HENNESSY CAPITAL INVESTMENT CORP. VI MANAGEMENT REPORT OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

References in this report (this “Quarterly Report”) to “we”, “us” or the “Company” refer to Hennessy Capital Investment Corp. VII. References to our “management” or “management team” mean our officers and directors. References to “Sponsor” refer to Hennessy Capital Partners VI LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the summary financial statements and accompanying notes contained elsewhere in this quarterly report.

Special note regarding forward-looking statements

This Quarterly Report (including, without limitation, statements under the
heading "Management's Discussion and Analysis of Financial Condition and Results
of Operations,"includes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934 (the "Exchange Act"). Our forward-looking statements include, but are
not limited to, statements regarding our or our management team's expectations,
hopes, beliefs, intentions or strategies regarding the future and any other
statements that are not statements of current or historical facts. In addition,
any statements that refer to projections, forecasts or other characterizations
of future events or circumstances, including any underlying assumptions, are
forward-looking statements. These forward-looking statements may be identified
by the use of forward-looking terminology, including the words "anticipates,"
"believes," "continues," "could," "estimates," "expects," "intends," "plans,"
"may," "might," "plan," "possible," "potential," "projects," "predicts," "will,"
"would," or "should," or, in each case, their negative or other variations or
comparable terminology, but the absence of these words does not mean that a
statement is not forward-looking.



We caution you that forward-looking statements are not guarantees of future
performance and that our actual results of operations, financial condition and
liquidity, and developments in the industry in which we operate, may differ
materially from those made in or suggested by the forward-looking statements
contained in this Quarterly Report, and undue reliance should not be placed on
forward-looking statements. In addition, even if our results or operations,
financial condition and liquidity, and developments in the industry in which we
operate are consistent with the forward-looking statements contained in this
Quarterly Report, those results or developments may not be indicative of results
or developments in subsequent periods. The forward-looking statements contained
in this Quarterly Report are based on our current expectations and beliefs
concerning future developments and their potential effects on us. There can be
no assurance that future developments affecting us will be those that we have
anticipated. These forward-looking statements involve a number of risks,
uncertainties (some of which are beyond our control) or other assumptions that
may cause actual results or performance to be materially different from those
expressed or implied by these forward-looking statements.



These risks, uncertainties and assumptions include, but are not limited to, the following risks, uncertainties, assumptions and other factors:


  ? our ability to select an appropriate target business or businesses;



? our ability to complete our initial business combination (our “Business

           Combination");




       ?   our expectations around the performance of a prospective target
           business or businesses;




       ?   our success in retaining or recruiting, or changes required in, our
           officers, key employees or directors following our initial
Business
           Combination;



? our officers and directors devote their time to other activities

           and potentially having conflicts of interest with our business or in
           approving our initial Business Combination;




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       ?   our potential ability to obtain additional financing to complete our
           initial Business Combination;



? our pool of potential target companies, including location and

           industry of such target businesses;




       ?   the ability of our officers and directors to generate a number of
           potential business combination opportunities;




  ? our public securities' potential liquidity and trading;




  ? the lack of a market for our securities;




? the availability to us of funds from interest income on the balance of

           the trust account into which certain proceeds of our initial public
           offering were placed (the "Trust Account");




  ? the Trust Account not being subject to claims of third parties;




  ? our financial performance; or




       ?   the other risks and uncertainties discussed under the heading "Risk
           Factors" and elsewhere in this Quarterly Report, in our Annual Report
           on Form 10-K for the year ended December 31, 2021 and in our
           registration statement on Form S-1 (File No. 333-254062) filed in
           connection with our initial public offering.



The foregoing risks and uncertainties may not be exhaustive. Should one or more
of these risks or uncertainties materialize, or should any of our assumptions
prove incorrect, actual results may vary in material respects from those
projected in these forward-looking statements. We undertake no obligation to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required under
applicable securities laws.



Overview


We are an early-stage blank check company incorporated on January 22, 2021 as a
Delaware corporation and 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. We are actively pursuing
discussions with potential business combination partners, and we have not yet
entered into a definitive business combination agreement with any specific
business combination target. However, our management team has engaged in
discussions with potential business combination partners in their capacity as
officers of Hennessy Capital Investment Corp. V ("Hennessy V"), and we may
pursue potential business combination partners that had previously been in
discussions with Hennessy V's management team. We intend to effectuate our
initial Business Combination using cash from the proceeds of our initial public
offering and the sale of the private placement warrants, our capital stock, debt
or a combination of cash, stock and debt.



The issuance of additional shares of our common or preferred stock in our first business combination:


       ?   may significantly dilute the equity interest of investors in our
           initial public offering;




       ?   may subordinate the rights of holders of common stock if preferred
           stock is issued with rights senior to those afforded our common stock;




                                       21





       ?   could cause a change of control if a substantial number of shares of
           our common stock 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; and



? could adversely affect prevailing market prices for our Class A common shares

           stock and/or Public Warrants.




Similarly, if we issue debt securities or otherwise incur significant
indebtedness to finance our initial Business Combination, 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 common stock;




       ?   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 common stock 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



? the limits on our ability to borrow additional money for our 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.




As of June 30, 2022, we had cash of approximately $1,359,000 and working capital
of approximately $1,194,000. Further, we have begun to, and expect to continue
to, incur significant costs in the pursuit of an initial Business Combination.
We cannot assure you that our plans to raise capital or to complete our initial
Business Combination will be successful.



                                       22




Results of operations and known trends or future events



We have neither engaged in any operations nor generated any revenues to date.
Our only activities since inception have been organizational activities and
those necessary to prepare for and consummate our initial public offering and,
subsequent to completion of our initial public offering on October 1, 2021,
identifying and completing a suitable initial Business Combination. Following
our initial public offering, we will not generate any operating revenues until
after completion of our initial Business Combination, if at all. We currently
generate non-operating income in the form of interest income on cash and cash
equivalents after our initial public offering. Since our initial public
offering, we have incurred increased expenses as a result of being a public
company (for legal, financial reporting, accounting and auditing compliance), as
well as for professional and consulting fees and travel associated with
evaluating various initial Business Combination candidates, as well as costs in
connection with negotiating and executing a definitive agreement and related
agreements and proxy materials. Our expenses have, and will likely continue to,
increase substantially since the closing of our initial public offering on
October 1, 2021.



We account for the Public Warrants and Private Placement Warrants issued in
connection with our initial public offering as warrant liabilities and not
equity. As a result, we are required to measure the fair value of the Warrants
when they are issued and then at the end of each reporting period and to
recognize changes in the fair value from the prior period in our operating
results for each current period. Such amounts can be material and can be either
other income or other expense. We account for all of the Class A common stock
issued in our initial public offering as redeemable stock and not permanent
equity and so we report negative stockholders' equity and expect to continue to
do so.



General and administrative expenses - For the three and six months ended June
30, 2022, we had a loss from operations of approximately $586,000 and
$1,156,000, respectively, consisting primarily of costs for being a public
company of approximately $196,000 and $360,000, compensation of approximately
$249,000 and $498,000, respectively (approximately $122,000 and $244,000,
respectively, of which is deferred), approximately $62,000 and $112,000,
respectively, of franchise taxes, approximately $45,000 and $90,000,
respectively, of administrative fees to our Sponsor, approximately $33,000 and
$68,000, respectively, of costs associated with searching for a suitable
business combination and other costs.



For the three months ended June 30, 2021 and the period from January 22, 2021
(inception) to June 30, 2021, our net loss and loss from operations was $-0- and
$2,000, respectively, consisting primarily of formation costs since our
activities were primarily devoted or organizational activities and those
activities necessary to preparation for our Public Offering.



Other income (expense) - In addition to operating costs, for the three and six
months ended June 30, 2022, we had other income of approximately $4,087,000 and
$10,775,000, respectively, representing the reduction in fair value of our
warrant liability during the period and interest income of approximately
$388,000 and $412,000, respectively. As a result of market conditions occurring
in connection with the Covid-19 pandemic, low interest rates on available
investments had been insufficient to cover our franchise tax obligations
although interest rates in the three months ended June 30, 2022 did return
sufficient interest income to pay franchise taxes due and estimated.



Cash and capital resources

Our liquidity needs prior to the completion of our initial public offering were
satisfied through receipt of $25,000 from the sale of the founder shares and up
to $500,000 in loans from our Sponsor under an unsecured promissory note,
$195,000 of which was borrowed prior to, and then fully repaid at, the October
1, 2021 closing of our initial public offering. The net proceeds from: (1) the
sale of our units in our initial public offering (including the additional units
sold on October 21, 2021 pursuant to the partial exercise of the underwriters'
over-allotment option), after deducting offering expenses of approximately
$990,000 and underwriting commissions of approximately $6,819,000 (excluding
total deferred underwriting commissions of $11,933,000), and (2) the sale of the
Private Placement Warrants (including the additional Private Placement Warrants
sold on October 21, 2021 in connection with the partial exercise of the
underwriters' over-allotment option) for a purchase price of approximately
$10,819,000, was $343,940,000. Of this amount, approximately $340,930,000, which
includes approximately $11,933,000 of total deferred underwriting commissions,
was deposited into the Trust Account. The remaining approximately $3,010,000
will not be held in the Trust Account. The funds in the Trust Account will be
invested only in U.S. government treasury bills with a maturity of 185 days or
less or in money market funds that meet certain conditions under Rule 2a-7 under
the Investment Company Act of 1940 and that invest only in direct U.S.
government obligations.



                                       23




We intend to use substantially all of the funds held in the Trust Account,
including any amounts representing interest earned on the Trust Account (which
interest shall be net of taxes payable), if any, to complete our initial
Business Combination. We will make withdrawals from the Trust Account to pay our
taxes, including franchise taxes and income taxes. Delaware franchise tax is
based on our authorized shares or on our assumed par and non-par capital,
whichever yields a lower result. Under the authorized shares method, each share
is taxed at a graduated rate based on the number of authorized shares with a
maximum aggregate tax of $200,000 per year. Under the assumed par value capital
method, Delaware taxes each $1,000,000 of assumed par value capital at the rate
of $400; where assumed par value would be (1) our total gross assets divided by
(2) our total issued shares of common stock, multiplied by (3) the number of our
authorized shares. Based on the number of shares of our common stock authorized
and outstanding and our total gross assets, our annual franchise tax obligation
is expected to be capped at the maximum amount of annual franchise taxes payable
by us as a Delaware corporation of $200,000. Our annual income tax obligations
will depend on the amount of interest and other income earned on the amounts
held in the Trust Account. We expect the only taxes payable by us out of the
funds in the Trust Account will be income and franchise taxes. To the extent
that our capital stock or debt is used, in whole or in part, as consideration to
complete our initial 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.


Prior to the completion of our initial Business Combination, in addition to our
costs associated with operating as a listed public company, our principal use of
working capital will be to fund our activities to identify and evaluate target
businesses, perform business due diligence on prospective target businesses,
travel to and from the offices or similar locations of prospective target
businesses or their representatives or owners, review corporate documents and
material agreements of prospective target businesses, structure, negotiate and
complete an initial Business Combination, and to pay taxes to the extent the
interest earned on the Trust Account is not sufficient to pay our taxes.



In addition, we may pay commitment fees for financing, fees to consultants to
assist us with our search for a target business or as a down payment or to fund
a "no-shop" provision (a provision designed to keep target businesses from
"shopping" around for transactions with other companies or investors on terms
more favorable to such target businesses) with respect to a particular proposed
business combination, although we do not have any current intention to do so. If
we entered into an agreement where we paid for the right to receive exclusivity
from a target business, the amount that would be used as a down payment or to
fund a "no-shop" provision would be determined based on the terms of the
specific business combination and the amount of our available funds at the time.
Our forfeiture of such funds (whether as a result of our breach or otherwise)
could result in our not having sufficient funds to continue searching for, or
conducting due diligence with respect to, prospective target businesses.



As indicated in the accompanying financial statements, at June 30, 2022, we had
approximately $1,359,000 in cash and working capital of approximately
$1,194,000. Further, we have incurred and expect to continue to incur
significant costs in pursuit of our financing and acquisition plans. We believe
that we have sufficient working capital at June 30, 2022 to continue our
operations for at least 12 months. We cannot assure you that our plans to raise
capital or to consummate an initial Business Combination will be successful.



Our Sponsor, an affiliate of our Sponsor or our officers and directors may, but
none of them is obligated to, loan us funds as may be required to fund our
working capital requirements. If we complete our initial Business Combination,
we would repay such loaned amounts out of the proceeds of the Trust Account
released to us. In the event that our initial 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 at a price of $1.50 per Warrant at the option of the
lender. The Warrants would be identical to the Private Placement Warrants issued
to our Sponsor, our direct anchor investors and our other anchor investors. The
terms of such loans by our Sponsor, an affiliate of our Sponsor or our officers
and directors, if any, have not been determined and no written agreements exist
with respect to such loans. We do not expect to seek loans from parties other
than our Sponsor, an affiliate of our Sponsor or our officers and directors, if
any, as we do not believe third parties will be willing to loan such funds and
provide a waiver against any and all rights to seek access to funds in our
Trust
Account.



                                       24





We do not believe we will need to raise additional funds following our initial
public offering in order to meet the expenditures required for operating our
business. However, if our estimates of the costs of identifying a target
business, undertaking in-depth due diligence and negotiating an initial 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 initial
Business Combination. Moreover, we may need to obtain additional financing
either to complete our initial Business Combination or because we become
obligated to redeem a significant number of our public shares upon completion of
our initial Business Combination, in which case we may issue additional
securities or incur debt in connection with such initial Business Combination.
In addition, we intend to target businesses with enterprise values that are
greater than we could acquire with the net proceeds of our initial public
offering and the sale of the Private Placement Warrants, and, as a result, if
the cash portion of the purchase price exceeds the amount available from the
Trust Account, net of amounts needed to satisfy redemptions by public
stockholders, we may be required to seek additional financing to complete such
proposed initial Business Combination. We may also obtain financing prior to the
closing of our initial Business Combination to fund our working capital needs
and transaction costs in connection with our search for and completion of our
initial Business Combination. There is no limitation on our ability to raise
funds through the issuance of equity or equity-linked securities or through
loans, advances or other indebtedness in connection with our initial Business
Combination, including pursuant to forward purchase agreements or backstop
arrangements we may enter into following the consummation of our initial public
offering. Subject to compliance with applicable securities laws, we would only
complete such financing simultaneously with the completion of our initial
Business Combination. If we are unable to complete our initial 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 initial Business Combination, if cash on hand is insufficient, we
may need to obtain additional financing in order to meet our obligations.



Off-balance sheet financing



As of June 30, 2022, we have no obligations, assets or liabilities which would
be considered off-balance sheet arrangements. We do not participate in
transactions that create relationships with unconsolidated entities or financial
partnerships, often referred to as variable interest entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements.



We have not entered into any off-balance sheet financing arrangements, established special purpose entities, guaranteed any debts or commitments of other entities, or entered into any arrangements for non-financial assets.


Contractual obligations



At June 30, 2022, we did not have any long-term debt, capital lease obligations,
operating lease obligations or long-term liabilities. In connection with our
initial public offering, we entered into an Administrative Support Agreement
with Hennessy Capital Group LLC, an affiliate of our Sponsor, pursuant to which
the Company pays Hennessy Capital Group LLC $15,000 per month for office space,
utilities and secretarial and administrative support.



Also, commencing on September 29, 2021, the date our securities were first
listed on the Nasdaq Global Market, we have agreed to compensate each of our
President and Chief Operating Officer as well as our Chief Financial Officer
$29,000 per month prior to the consummation of our initial Business Combination,
of which $14,000 per month is payable upon the completion of our initial
Business Combination and $15,000 per month is payable currently for their
services. Since January 1, 2022, we have been compensating a vice president at
the rate of $25,000 per month, $12,500 of which is paid currently for his
services and $12,500 of which is payable upon the closing of our initial
Business Combination. An aggregate of approximately $249,000 and $498,000,
respectively, was charged for operations for the three and six months ended June
30, 2022. Deferred compensation - related parties includes approximately
$327,000 under this obligation for the period from September 29, 2021 to June
30, 2022.


Upon completion of the initial business combination or our liquidation, the Company will cease to pay or accrue such monthly fees.



In connection with identifying an initial Business Combination candidate and
negotiating an initial Business Combination, we may enter into engagement
letters or agreements with various consultants, advisors, professionals and
others in connection with an initial Business Combination. The services under
these engagement letters and agreements can be material in amount and in some
instances can include contingent or success fees. Contingent or success fees
(but not deferred underwriting compensation) would be charged to operations in
the quarter that our initial Business Combination is consummated. In most
instances (except with respect to our independent registered public accounting
firm), these engagement letters and agreements are expected to specifically
provide that such counterparties waive their rights to seek repayment from
the
funds in the Trust Account.



                                       25




Critical accounting estimates and policies



The preparation of financial statements and related disclosures in conformity
with U.S. GAAP 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 as our critical accounting estimates
and policies:



Accounting estimates:


A critical accounting estimate to our financial statements is the estimated fair
value of our warrant liability. 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. U.S. 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

technique 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 estimated fair value of the warrant liability at inception of the Warrants,
October 1, 2021, was determined using Level 3 inputs. At October 1, 2021, we
utilized an independent valuation consultant that used a binomial lattice
simulation methodology to value the Warrants. Inherent in a binomial options
pricing model are assumptions related to expected share-price volatility,
expected life, risk-free interest rate and dividend yield. We estimate the
volatility of our shares based on historical volatility 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 assumed to be equivalent to their remaining contractual term. The
dividend rate is based on the historical rate, which we anticipate to remain at
zero.


Since the hierarchy gives the highest priority to unadjusted quoted prices in
active markets, at June 30, 2022 and December 31, 2021, our Public Warrants were
trading in an active market. As such, at June 30, 2022 and December 31, 2021, we
valued our Public Warrants based on publicly observable inputs (Level 1 inputs)
from the trading in the Public Warrants in an active market ($0.26 and $0.84,
respectively, per warrant on June 30, 2022 and December 31, 2021). Since the
Private Placement Warrants are substantially similar to the Public Warrants but
do not trade, we valued them based on the value of the Public Warrants
(significant other observable inputs - Level 2).



For reference, each $0.10 change in fair value of our warrants converted to approximately $1,858,000 Gain or loss.

Net earnings or net loss per common share:



We comply with accounting and disclosure requirements of Financial Accounting
Standards Board ("FASB") ASC 260, "Earnings Per Share." Net income or loss per
share of common stock is computed by dividing net income or loss applicable to
common stockholders by the weighted average number of shares of common stock
outstanding during the period plus, to the extent dilutive, the incremental
number of shares of common stock to settle Warrants, as calculated using the
treasury stock method.



                                       26





We have not considered the effect of the Warrants sold in our initial public
offering and private placement to purchase an aggregate of 18,576,712 shares of
Class A common stock in the calculation of diluted income (loss) per share,
since their inclusion would be anti-dilutive under the treasury stock method. As
a result, diluted income (loss) per share of common stock is the same as basic
income (loss) per share of common stock for the period presented.



We have two classes of shares: our Class A common stock and our Class B common
stock. Income and losses are shared pro rata among the two classes of common
stock. Net income (loss) per share of common stock is calculated by dividing the
net income (loss) by the weighted average number of shares of common stock
outstanding during the respective period.



The following table reflects net earnings per share after allocation of earnings to shares based on shares outstanding.


                                                Three months ended                 Six months ended
                                                   June 30, 2022                     June 30, 2022
                                             Class B        Class A            Class A          Class B
Numerator:
Basic and diluted net income per share
of common stock:
Allocation of income - basic and diluted      2,902,000          967,000     $  7,508,000     $  2,503,000
Denominator:
Basic and diluted weighted average share
of common stock:                             34,093,000       11,364,000   

34,093,000 11,364,000

Basic and diluted net income per share
of common stock                            $       0.09     $       0.09     $       0.22     $       0.22




The Company did not have two classes of stock outstanding during the periods
ended June 30, 2021 and therefore net loss of approximately $-0- and $2,000,
respectively, in the three months ended June 30, 2022 and the period from
January 22, 2021 (inception) to June 30 2021 was allocated 100% to Class B
shareholders, net of shares that were subject to forfeiture, leading to net loss
per share in that period of $0.00 and $0.00 respectively.



Fair value of financial instruments:



The fair value of our assets and liabilities, which qualify as financial
instruments under FASB ASC 820, "Fair Value Measurements and Disclosures,"
approximates the carrying amounts represented in the balance sheets primarily
due to their short-term nature, except for derivative warrant liabilities (See
Note 6).



Offering Costs:



We comply with the requirements of FASB ASC 340-10-S99-1 and SEC Staff
Accounting Bulletin (SAB) Topic 5A - "Expenses of Offering." Costs incurred in
connection with preparation for our initial public offering totaled
approximately $19,741,000 including our costs of approximately $990,000 together
with $18,750,000 of underwriters' discount, have been allocated to equity
instruments ($19,018,000) and warrant liability ($722,000), based on their
relative values, and charged to temporary equity or expense (in the case of the
portion allocated to warrant liability) upon completion of our initial public
offering.



Income Taxes:


The Company follows the asset and liability method of accounting for income
taxes under FASB ASC, 740, "Income Taxes." Deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable to
differences between the balance sheet carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that included the enactment date.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized.



                                       27





The Company's currently taxable income consists of interest income on the Trust
Account net of taxes. The Company's general and administrative costs are
generally considered start-up costs and are not currently deductible. During the
three months ended June 30, 2022 and 2021 and the six months ended June 30, 2022
and period from January 22, 2021 (inception) to June 30, 2021 the Company
recorded income tax expense of approximately $20,000 and $0, respectively, and
approximately $20,000 and $0, respectively. This occurs because, in 2022, the
taxable interest income earned on the Trust Account was largely offset by
deductible franchise taxes so there was only a minor amount income for tax
purposes, and in 2021 there was no interest income. In the three months ended
June 30, 2021 and for the period from January 22, 2021 (inception) to June 30,
2021, there was no interest income because the Company's Public Offering had not
happened at that time. The Company's effective tax rate for the three and six
months ended June 30, 2022 was approximately 1% and 0%, respectively, which
differs from the expected income tax rate due to the start-up costs (discussed
above) which are not currently deductible and business combination and warrant
costs and warrant fair value adjustments which may not be deductible or taxable.
At June 30, 2022 and December 31, 2022, the Company has a deferred tax asset of
approximately $300,000 and $80,000, respectively, primarily related to start-up
costs. Management has determined that a full valuation allowance of the deferred
tax asset is appropriate at this time.



FASB ASC 740 prescribes a recognition threshold and a measurement attribute for
the financial statement recognition and measurement of tax positions 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. There were no unrecognized tax benefits as of June 30, 2022 or
December 31, 2021. The Company recognizes accrued interest and penalties related
to unrecognized tax benefits as income tax expense. No amounts were accrued for
the payment of interest and penalties at June 30, 2022 or December 31, 2021. The
Company is currently not aware of any issues under review that could result in
significant payments, accruals or material deviation from its position. The
Company is subject to income tax examinations by major taxing authorities since
inception.



Redeemable Common Stock:



All of the 34,092,954 public shares sold as part of the units in our initial
public offering contain a redemption feature which allows for the redemption of
public shares if we hold a stockholder vote or if there is a tender offer for
shares in connection with a business combination. In accordance with FASB ASC
480, "Distinguishing Liabilities from Equity" ("ASC 480"), redemption provisions
not solely within our control requires the security to be classified outside of
permanent equity. Ordinary liquidation events, which involve the redemption and
liquidation of all of the entity's equity instruments, are excluded from the
provisions of ASC 480. Although we did not specify a maximum redemption
threshold, our charter provides that in no event will we redeem our public
shares in an amount that would cause our net tangible assets (i.e., total assets
less intangible assets and liabilities) to be less than $5,000,001 upon the
closing of a business combination.



While redemptions cannot cause our net tangible assets to fall below $5,000,000,
all shares of Class A common stock are redeemable and classified as such on our
balance sheet until such time as a redemption event takes place. The value of
Class A common stock that may be redeemed is equal to $10.00 per share (which is
the assumed redemption price) multiplied by 34,092,954 shares of Class A common
stock.



We recognize changes in redemption value immediately as they occur and adjust
the carrying value of the securities at the end of each reporting period.
Increases or decreases in the carrying amount of redeemable Class A common stock
are affected by adjustments to additional paid-in capital. Accordingly, at June
30, 2022, all of the 34,092,954 public shares were classified outside of
permanent equity. Class A common stock subject to redemption consist of:



Gross proceeds of our initial public offering           $ 340,930,000
Less: Proceeds allocated to Public Warrants               (11,935,000 )
Offering costs                                            (19,018,000 )

Plus: Accretion from book value to redemption value 30,953,000 Class A common shares subject to redemption $340,930,000



                                       28




Derivative warrant liabilities

We account for Warrants as either equity-classified or liability-classified
instruments based on an assessment of the warrant's specific terms and
applicable authoritative guidance FASB 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 our own 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. Costs associated with issuing the Warrants accounted
for as liabilities are charged to operations when the Warrants are issued. The
fair value of the Warrants was estimated using a binomial lattice simulation
approach.

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