Wilson | |
| Title: | Co-Chairman of the Board and Co-Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: August 16, 2021 | By: | /s/ Winston Meade |
| Name: | Winston Meade | |
| Title: | Chief Financial Officer | |
| (Principal Accounting and Financial Officer) | ||
25