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
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
? 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; 20 ? 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, 2021and 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, 2021as a Delawarecorporation 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
ability to use our net operating loss carry forwards, if any,
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 $1,359,000and 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 $586,000and $1,156,000, respectively, consisting primarily of costs for being a public company of approximately $196,000and $360,000, compensation of approximately $249,000and $498,000, respectively (approximately $122,000and $244,000, respectively, of which is deferred), approximately $62,000and $112,000, respectively, of franchise taxes, approximately $45,000and $90,000, respectively, of administrative fees to our Sponsor, approximately $33,000and $68,000, respectively, of costs associated with searching for a suitable business combination and other costs. For the three months ended June 30, 2021and 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 $4,087,000and $10,775,000, respectively, representing the reduction in fair value of our warrant liability during the period and interest income of approximately $388,000and $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, 2022did 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
$25,000from the sale of the founder shares and up to $500,000in loans from our Sponsor under an unsecured promissory note, $195,000of which was borrowed prior to, and then fully repaid at, the October 1, 2021closing 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, 2021pursuant to the partial exercise of the underwriters' over-allotment option), after deducting offering expenses of approximately $990,000and 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, 2021in 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 $11,933,000of total deferred underwriting commissions, was deposited into the Trust Account. The remaining approximately $3,010,000will 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.
Delawarefranchise 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 $200,000per year. Under the assumed par value capital method, Delawaretaxes each $1,000,000of 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 Delawarecorporation 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 $1,359,000in 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, 2022to 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 $1,500,000of such loans may be convertible into Warrants at a price of $1.50per 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
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 $15,000per 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 $29,000per month prior to the consummation of our initial Business Combination, of which $14,000per month is payable upon the completion of our initial Business Combination and $15,000per month is payable currently for their services. Since January 1, 2022, we have been compensating a vice president at the rate of $25,000per month, $12,500of which is paid currently for his services and $12,500of which is payable upon the closing of our initial Business Combination. An aggregate of approximately $249,000and $498,000, respectively, was charged for operations for the three and six months ended June 30, 2022. Deferred compensation - related parties includes approximately $327,000under this obligation for the period from September 29, 2021to 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
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. Treasuryzero-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, 2022and December 31, 2021, our Public Warrants were trading in an active market. As such, at June 30, 2022and 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 ( $0.26and $0.84, respectively, per warrant on June 30, 2022and 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
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 $ 2,503,000Denominator: Basic and diluted weighted average share of common stock: 34,093,000 11,364,000
Basic and diluted net income per share of common stock
$ 0.09 $ 0.09 $ 0.22 $ 0.22The Company did not have two classes of stock outstanding during the periods ended June 30, 2021and therefore net loss of approximately $-0- and $2,000, respectively, in the three months ended June 30, 2022and 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 $0.00and $0.00respectively.
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
SECStaff Accounting Bulletin (SAB) Topic 5A - "Expenses of Offering." Costs incurred in connection with preparation for our initial public offering totaled approximately $19,741,000including our costs of approximately $990,000together with $18,750,000of 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, 2022and 2021 and the six months ended June 30, 2022and period from January 22, 2021(inception) to June 30, 2021the Company recorded income tax expense of approximately $20,000and $0, respectively, and approximately $20,000and $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, 2021and 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, 2022was 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, 2022and December 31, 2022, the Company has a deferred tax asset of approximately $300,000and $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, 2022or 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, 2022or 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 $5,000,001upon 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 $10.00per 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 $ 340,930,000Less: 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
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.
© Edgar Online, source