26
CAPITAL ACQUISITION CORP.
CONDENSED
BALANCE SHEETS
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
|
(unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current asset - Cash
|
|
$
|
679,925
|
|
|
$
|
174,193
|
|
Prepaid expenses
|
|
|
365,054
|
|
|
|
-
|
|
Deferred offering costs
|
|
|
-
|
|
|
|
125,550
|
|
Total current assets
|
|
|
1,044,979
|
|
|
|
299,743
|
|
Marketable securities held in Trust Account
|
|
|
275,007,349
|
|
|
|
-
|
|
Total Assets
|
|
$
|
276,052,328
|
|
|
$
|
299,743
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accrued offering costs and expenses
|
|
$
|
137,096
|
|
|
$
|
761
|
|
Promissory note - related party
|
|
|
-
|
|
|
|
275,000
|
|
Total current liabilities
|
|
|
137,096
|
|
|
|
275,761
|
|
Warrant liability
|
|
|
27,779,568
|
|
|
|
-
|
|
Deferred underwriting discount
|
|
|
9,625,000
|
|
|
|
-
|
|
Total liabilities
|
|
|
37,541,664
|
|
|
|
275,761
|
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
|
|
Class A common stock subject to possible redemption, 23,351,066 shares and 0 shares at redemption value, respectively
|
|
|
233,510,660
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Class A common stock, $0.0001 par value; 100,000,000 shares authorized; 4,148,934 shares and 0 shares issued and outstanding (excluding 23,351,066 shares and 0 shares subject to possible redemption) at June 30, 2021 and December 31, 2020, respectively
|
|
|
415
|
|
|
|
-
|
|
Class B common stock, $0.0001 par value; 10,000,000 shares authorized; 6,875,000 shares and 6,900,000 (1) shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively
|
|
|
688
|
|
|
|
690
|
|
Additional paid-in capital
|
|
|
8,939,025
|
|
|
|
24,310
|
|
Accumulated deficit
|
|
|
(3,940,124
|
)
|
|
|
(1,018
|
)
|
Total Stockholders’ Equity
|
|
|
5,000,004
|
|
|
|
23,982
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
276,052,328
|
|
|
$
|
299,743
|
|
|
(1)
|
Included
up to 900,000 shares of Class B common stock subject to forfeiture if the over-allotment option is not exercised in full or in part by
the underwriters. (See Note 8)
|
The
accompanying notes are an integral part of these unaudited condensed financial statements.
26
CAPITAL ACQUISITION CORP.
UNAUDITED
CONDENSED STATEMENTS OF OPERATIONS
|
|
For the Three
Months ended
June 30,
2021
|
|
|
For the Six
Months Ended
June 30,
2021
|
|
Formation and operating costs
|
|
$
|
361,839
|
|
|
$
|
620,074
|
|
Loss from operations
|
|
|
(361,839
|
)
|
|
|
(620,074
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Warrant issuance costs
|
|
|
-
|
|
|
|
(1,021,001
|
)
|
Loss on sale of private placement warrants
|
|
|
-
|
|
|
|
(2,422,739
|
)
|
Unrealized (loss) gain on change in fair value of warrants
|
|
|
(5,371,489
|
)
|
|
|
117,359
|
|
Trust interest income
|
|
|
4,180
|
|
|
|
7,349
|
|
Total other income (expense)
|
|
|
(5,367,309
|
)
|
|
|
(3,319,032
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(5,729,148
|
)
|
|
$
|
(3,939,106
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding of Class A common stock
|
|
|
27,500,000
|
|
|
|
27,500,000
|
|
Basic and diluted net income per share, Class A common stock
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding of Class B common stock
|
|
|
6,875,000
|
|
|
|
6,877,624
|
|
Basic and diluted net loss per share, Class B common stock
|
|
$
|
(0.83
|
)
|
|
$
|
(0.57
|
)
|
The
accompanying notes are an integral part of these unaudited condensed financial statements.
26
CAPITAL ACQUISITION CORP.
UNAUDITED
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
|
|
Class A Common Stock
|
|
|
Class B Common Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Total Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
Balance as of December 31, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
6,900,000
|
|
|
$
|
690
|
|
|
$
|
24,310
|
|
|
$
|
(1,018
|
)
|
|
$
|
23,982
|
|
Sale of Units in Initial Public Offering net of underwriter discount and offering cost less fair value of public warrants
|
|
|
27,500,000
|
|
|
|
2,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
242,423,038
|
|
|
|
-
|
|
|
|
242,425,788
|
|
Forfeiture of 25,000 shares by initial stockholders
|
|
|
-
|
|
|
|
-
|
|
|
|
(25,000
|
)
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
Class A common stock subject to possible redemption
|
|
|
(23,923,981
|
)
|
|
|
(2,392
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(239,237,418
|
)
|
|
|
-
|
|
|
|
(239,239,810
|
)
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,790,042
|
|
|
|
1,790,042
|
|
Balance as of March 31, 2021
|
|
|
3,576,019
|
|
|
$
|
358
|
|
|
|
6,875,000
|
|
|
$
|
688
|
|
|
$
|
3,209,932
|
|
|
$
|
1,789,024
|
|
|
$
|
5,000,002
|
|
Class A common stock subject to possible redemption
|
|
|
572,915
|
|
|
|
57
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,729,093
|
|
|
|
-
|
|
|
|
5,729,150
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,729,148
|
)
|
|
|
(5,729,148
|
)
|
Balance as of June 30, 2021
|
|
|
4,148,934
|
|
|
$
|
415
|
|
|
|
6,875,000
|
|
|
$
|
688
|
|
|
$
|
8,939,025
|
|
|
$
|
(3,940,124
|
)
|
|
$
|
5,000,004
|
|
The
accompanying notes are an integral part of these unaudited condensed financial statements.
26
CAPITAL ACQUISITION CORP.
UNAUDITED
CONDENSED STATEMENT OF CASH FLOWS
|
|
For the six
months ended
June 30,
2021
|
|
|
|
|
|
Cash flows from Operating Activities:
|
|
|
|
Net loss
|
|
$
|
(3,939,106
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
Interest earned on marketable securities held in Trust Account
|
|
|
(7,349
|
)
|
Unrealized gain on change in fair value of warrants
|
|
|
(117,359
|
)
|
Warrant issuance costs
|
|
|
1,021,001
|
|
Loss on sale of private placement warrants
|
|
|
2,422,739
|
|
Changes in current assets and current liabilities:
|
|
|
|
|
Prepaid expenses
|
|
|
(365,054
|
)
|
Accounts payable
|
|
|
261,885
|
|
Net cash used in operating activities
|
|
|
(723,243
|
)
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
Marketable securities held in Trust Account
|
|
|
(275,000,000
|
)
|
Net cash used in investing activities
|
|
|
(275,000,000
|
)
|
|
|
|
|
|
Cash flows from Financing Activities:
|
|
|
|
|
Proceeds from Initial Public Offering, net of underwriters’ fees
|
|
|
269,500,000
|
|
Proceeds from private placement
|
|
|
7,500,000
|
|
Repayment of promissory note to related party
|
|
|
(275,000
|
)
|
Payments of offering costs
|
|
|
(496,025
|
)
|
Net cash provided by financing activities
|
|
|
276,228,975
|
|
|
|
|
|
|
Net change in cash
|
|
|
505,732
|
|
Cash, beginning of the period
|
|
|
174,193
|
|
Cash, end of the period
|
|
$
|
679,925
|
|
|
|
|
|
|
Supplemental disclosure of noncash investing and financing activities:
|
|
|
|
|
Initial value of Class A common stock subject to possible redemption
|
|
$
|
234,005,970
|
|
Change in value of Class A common stock subject to possible redemption
|
|
$
|
(495,310
|
)
|
Deferred underwriting commissions charged to additional paid-in capital
|
|
$
|
9,625,000
|
|
Initial classification of warrant liability
|
|
$
|
25,474,188
|
|
Forfeiture of 25,000 shares by initial stockholders
|
|
$
|
2
|
|
The
accompanying notes are an integral part of these unaudited condensed financial statements.
26
CAPITAL ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note
1 — Organization and Business Operations
Organization
and General
26
Capital Acquisition Corp. (the “Company”) is a newly organized blank check company incorporated as a Delaware corporation
on August 24, 2020. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase,
reorganization or similar business combination with one or more businesses (“Business Combination”).
As
of June 30, 2021, the Company had not commenced any operations. All activity for the period from August 24, 2020 (inception) through
June 30, 2021 relates to the Company’s formation and the initial public offering (“IPO”), which is described below,
and, since the closing of the Initial Public Offering (as defined below), the search for a prospective initial Business Combination.
The Company will not generate any operating revenues until after the completion of a Business Combination, at the earliest. The Company
will generate non-operating income in the form of interest income from the proceeds derived from the IPO and will recognize changes in
the fair value of warrant liability as other income (expense).
The
Company’s sponsor is 26 Capital Holdings LLC, a Delaware limited liability company (the “Sponsor”).
Financing
The
registration statement for the Company’s IPO was declared effective on January 14, 2021 (the “Effective Date”). On
January 20, 2021, the Company consummated the IPO of 27,500,000 units (including 3,500,000 units subject to the underwriters’ over-allotment
option) (the “Units” and, with respect to the shares of common stock included in the Units being offered, the “Public
Shares”), at $10.00 per Unit, generating gross proceeds of $275,000,000, which is discussed in Note 3.
Simultaneously
with the closing of the IPO, the Company consummated the sale of 7,500,000 Private Placement Warrants (the “Private Placement Warrants”)
at a price of $1.00 per Private Placement Warrant in a private placement to the Sponsor, generating total gross proceeds of $7,500,000.
Transaction
costs amounted to $15,621,025 consisting of $5,500,000 of underwriting discount, $9,625,000 of deferred underwriting discount, and $496,025
of other offering costs.
Trust
Account
Following
the closing of the IPO on January 20, 2021, $275,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the IPO
and the sale of the Private Placement Warrants was placed in a Trust Account and may only be invested in United States “government
securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 185 days or less or in money
market funds meeting certain conditions of Rule 2a-7 promulgated under the Investment Company Act which only in direct U.S. government
treasury obligations. Except with respect to interest earned on the funds held in the Trust Account that may be released to the Company
to pay its tax obligations, the proceeds deposited in the Trust Account will not be released from the Trust Account until the earliest
of (a) the completion of the Company’s initial Business Combination, (b) the redemption of any public shares properly submitted
in connection with a stockholder vote to amend the Company’s amended and restated certificate of incorporation, and (c) the redemption
of the Company’s public shares if the Company is unable to complete the initial Business Combination within 24 months from the
closing of the IPO (the “Combination Period”), subject to applicable law. The proceeds deposited in the Trust Account could
become subject to the claims of the Company’s creditors which would have higher priority than the claims of the Company’s
public stockholders.
Initial
Business Combination
The
Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering
and the Private Warrants, although substantially all of the net proceeds are intended to be generally applied toward consummating a Business
Combination (less deferred underwriting commissions).
The
Company’s Business Combination must be with one or more target businesses that together have a fair market value equal to at least
80% of the balance in the Trust Account (net of taxes payable) at the time of the signing an agreement to enter into a Business Combination.
However, the Company will only complete a Business Combination if the post-Business Combination 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 its public stockholders with the opportunity to redeem all or a portion of their public shares upon the completion
of the initial Business Combination either (i) in connection with a stockholder meeting called to approve the initial Business Combination
or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a proposed initial Business
Combination or conduct a tender offer will be made by the Company, solely in its discretion. The stockholders will be entitled to redeem
their shares for a pro rata share of the aggregate amount then on deposit in the Trust Account (initially approximately $10.00 per share,
plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations).
The
shares of common stock subject to redemption will be recorded at a redemption value and classified as temporary equity upon the completion
of the Initial Public Offering, in accordance with Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing
Liabilities from Equity.” In such case, the Company will proceed with a Business Combination if the Company has net tangible assets
of at least $5,000,001 upon such consummation of a Business Combination and, if the Company seeks stockholder approval, a majority of
the issued and outstanding shares voted are voted in favor of the Business Combination.
If
the Company is unable to complete a Business Combination within the Combination Period, the Company will redeem 100% of the public shares,
at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on
the funds held in the Trust Account and not previously released to the Company to pay its taxes (less up to $100,000 of interest to pay
dissolution expenses), divided by the number of then outstanding public shares, subject to applicable law and as further described in
registration statement, and then seek to dissolve and liquidate.
The
Sponsor, officers and directors have agreed to (i) waive their redemption rights with respect to their founder shares and public shares
in connection with the completion of the initial Business Combination, (ii) waive their redemption rights with respect to their founder
shares and public shares in connection with a stockholder vote to approve an amendment to the Company’s amended and restated certificate
of incorporation, (iii) waive their rights to liquidating distributions from the Trust Account with respect to their founder shares if
the Company fails to complete the initial Business Combination within the Combination Period, and (iv) not sell any of their founder
shares or public shares to the Company in any tender offer the Company undertakes in connection with a proposed initial Business Combination.
The
Company’s Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party for services
rendered or products sold to the Company, or a prospective target business with which the Company has entered into a written letter of
intent, confidentiality or similar agreement or Business Combination agreement, reduce the amount of funds in the Trust Account to below
the lesser of (i) $10.00 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the
liquidation of the Trust Account, if less than $10.00 per share due to reductions in the value of the trust assets, less taxes payable,
provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any
and all rights to the monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply 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. However, the Company has not asked its Sponsor to reserve for such indemnification obligations, nor has the Company
independently verified whether its Sponsor has sufficient funds to satisfy its indemnity obligations and believe that the Company’s
Sponsor’s only assets are securities of the Company. Therefore, the Company believes it is unlikely that its Sponsor would be able
to satisfy those obligations.
Liquidity
and Capital Resources
As
of June 30, 2021, the Company had approximately $0.7 million in its operating bank account, and working capital of approximately $0.9
million.
Prior
to the completion of the Initial Public Offering, the Company’s liquidity needs had been satisfied through a payment from the Sponsor
of $25,000 (see Note 5) for the Founder Shares to cover certain offering costs and the loan under an unsecured promissory note from the
Sponsor of $275,000 (see Note 5). The promissory note from the Sponsor was paid in full as of January 20, 2021. Subsequent to the consummation
of the Initial Public Offering and Private Placement, the Company’s liquidity needs have been satisfied through the proceeds from
the consummation of the Private Placement not held in the Trust Account.
In
addition, in order to finance transaction costs in connection with a Business Combination, the Company’s Sponsor or an affiliate
of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, provide the Company Working Capital
Loans, as defined below (see Note 5). As of June 30, 2021, there were no amounts outstanding under any Working Capital Loans.
Based
on the foregoing, management believes that the Company will have sufficient working capital and borrowing capacity to meet its needs
through the earlier of the consummation of a Business Combination or one year from this filing. Over this time period, the Company will
be using these funds for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates,
performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with
or acquire, and structuring, negotiating and consummating the Business Combination.
Emerging
Growth Company
The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities
Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage
of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth
companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the
Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden
parachute payments not previously approved.
Further,
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting
standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do
not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting
standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements
that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of
such extended transition period which means that when a standard is issued or revised and it has different application dates for public
or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies
adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which
is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult
or impossible because of the potential differences in accounting standards used.
Note
2 — Significant Accounting Policies
Basis
of Presentation
The
accompanying unaudited condensed financial statements are presented in U.S. dollars in conformity with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) for financial information and pursuant to the rules and regulations
of the SEC. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP. In the opinion of management,
the unaudited condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the
fair statement of the balances and results for the periods presented. Operating results for the three and six months ended June 30, 2021
are not necessarily indicative of the results that may be expected through December 31, 2021 or for any future interim periods.
The
accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto
included in the Form 8-K, the final prospectus, and the Form 10-Q, filed by the Company with the SEC on January 26, 2021, January 19,
2021, and May 17, 2021, respectively.
Use of Estimates
The preparation of the unaudited condensed financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements.
Making estimates requires management to exercise
significant judgement. 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 unaudited condensed financial statements, which management considered in formulating its estimate, could
change in the near term one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments
with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents
as of June 30, 2021 and December 31, 2020.
Marketable Securities Held in Trust Account
At June 30, 2021, the Trust Account held
$275,007,349 in treasury funds.
Fair Value Measurements
Fair value
is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between
market participants at the measurement date. 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:
|
●
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Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;
|
|
●
|
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
|
|
●
|
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
|
In some circumstances,
the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the
fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant
to the fair value measurement.
The fair value of the
Company’s certain assets and liabilities, which qualify as financial instruments under ASC 820, “Fair Value Measurements and
Disclosures,” approximates the carrying amounts represented in the balance sheet. The fair values of cash and cash equivalents,
prepaid expenses, accounts payable and accrued expenses are estimated to approximate the carrying values as of June 30, 2021 due to the
short maturities of such instruments.
The fair value of Private
Placement Warrants is based on a valuation model utilizing management judgment and pricing inputs from observable and unobservable markets
with less volume and transaction frequency than active markets. Significant deviations from these estimates and inputs could result in
a material change in fair value. The fair value of the Private Placement Warrants is classified as Level 3. See Note 6 for additional
information on assets and liabilities measured at fair value.
Concentration of Credit Risk
Financial instruments that potentially subject
the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal
Depository Insurance Corporation of $250,000. At June 30, 2021 and December 31, 2020, the Company has not experienced losses on this account
and management believes the Company is not exposed to significant risks on such account.
Common Stock Subject to Possible Redemption
The Company accounts for its common stock subject
to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing
Liabilities from Equity.” Common stock subject to mandatory redemption (if any) is classified as a liability instrument and is measured
at fair value. Conditionally redeemable common stock (including common stock that feature redemption rights that are either within the
control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control)
is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s common
stock feature certain redemption rights that is considered to be outside of the Company’s control and subject to the occurrence
of uncertain future events. Accordingly, common stock subject to possible redemption is presented at redemption value as temporary equity,
outside of the stockholders’ equity section of the Company’s balance sheets.
Net Income (Loss) Per Common Stock
Net income (loss) per share of common stock is
computed by dividing net income (loss) by the weighted average number of common stock outstanding for the period. The Company has not
considered the effect of warrants sold in the IPO and private placement to purchase 21,250,000 of Class A common stock in the calculation
of diluted income (loss) per share, since the exercise of the warrants are contingent upon the occurrence of future events.
The Company complies with accounting and disclosure
requirements ASC Topic 260, “Earnings Per Share.” The Company’s unaudited condensed statement of operations include
a presentation of income (loss) per share for common stock subject to possible redemption in a manner similar to the two-class method
of income (loss) per share. Net income per share of common stock, basic and diluted for Class A redeemable common stock is calculated
by dividing the interest income earned on the Trust Account (totaling $4,180 and $7,349 for the three and six months ended June 30, 2021)
by the weighted average number of Class A redeemable common stock outstanding since original issuance. Net loss per share of common stock,
basic and diluted for Class B non-redeemable common stock is calculated by dividing the net loss, adjusted for income attributable to
Class A redeemable common stock, by the weighted average number of Class B non-redeemable common stock outstanding for the period. Class
B non-redeemable common stock includes the Founder Shares as these shares do not have any redemption features and do not participate in
the income earned on the Trust Account. The Company did not have any dilutive securities and other contracts that could, potentially,
be exercised or converted into common stock and then share in the earnings of the Company. As a result, diluted income (loss) per share
is the same as basic income (loss) per share for the period presented.
Offering Costs associated with the Initial
Public Offering
The Company complies with the requirements of
the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A - “Expenses of Offering”. Offering costs
consist principally of professional and registration fees incurred through the balance sheet date. Offering costs are allocated to the
separable financial instruments issued in the IPO based on a relative fair value basis compared to total proceeds received. Offering costs
associated with warrant liabilities is expensed, and offering costs associated with the Class A common stock are charged to the stockholders’
equity.
Derivative Financial Instruments
The Company evaluates its financial instruments
to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic
815, “Derivatives and Hedging”. Derivative instruments are recorded at fair value on the grant date and re-valued at each
reporting date, with changes in the fair value reported in the unaudited condensed statements of operations. Derivative assets and liabilities
are classified on the balance sheets as current or non-current based on whether or not net-cash settlement or conversion of the instrument
could be required within 12 months of the balance sheet date. The Company has determined the warrants are a derivative instrument.
FASB ASC 470-20, Debt with Conversion and Other
Options addresses the allocation of proceeds from the issuance of convertible debt into its equity and debt components. The Company applies
this guidance to allocate IPO proceeds from the Units between Class A common stock and warrants, using the residual method by allocating
IPO proceeds first to fair value of the warrants and then the Class A common stock.
Income Taxes
The Company accounts for income taxes under ASC
740 Income Taxes (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected
impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit
to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when
it is more likely than not that all or a portion of deferred tax assets will not be realized. Deferred tax assets were de minimis at June
30, 2021.
ASC 740 also clarifies the accounting for uncertainty
in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process
for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits
to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides
guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
The Company recognizes accrued interest and penalties
related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest
and penalties as of June 30, 2021 and December 31, 2020. The Company is currently not aware of any issues under review that could result
in significant payments, accruals or material deviation from its position.
The Company has identified the United States as
its only “major” tax jurisdiction.
The Company may be subject to potential examination
by federal and state taxing authorities in the areas of income taxes. These potential examinations may include questioning the timing
and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s
management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
Risks and Uncertainties
Management continues to evaluate the impact of
the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s
financial position, results of its operations, cash flows and/or search for a target company, the specific impact is not readily determinable
as of the date of the condensed financial statements. The condensed financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Recent Accounting Pronouncements
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 condensed
financial statements. In August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, Debt --debt with Conversion
and Other Options (Subtopic 470-20) and Derivatives and Hedging -- Contracts in Entity' Own Equity (Subtopic 815-40): Accounting for Convertible
Instruments and Contracts in an Entity' Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments
by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required
for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation
in certain areas. Management is currently evaluating the new guidance, but does not expect the adoption of this guidance to have a material
impact on the Company's financial statements.
Note 3 — Initial Public Offering
Pursuant to the IPO on January 20, 2021, the Company
sold 27,500,000 Units (including 3,500,000 units subject to the underwriters’ over-allotment option) at a purchase price of $10.00
per Unit. Each Unit consists of one share of Class A common stock and one-half warrant to purchase one share of Class A common stock (“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. Each Public Warrant will become exercisable on the later of 30 days after the completion of the initial Business
Combination or 12 months from the closing of the IPO and will expire five years after the completion of the initial Business Combination,
or earlier upon redemption or liquidation.
An aggregate of $10.00 per Unit sold in the IPO
was held in the Trust Account and will be held as cash or invested in United States “government securities” within the meaning
of Section 2(a)(16) of the Investment Company Act having a maturity of 185 days or less or in money market funds meeting certain conditions
of Rule 2a-7 promulgated under the Investment Company Act which only in direct U.S. government treasury obligations. As of June 30, 2021,
$275,000,000 of the IPO proceeds was held in the Trust Account.
Public
Warrants
Each whole warrant entitles the holder to purchase
one share of the Company’s Class A common stock at a price of $11.50 per share, subject to adjustment as discussed herein. In addition,
if (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection
with the closing of its initial Business Combination at an issue price or effective issue price of less than $9.20 per share of Class
A 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 Company’s Sponsor or its affiliates, without taking into account any founder shares
held by the Company’s Sponsor or its affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”),
(y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available
for the funding of the initial Business Combination on the date of the consummation of the initial 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 initial Business Combination (such price, the “Market Value”)
is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher
of the Market Value and the Newly Issued Price, and the $18.00 per share redemption trigger price described below under “Redemption
of warrants” will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price.
The warrants will become exercisable on the later
of 12 months from the closing of the IPO or 30 days after the completion of its initial Business Combination, and will expire five years
after the completion of the Company’s initial Business Combination, at 5:00 p.m., New York City time, or earlier upon redemption
or liquidation.
The Company will not be obligated to deliver any
shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless
a registration statement under the Securities Act with respect to the shares of Class A common stock underlying the warrants is then effective
and a prospectus relating thereto is current. No warrant will be exercisable and the Company will not be obligated to issue shares of
Class A common stock upon exercise of a warrant unless Class A common stock issuable upon such warrant exercise has been registered, qualified
or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants. In no event will
the Company be required to net cash settle any warrant. In the event that a registration statement is not effective for the exercised
warrants, the purchaser of a unit containing such warrant will have paid the full purchase price for the unit solely for the share of
Class A common stock underlying such unit.
Once the warrants become exercisable, the Company
may call the Public Warrants for redemption:
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●
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in whole and not in part;
|
|
●
|
at a price of $0.01 per warrant;
|
|
●
|
upon not less than 30 days’ prior written notice of redemption (the “30-day redemption period”) to each warrant holder; and
|
|
●
|
if, and only if, the reported last sale price of the Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like), for any 20 trading days within a 30-trading day period commencing once the warrants become exercisable and ending three business days before the Company sends the notice of redemption to the warrant holders.
|
If the Company calls the warrants for redemption
as described above, the management will have the option to require any holder that wishes to exercise its warrant to do so on a “cashless
basis.” If the management takes advantage of this option, all holders of warrants would pay the exercise price by surrendering their
warrants for that number of shares of Class A common stock equal to the quotient obtained by dividing (x) the product of the number of
shares of Class A common stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and the
“fair market value” (defined below) by (y) the fair market value. The “fair market value” shall mean the average
reported last sale price of the Class A common stock for the 10 trading days ending on the third trading day prior to the date on which
the notice of redemption is sent to the holders of warrants.
Note 4 — Private Placement
Simultaneously with the closing of the IPO, the
Sponsor purchased an aggregate of 7,500,000 Private Placement Warrants at a price of $1.00 per Private Placement Warrant, for an aggregate
purchase price of $7,500,000, in a private placement (the “Private Placement”).
The Private Placement Warrants are identical to
the Public Warrants except that, so long as they are held by the Sponsor or its permitted transferees, (i) they will not be redeemable
by the Company, (ii) they (including the Class A common stock issuable upon exercise of these warrants) may not, subject to certain limited
exceptions, be transferred, assigned or sold by the Sponsor until 30 days after the completion of the Company’s initial Business
Combination, and (iii) they may be exercised by the holders on a cashless basis.
The Private Placement Warrants will be non-redeemable
and exercisable on a cashless basis so long as they are held by the Sponsor or its permitted transferees. If the Private Placement Warrants
are held by holders other than the Sponsor or its permitted transferees, the Private Placement Warrants will be redeemable by the Company
and exercisable by the holders on the same basis as the Public Warrants.
The Company’s Sponsor has agreed to (i)
waive its redemption rights with respect to its founder shares and public shares in connection with the completion of the Company’s
initial Business Combination, (ii) waive its redemption rights with respect to its founder shares and public shares in connection with
a stockholder vote to approve an amendment to the Company’s amended and restated certificate of incorporation (A) to modify the
substance or timing of the Company’s obligation to offer redemption rights in connection with any proposed initial Business Combination
or to redeem 100% of the Company’s public shares if the Company does not complete its initial Business Combination within the Combination
Period or (B) with respect to any other provision relating to stockholders’ rights or pre-initial Business Combination activity,
(iii) waive its rights to liquidating distributions from the Trust Account with respect to its founder shares if the Company fails to
complete its initial Business Combination within the Combination Period, and (iv) not sell any of its founder shares or public shares
to the Company in any tender offer the Company undertakes in connection with a proposed initial Business Combination. In addition, the
Company’s Sponsor has agreed to vote any founder shares held by them and any public shares purchased during or after the IPO (including
in open market and privately negotiated transactions) in favor of the Company’s initial Business Combination.
Note 5 — Related Party Transactions
Founder Shares
In August 2020, the Sponsor paid $25,000 to cover
certain offering costs of the Company in consideration for 5,750,000 shares of Class B common stock. In January 2021, the Company effected
a stock dividend of 0.2 shares for each founder share outstanding, resulting in an aggregate of 6,900,000 founder shares outstanding and
held by the Sponsor (up to 900,000 of which are subject to forfeiture by the Sponsor if the underwriters’ over-allotment option
is not exercised in full). On January 20, 2021, the Sponsor forfeited 25,000 founder shares to the extent that the over-allotment option
was not exercised in full by the underwriters, resulting in an aggregate of 6,875,000 founder shares outstanding.
The Sponsor has agreed not to transfer, assign
or sell its founder shares until the earlier to occur of (A) one year after the completion of the Company’s initial Business Combination
or (B) subsequent to the Company’s initial Business Combination, (x) if the last sale price of the Company’s Class A common
stock equals or exceeds $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 Company’s initial Business Combination,
or (y) the date on which the Company completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction
that results in all of its stockholders having the right to exchange their shares of common stock for cash, securities or other property.
Promissory Note — Related Party
On August 27, 2020, the Company issued an unsecured
promissory note to the Sponsor, pursuant to which the Company may borrow up to an aggregate principal amount of $300,000 to be used for
a portion of the expenses of the IPO. This loan is non-interest bearing, unsecured and due at the earlier of March 31, 2021 or the closing
of the IPO. The loan would be repaid upon the closing of the IPO out of offering proceeds not held in the Trust Account. On January 20,
2021, the Company repaid $275,000 to the Sponsor. As of June 30, 2021, there were no remaining amounts outstanding.
Related Party Loans
In order to finance transaction costs in connection
with a Business Combination, the Sponsor or an affiliate of the Sponsor or certain of the Company’s officers and directors may,
but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a
Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company.
Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination
does not close, the Company may use a portion of the working capital held outside the Trust Account to repay the Working Capital Loans
but no proceeds from the Trust Account would be used to repay the Working Capital Loans. Up to $1,500,000 of such Working Capital Loans
may be convertible into warrants at a price of $1.00 per warrant at the option of the lender. The warrants would be identical to the Private
Placement Warrants, including as to exercise price, exercisability and exercise period. At June 30, 2021 and December 31, 2020, no such
Working Capital Loans were outstanding.
Administrative Service Fee
The
Company has agreed to pay its Sponsor, commencing on January 14, 2021, a total of $10,000 per month for office space, utilities and secretarial
and administrative support. Upon completion of the Company’s Business Combination or its liquidation, the Company will cease paying
these monthly fees. As of June 30, 2021, the Company has recorded $30,000 and $56,452 for the three and six months ended June 30, 2021.
Note 6 — Recurring Fair Value Measurements
The following table presents information about
the Company’s assets and liabilities that were measured at fair value on a recurring basis as of June 30, 2021, and indicates the
fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.
|
|
June 30,
|
|
|
Quoted
Prices In
Active
Markets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Other
Unobservable
Inputs
|
|
|
|
2021
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities held in Trust Account
|
|
$
|
275,007,349
|
|
|
$
|
275,007,349
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant Liability
|
|
$
|
27,779,568
|
|
|
$
|
14,987,500
|
|
|
$
|
-
|
|
|
$
|
12,792,068
|
|
Initial Measurement — Public Warrants
The
estimated fair value of the Public Warrants on January 20, 2021 is determined using Level 3 inputs. Inherent in a Monte-Carlo simulation
model are assumptions related to expected stock-price volatility (pre-merger and post-merger), expected term, dividend yield
and risk-free interest rate. The Company estimates the volatility of its common stock based on management’s understanding of the
volatility associated with instruments of other similar entities. The risk-free interest rate is based on the U.S. Treasury Constant Maturity
similar to the expected remaining life of the warrants. The expected life of the warrants is simulated based on management assumptions
regarding the timing and likelihood of completing a business combination. The dividend rate is based on the historical rate, which the
Company anticipates to remain at zero. Once the warrants become exercisable, the Company may redeem the outstanding warrants when the
price per common stock equals or exceeds $18.00. The assumptions used in calculating the estimated fair values represent the
Company’s best estimate. However, inherent uncertainties are involved. If factors or assumptions change, the estimated fair values
could be materially different.
The key inputs into the Monte Carlo simulation
model for the Public Warrants were as follows at initial measurement:
Input
|
|
January 20, 2021
(Initial
Measurement)
|
|
Expected term (years)
|
|
|
5.58
|
|
Expected volatility
|
|
|
24.4
|
%
|
Risk-free interest rate
|
|
|
0.54
|
%
|
Fair value of the common stock price
|
|
$
|
9.23
|
|
Subsequent Measurement — Public
Warrants
The Public Warrants are measured at fair value
on a recurring basis. The subsequent measurement of the Public Warrants for the six months ended June 30, 2021 is classified as Level
1 due to the use of an observable market quote in an active market.
As of June 30, 2021, the aggregate value of Public
Warrants was $14,987,500.
Initial Measurement – Private Placement
Warrants
The
estimated fair value of the Private Placement Warrants on January 20, 2021 is determined using Level 3 inputs. Inherent in a Monte-Carlo
simulation model are assumptions related to expected stock-price volatility (pre-merger and post-merger), expected term, dividend
yield and risk-free interest rate. The Company estimates the volatility of its common stock based on management’s understanding
of the volatility associated with instruments of other similar entities. The risk-free interest rate is based on the U.S. Treasury Constant
Maturity similar to the expected remaining life of the warrants. The expected life of the warrants is simulated based on management assumptions
regarding the timing and likelihood of completing a business combination. The dividend rate is based on the historical rate, which the
Company anticipates to remain at zero. The assumptions used in calculating the estimated fair values represent the Company’s best
estimate. However, inherent uncertainties are involved. If factors or assumptions change, the estimated fair values could be materially
different.
The key inputs into the Monte Carlo simulation
model for the Private Placement Warrants were as follows at initial measurement:
Input
|
|
January 20, 2021
(Initial
Measurement)
|
|
Expected term (years)
|
|
|
5.58
|
|
Expected volatility
|
|
|
24.4
|
%
|
Risk-free interest rate
|
|
|
0.54
|
%
|
Fair value of the common stock price
|
|
$
|
9.23
|
|
Subsequent Measurement – Private Placement
Warrants
The key inputs into the Monte Carlo simulation
model for the Private Placement Warrants were as follows at June 30, 2021:
Input
|
|
June 30, 2021
|
|
Expected term (years)
|
|
|
5.37
|
|
Expected volatility
|
|
|
26.8
|
%
|
Risk-free interest rate
|
|
|
0.93
|
%
|
Fair value of the common stock price
|
|
$
|
9.71
|
|
The following table sets
forth a summary of the changes in the fair value of the warrant liability for the six months ended June 30, 2021:
|
|
Private Placement Warrant
|
|
|
Public Warrant
|
|
|
Warrant Liability
|
|
Fair value as of January 1, 2021
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Initial fair value of warrant liability upon issuance at IPO
|
|
|
9,922,739
|
|
|
|
17,974,188
|
|
|
|
27,896,927
|
|
Revaluation of warrant liability included in other expense within the unaudited condensed statement of operations for the six months ended June 30, 2021
|
|
|
2,869,329
|
|
|
|
(2,986,688
|
)
|
|
|
(117,359
|
)
|
Fair value as of June 30, 2021
|
|
$
|
12,792,068
|
|
|
$
|
14,987,500
|
|
|
$
|
27,779,568
|
|
Note 7 — Commitments and Contingencies
Registration Rights
The holders of the founder shares, Private Placement
Warrants, and warrants that may be issued upon conversion of Working Capital Loans will have registration rights to require the Company
to register a sale of any of its securities held by them pursuant to a registration rights agreement signed on January 14, 2021. These
holders will be entitled to make up to three demands, excluding short form registration demands, that the Company registers such securities
for sale under the Securities Act. In addition, these holders will have “piggy-back” registration rights to include their
securities in other registration statements filed by the Company.
Underwriting Agreement
The underwriters had a 45-day option beginning
January 20, 2021 to purchase up to an additional 3,600,000 Units to cover over-allotments, if any.
On January 20, 2021, the underwriter partially
exercised the over-allotment option to purchase 3,500,000 Units, and paid a fixed underwriting discount in aggregate of $5,500,000. Additionally,
the underwriters were entitled to a deferred underwriting discount of 3.5% of the gross proceeds of the IPO held in the Trust Account,
or $9,625,000, upon the completion of the Company’s initial Business Combination subject to the terms of the underwriting agreement.
Note 8 — Stockholders’ Equity
Preferred Stock— The Company
is authorized to issue a total of 1,000,000 preferred shares at par value of $0.0001 each. At June 30, 2021 and December 31, 2020, there
were no shares of preferred stock issued or outstanding.
Class A Common Stock— The
Company is authorized to issue a total of 100,000,000 Class A common stock at par value of $0.0001 each. As of June 30, 2021 and December
31, 2020, there were 4,148,934 and 0 shares of Class A common stock issued and outstanding, excluding 23,351,066 shares of Class A common
stock subject to possible redemption.
Class B Common Stock— The
Company is authorized to issue a total of 10,000,000 Class B common stock at par value of $0.0001 each. In August 2020, the Sponsor paid
$25,000 to cover certain offering costs of the Company in consideration for 5,750,000 shares of Class B common stock. In January 2021,
the Company effected a stock dividend of 0.2 shares for each founder share outstanding, resulting in an aggregate of 6,900,000 founder
shares outstanding and held by the Sponsor (up to 900,000 of which were subject to forfeiture by the Sponsor if the underwriters’
over-allotment option is not exercised in full). On January 20, 2021, the Sponsor forfeited 25,000 founder shares to the extent that the
over-allotment option was not exercised in full by the underwriters. As of June 30, 2021 and December 31, 2020, there were 6,875,000 and
6,900,000 Class B common shares issued and outstanding, respectively.
The Company’s initial stockholders have
agreed not to transfer, assign or sell their founder shares until the earlier to occur of (A) one year after the completion of the Company’s
initial Business Combination or (B) subsequent to the Company’s initial Business Combination, (x) if the last reported sale price
of the Company’s 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 Company’s
initial Business Combination, or (y) the date on which the Company completes a liquidation, merger, capital stock exchange, reorganization
or other similar transaction that results in all of its stockholders having the right to exchange their shares of common stock for cash,
securities or other property.
The shares of Class B common stock will automatically
convert into shares of the Company’s Class A common stock at the time of its initial Business Combination on a one-for-one basis,
subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like, and subject to further adjustment
as provided herein. In the case that additional shares of Class A common stock, or equity-linked securities, are issued or deemed issued
in excess of the amounts offered 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 the Class A common stock and holders
of the Class B common stock will vote together as a single class on all matters submitted to a vote of the Company’s stockholders,
with each share of common stock entitling the holder to one vote.
Note 9 — Subsequent Events
The Company evaluated subsequent events and transactions
that occurred after the balance sheet date up to the date that the condensed financial statements were issued. The Company did not identify
any subsequent events that would have required adjustment or disclosure in the condensed financial statements.
Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
References to the “Company,” “26
CAPITAL ACQUISITION CORP.,” “our,” “us” or “we” refer to 26 CAPITAL ACQUISITION CORP. The following
discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited
condensed financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion
and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report
on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have based these forward-looking
statements on our current expectations and projections about future events. These forward-looking statements are subject to known and
unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements
to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking
statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,”
“could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,”
“continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy
include, but are not limited to, those described in our other Securities and Exchange Commission (“SEC”) filings.
Overview
We are a blank check company incorporated as a
Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization
or similar business combination with one or more businesses.
The issuance of additional shares in connection
with an initial business combination to the owners of the target or other investors:
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may significantly dilute the equity interest of investors in this offering, which dilution would increase if the anti-dilution provisions in the Class B common stock resulted in the issuance of Class A shares on a greater than one-to-one basis upon conversion of the Class B common stock;
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may subordinate the rights of holders of our common stock if preferred stock is issued with rights senior to those afforded our common stock;
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could cause a change in control if a substantial number of shares of our common stock is issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors;
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may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us; and
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may adversely affect prevailing market prices for our Class A common stock and/or warrants.
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Similarly, if we issue debt securities or otherwise
incur significant debt to bank or other lenders or the owners of a target, it could result in:
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default and foreclosure on our assets if our operating revenues after an initial business combination are insufficient to repay our debt obligations;
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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;
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our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand;
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our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding;
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our inability to pay dividends on our common stock;
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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, our ability to pay expenses, make capital expenditures and acquisitions, and fund other general corporate purposes;
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limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
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increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;
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limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, and execution of our strategy; and
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other purposes and other disadvantages compared to our competitors who have less debt.
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We expect to continue to incur significant costs
in the pursuit of our initial business combination plans. We cannot assure you that our plans to raise capital or to complete our initial
business combination will be successful.
Results of Operations
Our entire activity since inception up to June
30, 2021 relates to our formation, the Initial Public Offering and, since the closing of the Initial Public Offering, a search for a Business
Combination candidate. We will not be generating any operating revenues until the closing and completion of our initial Business Combination,
at the earliest.
For the three months ended June 30, 2021, we had
a net loss of $5,729,148 which was comprised of operating costs of $361,839, unrealized loss on change in fair value of warrants of $5,371,489,
and interest income of $4,180 from marketable securities held in our Trust Account.
For the six months ended June 30, 2021, we had
a net loss of $3,939,106 which was comprised of operating costs of $620,074, loss on sale of private placement warrants of $2,422,739,
warrant issuance costs of $1,021,001, unrealized gain on change in fair value of warrants of $117,359, and interest income of $7,349 from
marketable securities held in our Trust Account.
Liquidity and Capital Resources
As of June 30, 2021, we had approximately $0.7
million in our operating bank account, and working capital of approximately $0.9 million.
Prior to the completion of the Initial Public
Offering, our liquidity needs had been satisfied through a payment from the Sponsor of $25,000 for the founder shares to cover certain
offering costs and the loan under an unsecured promissory note from the Sponsor of $275,000. The promissory note from the Sponsor was
paid in full as of January 20, 2021. Subsequent to the consummation of the Initial Public Offering and Private Placement, our liquidity
needs have been satisfied through the proceeds from the consummation of the Private Placement not held in the Trust Account.
In addition, in order to finance transaction costs
in connection with a Business Combination, our Sponsor or an affiliate of the Sponsor or certain of our officers and directors may, but
are not obligated to, provide us Working Capital Loans. As of June 30, 2021, there were no amounts outstanding under any Working Capital
Loans.
Based on the foregoing, management believes that
we will have sufficient working capital and borrowing capacity to meet our needs through the earlier of the consummation of a Business
Combination or one year from this filing. Over this time period, we will be using these funds for paying existing accounts payable, identifying
and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying
for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business
Combination.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity
with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statement.
Making estimates requires management to exercise
significant judgement. 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 statement, which management considered in formulating its estimate, could change in the near
term one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
We have identified the following as our critical
accounting policies:
Common Stock Subject to Possible Redemption
The Company accounts for its common stock subject
to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing
Liabilities from Equity.” Common stock subject to mandatory redemption (if any) is classified as a liability instrument and is measured
at fair value. Conditionally redeemable common stock (including common stock that feature redemption rights that are either within the
control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control)
is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s common
stock feature certain redemption rights that is considered to be outside of the Company’s control and subject to the occurrence
of uncertain future events. Accordingly, common stock subject to possible redemption is presented at redemption value as temporary equity,
outside of the stockholders’ equity section of the Company’s balance sheets.
Net Income (Loss) Per Common Stock
Net income (loss) per share of common stock is
computed by dividing net income (loss) by the weighted average number of common stock outstanding for the period. The Company has not
considered the effect of warrants sold in the IPO and private placement to purchase 21,250,000 of Class A common stock in the calculation
of diluted income (loss) per share, since the exercise of the warrants are contingent upon the occurrence of future events.
The Company complies with accounting and disclosure
requirements ASC Topic 260, “Earnings Per Share.” The Company’s statements of operations include a presentation
of income (loss) per share for common stock subject to possible redemption in a manner similar to the two-class method of income (loss)
per share. Net income per share of common stock, basic and diluted for Class A redeemable common stock is calculated by dividing the interest
income earned on the Trust Account (totaling $4,180 and $7,349 for the three and six months ended June 30, 2021) by the weighted average
number of Class A redeemable common stock outstanding since original issuance. Net loss per share of common stock, basic and diluted for
Class B non-redeemable common stock is calculated by dividing the net loss, adjusted for income attributable to Class A redeemable common
stock, by the weighted average number of Class B non-redeemable common stock outstanding for the period. Class B non-redeemable common
stock includes the Founder Shares as these shares do not have any redemption features and do not participate in the income earned on the
Trust Account. The Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted
into common stock and then share in the earnings of the Company. As a result, diluted income (loss) per share is the same as basic income
per share for the period presented.
Off-Balance Sheet Arrangements
As of June 30, 2021, we did not have any off-balance
sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
JOBS Act
On April 5, 2012, the JOBS Act was signed into
law. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies.
We will qualify as an “emerging growth company” and under the JOBS Act will be allowed to comply with new or revised accounting
pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption ofnew or
revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which
adoption of such standards is required for non-emerging growth companies. As a result, our financial statements may not be comparable
to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating
the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth
in the JOBS Act, if, as an “emerging growth company”, we choose to rely on such exemptions we may not be required to, among
other things, (i) provide an independent registered public accounting firm’s attestation report on our system of internal controls
over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging
growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may
be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the report of independent registered public accounting
firm providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose
certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of
the CEO’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion
of this offering or until we are no longer an “emerging growth company,” whichever is earlier.