NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1-Description of Organization and Business
Operations
Organization and General
Authentic Equity Acquisition Corp. (the “Company”)
was incorporated as a Cayman Islands exempted company on September 29, 2020. The Company was formed for the purpose of effecting a merger,
share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities
(the “Business Combination”).
As of September 30, 2021, the Company had not commenced
any operations. All activity through September 30, 2021, relates to the Company’s formation, the initial public offering (the “Initial
Public Offering”) described below and the search for a target business with which to consummate an initial Business Combination.
The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest.
The Company generates non-operating income in the form of interest income on investments held in trust account from the proceeds derived
from the Initial Public Offering and the sale of the Private Placement Warrants (as defined below). There was no activity from September
29, 2020 (inception) to September 30, 2020, therefore no comparative period reported on the unaudited condensed statement of operations
or statement of changes in shareholders’ deficit.
Sponsor and Financing
The Company’s sponsor is Authentic Equity
Sponsor LLC, a Delaware limited liability company (the “Sponsor”). The registration statement for the Company’s Initial
Public Offering was declared effective on January 14, 2021. On January 20, 2021, the Company consummated its Initial Public Offering of
23,000,000 units (the “Units” and, with respect to the Class A ordinary shares included in the Units being offered, the “Public
Shares”), including 3,000,000 additional Units sold pursuant to the underwriters’ over-allotment option (the “Over-Allotment
Units”), at $10.00 per Unit, generating gross proceeds of $230.0 million, and incurring offering costs of approximately $13.3 million,
of which approximately $8.1 million was for deferred underwriting commissions (Note 5).
Simultaneously with the closing of the Initial
Public Offering, the Company consummated the sale of 6,600,000 warrants (each, a “Private Placement Warrant” and collectively,
the “Private Placement Warrants”) to the Sponsor for an aggregate purchase price of approximately $5.8 million, and incurred
offering costs of approximately $18,000, in a private placement (the “Private Placement”). In addition, the Company consummated
the sale of certain rights to General Electric Pension Trust (“GEPT” and such rights, the “GEPT Rights”) for gross
proceeds of $824,500, which will allow GEPT to purchase up to $50.0 million of Forward Purchase Units (as defined in Note 5) immediately
prior to an initial Business Combination, subject to certain terms and conditions set forth in the Forward Purchase Agreement (as defined
in Note 5).
Trust Account
Upon the closing of the Initial Public Offering
and the Private Placement, $230.0 million ($10.00 per Unit) of the net proceeds of the Initial Public Offering and certain of the proceeds
of the Private Placement were placed in a trust account (“Trust Account”) located in the United States with Continental Stock
Transfer & Trust Company acting as trustee, and the amount is invested only in United States “government securities” within
the meaning of Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), having a
maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company
Act, which invest only in direct U.S. government treasury obligations, until the earlier of: (i) the completion of a Business Combination
and (ii) the distribution of the Trust Account as described below.
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, the Private Placement and the sale of the
GEPT Rights, 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’s initial Business
Combination must be with one or more operating businesses or assets with a fair market value equal to at least 80% of the net assets held
in the Trust Account (excluding the deferred underwriting commissions and taxes payable on the interest earned on the trust account) at
the time of the signing 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.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The Company will provide the holders of the Public
Shares (the “Public Shareholders”), 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 shareholder meeting called to approve the Business Combination or (ii) by means
of a tender offer. The decision as to whether the Company will seek shareholder approval of a Business Combination or conduct a tender
offer will be made by the Company, solely in its discretion. The Public Shareholders will be entitled to redeem their Public Shares for
a pro rata portion of the amount then in the Trust Account ($10.00 per Public Share). The per-share amount to be distributed to Public
Shareholders who redeem their Public Shares will not be reduced by the deferred underwriting commissions the Company will pay to the underwriters
(as discussed in Note 5). These Public Shares are classified as temporary equity upon the completion of the Initial Public Offering in
accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”)
Topic 480 “Distinguishing Liabilities from Equity” (“ASC 480”). 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
a majority of the shares voted are voted in favor of the Business Combination. If a shareholder vote is not required by law and the Company
does not decide to hold a shareholder vote for business or other legal reasons, the Company will, pursuant to its amended and restated
memorandum and articles of association (the “Amended and Restated Memorandum and Articles of Association”), conduct the redemptions
pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (the “SEC”) and file tender offer documents
with the SEC prior to completing a Business Combination. If, however, shareholder approval of the transactions is required by law, or
the Company decides to obtain shareholder approval for business or legal 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. Additionally, each Public Shareholder
may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction. If the Company seeks
shareholder approval in connection with a Business Combination, the initial shareholders (as defined below) agreed to vote their Founder
Shares (as defined below in Note 4) and any Public Shares purchased during or after the Initial Public Offering in favor of a Business
Combination. Pursuant to the Company’s insider trading policy, insiders are required to: (i) refrain from purchasing shares during
certain blackout periods and when they are in possession of any material non-public information and (ii) clear all trades with the Company’s
Chief Financial Officer prior to execution. In addition, the initial shareholders agreed to waive their redemption rights with respect
to their Founder Shares and Public Shares in connection with the completion of a Business Combination.
Notwithstanding the foregoing, the Amended and
Restated Memorandum and Articles of Association provides that a Public Shareholder, together with any affiliate of such shareholder or
any other person with whom such shareholder 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 ordinary shares sold in the Initial Public Offering, without the prior consent of the
Company.
The Company’s Sponsor, officers and directors
(the “initial shareholders”) agreed not to propose an amendment to the Amended and Restated Memorandum and Articles of Association
(a) that would modify the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if the Company does
not complete a Business Combination within 24 months from the closing of the Initial Public Offering, or January 20, 2023, (the “Combination
Period”) or (b) with respect to any other provision relating to shareholders’ rights or pre-initial Business Combination activity,
unless the Company provides the Public Shareholders with the opportunity to redeem their Class A ordinary shares in conjunction with any
such amendment.
If the Company is unable to complete a Business
Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up; (ii) as promptly
as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash,
equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and
not previously released to the Company to pay its tax obligations, if any (less up to $100,000 of interest to pay dissolution expenses)
divided by the number of the then-outstanding Public Shares, which redemption will completely extinguish Public Shareholders’ rights
as shareholders (including the right to receive further liquidation distributions, if any); and (iii) as promptly as reasonably possible
following such redemption, subject to the approval of the remaining shareholders and the board of directors, liquidate and dissolve, subject
in the case of clauses (ii) and (iii), to the Company’s obligations under Cayman Islands law to provide for claims of creditors
and the requirements of other applicable law.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The initial shareholders 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 shareholders 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 agreed to waive their rights to their deferred underwriting commission (see Note 5) 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 $10.00 per share initially held in the Trust Account. In order to protect the amounts held
in the Trust Account, the Sponsor agreed to 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 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 our independent registered public accounting firm, prospective target businesses or other entities
with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or
to monies held in the Trust Account.
Liquidity and Going Concern
As of September 30, 2021, the Company had approximately
$660,000 of cash in its operating account and a deficit of approximately $154,000.
The Company’s liquidity needs to date have
been satisfied through a contribution of $25,000 from the Sponsor to cover certain expenses in exchange for the issuance of the Founder
Shares, a loan of $96,500 from the Sponsor pursuant to the Note (see Note 4), and a portion of the proceeds from the consummation of the
Private Placement and sale of the GEPT Rights not held in the Trust Account. The Company repaid the Note in full on January 20, 2021.
In addition, 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, provide the Company Working Capital Loans (see
Note 4). As of September 30, 2021, and December 31, 2020, there were no amounts outstanding under any Working Capital Loan.
The Company may need to raise additional capital through loans or additional
investments from its Sponsor, an affiliate of the Sponsor, or its officers or directors. The Company’s officers, directors and Sponsor,
or their affiliates, 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, reducing overhead expenses, and extending the terms and due dates of certain accrued expenses and other liabilities. The
Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. In connection
with the Company’s assessment of going concern considerations in accordance with FASB Accounting Standards Update (“ASU”)
2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined
these conditions raise substantial doubt about the Company’s ability to continue as a going concern through the Combination Period,
which is the date the Company is required to cease all operations except for the purpose of winding up if it has not completed a business
combination. These 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-Basis of Presentation and Summary of
Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial
statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“GAAP”)
for financial information and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information
and footnotes required by GAAP. In the opinion of management, the unaudited condensed financial statements reflect all adjustments, which
include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Operating
results for the three and nine months ended September 30, 2021, are not necessarily indicative of the results that may be expected through
December 31, 2021 or any future period.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Revision to Previously Reported Financial Statements
In preparation of the Company’s unaudited
condensed financial statements as of and for quarterly period ended September 30, 2021, the Company concluded it should revise its financial
statements to classify all Class A ordinary shares subject to possible redemption in temporary equity. In accordance with the SEC and
its staff’s guidance on redeemable equity instruments, ASC 480, paragraph 10-S99, redemption provisions not solely within the control
of the Company require ordinary shares subject to redemption to be classified outside of permanent equity. The Company had previously
classified a portion of its Class A ordinary shares in permanent equity, or total shareholders’ equity. Although the Company did
not specify a maximum redemption threshold, its charter currently provides that, the Company will not redeem its public shares in an amount
that would cause its net tangible assets to be less than $5,000,001. Previously the Company did not consider redeemable stock classified
as temporary equity as part of net tangible assets. Effective with these financial statements, the Company revised this interpretation
to include temporary equity in net intangible assets. Accordingly, effective with this filing, the Company presents all redeemable Class
A ordinary shares as temporary equity and to recognize accretion from the initial book value to redemption value at the time of its Initial
Public Offering and in accordance with ASC 480. The change in the carrying value of the redeemable shares of Class A ordinary shares at
the Initial Public Offering resulted in a decrease of approximately $7.1 million in additional paid-in capital and an increase of approximately
$25.0 million to accumulated deficit, as well as a reclassification of 3,208,087 shares of Class A ordinary shares from permanent equity
to temporary equity. The Company will present this revision in a prospective manner in all
future filings. Under this approach, the previously issued financial statement included as an exhibit to the Company’s Form 8-K
filed with the SEC on January 20, 2021, and Form 10-Qs will not be amended, but historical amounts presented in the current and future
filings will be recast to be consistent with the current presentation.
The impact of the revision to the unaudited
condensed balance sheets as of March 31, 2021, and June 30, 2021, is a reclassification of $23.8 million and $28.1 million,
respectively, from total shareholders’ equity to Class A ordinary shares subject to possible redemption. There is no impact to
the reported amounts for total assets, total liabilities, cash flows (except non-cash items), net income (loss), or the net income (loss) per share. In
connection with the change in presentation for the Class A ordinary shares subject to possible redemption, the Company has revised
its earnings per share calculation to allocate income and losses shared pro rata between the two classes of shares. This
presentation contemplates a Business Combination as the most likely outcome, in which case, both classes of shares share pro rata in
the income and losses of the Company.
Emerging Growth Company
The Company is an “emerging growth company,”
as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”),
and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that
are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports
and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder
approval of any golden parachute payments not previously approved.
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 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, 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 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.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Use of Estimates
The preparation of unaudited condensed financial
statements in conformity with 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. Making
estimates requires management to exercise significant judgment. 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 due to one or more future confirming events. Such estimates may
be subject to change as more current information becomes available. 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. As of September 30, 2021, and December 31, 2020,
the Company did not have any cash equivalents.
Investments Held in Trust Account
The Company’s portfolio of investments held
in the Trust Account is comprised of U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company
Act, with a maturity of 185 days or less, or investments in money market funds that invest in U.S. government securities and generally
have a readily determinable fair value, or a combination thereof. When the Company’s investments held in the Trust Account are comprised
of U.S. government securities, the investments are classified as trading securities. When the Company’s investments held in the
Trust Account are comprised of money market funds, the investments are recognized at fair value. Trading securities and investments in
money market funds are presented on the balance sheets at fair value at the end of each reporting period. Gains and losses resulting from
the change in fair value of these securities are included in net gain from investments held in Trust Account in the accompanying unaudited
condensed statements of operations. The estimated fair values of investments held in the Trust Account are determined using available
market information.
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
Depository Insurance Corporation limit of $250,000, and investments held in Trust Account. The Company has not experienced losses on these
accounts and management believes the Company is not exposed to significant risks on such accounts.
Fair Value of Financial Instruments
The fair value of the Company’s assets and
liabilities which qualify as financial instruments under the FASB ASC Topic 820, “Fair Value Measurements” equal or approximate
the carrying amounts represented in the condensed balance sheets, primarily due to their short-term nature (except for derivative assets and liabilities - see Note 9).
Fair Value Measurements
Fair value is defined as the price that would
be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement
date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.
The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs
(Level 3 measurements). These tiers consist of:
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Level 1, defined as observable
inputs such as quoted prices for identical instruments in active markets;
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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
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●
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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.
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AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
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.
Offering Costs Associated with the Initial
Public Offering
Offering costs consisted of legal, accounting,
underwriting fees and other costs incurred through the Initial Public Offering that were directly related to the Initial Public Offering.
Offering costs are allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value
basis, compared to total proceeds received. Offering costs associated with derivative warrant liabilities are expensed as incurred and
presented as non-operating expenses in the statements of operations. Offering costs associated with the Class A ordinary shares were charged
against the carrying value of the Class A ordinary shares upon the completion of the Initial Public Offering. The Company classifies deferred
underwriting commissions as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets
or require the creation of current liabilities.
Derivative Assets and Liabilities
The Company does not use derivative
instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial
instruments, including issued share purchase warrants and forward purchase units, to determine if such instruments are derivatives or contain features that
qualify as embedded derivatives, pursuant to ASC 480 and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC
815”). The classification of derivative instruments, including whether such instruments should be recorded as assets/liabilities or
as equity, is re-assessed at the end of each reporting period.
The warrants issued in connection with the Initial
Public Offering (the “Public Warrants”), the Private Placement Warrants and units that may be issued in connection with forward
purchase agreement are recognized as derivative assets or liabilities in accordance with ASC 815. Accordingly, the Company recognizes
the warrant instruments and forward purchase units as derivative assets or liabilities at fair value and adjusts the instruments to fair
value at each reporting period. The derivative assets or liabilities are subject to re-measurement at each balance sheet date until exercised,
and any change in fair value is recognized in the Company’s statement of operations. The fair value of the warrants issued in connection
with the Initial Public Offering were initially measured using a binomial lattice model and subsequently been measured at each measurement
date based on the market price of such warrants. The fair value of warrants issued in connection with the Private Placement was initially
measured using Black-Scholes Option Pricing model and subsequently using the market value of the public warrants when they were separately
listed and traded. The fair value of the units that may be issued in connection with the forward purchase agreement has been estimated
using Black-Scholes Option Pricing model at each measurement date. The determination of the fair value of the warrant liability may be
subject to change as more current information becomes available and accordingly the actual results could differ significantly. Derivative
warrant assets and liabilities are classified as non-current as their liquidation is not reasonably expected to require the use of current
assets or require the creation of current liabilities.
Class A Ordinary Shares Subject to Possible
Redemption
The Company accounts for its Class A ordinary
shares subject to possible redemption in accordance with the guidance in ASC 480. Class A ordinary shares subject to mandatory redemption
(if any) are classified as liability instruments and are measured at fair value. Conditionally redeemable Class A ordinary shares (including
Class A ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon
the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times,
Class A ordinary shares are classified as shareholders’ equity. The Company’s Class A ordinary shares feature certain redemption
rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly,
as of September 30, 2021, 23,000,000 Class A ordinary shares subject to possible redemption are presented as temporary equity, outside
of the shareholders’ equity section of the Company’s condensed balance sheets. There were no Class A ordinary shares outstanding
as of December 31, 2020.
Effective with the closing of the Initial Public
Offering, the Company recognized the accretion from initial book value to redemption amount, which resulted in charges against additional
paid-in capital (to the extent available) and accumulated deficit.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Income Taxes
FASB ASC 740 prescribes a recognition threshold
and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in
a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing
authorities. The Company’s management determined that the Cayman Islands is the Company’s only major tax jurisdiction. There
were no unrecognized tax benefits as of September 30, 2021 and December 31, 2020. Company recognizes accrued interest and penalties related
to unrecognized tax benefits as income tax expense. The Company is currently not aware of any issues under review that could result in
significant payments, accruals or material deviation from its position.
There is currently no taxation imposed on income
by the Government of the Cayman Islands. In accordance with Cayman income tax regulations, income taxes are not levied on the Company.
Consequently, income taxes are not reflected in the Company’s unaudited condensed financial statements. The Company’s management
does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
Net Income per Ordinary Share
The Company complies with accounting and disclosure
requirements of FASB ASC Topic 260, “Earnings Per Share.” The Company has two classes
of shares, which are referred to as Class A ordinary shares and Class B ordinary shares. Income and losses are shared pro rata between
the two classes of shares. Net income (loss) per ordinary share is calculated by dividing the net income (loss) by the weighted average
number of ordinary shares outstanding for the respective period.
The calculation of diluted net income (loss) per
ordinary share does not consider the effect of the warrants underlying the Units sold in the Initial Public Offering and the Private Placement
Warrants to purchase 18,100,000 Class A ordinary shares since their exercise is contingent upon future events and their inclusion would
be anti-dilutive under the treasury stock method. As a result, diluted net loss per share is the same as basic net loss per share for
the three and nine months ended September 30, 2021. Accretion associated with the redeemable Class A ordinary shares is excluded from
earnings per share as the redemption value approximates fair value. The diluted earnings per share calculation includes the Class B ordinary shares subject to forfeiture in relation to the over-allotment
from the first day of the interim period in which the contingency on such shares was resolved.
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 ordinary shares:
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For the Three Months Ended
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For the Nine Months Ended
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September 30, 2021
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September 30, 2021
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Class A
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Class B
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Class A
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Class B
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Numerator:
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Allocation of net income - basic
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$
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2,341,588
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$
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585,397
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$
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3,829,016
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$
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1,019,520
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Allocation of net income - diluted
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|
$
|
2,341,588
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|
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$
|
585,397
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|
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$
|
3,821,654
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|
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$
|
1,026,882
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Denominator:
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Basic weighted average ordinary shares outstanding
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23,000,000
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5,750,000
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21,399,267
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5,697,802
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Diluted weighted average ordinary shares outstanding
|
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23,000,000
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|
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5,750,000
|
|
|
|
21,399,267
|
|
|
|
5,750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per ordinary share
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
|
$
|
0.18
|
|
|
$
|
0.18
|
|
Diluted net income per ordinary share
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
|
$
|
0.18
|
|
|
$
|
0.18
|
|
Recent Accounting Pronouncements
In August 2020, the FASB issued 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 (“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. The Company adopted ASU 2020-06 on January 1, 2021, using a modified retrospective method
for transition. Adoption of the ASU did not impact the Company’s financial position, results of operations or cash flows.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The Company’s management does not believe
that any recently issued, but not yet effective, accounting standards updates, if currently adopted, would have a material effect on the
accompanying unaudited condensed financial statements.
Note 3-Initial Public Offering
On January 20, 2021, the Company consummated its
Initial Public Offering of 23,000,000 Units, including 3,000,000 Over-Allotment Units, at $10.00 per Unit, generating gross proceeds of
$230.0 million, and incurring offering costs of approximately $13.3 million, of which approximately $8.1 million was for deferred underwriting
commissions.
Each Unit consists of one Class A ordinary share,
and one-half of one redeemable warrant. Each whole Public Warrant entitles the holder to purchase one Class A ordinary share at a price
of $11.50 per share, subject to adjustment (see Note 8).
Note 4-Related Party Transactions
Founder Shares
On October 1, 2020, the Sponsor paid $25,000 to
cover certain expenses on behalf of the Company in exchange for issuance of 5,750,000 Class B ordinary shares, par value $0.0001, (the
“Founder Shares”). In December 2020, the Company effected a share capitalization with respect to the Class B ordinary shares
resulting in an aggregate of 7,000,000 Founder Shares outstanding. The Sponsor subsequently transferred 25,000 Class B ordinary shares
to each of the Company’s independent directors, which shares were not subject to forfeiture in the event the underwriters’
over-allotment option was not exercised. The Sponsor agreed to forfeit (a) up to 750,000 Founder Shares to the extent that the over-allotment
option was not exercised in full by the underwriters and (b) up to 1,250,000 Founder Shares depending on the number of units purchased
under the Forward Purchase Agreement if such number is below 5,000,000. The forfeiture in the preceding clause (a) would be adjusted to
the extent that the over-allotment option was not exercised in full by the underwriters, so that the Founder Shares would represent 20.0%
of the Company’s issued and outstanding shares after the Initial Public Offering plus the number of Class A ordinary shares that
may be sold pursuant to the Forward Purchase Agreement. On January 20, 2021, the underwriter fully exercised its over-allotment option;
thus, 750,000 Founder Shares were no longer subject to forfeiture.
The Sponsor, the Company’s directors and
executive officers and GEPT agreed, subject to limited exceptions, not to transfer, assign or sell any of their Founder Shares or the
Class B ordinary shares that may be issued to GEPT under the Forward Purchase Agreement, until the earlier to occur of: (a) one year after
the completion of the initial Business Combination and (b) subsequent to the initial Business Combination, (x) if the closing price of
Class A ordinary shares equals or exceeds $12.00 per share (as adjusted for share subdivisions, share capitalizations, reorganizations,
recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the initial
Business Combination or (y) the date on which the Company completes a liquidation, merger, share exchange or other similar transaction
that results in all of the Public Shareholders having the right to exchange their Class A ordinary shares for cash, securities or other
property.
Private Placement Warrants
Simultaneously with the closing of the Initial
Public Offering, the Company consummated the Private Placement of 6,600,000 Private Placement Warrants to the Sponsor for an aggregate
purchase price of approximately $5.8 million, and incurred offering costs of approximately $18,000.
Each whole Private Placement Warrant is exercisable
for one whole Class A ordinary share at a price of $11.50 per share. A portion of the proceeds from the Private Placement was added to
the proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination within
the Combination Period, the Private Placement Warrants will expire worthless. The Private Placement Warrants will be non-redeemable and
exercisable on a cashless basis so long as they are held by the Sponsor, GEPT or their permitted transferees.
The Sponsor and the Company’s officers and
directors agreed, subject to limited exceptions, not to transfer, assign or sell any of their Private Placement Warrants until 30 days
after the completion of the initial Business Combination.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Related Party Loans
On September 30, 2020, the Sponsor agreed to loan
the Company an aggregate of up to $300,000 to cover for expenses related to the Initial Public Offering pursuant to a promissory note
(the “Note”). This loan was non-interest bearing and payable upon the completion of the Initial Public Offering. The Company
borrowed approximately $97,000 under the Note and fully repaid the Note on January 20, 2021.
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 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 $1.5
million 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 September 30, 2021 and December 31, 2020, the Company
had no borrowings under the Working Capital Loans.
Administrative Support Agreement
Commencing on the effective date of the prospectus
relating to the Initial Public Offering, the Company agreed to pay an affiliate of the Sponsor a total of $10,000 per month for office
space, secretarial and administrative services provided to the Company. Upon completion of the initial Business Combination or the Company’s
liquidation, the Company will cease paying these monthly fees. For the three and nine months ended September 30, 2021, the Company incurred
approximately $30,000 and approximately $84,000 in expense for these services, respectively. As of September 30, 2021, there was $10,000
in accounts payable - related party outstanding, as reflected in the accompanying condensed balance sheets.
Note 5-Commitments and Contingencies
Forward Purchase Agreement
In connection with the consummation of the Initial
Public Offering, the Company entered into a forward purchase agreement (the “Forward Purchase Agreement”) with GEPT, pursuant
to which, in exchange for $824,500 of proceeds paid to the Company simultaneously with the closing of the Initial Public Offering, GEPT
has the right, in its discretion, to purchase up to the lesser of (i) $50.0 million of units and (ii) a number of units equal to 19.99%
of the pro forma equity outstanding at the time of the closing of the Company’s initial Business Combination, including but not
limited to, any ordinary shares issued in connection with the Initial Public Offering, the Forward Purchase Agreement or any private placement
or other offering or to any seller in the initial Business Combination (the “Forward Purchase Units”), with each unit consisting
of one Class A ordinary share (the “Forward Purchase Shares”) and 0.425 of one warrant to purchase one Class A ordinary share
at $11.50 per share, subject to adjustment (the “Forward Purchase Warrants”), for a purchase price of $10.00 per unit, in
a private placement to occur immediately prior to the closing of the initial Business Combination.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
If GEPT purchases the maximum number of Forward
Purchase Units available to it under the Forward Purchase Agreement, the Company will issue to GEPT, at the closing of the Company’s
initial Business Combination and prior to the conversion of the Class B ordinary shares into Class A ordinary shares in accordance with
the terms thereof (the “GEPT Issuance”):
|
●
|
a number of Class B ordinary
shares (the “GEPT Class B ordinary shares”) that is equal to 12.5% of the aggregate number of Class B ordinary shares outstanding
at the time of the initial Business Combination prior to the conversion of such Class B ordinary shares into Class A ordinary shares
pursuant to the terms thereof and after giving effect to the issuance of the GEPT Class B ordinary shares and any other Class B ordinary
shares as a result of anti-dilution rights or other adjustments and the number of Class B ordinary shares transferred, assigned, sold
or forfeited in connection with the initial Business Combination but excluding 115,000 Class B ordinary shares from such calculation
(the “Post-Business Combination Class B ordinary shares”) (provided, however, that if the Founder Shares are converted into
Class A ordinary shares prior to the date of the Company’s initial Business Combination, GEPT will receive a number of Class A
ordinary shares equal to the number of Class A ordinary shares that it would have been entitled to pursuant to the GEPT Issuance); and
|
|
●
|
a number of Private Placement
Warrants equal to 12.5% of the aggregate number of Private Placement Warrants outstanding at the time of the Company’s initial
business combination prior to the conversion of such Class B ordinary shares into Class A ordinary shares pursuant to the terms thereof
and after giving effect to any Private Placement Warrants transferred, assigned, sold or forfeited in connection with the initial Business
Combination (the “Post-Business Combination Private Placement Warrants”).
|
In connection with such issuance, the Sponsor
agreed to forfeit to the Company for no consideration a number of Class B ordinary shares and Private Placement Warrants (the “Sponsor
Forfeiture”) such that after the Sponsor Forfeiture and the GEPT Issuance, the Sponsor will own (i) a number of Class B ordinary
shares equal to 87.5% of the number of Post-Business Combination Class B ordinary shares plus 15,000 Class B ordinary shares, and (ii)
a number of Private Placement Warrants equal to 87.5% of the number of Post-Business Combination Private Placement Warrants.
The Company will determine the number of Forward
Purchase Units to be sold under the Forward Purchase Agreement and GEPT’s obligation to purchase such units will be subject to the
satisfaction of certain conditions, including, among others, the delivery by GEPT of a notice to the Company that it will purchase the
Forward Purchase Units in whole or in part. The rights of GEPT under the Forward Purchase Agreement do not depend on whether any Class
A ordinary shares are redeemed by the Public Shareholders. If GEPT does not purchase the maximum number of Forward Purchase Units available
to it under the Forward Purchase Agreement, GEPT will not be entitled to receive any of the Founder Shares or Private Placement Warrants
described above, and we will be entitled to retain the $824,500 paid to the Company by GEPT.
The Forward Purchase Warrants purchased by GEPT
under the Forward Purchase Agreement will have the same terms as the Public Warrants. The Private Placement Warrants to be issued to GEPT
as described above will have the same terms and be subject to the same transfer restrictions as the Private Placement Warrants held by
the Sponsor.
Registration and Shareholder Rights
The holders of Founder Shares, Private Placement
Warrants and warrants that may be issued upon conversion of Working Capital Loans (and any Class A ordinary shares issuable upon the exercise
of the Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans) are entitled to registration
rights pursuant to a registration and shareholder rights agreement signed upon consummation of the Initial Public Offering. These holders
are entitled to certain demand and “piggyback” registration rights. However, the registration and shareholder 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.
Pursuant to the Forward Purchase Agreement, the
Company has agreed to use reasonable best efforts to: (i) file within 30 days after the closing of the initial Business Combination a
registration statement with the SEC for a secondary offering of the Forward Purchase Shares and the Forward Purchase Warrants (and underlying
Class A ordinary shares); (ii) cause such registration statement to be declared effective promptly thereafter but in no event later than
sixty (60) days after the initial filing; (iii) maintain the effectiveness of such registration statement until the earliest of (A) the
date on which GEPT or its assignees cease to hold the securities covered thereby, and (B) the date all of the securities covered thereby
can be sold publicly without restriction or limitation under Rule 144 of the Securities Act; and (iv) after such registration statement
is declared effective, cause the Company to conduct firm commitment underwritten offerings, subject to certain limitations. In addition,
the Forward Purchase Agreement provides for certain “piggy-back” registration rights to the holders of forward purchase securities
to include their securities in other registration statements filed by the Company. The Company will bear the cost of registering these
securities.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Underwriting Agreement
The Company granted the underwriters a 45-day
option from the final prospectus relating to the Initial Public Offering to purchase up to 3,000,000 additional Units to cover over-allotments,
if any, at $10.00 per Unit, less the underwriting discounts and commissions. On January 20, 2021, the underwriter fully exercised its
over-allotment option.
The underwriters were entitled to an underwriting
discount of $0.20 per unit, or $4.6 million in the aggregate, paid upon the closing of the Initial Public Offering. In addition, $0.35
per unit, or approximately $8.1 million in the aggregate will be payable to the underwriters for deferred underwriting commissions. The
deferred underwriting commissions will become payable to the underwriters from the amounts held in the Trust Account solely in the event
that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
Risks and Uncertainties
Management continues to evaluate the impact of
the COVID-19 pandemic on the industry 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 and/or search for a target company, the specific impact is not readily
determinable as of the date of these unaudited condensed financial statements. The unaudited condensed financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Note 6-Warrants
As of September 30, 2021, the Company had 11,500,000
Public Warrants and the 6,600,000 Private Placement Warrants outstanding. No warrants were outstanding as of December 31, 2020.
Public Warrants may only be exercised for a whole
number of shares. The Public Warrants will become exercisable on the later of (a) 30 days after the completion of a Business Combination
or (b) 12 months from the closing of the Initial Public Offering; provided in each case that the Company has an effective registration
statement under the Securities Act covering the Class A ordinary shares issuable upon exercise of the Public Warrants and a current prospectus
relating to them is available (or the Company permits holders to exercise their Public Warrants on a cashless basis and such cashless
exercise is exempt from registration under the Securities Act). The Company agreed that as soon as practicable, but in no event later
than twenty (20) business days after the closing of the initial Business Combination, the Company will use its commercially reasonable
efforts to file with the SEC a registration statement covering the Class A ordinary shares issuable upon exercise of the warrants, and
the Company will use its commercially reasonable efforts to cause the same to become effective within 60 business days after the closing
of the initial Business Combination, and to maintain the effectiveness of such registration statement and a current prospectus relating
to those Class A ordinary shares until the warrants expire or are redeemed, as specified in the warrant agreement provided that if the
Class A ordinary shares are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy
the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require
holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of
the Securities Act and, in the event the Company so elects, it will not be required to file or maintain in effect a registration statement.
If a registration statement covering the Class A ordinary shares issuable upon exercise of the warrants is not effective by the 60th
day after the closing of the initial Business Combination, warrant holders may, until such time as there is an effective registration
statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on
a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption, but the Company will use
its commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not
available.
The warrants have an exercise price of $11.50
per whole share, and will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
In addition, if (x) the Company issues additional
Class A ordinary shares or equity-linked securities for capital raising purposes in connection with the closing of the initial Business
Combination (excluding any forward purchase securities) at an issue price or effective issue price of less than $9.20 per ordinary share
(with such issue price or effective issue price to be determined in good faith by the board of directors and, in the case of any such
issuance to the Sponsor or its affiliates, without taking into account any Founder Shares held by the Sponsor or such 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 Class A ordinary
shares 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, the $18.00 per share redemption
trigger price described under “Redemption of warrants when the price per Class A ordinary share equals or exceeds $18.00”
and “Redemption of warrants when the price per Class A ordinary share equals or exceeds $10.00” will be adjusted (to the nearest
cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price, and the $10.00 per share redemption trigger price
described under “Redemption of warrants when the price per Class A ordinary share equals or exceeds $10.00” will be adjusted
(to the nearest cent) to be equal to the higher of the Market Value and the Newly Issued Price.
The Private Placement Warrants and the Forward
Purchase Warrants will be identical to the Public Warrants, except that the Private Placement Warrants and the Class A ordinary shares
issuable upon the exercise of the Private Placement Warrants will not be transferable, assignable or salable until 30 days after the completion
of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants will be exercisable on
a cashless basis and be non-redeemable, except as described above, so long as they are held by the initial purchasers or their permitted
transferees. If the Private Placement Warrants are held by someone other than the initial purchasers, GEPT or their permitted transferees,
the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
Redemption of warrants when the price per Class
A ordinary share equals or exceeds $18.00.
Once the warrants become exercisable, the Company
may redeem the outstanding warrants (except with respect to the Private Placement Warrants):
|
●
|
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; and
|
|
●
|
if, and only if, the last reported
sale price (the “closing price”) of the Class A ordinary shares equals or exceeds $18.00 per Public Share (as adjusted for
share splits, share capitalizations, reorganizations, recapitalizations and the like) 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 a registration statement under the Securities Act covering the Class A ordinary shares issuable upon exercise of the warrants
is effective and a current prospectus relating to those Class A ordinary shares is available throughout the 30-day redemption period.
If and when the warrants become redeemable by the Company, it may exercise its redemption right even if it is unable to register or qualify
the underlying securities for sale under all applicable state securities laws.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Redemption of warrants when the price per Class
A ordinary share equals or exceeds $10.00.
Commencing 90 days after the warrants become exercisable,
the Company may redeem the outstanding warrants:
|
●
|
in whole and not in part;
|
|
●
|
at a price of $0.10 per warrant;
|
|
●
|
upon a minimum of 30 days’
prior written notice of redemption;
|
|
●
|
if, and only if, the closing price of Class A ordinary shares equals or exceeds $10.00 per Public Share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within the 30-trading day period ending three trading days before the Company sends the notice of redemption to the warrant holders; and
|
|
|
|
|
●
|
if the closing price of the Class A ordinary shares 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 is less than $18.00 per Public Share (as adjusted), the Private Placement Warrants must also be concurrently called for redemption on the same terms as the outstanding Public Warrants, as described above;
|
provided that holders will be able to
exercise their warrants on a cashless basis prior to redemption and receive that number of shares determined by reference to an agreed
table based on the redemption date and the “fair market value” of the Class A ordinary shares.
The “fair market value” of the Class
A ordinary shares for the above purpose shall mean the volume weighted average price of Class A ordinary shares during the 10 trading
days immediately following the date on which the notice of redemption is sent to the holders of warrants. In no event will the warrants
be exercisable in connection with this redemption feature for more than 0.365 Class A ordinary shares per warrant (subject to adjustment).
If the Company has not completed the initial 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.
Note 7-Class A Ordinary Shares Subject to Possible
Redemption
The Company’s Class A ordinary shares feature
certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of future events.
The Company is authorized to issue 300,000,000 Class A ordinary shares with a par value of $0.0001 per share. Holders of the Company’s
Class A ordinary shares are entitled to one vote for each share. As of September 30, 2021, there were 23,000,000 Class A ordinary shares
issued and subject to possible redemption. As of December 31, 2020, there are no Class A ordinary shares issued or outstanding.
The Class A ordinary shares subject to possible
redemption reflected on the condensed balance sheet is reconciled on the following table:
Gross proceeds received from Initial Public Offering
|
|
$
|
230,000,000
|
|
Less:
|
|
|
|
|
Fair value of Public Warrants at issuance
|
|
|
(12,420,000
|
)
|
Offering costs allocated to Class A ordinary shares
|
|
|
(12,572,940
|
)
|
Plus:
|
|
|
|
|
Accretion on Class A ordinary shares to redemption value
|
|
|
24,992,940
|
|
Class A ordinary shares subject to possible redemption
|
|
$
|
230,000,000
|
|
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 8-Shareholders’ Deficit
Preference Shares - The Company
is authorized to issue 1,000,000 preference shares 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 September 30, 2021, and December 31, 2020, there were no preference
shares issued or outstanding.
Class A Ordinary Shares - The Company
is authorized to issue 300,000,000 Class A ordinary shares with a par value of $0.0001 per share. As of September 30, 2021, there were
23,000,000 Class A ordinary shares issued and outstanding, and all of which were subject to possible redemption and included as temporary
equity. As of December 31, 2020, there were no Class A ordinary shares issued or outstanding. See Note 7.
Class B Ordinary Shares - The Company
is authorized to issue 30,000,000 Class B ordinary shares with a par value of $0.0001 per share. On October 1, 2020, the Company issued
5,750,000 Class B ordinary shares to the Sponsor. In December 2020, the Company effected a share capitalization with respect to the Class
B ordinary shares resulting in an aggregate of 7,000,000 Class B ordinary shares outstanding. At December 31, 2020, of the 7,000,000 Class
B ordinary shares outstanding, up to 750,000 Class B ordinary shares were subject to forfeiture to the extent that the underwriters’
over-allotment option was not exercised in full or in part, and up to 1,250,000 Class B ordinary shares are subject to forfeiture depending
on the number of units purchased by GEPT under the Forward Purchase Agreement if such number is below 5,000,000, so that the initial shareholders
will collectively own approximately 20% of the Company’s issued and outstanding ordinary shares (less the total number of Class
B ordinary shares forfeited (if any) by the Sponsor to the extent less than 5,000,000 units are purchased under the Forward Purchase Agreement)
plus the number of Class A ordinary shares that may be sold pursuant to the Forward Purchase Agreement (See Note 5). On January 20, 2021,
the underwriter fully exercised its over-allotment option; thus, 750,000 Class B ordinary shares were no longer subject to forfeiture.
As of September 30, 2021, and December 31, 2020, there were 7,000,000 shares of Class B ordinary shares issued and outstanding.
Ordinary shareholders of record are entitled to
one vote for each share held on all matters to be voted on by shareholders. Except as described below, holders of Class A ordinary shares
and holders of Class B ordinary shares will vote together as a single class on all matters submitted to a vote of the Company’s
shareholders except as required by law.
The Class B ordinary shares will automatically
convert into Class A ordinary shares at the time of the initial Business Combination or earlier at the option of the holders thereof at
a ratio such that the number of Class A ordinary shares issuable upon conversion of all Founder Shares will equal, in the aggregate, on
an as-converted basis, 20% of the sum of (i) the total number of ordinary shares issued and outstanding upon completion of the Initial
Public Offering (less the total number of Class B ordinary shares forfeited (if any) by the Sponsor to the extent less than 5,000,000
units are purchased under the Forward Purchase Agreement) and the number of Class A ordinary shares that may be sold pursuant to the Forward
Purchase Agreement, plus (ii) the total number of Class A ordinary shares issued or deemed issued or issuable upon conversion or exercise
of any equity-linked securities or rights issued or deemed issued, by the Company in connection with or in relation to the consummation
of the initial Business Combination, excluding any Class A ordinary shares or equity-linked securities exercisable for or convertible
into Class A ordinary shares issued, deemed issued, or to be issued, to any seller in the initial Business Combination, any Private Placement
Warrants issued to the Sponsor, its affiliates or any member of the management team upon conversion of Working Capital Loans and any Forward
Purchase Warrants. In no event will the Class B ordinary shares convert into Class A ordinary shares at a rate of less than one-to-one.
Note 9-Fair Value Measurements
The following table presents information about
the Company’s assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2021 and indicates
the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value. There were no assets or liabilities
that are measured at fair value on a recurring basis as of December 31, 2020.
|
|
Fair Value Measured as of September 30, 2021
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held in Trust Account - Money Market Funds
|
|
$
|
230,015,944
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
230,015,944
|
|
Derivative assets - forward purchase agreement
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
34,700
|
|
|
$
|
34,700
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities - public warrants
|
|
$
|
7,820,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,820,000
|
|
Derivative liabilities - private warrants
|
|
$
|
-
|
|
|
$
|
4,488,000
|
|
|
$
|
-
|
|
|
$
|
4,488,000
|
|
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Transfers to/from Levels 1, 2, and 3 are recognized
at the beginning of the reporting period. The estimated fair value of the Public Warrants and the Private Warrants transferred from a
Level 3 measurement to a Level 1 and a Level 2 fair value measurement in March 2021, respectively, when the Public Warrants were separately
listed and traded.
Level 1 instruments include investments invested
in mutual funds that invest in U.S. government securities. The Company uses inputs such as actual trade data, benchmark yields, quoted
market prices from dealers or brokers, and other similar sources to determine the fair value of its investments.
The fair value of the warrants issued in connection
with the Initial Public Offering was initially measured using a binomial lattice model and subsequently been measured based on the market
price of such warrants at each measurement date. The fair value of warrants issued in connection with the Private Placement was initially
measured using Black-Scholes Option Pricing model and subsequently using the quoted price in active market when the Public Warrants were
separately listed and traded. The fair value of the units committed to be issued in connection with the forward purchase agreement has
been estimated using Black-Scholes Option Pricing model at each measurement date. For the three and nine months ended September 30, 2021,
the Company recognized a gain on change in the fair value of derivative instruments of approximately $3.3 million and $8.1 million, respectively,
presented on the accompanying unaudited condensed statements of operations.
The change in the fair value of the Level 3 derivative
(assets) liabilities for the three and nine months ended September 30, 2021, is summarized as follows:
Derivative liabilities at January 1, 2021
|
|
$
|
-
|
|
Issuance of Public and Private Warrants
|
|
|
19,548,000
|
|
Initial fair value of forward purchase agreement
|
|
|
824,500
|
|
Public Warrants transfer to Level 1
|
|
|
(12,420,000
|
)
|
Private Warrants transfer to Level 2
|
|
|
(7,128,000
|
)
|
Change in fair value of derivative liabilities
|
|
|
(915,800
|
)
|
Derivative assets at March 31, 2021
|
|
|
(91,300
|
)
|
Change in fair value of derivative assets
|
|
|
256,700
|
|
Derivative liabilities at June 30, 2021
|
|
|
165,400
|
|
Change in fair value of derivative liabilities
|
|
|
(200,100
|
)
|
Derivative assets at September 30, 2021
|
|
$
|
(34,700
|
)
|
The estimated fair value of the Private Placement
Warrants, and the Public Warrants prior to being separately listed and traded, is determined using Level 3 inputs on January 20, 2021.
Inherent in a binomial lattice model and Black-Scholes Option Pricing model are assumptions related to expected stock-price volatility,
expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its warrants based on implied volatility
from the Company’s traded warrants and from historical volatility of select peer company’s ordinary shares 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 remaining at zero.
The Company estimates the probability of completing a Business Combination based on recent historical failure rates for special-purpose
acquisition companies (“SPACs”) and the current market environment.
The following table provides quantitative information
regarding Level 3 fair value measurements inputs of the derivative warrant liabilities at the measurement date:
|
|
As of
January 20,
2021
|
|
Exercise price
|
|
$
|
11.50
|
|
Ordinary share price
|
|
$
|
9.93
|
|
Term (in years)
|
|
|
5.50
|
|
Volatility
|
|
|
20.00
|
%
|
Risk-free interest rate
|
|
|
0.50
|
%
|
Dividend yield
|
|
|
-
|
|
Probability of completing a Business Combination
|
|
|
80.00
|
%
|
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The estimated fair value of the forward purchase
agreement is determined using Level 3 inputs. Inherent in a Black-Scholes Option Pricing model are assumptions related to expected stock-price
volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of the forward purchase unit
based on implied volatility from the Company’s traded units and from historical volatility of select peer company’s ordinary
shares that matches the expected remaining life of the units. 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 unit. The expected life of the forward purchase unit
is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company
anticipates remaining at zero.
The following table provides quantitative information
regarding Level 3 fair vale measurements inputs of the forward purchase agreement at each measurement date:
|
|
As of
September 30,
2021
|
|
|
As of
January 20,
2021
|
|
Exercise price
|
|
$
|
10.00
|
|
|
$
|
10.00
|
|
Unit price
|
|
$
|
9.99
|
|
|
$
|
9.97
|
|
Term (in years)
|
|
|
0.80
|
|
|
|
1.00
|
|
Volatility
|
|
|
14.20
|
%
|
|
|
20.00
|
%
|
Risk-free interest rate
|
|
|
0.10
|
%
|
|
|
0.10
|
%
|
Dividend yield
|
|
|
-
|
|
|
|
-
|
|
Probability of completing a Business Combination
|
|
|
80.00
|
%
|
|
|
80.00
|
%
|
Note 10-Subsequent Events
Management has evaluated subsequent events
to determine if events or transactions occurring through the date the unaudited condensed financial statements were issued. Based
upon this review, the Company did not identify any subsequent event that would have required adjustment or disclosure in the
unaudited condensed financial statements.