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Item 2. |
Management’s Discussion and
Analysis of Financial Condition and Results of Operations
|
References in this report (the “Amended Quarterly Report”) to “we,”
“us” or the “Company” refer to Arrowroot Acquisition Corp.
References to our “management” or our “management team” refer to
our officers and directors, and references to the “Sponsor” refer
to Arrowroot Acquisition LLC. The following discussion and analysis
of the Company’s financial condition and results of operations
should be read in conjunction with the financial statements and the
notes thereto contained elsewhere in this Amended Quarterly Report.
Certain information contained in the discussion and analysis set
forth below includes forward-looking statements that involve risks
and uncertainties.
Special Note
Regarding Forward-Looking Statements
This Amended Quarterly Report includes “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Exchange Act that are not historical facts and
involve risks and uncertainties that could cause actual results to
differ materially from those expected and projected. All
statements, other than statements of historical fact included in
this Amended Quarterly Report including, without limitation,
statements in this “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” regarding the
Company’s financial position, business strategy and the plans and
objectives of management for future operations, are forward-looking
statements. Words such as “expect,” “believe,” “anticipate,”
“intend,” “estimate,” “seek” and variations and similar words and
expressions are intended to identify such forward-looking
statements. Such forward-looking statements relate to future events
or future performance, but reflect management’s current beliefs,
based on information currently available. A number of factors could
cause actual events, performance or results to differ materially
from the events, performance and results discussed in the
forward-looking statements. For information identifying important
factors that could cause actual results to differ materially from
those anticipated in the forward-looking statements, please refer
to the Risk Factors section of the Company’s final prospectus for
its Initial Public Offering filed with the U.S. Securities and
Exchange Commission (the “SEC”). The Company’s securities filings
can be accessed on the EDGAR section of the SEC’s website at
www.sec.gov. Except as expressly required by applicable securities
law, the Company disclaims any intention or obligation to update or
revise any forward-looking statements whether as a result of new
information, future events or otherwise.
This Management’s Discussion and Analysis of Financial Condition
and Results of Operations has been amended and restated to give
effect to the restatement of our financial statements as of March
31, 2021 and June 30, 2021. Management identified errors
made in its historical financial statements where, at the closing
of our Initial Public Offering, we improperly valued our Class A
common stock subject to possible redemption. We previously
determined the Class A common stock subject to possible redemption
to be equal to the redemption value of $10.00 per share of Class A
common stock while also taking into consideration a redemption
cannot result in net tangible assets being less than $5,000,001.
Management determined that the Class A common stock issued during
the Initial Public Offering can be redeemed or become redeemable
subject to the occurrence of future events considered outside of
the Company’s control. Therefore, management concluded that the
redemption value should include all Class A common stock subject to
possible redemption, resulting in the Class A common stock subject
to possible redemption being equal to their redemption value. As a
result, management has noted a reclassification error related to
temporary equity and permanent equity. This resulted in a
restatement to the initial carrying value of the Class A common
stock subject to possible redemption with the offset recorded to
additional paid-in capital (to the extent available), accumulated
deficit and Class A common stock.
Overview
We are a blank check company
formed under the laws of the State of Delaware on November 5, 2020
for the purpose of effecting a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or similar
business combination with one or more businesses. We intend to
effectuate our Business Combination using cash from the proceeds of
the Initial Public Offering and the sale of the Private Placement
Warrants, our capital stock, debt or a combination of cash, stock
and debt.
We expect to
continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete
a Business Combination will be successful.
Results of
Operations
We have neither engaged in any
operations nor generated any revenues to date. Our only activities
through September 30, 2021 were organizational activities, those
necessary to prepare for the Initial Public Offering, described
below, and identifying a target company for a Business Combination.
We do not expect to generate any operating revenues until after the
completion of our Business Combination. We generate non-operating
income in the form of interest income on marketable securities held
in the Trust Account. We incur expenses as a result of being a
public company (for legal, financial reporting, accounting and
auditing compliance), as well as for due diligence expenses.
For the three months ended
September 30, 2021, we had net income of approximately $5.0
million, which consists of income of approximately $6.6 million
derived from the changes in fair value of the warrant liabilities
and interest income earned on investments held in the Trust Account
of approximately $7,000, offset by operation costs of approximately
$1.6 million.
For the nine months ended
September 30, 2021, we had net income of approximately $4.8
million, which consists of income of approximately $7.8 million
derived from the changes in fair value of the warrant liabilities
and interest income earned on investments held in the Trust Account
of approximately $16,000, offset by operation costs of
approximately $3.0 million.
Liquidity and
Capital Resources
On March 4, 2021, we consummated
the Initial Public Offering of 28,750,000 Units which includes the
full exercise by the underwriter of its over-allotment option in
the amount of 3,750,000 Units, at $10.00 per Unit, generating gross
proceeds of $287,500,000. Simultaneously with the closing of the
Initial Public Offering, we consummated the sale of 8,250,000
Private Placement Warrants at a price of $1.00 per Private
Placement Warrant in a private placement to Arrowroot Acquisition
LLC, generating gross proceeds of $8,250,000.
Following the Initial Public Offering, the full exercise of
the over-allotment option, and the sale of the Private Units, a
total of $287,500,000 was placed in the Trust Account. We incurred
$16,392,714 in transaction costs related to the Initial Public
Offering, consisting of $5,750,000 in cash underwriting fees,
$10,062,500 of deferred underwriting fees and $580,214 of other
offering costs.
For the nine months ended
September 30, 2021, cash used in operating activities was
$1,569,767. Net income of $4,778,265 was affected by noncash income
related to the change in fair value of the warrant liabilities of
$7,775,000 and transaction costs associated with the warrants of
$760,022 and interest income of $16,386. Net changes in operating
assets and liabilities provided $683,332 of cash for operating
activities.
As of September 30, 2021, we had
marketable securities held in the Trust Account of $287,516,386
(including $16,386 of interest) consisting of money market funds
which invest primarily in U.S. Treasury Bills with a maturity of
185 days or less. Interest income on the balance in the Trust
Account may be used by us to pay taxes. Through September 30, 2021,
we have not withdrawn any interest earned from the Trust
Account.
We intend to use substantially
all of the funds held in the Trust Account, including any amounts
representing interest earned on the Trust Account (less income
taxes payable), to complete our Business Combination. To the extent
that our capital stock or debt is used, in whole or in part, as
consideration to complete our Business Combination, the remaining
proceeds held in the Trust Account will be used as working capital
to finance the operations of the target business or businesses,
make other acquisitions and pursue our growth strategies.
As of September 30, 2021, we had
cash of $379,336. We intend to use the funds held outside the Trust
Account primarily to identify and evaluate target businesses,
perform business due diligence on prospective target businesses,
travel to and from the offices, plants or similar locations of
prospective target businesses or their representatives or owners,
review corporate documents and material agreements of prospective
target businesses, and structure, negotiate and complete a Business
Combination.
In order to fund working capital
deficiencies or finance transaction costs in connection with a
Business Combination, the Sponsor, or certain of our officers and
directors or their affiliates may, but are not obligated to, loan
us funds as may be required. If we complete a Business Combination,
we would repay such loaned amounts. In the event that a Business
Combination does not close, we may use a portion of the working
capital held outside the Trust Account to repay such loaned amounts
but no proceeds from our Trust Account would be used for such
repayment. Up to $1,500,000 of such 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.
We do not believe we will need to
raise additional funds in order to meet the expenditures required
for operating our business. However, if our estimate of the costs
of identifying a target business, undertaking in-depth due
diligence and negotiating a Business Combination are less than the
actual amount necessary to do so, we may have insufficient funds
available to operate our business prior to our Business
Combination. Moreover, we may need to obtain additional financing
either to complete our Business Combination or because we become
obligated to redeem a significant number of our Public Shares upon
consummation of our Business Combination, in which case we may
issue additional securities or incur debt in connection with such
Business Combination.
Off-Balance
Sheet Arrangements
We have no obligations, assets or
liabilities, which would be considered off-balance sheet
arrangements as of September 30, 2021. We do not participate in
transactions that create relationships with unconsolidated entities
or financial partnerships, often referred to as variable interest
entities, which would have been established for the purpose of
facilitating off-balance sheet arrangements. We have not entered
into any off-balance sheet financing arrangements, established any
special purpose entities, guaranteed any debt or commitments of
other entities, or purchased any non-financial assets.
Contractual
obligations
We do not have any long-term
debt, capital lease obligations, operating lease obligations or
long-term liabilities, other than an agreement to pay the Sponsor a
monthly fee of $20,000 for office space, utilities and secretarial
and administrative support services. We began incurring these fees
on March 4, 2021 and will continue to incur these fees monthly
until the earlier of the completion of the Business Combination and
our liquidation.
The underwriters are entitled to
a deferred fee of $0.35 per Unit, or $10,062,500 in the aggregate.
The deferred fee 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.
Critical
Accounting Policies
The preparation of condensed
financial statements and related disclosures in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the financial
statements, and income and expenses during the periods reported.
Actual results could materially differ from those estimates. We
have identified the following critical accounting policies:
Warrant
Liabilities
We account for the Warrants in
accordance with the guidance contained in ASC 815-40 under which
the Warrants do not meet the criteria for equity treatment and must
be recorded as liabilities. Accordingly, we classify the Warrants
as liabilities at their fair value and adjust the Warrants to fair
value at each reporting period. This liability is subject to
re-measurement at each balance sheet date until exercised, and any
change in fair value is recognized in our statement of operations.
The Private Warrants and the Public Warrants for periods where no
observable traded price was available are valued using a Monte
Carlo simulation. For periods subsequent to the detachment of the
Public Warrants from the Units, the Public Warrant quoted market
price was used as the fair value as of each relevant date.
Class A
Common Stock Subject to Possible Redemption
We account for our Class A common
stock subject to possible redemption in accordance with the
guidance in Accounting Standards Codification (“ASC”) Topic 480
“Distinguishing Liabilities from Equity.” Shares of Class A common
stock subject to mandatory redemption are classified as a liability
instrument and are measured at fair value. Conditionally redeemable
common stock (including common stock that feature redemption rights
that is either within the control of the holder or subject to
redemption upon the occurrence of uncertain events not solely
within our control) is classified as temporary equity. At all other
times, common stock is classified as stockholders’ equity. Our
Class A common stock features certain redemption rights that are
considered to be outside of our control and subject to occurrence
of uncertain future events. Accordingly, shares of Class A common
stock subject to possible redemption are presented as temporary
equity, outside of the stockholders’ equity section of our balance
sheet.
Net Income
(Loss) Per Common Share
Net income (loss) per common
share is computed by dividing net income (loss) by the weighted
average number of common shares outstanding during the period.
Accretion associated with the redeemable shares of Class A common
stock is excluded from income (loss) per common share as the
redemption value approximates fair value.
Restatement of Previously Issued Financial Statements
During the preparation of the Company’s financial statements as of
September 30, 2021, the Company concluded it should restate
its financial statements to classify all Public Shares in temporary
equity. In accordance with ASC 480, paragraph 10-S99, redemption
provisions not solely within the control of the Company require
common stock subject to possible redemption to be classified
outside of permanent equity. The Company previously determined the
Class A common stock subject to possible redemption to be
equal to the redemption value of $10.00 per Class A common
stock while also taking into consideration a redemption cannot
result in net tangible assets being less than $5,000,001 and did
not consider redeemable shares 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 tangible assets. Accordingly, effective
with this filing, the Company presents all redeemable Class A
common stock as temporary equity and recognizes accretion from the
initial book value to redemption value at the time of its Initial
Public Offering and in accordance with ASC 480 and the SEC and
staff’s guidance on redeemable equity instruments. In
connection with the change in presentation for the Class A common
stock subject to possible redemption, the Company also restated its
income (loss) per common share calculation to allocate net income
(loss) evenly to Class A and Class B common stock. This
presentation contemplates a Business Combination as the most likely
outcome, in which case, both classes of common stock share pro rata
in the income (loss) of the Company.
Recent
Accounting Standards
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. ASU 2020-06 removes certain settlement
conditions that are required for equity-linked contracts to qualify
for the derivative scope exception and it also simplifies the
diluted earnings per share calculation in certain areas. ASU
2020-06 is effective for fiscal years beginning after December 15,
2023, including interim periods within those fiscal years, with
early adoption permitted. Management is currently evaluating the
new guidance, but does not expect the adoption of this guidance to
have a material impact on our financial statements.
Management does not believe that
any other recently issued, but not yet effective, accounting
standards, if currently adopted, would have a material effect on
our condensed financial statements.
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Item 3. |
Quantitative and Qualitative
Disclosures About Market Risk
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Not required for smaller
reporting companies.
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Item 4. |
Controls and Procedures
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Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required to
be disclosed in our reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed in our
reports filed or submitted under the Exchange Act is accumulated
and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure, except as disclosed below.
Evaluation of
Disclosure Controls and Procedures
Under the supervision and with the participation of our management,
including our principal executive officer and principal financial
and accounting officer, we conducted an evaluation of the
effectiveness of our disclosure controls and procedures as of the
end of the fiscal quarter ended September 30, 2021, as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.
Based on this evaluation and in light of the material weakness in
internal controls described below, our principal executive officer
and principal financial and accounting officer have concluded that
during the period covered by this report, our disclosure controls
and procedures were not effective, due solely to the material
weakness in our internal control over financial reporting related
to the Company’s accounting for complex financial instruments. Our
internal control over financial reporting did not result in the
proper accounting of the Company’s accounting for complex financial
instruments which, due to its impact on our financial statements,
we determined to be a material weakness. As a result, we performed
additional analysis as deemed necessary to ensure that our
financial statements were prepared in accordance with U.S.
generally accepted accounting principles. Accordingly, management
believes that the financial statements included in this Amended
Quarterly Report on Form 10-Q present fairly, in all material
respects, our financial position, result of operations and cash
flows of the periods presented.
Changes in
Internal Control over Financial Reporting
During the fiscal quarter ended September 30, 2021, there has been
no change in our internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting. Management has
identified a material weakness in internal controls related to the
Company’s accounting for complex financial instruments, as
described above. While we have processes to identify and
appropriately apply applicable accounting requirements, we plan to
enhance our system of evaluating and implementing the accounting
standards that apply to our financial statements, including through
enhanced analyses by our personnel and third-party professionals
with whom we consult regarding complex accounting applications. The
elements of our remediation plan can only be accomplished over
time, and we can offer no assurance that these initiatives will
ultimately have the intended effects.
PART II - OTHER
INFORMATION
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Item 1. |
Legal Proceedings
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None
Factors that could cause our actual results to differ materially
from those in this report include the risk factors described in our
final prospectus for its Initial Public Offering filed with the
SEC. As of the date of this Amended Quarterly Report, there have
been no material changes to the risk factors disclosed in our final
prospectus for its Initial Public Offering filed with the SEC,
except for the following.
We have identified a material weakness in our internal control over
financial reporting as of September 30, 2021. If we are unable to
develop and maintain an effective system of internal control over
financial reporting, we may not be able to accurately report our
financial results in a timely manner, which may adversely affect
investor confidence in us and materially and adversely affect our
business and operating results.
In connection with the preparation of our financial statements as
of September 30, 2021, we concluded we were appropriate to restate
the presentation of shares of Class A common stock subject to
possible redemption to reflect its public shares within temporary
equity after determining the public shares redemption feature is
not solely within our control. As part of such process, we
identified a material weakness in its internal controls over
financial reporting related to the accounting for our complex
financial instruments (including redeemable equity instruments as
described above). In light of the material weakness identified and
the resulting restatement, although we have processes to identify
and appropriately apply applicable accounting requirements, we plan
to enhance our processes to identify and appropriately apply
applicable accounting requirements to better evaluate and
understand the nuances of the complex accounting standards that
apply to our financial statements. Our plans at this time include
providing enhanced access to accounting literature, research
materials and documents and increased communication among our
personnel and third-party professionals with whom we consult
regarding complex accounting applications. The elements of our
remediation plan can only be accomplished over time, and we can
offer no assurance that these initiatives will ultimately have the
intended effects.
A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting such
that there is a reasonable possibility that a material misstatement
of our annual or interim financial statements will not be prevented
or detected and corrected on a timely basis.
Effective internal controls are necessary for us to provide
reliable financial reports and prevent fraud. We continue to
evaluate steps to remediate the material weakness. These
remediation measures may be time consuming and costly and there is
no assurance that these initiatives will ultimately have the
intended effects.
A material weakness could limit our ability to prevent or detect a
misstatement of our accounts or disclosures that could result in a
material misstatement of our annual or interim financial
statements. In such a case, we may be unable to maintain compliance
with securities law requirements regarding timely filing of
periodic reports in addition to applicable stock exchange listing
requirements, investors may lose confidence in our financial
reporting, our securities price may decline and we may face
litigation as a result of the foregoing. We cannot assure you that
any measures we have taken to date, or any measures we may take in
the future, will be sufficient to avoid potential future material
weaknesses.
As a result of this material weakness, our management concluded
that our internal control over financial reporting was not
effective as of September 30, 2021.
We may face litigation and other risks as a result of the material
weakness in our internal control over financial reporting.
As a result of such material weakness, the restatement, the change
in accounting for the temporary equity and the resulting material
weakness, we face potential for litigation or other disputes which
may include, among others, claims invoking the federal and state
securities laws, contractual claims or other claims arising from
the restatement and material weaknesses in our internal control
over financial reporting and the preparation of our financial
statements. As of the date of this Amended Quarterly Report, we
have no knowledge of any such litigation or dispute. However, we
can provide no assurance that such litigation or dispute will not
arise in the future. Any such litigation or dispute, whether
successful or not, could have a material adverse effect on our
business, results of operations and financial condition or our
ability to complete an initial business combination.
|
Item 2. |
Unregistered Sales of Equity
Securities and Use of Proceeds.
|
On March 4, 2021, we consummated
the Initial Public Offering of 28,750,000 Units. The Units were
sold at an offering price of $10.00 per unit, generating total
gross proceeds of $287,500,000. Cantor Fitzgerald & Co. acted
as sole book-running of the Initial Public Offering. The securities
in the offering were registered under the Securities Act on our
registration statement on Form S-1 (No. 333-252997). The Securities
and Exchange Commission declared the registration statements
effective on March 1, 2021.
Simultaneously with the closing of the Initial Public
Offering, we consummated the sale of 8,250,000 Warrants at a price
of $1.00 per Private Placement Warrant in a private placement to
Arrowroot Acquisition LLC, the Sponsor, generating gross proceeds
of $8,250,000. Each whole Private Placement Warrant is exercisable
to purchase one share of Class A common stock at an exercise price
of $11.50 per share. The issuance of the Private Placement Warrants
was made pursuant to the exemption from registration contained in
Section 4(a)(2) of the Securities Act.
The Private Warrants are identical to the Public Warrants included
the Units sold in the Initial Public Offering, except that the
Private Placement Warrants and the Class A common stock 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 in Note 9 to our Condensed Financial Statements included
in this Amended Quarterly Report on 10-Q, 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 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.
Of the gross proceeds received
from the Initial Public Offering, the exercise of the
over-allotment option and the Private Placement Warrants, an
aggregate of $287,500,000 was placed in the Trust Account.
We paid a total of $5,750,000 in
cash underwriting fees and $580,214 for other costs and expenses
related to the Initial Public Offering and incurred $10,062,500 in
deferred underwriting fees.
For a description of the use of
the proceeds generated in our Initial Public Offering, see Part I,
Item 2 of this Form 10-Q.
|
Item 3. |
Defaults Upon Senior
Securities
|
None
|
Item 4. |
Mine Safety Disclosures
|
None
|
Item 5. |
Other Information
|
On October 26, 2021, Gaurav
Dhillon informed the Company of his decision to resign from the
board of directors of the Company. Mr. Dhillon resignation was
effective as of October 29, 2021. Mr. Dhillon had served as a
member of the Company’s board of directors since March 2021. Mr.
Dhillon’s resignation was not the result of any disagreement with
the Company.
The following exhibits are filed as part of, or incorporated by
reference into, this Amended Quarterly Report on Form 10-Q.
|
No.
|
|
Description of Exhibit
|
|
|
|
Certification of Principal Executive Officer Pursuant to Securities
Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
|
|
|
|
Certification of Principal Financial Officer Pursuant to Securities
Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
|
|
|
|
Certification of Principal Executive Officer Pursuant to 18 U.S.C.
Section 1350, as adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
Certification of Principal Financial Officer Pursuant to 18 U.S.C.
Section 1350, as adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
101.INS*
|
|
XBRL
Instance Document
|
|
101.SCH*
|
|
XBRL
Taxonomy Extension Schema Document
|
|
101.CAL*
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
|
101.DEF*
|
|
XBRL
Taxonomy Extension Definition Linkbase Document
|
|
101.LAB*
|
|
XBRL
Taxonomy Extension Labels Linkbase Document
|
|
101.PRE*
|
|
XBRL
Taxonomy Extension Presentation Linkbase Document
|
In
accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
| |
ARROWROOT ACQUISITION CORP.
|
| |
|
|
|
Date:
January 19, 2022
|
By:
|
/s/ Matthew
Safaii
|
| |
Name:
|
Matthew
Safaii
|
| |
Title:
|
Chief
Executive Officer
|
| |
|
(Principal
Executive Officer)
|
| |
|
|
|
Date:
January 19, 2022
|
By:
|
/s/ Thomas
Olivier
|
| |
Name:
|
Thomas
Olivier
|
| |
Title:
|
Chief
Financial Officer
|
| |
|
(Principal
Financial and Accounting Officer)
|
21
