NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2022
Note 1 — Description of Organization and Business
Operations
LAVA Medtech
Acquisition Corp. (the “Company”) is a blank check company incorporated in Delaware on March 31, 2021. The Company was formed
for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business
combination with one or more businesses (the “Business Combination”).
The Company
is not limited to a particular industry or geographic region for purposes of consummating a Business Combination. The Company is an early
stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth
companies.
As of March 31, 2022, the
Company had not commenced any operations. All activity through March 31, 2022 relates to the Company’s formation and Initial
Public Offering (“IPO”), which is described below, and, since the IPO, the search for a prospective initial Business
Combination. The Company will not generate any operating revenue until after the completion of its initial Business Combination, at
the earliest. The Company will generate non-operating income in the form of unrealized gains earned on investments
from the proceeds derived from the IPO. The registration statement for the Company’s IPO was declared effective on October 26,
2021. On October 29, 2021, the Company consummated the IPO of 11,500,000 units (“Units”), including 1,500,000 Units
issued pursuant to the full exercise of the underwriters’ over-allotment option, with respect to the Class A common stock
included in the Units being offered (the “Public Shares”) at $10.00 per Unit generating gross proceeds of $115,000,000,
which is discussed in Note 3. The Company has selected December 31 as its fiscal year end.
Simultaneously with the closing
of the IPO, the Company consummated the closing of the sale of 1,500,000 additional Units upon receiving notice of the underwriter’s
election to fully exercise its over-allotment option, generating additional gross proceeds of $15,000,000.
Simultaneously with the closing
of the IPO, the Company consummated the sale of 7,500,000 private placement warrants at a price of $1.00 per Private Placement Warrant
in a private placement to the Company’s sponsor, LAVA Medtech Sponsor LP (the “Sponsor”), generating gross proceeds
of $7,500,000. Simultaneously with the exercise of the over-allotment, the Company consummated the private placement of an additional
675,000 Private Placement Warrants to the Sponsor, generating gross proceeds of $675,000. See Note 4 for details.
Offering costs
for the IPO amounted to $6,325,000, consisting of $2,300,000 of underwriting fees, $4,025,000 deferred underwriting fees payable (which
are held in the Trust Account (defined below)) and $455,330 of other costs. As described in Note 6, the $4,025,000 deferred underwriting
fee payable is contingent upon the consummation of a Business Combination by April 29, 2023, subject to the terms of the underwriting
agreement.
Following the
closing of the IPO and exercise of the over-allotment, $117,875,000 ($10.25 per Unit) from the net proceeds of the sale of the Units in
the IPO and the Private Placement Warrants was placed in a trust account and will be invested in U.S. government securities, within the
meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with
a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company
meeting the conditions of paragraphs (d)(2), (d)(3) and (d)(4) of Rule 2a-7 of the Investment Company Act, as determined by the Company,
until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the Trust Account, as described below.
The Company’s
management has broad discretion with respect to the specific application of the net proceeds of the IPO and the sale of the Private Placement
Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination.
There is no assurance that the Company will be able to complete a Business Combination successfully. The Company must complete one or
more initial Business Combinations having an aggregate fair market value of at least 80% of the assets held in the Trust Account excluding
the deferred underwriting commissions and taxes payable on income earned on the Trust Account) at the time of the agreement to enter into
the initial Business Combination. However, the Company will only complete a Business Combination if the post-transaction company owns
or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target
sufficient for it not to be required to register as an investment company under the Investment Company Act. There is no assurance that
the Company will be able to successfully effect a Business Combination.
The Company will provide
the holders of the outstanding Public Shares (the “Public Stockholders”) with the opportunity to redeem all or a portion
of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to
approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder
approval of a Business Combination or conduct a tender offer will be made by the Company. The Public Stockholders will be entitled
to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially anticipated to be $10.25 per
Public Share, plus any pro rata gain then in the Trust Account, net of taxes payable). There will be no redemption rights
with respect to the Company’s warrants.
All of the
Public Shares contain a redemption feature which allows for the redemption of such Public Shares in connection with the Company’s
liquidation, if there is a stockholder vote or tender offer in connection with the Company’s Business Combination and in connection
with certain amendments to the Company’s amended and restated certificate of incorporation (the “Certificate of Incorporation”).
In accordance with Accounting Standards Codification (“ASC”) 480-10-S99, redemption provisions not solely within the control
of a company require Class A common stock subject to redemption to be classified outside of permanent equity. Given that the Public Shares
will be issued with other freestanding instruments (i.e., public warrants), the initial carrying value of Class A common stock classified
as temporary equity will be the allocated proceeds determined in accordance with ASC 470-20. The Class A common stock are subject to ASC
480-10-S99. If it is probable that the equity instrument will become redeemable, the Company has the option to either (i) accrete changes
in the redemption value over the period from the date of issuance (or from the date that it becomes probable that the instrument will
become redeemable, if later) to the earliest redemption date of the instrument or (ii) recognize changes in the redemption value immediately
as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The
Company has elected to recognize the changes immediately. While redemptions cannot cause the Company’s net tangible assets to fall
below $5,000,001, the Public Shares are redeemable and are classified as such on the balance sheet until such date that a redemption event
takes place.
Redemptions
of the Company’s Public Shares may be subject to the satisfaction of conditions, including minimum cash conditions, pursuant to
an agreement relating to the Company’s Business Combination. If the Company seeks stockholder approval of the Business Combination,
the Company will proceed with a Business Combination if a majority of the shares voted are voted in favor of the Business Combination,
or such other vote as required by law or stock exchange rule. If a stockholder vote is not required by applicable law or stock exchange
listing requirements and the Company does not decide to hold a stockholder vote for business or other reasons, the Company will, pursuant
to its Certificate of Incorporation, conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission
(“SEC”) and file tender offer documents with the SEC prior to completing a Business Combination. If, however, stockholder
approval of the transaction is required by applicable law or stock exchange listing requirements, or the Company decides to obtain stockholder
approval for business or other reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the
proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with a Business Combination,
the Sponsor has agreed to vote its Founder Shares (as defined in Note 5) and any Public Shares purchased during or after the IPO in favor
of approving a Business Combination. Additionally, each Public Stockholder may elect to redeem their Public Shares without voting, and
if they do vote, irrespective of whether they vote for or against the proposed transaction.
Notwithstanding
the foregoing, the Certificate of Incorporation provides that a Public Stockholder, together with any affiliate of such stockholder or
any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more
than an aggregate of 15% or more of the Class A common stock sold in the Initial Public Offering, without the Company’s prior consent.
The Company’s
Sponsor, officers and directors (the “Initial Stockholders”) have agreed not to propose an amendment to the Certificate of
Incorporation that would affect the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if the Company
does not complete a Business Combination, unless the Company provides the Public Stockholders with the opportunity to redeem their Class
A common stock in conjunction with any such amendment.
If the Company is unable
to complete a Business Combination by April 29, 2023, 18 months from the closing of the IPO (“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 unrealized gains on the funds held in the Trust Account and not
previously released to the Company to pay the Company’s franchise and income taxes (less up to $100,000 of interest to pay
dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish Public
Stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to
applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the
Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to
the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable
law.
The Initial Stockholders
have agreed to waive their liquidation rights with respect to the Founder Shares if the Company fails to complete a Business
Combination within the Combination Period. However, if the Initial Stockholders should acquire Public Shares in or after the Initial
Public Offering, they will be entitled to liquidating distributions from the Trust Account with respect to such Public Shares if the
Company fails to complete a Business Combination within the Combination Period. The underwriters have agreed to waive their rights
to its deferred underwriting commission (see Note 6) held in the Trust Account in the event the Company does not complete a Business
Combination within the Combination Period and, in such event, such amounts will be included with the other funds held in the Trust
Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that
the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be only $10.25
per shares held in the Trust Account. In order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable
to the Company if and to the extent any claims by a vendor for services rendered or products sold to the Company, or a prospective
target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust
Account. This liability will not apply with respect to any claims by a third party who executed a waiver of any right, title,
interest or claim of any kind in or to any monies held in the Trust Account or to any claims under the Company’s indemnity of
the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933,
as amended (the “Securities Act”). Moreover, in the event that an executed waiver is deemed to be unenforceable against
a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. The Company will seek
to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to
have all vendors, service providers (except the Company’s independent registered public accounting firm), prospective target
businesses or other entities with which the Company does business, execute agreements waiving any right, title, interest or claim of
any kind in or to monies held in the Trust Account.
Risks and Uncertainties
In February
2022, Russia commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United
States, have instituted economic sanctions against Russia. The invasion of Ukraine may result in market volatility that could adversely
affect our stock price and our search for a target company. Further, the impact of this action and related sanctions on the world economy
are not determinable as of the date of these financial statements and the specific impact on the Company’s financial condition,
results of operations, and cash flows is also not determinable as of the date of these financial statements.
In March 2020,
the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic which continues to spread
throughout the United States and the world. As of the date the financial statements were issued, there is considerable uncertainty around
the expected duration of this pandemic. Management continues to evaluate the impact of the COVID- 19 pandemic and the Company concluded
that while it is reasonably possible that COVID-19 could have a negative effect on identifying a target company for a Business Combination,
the specific impact is not readily determinable as of the date of the financial statements. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Liquidity and Capital Resources
As of March 31,
2022, the Company had $1,333,758 in its operating bank account and working capital of $1,638,985. As of March 31, 2022, approximately
$11,907 of the amount on deposit in the Trust Account represented unrealized gains, which is available to pay the Company’s tax obligations.
Until the consummation of
a Business Combination, the Company will be using the funds not held in the Trust Account for identifying and evaluating prospective acquisition
candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to
acquire, and structuring, negotiating and consummating the Business Combination. The Company will need to raise additional capital through
loans or additional investments from its Sponsor, shareholders, officers, directors, or third parties. The Company's officers, directors
and Sponsor may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever amount they deem reasonable
in their sole discretion, to meet the Company's working capital needs. Accordingly, the Company may not be able to obtain additional financing.
If the Company is unable to raise additional capital, it may be required
to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending
the pursuit of a potential transaction, and reducing overhead expenses. The Company cannot provide any assurance that new financing will
be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about the Company’s ability
to continue as a going concern for a reasonable period of time, which is considered to be one year from the issuance date of the financial
statements. These unaudited condensed financial statements do not include any adjustments relating to the recovery of the recorded assets
or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The accompanying
financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“U.S.
GAAP”) and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP. In the opinion of management, the unaudited
condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement
of the balances and results for the periods presented.
The accompanying unaudited
condensed financial statements should be read in conjunction with the Company’s Annual report on Form 10-K and the final
prospectus filed by the Company with the SEC on April 5, 2022 and November 29, 2021, respectively. The interim results for the three
months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year end December 31, 2022 or for
any future periods.
Emerging Growth Company
The Company
is an emerging growth company as defined in Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”),
which 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 an emerging growth 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 an 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, as an emerging growth company the 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 that is neither an emerging growth company nor an emerging growth
company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting
standards used.
Use of Estimates
The preparation of
financial statements in conformity with U.S. GAAP requires the Company’s 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
financial statements. Significant estimates in these financial statements include those related to the fair value of the Private
Warrants. Making estimates requires management to exercise significant judgment. Such estimates may be subject to change as more
current information becomes available and accordingly the actual results could differ significantly from those estimates. It is at
least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date
of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or
more future confirming events. Actual results could differ from those estimates.
Investments Held in Trust Account
At March 31, 2022 and December 31, 2021, all of the assets held in
the Trust Account were invested in a money markets fund that only invests in U.S. treasuries and cash. The Company’s investments
held in the Trust Account are 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 investments held in Trust Account are included
in unrealized gain on investments held in Trust Account in the accompanying statement of operations. The estimated fair values of investments
held in Trust Account are determined using available market information.
Offering Costs associated with the Initial Public Offering
Offering costs consist
principally of legal, accounting, underwriting fees and other costs directly related to the IPO. Offering costs amounted to
$6,780,330. Of this amount, $6,683,156 was charged to stockholders’ deficit upon the completion of the IPO and $97,174 was
expensed due to allocating certain offering costs to the warrant liability. The allocation was based on relative value at the date
of the IPO.
Concentration of Credit Risk
Financial instruments
that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times,
may exceed the Federal Deposit Insurance Corporation coverage limit of $250,000. At March 31, 2022, the Company has not experienced losses
on these account and management believes the Company is not exposed to significant risks on such account.
Fair Value of Financial Instruments
The fair value
of the Company’s assets and liabilities, which qualify as financial instruments under the Financial Accounting Standards Board (“FASB”)
ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the accompanying balance
sheet, primarily due to their short-term nature.
Income Taxes
The Company complies with
the accounting and reporting requirements of ASC 740, “Income Taxes” (“ASC 740”), which requires an asset
and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are
computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable
or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be
realized.
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 March 31, 2022 and 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 as of March 31, 2022 and 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.
Deferred tax liabilities
and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities, using enacted
tax rates in effect for the year in which the differences are expected to reverse. Current income taxes are based on the year’s
income taxable for federal and state income tax reporting purposes. Total tax provision may differ from the statutory tax rates applied
to income before provision for income taxes due principally to expenses charged which are not tax deductible.
The total benefit
for income taxes is comprised of the following:
| |
March 31, | |
December 31, | |
| |
2022 | |
2021 | |
Current expense | |
$ | - | |
$ | - | |
Deferred benefit | |
| 93,124 | |
| 62,042 | |
Change in valuation allowance | |
| (84,036 | ) |
| (42,890 | ) |
| |
| | |
| | |
Total income tax benefit | |
$ | 9,088 | |
$ | 19,152 | |
The net deferred tax assets and liabilities in the accompanying
balance sheet included the following components:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Deferred tax assets | |
$ | 155,166 | | |
$ | 62,042 | |
Deferred tax liabilities | |
| - | | |
| - | |
Valuation allowance for deferred tax assets | |
| (126,926 | ) | |
| (42,890 | ) |
| |
| | | |
| | |
Net deferred tax assets | |
$ | 28,240 | | |
$ | 19,152 | |
In assessing the
realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income
during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the
scheduled reversal of deferred tax assets, projected future taxable income and tax planning strategies in making this assessment.
A reconciliation of the statutory federal income tax rate
(benefit) to the Company’s effective tax rate is as follows:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Statutory federal income tax rate | |
| 21.00 | % | |
| 21.00 | % |
State taxes, net of federal tax benefit | |
| 0.00 | % | |
| 0.00 | % |
Valuation allowance | |
| -22.00 | % | |
| -27.50 | % |
Income tax benefit | |
| -1.00 | % | |
| -6.50 | % |
Class A Common Stock Subject to Possible Redemption
The Company accounts for its
Class A common stock subject to possible redemption in accordance with the guidance in ASC 480. Shares of Class A common stock
subject to mandatory redemption (if any) are classified as a liability instrument and is measured at fair value. Conditionally
redeemable Class A common stock (including Class A common stock that features redemption rights that are either within the control
of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is
classified as temporary equity. At all other times, Class A common stock is classified as stockholders’ deficit. The
Company’s Class A common stock features certain redemption rights that are considered to be outside of the Company’s
control and subject to occurrence of uncertain future events. Accordingly, at March 31, 2022 and December 31, 2021, 11,500,000
shares of Class A common stock subject to possible redemption is presented as temporary equity, outside of the stockholders’
deficit section of the Company’s balance sheet.
The Company recognizes
changes in redemption value immediately as they occur and adjusts the carrying value of redeemable Class A common stock to equal the redemption
value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock are affected by charges
against additional paid in capital and accumulated deficit.
At March 31, 2022
and December 31, 2021, the Class A common stock subject to possible redemption reflected in the balance sheet is reconciled in the following
table:
Gross proceeds | |
$ | 115,000,000 | |
Less: | |
| | |
Proceeds allocated to Public Warrants | |
| (6,900,000 | ) |
Class A common stock issuance costs | |
| (6,217,687 | ) |
Plus: Accretion of carrying value to redemption value | |
| 15,992,687 | |
Class A common stock subject to possible redemption | |
$ | 117,875,000 | |
Net Income per Common Stock
The Company has
two classes of shares, which are referred to as Class A common stock and Class B Common Stock (the “Founder Shares”). Earnings
and losses are shared pro rata between the two classes of shares. Private Placement Warrants (see Note 4) to purchase 8,175,000 Common
Stock at $11.50 per share were issued on October 29, 2021. At March 31, 2022 and December 31, 2021, no Public Warrants or Private Placement
Warrants have been exercised. The 12,487,500 potential shares of Class A common stock for outstanding Public Warrants and Private Placement
Warrants to purchase the Company’s stock were excluded from diluted earnings per share for the periods ended March 31, 2022 and
December 31, 2021 because they are contingently exercisable, and the contingencies have not yet been met. As a result, diluted net income
per common stock is the same as basic net income per common stock for the period. The table below presents a reconciliation of the numerator
and denominator used to compute basic and diluted net income per share for each class of stock.
| |
For the three months ended March 31, 2022 | |
| |
Class A Common Stock | | |
Class B Common Stock | |
Basic and diluted net income per share: | |
| | |
| |
Numerator: | |
| | |
| |
Allocation of net income | |
$ | 895,110 | | |
$ | 223,778 | |
Denominator: | |
| | | |
| | |
Weighted average shares outstanding | |
| 11,500,000 | | |
| 2,875,000 | |
Basic and dilution net income per share | |
$ | 0.08 | | |
$ | 0.08 | |
Accounting for Warrants
The Company accounts
for warrants as either equity-classified or liability-classified instruments based on an assessment of the instruments’ specific
terms and applicable authoritative guidance in ASC 480 and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers
whether the instruments are free standing financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC
480, and whether the instruments meet all of the requirements for equity classification under ASC 815, including whether the instruments
are indexed to the Company’s own common shares and whether the instrument holders could potentially require “net cash settlement”
in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires
the use of professional judgment, was conducted at the time of warrant issuance and as of each subsequent period end date while the instruments
are outstanding. Public Warrants issued pursuant to the warrant agreement qualify for equity accounting treatment and the Private Placement
Warrants qualify for liability accounting treatment.
Stock Compensation Expense
The Company accounts
for stock-based compensation expense in accordance with ASC 718, “Compensation – Stock Compensation” (“ASC 718”)
under which stock-based compensation associated with equity-classified awards is measured at fair value upon the grant date and recognized
over the requisite service period. To the extent a stock-based award is subject to a performance condition, the amount of expense recorded
in a given period, if any, reflects an assessment of the probability of achieving such performance condition, with compensation recognized
once the event is deemed probable to occur. Forfeitures are recognized as incurred.
The fair value
of the 60,000 Founder Shares sold to certain independent directors as of October 14, 2021, was $362,673, or $6.04 per share. The Company
used a Monte Carlo Model Simulation to arrive at the fair value of the stock compensation. The key assumptions in the option pricing model
utilized are assumptions related to expected separation date of Units, anticipated business combination date, purchase price, share-price
volatility, expected term, exercise date, risk-free interest rate and present value. The expected volatility as of the IPO closing date
was derived based upon similar SPAC warrants and technology exchange traded funds which aligns with Company’s stated industry target
and present value factor was based on risk-free rate and terms until the exercise date. The Company’s Founder Shares sold to independent
directors were deemed within the scope of ASC 718 and are subject to a performance condition, namely the occurrence of a Business Combination.
Compensation expense related to the Founder Shares transferred is recognized only when the performance condition is probable of occurrence,
or more specifically when a Business Combination is consummated. Management believes that the occurrence of the performance condition
is not probable; therefore, no stock-based compensation expense has been recognized during the period from March 31, 2021 (inception)
through March 31, 2022.
Recent Accounting Pronouncements
In August 2020,
FASB issued Accounting Standard Update (“ASU”) No. 2020-06, Debt -Debt with Conversion and Other Options (Subtopic 470 20)
and Derivatives and Hedging -Contracts in Entity’s Own Equity (Subtopic 815 40): Accounting for Convertible Instruments and Contracts
in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required
under current U.S. GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative
scope exception, and it also simplifies the diluted earnings per share calculation in certain areas. The Company adopted ASU 2020-06 on
January 12, 2021, with no impact upon adoption. The Company’s management does not believe that any other recently issued, but not
yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.
Note 3 — Initial Public Offering
Pursuant to the
IPO, the Company sold 11,500,000 Units at a price of $10.00 per Unit. Each Unit consists of one share of Class A common stock (such Class
A common stock included in the Units being offered, the “Public Shares”), and one-half a redeemable warrant (each, a “Public
Warrant”). Each Public Warrant entitles the holder to purchase one share of Class A common stock at a price of $11.50 per share,
subject to adjustment (see Note 7).
Note 4 — Private Placement Warrants
On October 29, 2021,
simultaneously with the consummation of the IPO and the underwriters’ exercise of their over-allotment option, the Company
consummated the issuance and sale of 8,175,000 Private Placement Warrants in a private placement transaction at a price of $1.00 per
Private Placement Warrant, generating gross proceeds of $8,175,000. Each whole Private Placement Warrant will be exercisable to
purchase one share of Class A common stock at a price of $11.50 per share. A portion of the proceeds from the Private Placement
Warrants was added to the proceeds from the IPO which is being held in the Trust Account. If the Company does not complete a
Business Combination within the Combination Period, the proceeds from the sale of the Private Placement Warrants will be used to
fund the redemption of the Public Shares (subject to the requirements of applicable law), and the Private Placement Warrants and all
underlying securities will be worthless.
Note 5 — Related-Party Transactions
Founder Shares
On March 31, 2021, the
Sponsor paid $25,000, or approximately $0.009 per share, to cover certain offering costs on the Company’s behalf in
consideration of 2,875,000 shares (the “Founder Shares”) of the Company’s Class B common stock, par value $0.0001
(“Class B common stock”). The Founder Shares will automatically convert into shares of Class A common stock at the time
of the Company’s initial Business Combination and are subject to certain transfer restrictions, as described in Note 7.
Holders of Founder Shares may also elect to convert their shares of Class B common stock into an equal number of shares of Class A
common stock, subject to adjustment, at any time. The initial stockholders had agreed to forfeit up to 375,000 Founder Shares to the
extent that the over-allotment option is not exercised in full by the underwriters. Subsequent to December 31, 2021, since the
underwriters exercised the over-allotment option in full, the Sponsor did not forfeit any Founder Shares.
The initial stockholders
have agreed, subject to limited exceptions, not to transfer, assign or sell any of their Founder Shares until the earlier to occur of: (A)
one year after the completion of the initial Business Combination or (B) subsequent to the initial Business Combination, (x) if the last
sale price of the Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, 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, capital stock exchange or other similar transaction
that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities
or other property.
Related-Party Loans
On March 31, 2021,
the Sponsor agreed to loan the Company an aggregate of up to $300,000 to cover expenses related to the Proposed Public Offering pursuant
to a promissory note (the “Note”). Any amounts drawn via this loan have been fully paid off and the Note has been cancelled.
In addition, to
finance transaction costs in connection with a Business Combination, the Sponsor, or an affiliate of the Sponsor, or certain of the Company’s
officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”).
If the Company completes a Business Combination, the Company will repay the Working Capital Loans out of the proceeds of the Trust Account
released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. If a Business
Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans,
but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing, the terms of such
Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital
Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to
$2,000,000 of such Working Capital Loans may be convertible into warrants of the post Business Combination entity at a price of $1.00
per warrant. The warrants would be identical to the Private Placement Warrants. As of March 31, 2022 and December 31, 2021, no Working
Capital Loans were outstanding.
Due to affiliate
The Company entered into an
agreement, commencing on the date of its listing on Nasdaq through the earlier of the consummation of a Business Combination and the
Company’s liquidation, to pay an affiliate of the Sponsor a monthly fee of $5,000 for office space, secretarial and administrative
services. As of March 31, 2022 and December 31, 2021, $25,000 and $10,000 respectively has been accrued under this arrangement.
Note 6 — Commitments and Contingencies
Registration Rights
The holders of
Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans, if any, will be entitled
to registration rights (in the case of the Founder Shares, only after conversion of such shares to Class A common stock) pursuant to a
registration rights agreement dated October 26, 2021. These holders will
be entitled to certain demand and “piggyback” registration rights. However, the registration rights agreement provides that
the Company will not permit any registration statement filed under the Securities Act to become effective until the termination of the
applicable lock-up period for the securities to be registered. The Company will bear the expenses incurred in connection with the filing
of any such registration statements.
Underwriting Agreement
The Company has
granted the underwriters a 45-day option from the date of the IPO to purchase up to 1,500,000 additional Units to cover over-allotments,
if any, at the Proposed Public Offering price less the underwriting discounts and commissions. On October 29, 2021, the underwriters elected
to fully exercise the over-allotment option and purchased 1,500,000 Units.
The underwriters
were paid an underwriting discount of $0.20 per unit, or $2,300,000 in the aggregate upon the closing of the IPO and exercise of the over-allotment
option. Additionally, the underwriters are entitled to $0.35 per unit, or $4,025,000 in the aggregate as a deferred underwriting commission.
The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely if the Company completes a
Business Combination, subject to the terms of the underwriting agreement. A portion of the deferred underwriting commission may be allocated
to third parties at the discretion of the Sponsor.
Note 7 — Stockholders’ Equity (Deficit)
Class A Common
stock—The Company is authorized to issue 100,000,000 Class A common stock with a par value of $0.0001 per share. As of March
31, 2022, and December 31, 2021 there were no Class A Common stock issued and outstanding, excluding the 11,500,000 of Class
A common stock subject to possible redemption.
Class B Common
stock— The Company is authorized to issue 10,000,000 Class B common stock with a par value of $0.0001 per share. Holders of
Class B common stock are entitled to one vote for each share. As of March 31, 2022 and December 31, 2021, there were 2,875,000 Class B
common stock outstanding, none of which are subject to forfeiture.
Holders of Class
A common stock and Class B common stock will vote together as a single class on all other matters submitted to a vote of stockholders
except as required by law.
The shares of Class
B common stock will automatically convert into shares of Class A common stock at the time of the initial Business Combination on a one-for-one
basis, subject to adjustment. In the case that additional shares of Class A common stock, or equity-linked securities, are issued or deemed
issued in excess of the amounts offered in the IPO and related to the closing of the initial Business Combination, the ratio at which
shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of
the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance) so
that the number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate,
on an as-converted basis, 20% of the sum of the total number of all shares of common stock outstanding upon the completion of the IPO
plus all shares of Class A common stock and equity-linked securities issued or deemed issued in connection with the initial Business Combination
(excluding any shares or equity-linked securities issued, or to be issued, to any seller in the initial Business Combination and any private
placement-equivalent warrants issued to the Sponsor or its affiliates upon conversion of loans made to the Company). Holders of Founder
Shares may also elect to convert their shares of Class B common stock into an equal number of shares of Class A common stock, subject
to adjustment as provided above, at any time.
Preferred Stock
—The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights
and preferences as may be determined from time to time by the Company’s board of directors. As of March 31, 2022 and December
31, 2021, there were no shares of preferred stock issued or outstanding.
Public Warrants
- The Public Warrants will become exercisable 30 days after the completion of a Business Combination. No warrants will be exercisable
for cash unless the Company has an effective and current registration statement covering the shares of Common stock issuable upon exercise
of the warrants and a current prospectus relating to such shares of Common stock. Notwithstanding the foregoing, if a registration statement
covering the shares of Common stock issuable upon exercise of the Public Warrants is not effective within a specified period following
the consummation of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during
any period when the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant
to the exemption provided by Section 3(a)(9) of the Securities Act, provided that such exemption is available. If that exemption, or another
exemption, is not available, holders will not be able to exercise their warrants on a cashless basis. The Public Warrants will expire
five years after the completion of a Business Combination or earlier upon redemption or liquidation.
Redemption of warrants when the price per Class A common
stock 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) as follows:
| ● | in whole and not in part; |
| ● | at a price of $0.01 per warrant; |
| ● | upon a minimum of 30 days’ prior written notice of redemption, which the Company refers to as the
“30-day redemption period;” and |
| ● | if, and only if, the last reported sale price (the “closing price”) of the Company’s
Class A common stock equals or exceeds $18.00 per share (as adjusted for adjustments to the number of shares issuable upon exercise or
the exercise price of a warrant as described under the heading “Description of Securities — Warrants — Public
Stockholders’ Warrants — Anti-Dilution Adjustments”) for any 20 trading days within a 30-trading day
period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders. |
The Company will not
redeem the warrants as described above unless an effective registration statement under the Securities Act covering the Class A
common stock issuable upon exercise of the warrants is effective and a current prospectus relating to those Class A common stock is
available throughout the 30-day redemption period. When the warrants become redeemable by the Company, the Company may exercise its
redemption right even if the Company is unable to register or qualify the underlying securities for sale under all applicable state
securities laws.
None of the private
placement warrants will be redeemable by the Company so long as they are held by the Company’s sponsor or its permitted transferees.
No fractional Class
A common stock will be issued upon redemption. If, upon redemption, a holder would be entitled to receive a fractional interest in a share,
the Company will round down to the nearest whole number of the number of Class A common stock to be issued to the holder. Please see the
section entitled “Description of Securities — Warrants — Public Stockholders’ Warrants”
for additional information.
If the Company
calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants
to do so on a “cashless basis,” as described in the warrant agreement.
Private Warrants
- The Private Warrants will be identical to the Public Warrants underlying the Units sold in the IPO, except that the Private Warrants
and the shares of Common stock issuable upon the exercise of the Private Warrants will not be transferable, assignable or salable until
after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Warrants will be exercisable
for cash or on a cashless basis, at the holder’s option, and be non-redeemable so long as they are held by the initial purchasers
or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees,
the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
The exercise price
and number of shares of Common stock issuable on exercise of the warrants may be adjusted in certain circumstances including in the event
of a stock dividend, extraordinary dividend or the Company’s recapitalization, reorganization, merger or consolidation. However,
the warrants will not be adjusted for issuances of shares of Common stock at a price below their respective exercise prices. Additionally,
in no event will the Company be required to net cash settle the warrants. If the Company is unable to complete a Business Combination
within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any
of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the
Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
In addition, if
the Company issues additional shares of Common stock or equity-linked securities for capital raising purposes in connection with the closing
of a Business Combination at an issue price or effective issue price of less than $9.20 per share of Common stock (with such issue price
or effective issue price to be determined in good faith by the Company’s board of directors, and in the case of any such issuance
to the initial stockholders or their affiliates, without taking into account any Founder Shares held by them prior to such issuance),
(y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available
for the funding of a Business Combination on the date of the consummation of a Business Combination (net of redemptions), and (z) the
volume weighted average trading price of the Company’s Common stock during the 20 trading day period starting on the trading day
prior to the day on which the Company consummates the Business Combination (such price, the “Market Value”) is below $9.20
per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the greater of (i) the Market
Value or (ii) the price at which the Company issues the additional shares of Common stock or equity-linked securities.
Note 8 — Fair Value Measurements
The fair value
of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received
in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between
market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks
to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable
inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is
used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1: Quoted
prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions
for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2: Observable
inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities
and quoted prices for identical assets or liabilities in markets that are not active.
Level 3: Unobservable
inputs based on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability.
The Company determines
the level in the fair value hierarchy within which each fair value measurement falls based on the lowest level input that is significant
to the fair value measurements and performs an analysis of the assets and liabilities at each reporting period end. At March 31, 2022
and December 31, 2021, the assets held in the Trust Account were held in money market funds. All of the Company’s investments held
in the Trust Account are classified as trading securities.
The following tables
present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at March 31,
2022 and December 31, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair
value.
Description | |
March
31, 2022 | | |
Quoted Prices
in Active
Markets (Level 1) | | |
Significant Other Observable Inputs
(Level 2) | | |
Significant Other Unobservable Inputs
(Level 3) | |
Assets: | |
| | |
| | |
| | |
| |
Investment in Trust Account - Money Market Fund | |
$ | 117,888,851 | | |
$ | 117,888,851 | | |
$ | - | | |
$ | - | |
Liabilities: | |
| | | |
| | | |
| | | |
| | |
Derivative Warrant Liability - Private Warrants | |
$ | 3,188,250 | | |
$ | - | | |
$ | - | | |
| 3,188,250 | |
| |
| | | |
| | | |
| | | |
| | |
Description | |
December 31,
2021 | | |
Quoted Prices
in Active Markets (Level 1) | | |
Significant Other Observable Inputs
(Level 2) | | |
Significant Other Unobservable Inputs
(Level 3) | |
Assets: | |
| | |
| | |
| | |
| |
Investment in Trust Account - Money Market Fund | |
$ | 117,876,981 | | |
$ | 117,876,851 | | |
$ | - | | |
$ | - | |
Liabilities: | |
| | | |
| | | |
| | | |
| | |
Derivative Warrant Liability - Private Warrants | |
$ | 4,741,500 | | |
$ | - | | |
$ | - | | |
$ | 4,741,500 | |
The Company utilizes
a Monte Carlo simulation model to value the warrants at each reporting period, with changes in fair value recognized in the statement
of operations. The estimated fair value of the warrant liability is determined using Level 3 inputs. Inherent in a Monte Carlo pricing
model are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield. The Company
estimates the volatility of its common stock based on industry 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 the Company anticipates to remain at zero.
The Company recognized
$23,086,200 for the derivative warrant liabilities upon their issuance on October 29, 2021. The Sponsor paid an aggregate of $8,175,000
for Private Placement Warrants with an initial aggregate fair value of $23,086,200. The difference between the purchase price and the
initial fair value on the Private Placement closing date of $14,911,200 was described as a Private Placement Warrant adjustment to record
warrant at initial fair value at issuance date and recorded against accumulated deficit.
The aforementioned warrant liabilities are not subject
to qualified hedge accounting.
The following table provides quantitative information regarding
Level 3 fair value measurements:
| |
At | | |
At | |
| |
December 31, | | |
March 31, | |
| |
2021 | | |
2022 | |
Stock Price | |
$ | 9.85 | | |
$ | 9.98 | |
Exercise Price | |
| 11.5 | | |
| 11.5 | |
Term (years) | |
| 5.83 | | |
| 5.83 | |
Selected Volatility | |
| 10 | % | |
| 5.9 | % |
Risk Free Rate | |
| 1.34 | % | |
| 2.38 | % |
Dividend Yield | |
| 0.00 | % | |
| 0.00 | % |
At March 31, 2022 and December 31, 2021, the fair value of the Private
Placement Warrants was $0.39 and $0.58, respectively.
The following table presents the changes in the fair value
of Level 3 warrant liabilities:
| |
Private | |
| |
Warrants | |
Fair value as of December 31, 2021 | |
$ | 4,741,500 | |
Change in fair value | |
| (1,553,250 | ) |
Fair value as of March 31, 2022 | |
$ | 3,188,250 | |
There were no transfers
in or out of Level 3 from other levels in the fair value hierarchy for the period December 31, 2021 through March 31, 2022.
Note 9 — Subsequent Events
The Company evaluated
subsequent events and transactions that occurred after the balance sheet date through the date the financial statements were to be issued.
Based on this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial
statements.