NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 2022
Note 1 — Description of Organization and Business Operations
LAVA Medtech Acquisition
Corp. (the “Company”) is a blank check company incorporated in Delaware on March 31, 2021. The Company was formed for the
purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination
with one or more businesses (the “Business Combination”).
The Company is not limited
to a particular industry or geographic region for purposes of consummating a Business Combination. The Company is an early stage and emerging
growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of September 30, 2022,
the Company had not commenced any operations. All activity through September 30, 2022 relates to the Company’s formation and Initial
Public Offering (“IPO”), which is described below, and, since the IPO, the search for a prospective initial Business Combination.
The Company will not generate any operating revenue until after the completion of its initial Business Combination, at the earliest. The
Company will generate non-operating income in the form of interest income earned on investments from the proceeds derived from the IPO.
The registration statement for the Company’s IPO was declared effective on October 26, 2021. On October 29, 2021, the Company consummated
the IPO of 11,500,000 units (“Units”), including 1,500,000 Units issued pursuant to the full exercise of the underwriters’
over-allotment option, with respect to the Class A common stock included in the Units being offered (the “Public Shares”)
at $10.00 per Unit generating gross proceeds of $115,000,000, which is discussed in Note 3. The Company has selected December 31 as its
fiscal year end.
Simultaneously with the closing
of the IPO, the Company consummated the closing of the sale of 1,500,000 additional Units upon receiving notice of the underwriter’s
election to fully exercise its over-allotment option, generating additional gross proceeds of $15,000,000.
Simultaneously with the closing
of the IPO, the Company consummated the sale of 7,500,000 private placement warrants at a price of $1.00 per Private Placement Warrant
in a private placement to the Company’s sponsor, LAVA Medtech Sponsor LP (the “Sponsor”), generating gross proceeds
of $7,500,000. Simultaneously with the exercise of the over-allotment, the Company consummated the private placement of an additional
675,000 Private Placement Warrants to the Sponsor, generating gross proceeds of $675,000. See Note 4 for details.
Offering costs for the IPO
amounted to $6,325,000, consisting of $2,300,000 of underwriting fees, $4,025,000 deferred underwriting fees payable (which are held in
the Trust Account (defined below)) and $455,330 of other costs. As described in Note 6, the $4,025,000 deferred underwriting fee payable
is contingent upon the consummation of a Business Combination by April 29, 2023, subject to the terms of the underwriting agreement.
Following the closing of
the IPO and exercise of the over-allotment, $117,875,000 ($10.25 per Unit) from the net proceeds of the sale of the Units in the IPO and
the Private Placement Warrants was placed in a trust account and will be invested in U.S. government securities, within the meaning set
forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity
of 180 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting
the conditions of paragraphs (d)(2), (d)(3) and (d)(4) of Rule 2a-7 of the Investment Company Act, as determined by the Company, until
the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the Trust Account, as described below.
The Company’s management
has broad discretion with respect to the specific application of the net proceeds of the IPO and the sale of the Private Placement Warrants,
although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There
is no assurance that the Company will be able to complete a Business Combination successfully. The Company must complete one or more initial
Business Combinations having an aggregate fair market value of at least 80% of the assets held in the Trust Account excluding the deferred
underwriting commissions and taxes payable on income earned on the Trust Account) at the time of the agreement to enter into the initial
Business Combination. However, the Company will only complete a Business Combination if the post-transaction company owns or acquires
50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for
it not to be required to register as an investment company under the Investment Company Act. There is no assurance that the Company will
be able to successfully effect a Business Combination.
The Company will provide
the holders of the outstanding Public Shares (the “Public Stockholders”) with the opportunity to redeem all or a portion of
their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve
the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of
a Business Combination or conduct a tender offer will be made by the Company. The Public Stockholders will be entitled to redeem their
Public Shares for a pro rata portion of the amount then in the Trust Account (initially anticipated to be $10.25 per Public Share, plus
any pro rata gain then in the Trust Account, net of taxes payable). There will be no redemption rights with respect to the Company’s
warrants.
All of the Public Shares
contain a redemption feature which allows for the redemption of such Public Shares in connection with the Company’s liquidation
if there is a stockholder vote or tender offer in connection with the Company’s Business Combination and in connection with certain
amendments to the Company’s amended and restated certificate of incorporation (the “Certificate of Incorporation”).
In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codifications (“ASC”) 480,
“Distinguishing Liabilities from Equity” (“ASC 480”) Subtopic 10-S99, redemption provisions not solely within
the control of a company require Class A common stock subject to redemption to be classified outside of permanent equity. Given that the
Public Shares will be issued with other freestanding instruments (i.e., public warrants), the initial carrying value of Class A common
stock classified as temporary equity will be the allocated proceeds determined in accordance with ASC 470-20 “Debt with Conversion
and other Options”. The Class A common stock are subject to ASC 480-10-S99. If it is probable that the equity instrument will become
redeemable, the Company has the option to either (i) accrete changes in the redemption value over the period from the date of issuance
(or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of the
instrument or (ii) recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument
to equal the redemption value at the end of each reporting period. The Company has elected to recognize the changes immediately. While
redemptions cannot cause the Company’s net tangible assets to fall below $5,000,001, the Public Shares are redeemable and are classified
as such on the balance sheet until such date that a redemption event takes place.
Redemptions of the Company’s
Public Shares may be subject to the satisfaction of conditions, including minimum cash conditions, pursuant to an agreement relating to
the Company’s Business Combination. If the Company seeks stockholder approval of the Business Combination, the Company will proceed
with a Business Combination if a majority of the shares voted are voted in favor of the Business Combination, or such other vote as required
by law or stock exchange rule. If a stockholder vote is not required by applicable law or stock exchange listing requirements and the
Company does not decide to hold a stockholder vote for business or other reasons, the Company will, pursuant to its Certificate of Incorporation,
conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”) and file
tender offer documents with the SEC prior to completing a Business Combination. If, however, stockholder approval of the transaction is
required by applicable law or stock exchange listing requirements, or the Company decides to obtain stockholder approval for business
or other reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not
pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with a Business Combination, the Sponsor has
agreed to vote its Founder Shares (as defined in Note 5) and any Public Shares purchased during or after the IPO in favor of approving
a Business Combination. Additionally, each Public Stockholder may elect to redeem their Public Shares without voting, and if they do vote,
irrespective of whether they vote for or against the proposed transaction.
Notwithstanding the foregoing,
the Certificate of Incorporation provides that a Public Stockholder, together with any affiliate of such stockholder or any other person
with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate
of 15% or more of the Class A common stock sold in the Initial Public Offering, without the Company’s prior consent.
The Company’s Sponsor,
officers and directors (the “Initial Stockholders”) have agreed not to propose an amendment to the Certificate of Incorporation
that would affect the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if the Company does not
complete a Business Combination, unless the Company provides the Public Stockholders with the opportunity to redeem their Class A common
stock in conjunction with any such amendment.
If the Company is unable
to complete a Business Combination by April 29, 2023, 18 months from the closing of the IPO (“Combination Period”), the Company
will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business
days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the
Trust Account including interest income on the funds held in the Trust Account and not previously released to the Company to pay the Company’s
franchise and income taxes (less than and up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding
Public Shares, which redemption will completely extinguish Public Stockholders’ rights as stockholders (including the right to receive
further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption,
subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate,
subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of
other applicable law.
The Initial Stockholders
have agreed to waive their liquidation rights with respect to the Founder Shares if the Company fails to complete a Business Combination
within the Combination Period. However, if the Initial Stockholders should acquire Public Shares in or after the Initial Public Offering,
they will be entitled to liquidating distributions from the Trust Account with respect to such Public Shares if the Company fails to complete
a Business Combination within the Combination Period. The underwriters have agreed to waive their rights to its deferred underwriting
commission (see Note 6) held in the Trust Account in the event the Company does not complete a Business Combination within the Combination
Period and, in such event, such amounts will be included with the other funds held in the Trust Account that will be available to fund
the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the residual assets
remaining available for distribution (including Trust Account assets) will be only $10.25 per shares held in the Trust Account. In order
to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by
a vendor for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed
entering into a transaction agreement, reduce the amount of funds in the Trust Account. This liability will not apply with respect to
any claims by a third party who executed a waiver of any right, title, interest or claim of any kind in or to any monies held in the Trust
Account or to any claims under the Company’s indemnity of the underwriters of the Initial Public Offering against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Moreover, in the event that an
executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability
for such third-party claims. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account
due to claims of creditors by endeavoring to have all vendors, service providers (except the Company’s independent registered public
accounting firm), prospective target businesses or other entities with which the Company does business, execute agreements waiving any
right, title, interest or claim of any kind in or to monies held in the Trust Account.
Risks and Uncertainties
In February 2022, Russia
commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have
instituted economic sanctions against Russia. The invasion of Ukraine may result in market volatility that could adversely affect our
stock price and our search for a target company. Further, the impact of this action and related sanctions on the world economy are not
determinable as of the date of these financial statements and the specific impact on the Company’s financial condition, results
of operations, and cash flows is also not determinable as of the date of these financial statements.
In March 2020, the World
Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic which continues to spread throughout
the United States and the world. As of the date the financial statements were issued, there is considerable uncertainty around the expected
duration of this pandemic. Management continues to evaluate the impact of the COVID- 19 pandemic and the Company concluded that while
it is reasonably possible that COVID-19 could have a negative effect on identifying a target company for a Business Combination, the specific
impact is not readily determinable as of the date of the financial statements. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Inflation Reduction Act of 2022
On August 16, 2022, the Inflation
Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S.
federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries
of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation
itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value
of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations
are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the
same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”)
has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.
Any redemption or other repurchase
that occurs after December 31, 2022, in connection with a Business Combination, extension vote or otherwise, may be subject to the excise
tax. Whether and to what extent the Company would be subject to the excise tax in connection with a Business Combination, extension vote
or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection
with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any
“PIPE” or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business
Combination but issued within the same taxable year of a Business Combination) and (iv) the content of regulations and other guidance
from the Treasury. In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics
of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand
to complete a Business Combination and in the Company’s ability to complete a Business Combination.
Liquidity and Capital Resources
As of September 30, 2022,
the Company had $1,129,849 in its operating bank account and working capital of $1,341,982. As of September 30, 2022, approximately $705,072
of the amount on deposit in the Trust Account represented interest income, which is available to pay the Company’s tax obligations.
Until the consummation of
a Business Combination, the Company will be using the funds not held in the Trust Account for identifying and evaluating prospective acquisition
candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to
acquire, and structuring, negotiating and consummating the Business Combination. The Company will need to raise additional capital through
loans or additional investments from its Sponsor, shareholders, officers, directors, or third parties. The Company’s officers, directors
and Sponsor may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever amount they deem reasonable
in their sole discretion, to meet the Company’s working capital needs. Accordingly, the Company may not be able to obtain additional
financing.
If the Company is unable
to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily
be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. The Company cannot
provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern for a reasonable period of time, which is considered to be one
year from the issuance date of the financial statements. These unaudited condensed financial statements do not include any adjustments
relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be
unable to continue as a going concern.
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial
statements are presented in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”)
and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by
U.S. GAAP. In the opinion of management, the unaudited condensed financial statements reflect all adjustments, which include only normal
recurring adjustments necessary for the fair statement of the balances and results for the periods presented.
The accompanying unaudited
condensed financial statements should be read in conjunction with the Company’s Annual report on Form 10-K and the final prospectus
filed by the Company with the SEC on April 5, 2022 and October 28, 2021, respectively. The interim results for the nine months ended September
30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any future periods.
Emerging Growth Company
The Company is an emerging
growth company as defined in Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), which
exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies
(that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered
under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging
growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth
companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period,
which means that when a standard is issued or revised, and it has different application dates for public or private companies, as an emerging
growth company the Company can adopt the new or revised standard at the time private companies adopt the new or revised standard.
This may make comparison
of the Company’s financial statements with another public company that is neither an emerging growth company nor an emerging growth
company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting
standards used.
Use of Estimates
The preparation of financial
statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Significant
estimates in these financial statements include those related to the fair value of the Private Warrants. Making estimates requires management
to exercise significant judgment. Such estimates may be subject to change as more current information becomes available and accordingly
the actual results could differ significantly from those estimates. It is at least reasonably possible that the estimate of the effect
of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in
formulating its estimate, could change in the near term due to one or more future confirming events. Actual results could differ from
those estimates.
Investments Held in Trust Account
The Company’s portfolio
of investments held in the Trust Account is comprised solely 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. Such securities and investments in money market
funds are presented on the condensed balance sheets at fair value at the end of each reporting period. Gains and losses resulting from
the change in fair value of investments held in Trust Account are included in interest income held in Trust Account in the accompanying
condensed statements of operations. The estimated fair values of investments held in Trust Account are determined using available market
information.
Offering Costs Associated with the Initial Public Offering
Offering costs consist principally
of legal, accounting, underwriting fees and other costs directly related to the IPO. Offering costs amounted to $6,780,330. Of this amount,
$6,683,156 was charged to stockholders’ deficit upon the completion of the IPO and $97,174 was expensed due to allocating certain
offering costs to the warrant liability. The allocation was based on relative value at the date of the IPO.
Concentration of Credit Risk
Financial instruments that
potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times,
may exceed the Federal Deposit Insurance Corporation coverage limit of $250,000. At September 30, 2022, 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 Financial Accounting Standards Board (“FASB”) ASC
820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the accompanying unaudited
condensed balance sheets, primarily due to their short-term nature.
Income Taxes
The Company complies with
the accounting and reporting requirements of ASC 740, “Income Taxes” (“ASC 740”), which requires an asset and
liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts,
based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC 740 prescribes a recognition
threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be
taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination
by taxing authorities. There were no unrecognized tax benefits as of September 30, 2022 and December 31, 2021. The Company recognizes
accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of
interest and penalties as of September 30, 2022 and December 31, 2021. The Company is currently not aware of any issues under review that
could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations
by major taxing authorities since inception.
Class A Common Stock Subject to Possible Redemption
The Company accounts for
its Class A common stock subject to possible redemption in accordance with the guidance in ASC 480. Shares of Class A common stock subject
to mandatory redemption (if any) are classified as a liability instrument and is measured at fair value. Conditionally redeemable Class
A common stock (including Class A common stock that features redemption rights that are either within the control of the holder or subject
to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity.
At all other times, Class A common stock is classified as stockholders’ deficit. The Company’s Class A common stock features
certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future
events. Accordingly, at September 30, 2022 and December 31, 2021, 11,500,000 shares of Class A common stock subject to possible redemption
is presented as temporary equity, outside of the stockholders’ deficit section of the Company’s unaudited condensed balance
sheets.
The Company recognizes changes
in redemption value immediately as they occur and adjusts the carrying value of redeemable Class A common stock to equal the redemption
value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock are affected by charges
against additional paid in capital and accumulated deficit.
At September 30, 2022 and
December 31, 2021, the Class A common stock subject to possible redemption reflected in the balance sheet is reconciled in the following
table:
Gross proceeds | |
$ | 115,000,000 | |
Less: | |
| | |
Proceeds allocated to Public Warrants | |
| (6,900,000 | ) |
Class A common stock issuance costs | |
| (6,217,687 | ) |
Plus: Accretion of carrying value to redemption value | |
| 15,992,687 | |
Class A common stock subject to possible redemption, December 31, 2021 | |
| 117,875,000 | |
Plus: Accretion of carrying value to redemption value | |
| 359,996 | |
Class A common stock subject to possible redemption, September 30, 2022 | |
$ | 118,234,996 | |
Net Income (Loss) per Common Share
The Company has two classes
of shares, which are referred to as Class A common stock and Class B Common Stock (the “Founder Shares”). Earnings and losses
are shared pro rata between the two classes of shares. Private Placement Warrants (see Note 4) to purchase 8,175,000 Common Stock at $11.50
per share were issued on October 29, 2021. At September 30, 2022 and December 31, 2021, no Public Warrants or Private Placement Warrants
have been exercised. The 12,487,500 potential shares of Class A common stock for outstanding Public Warrants and Private Placement Warrants
to purchase the Company’s stock were excluded from diluted earnings per share for the periods ended September 30, 2022 and December
31, 2021 because they are contingently exercisable, and the contingencies have not yet been met. As a result, diluted net income (loss)
per common stock is the same as basic net income (loss) per common stock for the period. The table below presents a reconciliation of
the numerator and denominator used to compute basic and diluted net income (loss) per share for each class of stock.
| |
For the
three months
ended
September 30, | | |
For the
three months
ended
September 30, | |
| |
2022 | | |
2021 | |
| |
Class A Common stock | | |
Class B Common stock | | |
Class A Common stock | | |
Class B Common stock | |
Basic and diluted net income (loss) per share: | |
| | |
| | |
| | |
| |
Numerator: | |
| | |
| | |
| | |
| |
Allocation of net income (loss) | |
$ | 369,098 | | |
$ | 92,275 | | |
$ | - | | |
$ | (5,150 | ) |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Weighted-average shares outstanding | |
| 11,500,000 | | |
| 2,875,000 | | |
| - | | |
| 2,500,000 | |
Basic and dilution net income (loss) per share | |
$ | 0.03 | | |
$ | 0.03 | | |
$ | - | | |
$ | (0.00 | ) |
| |
For the
nine months
ended
September 30, | | |
For the period March 31, 2021
(inception)
through
September 30, | |
| |
2022 | | |
2021 | |
| |
Class A Common stock | | |
Class B Common stock | | |
Class A Common stock | | |
Class B Common stock | |
Basic and diluted net income (loss) per share: | |
| | |
| | |
| | |
| |
Numerator: | |
| | |
| | |
| | |
| |
Allocation of net income (loss) | |
$ | 2,666,074 | | |
$ | 666,518 | | |
$ | - | | |
$ | (6,150 | ) |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Weighted-average shares outstanding | |
| 11,500,000 | | |
| 2,875,000 | | |
| - | | |
| 2,500,000 | |
Basic and dilution net income (loss) per share | |
$ | 0.23 | | |
$ | 0.23 | | |
$ | - | | |
$ | (0.00 | ) |
Accounting for Warrants
The Company accounts for
warrants as either equity-classified or liability-classified instruments based on an assessment of the instruments’ specific terms
and applicable authoritative guidance in ASC 480 and ASC 815, “Derivatives and Hedging” (“ASC 815”). The assessment
considers whether the instruments are free-standing financial instruments pursuant to ASC 480, meet the definition of a liability pursuant
to ASC 480, and whether the instruments meet all of the requirements for equity classification under ASC 815, including whether the instruments
are indexed to the Company’s own common shares and whether the instrument holders could potentially require “net cash settlement”
in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires
the use of professional judgment, was conducted at the time of warrant issuance and as of each subsequent period end date while the instruments
are outstanding. Public Warrants issued pursuant to the warrant agreement qualify for equity accounting treatment and the Private Placement
Warrants qualify for liability accounting treatment.
Stock Compensation Expense
The Company accounts for
stock-based compensation expense in accordance with ASC 718, “Compensation – Stock Compensation” (“ASC 718”)
under which stock-based compensation associated with equity-classified awards is measured at fair value upon the grant date and recognized
over the requisite service period. To the extent a stock-based award is subject to a performance condition, the amount of expense recorded
in a given period, if any, reflects an assessment of the probability of achieving such performance condition, with compensation recognized
once the event is deemed probable to occur. Forfeitures are recognized as incurred.
The fair value of the 60,000
Founder Shares sold to certain independent directors as of October 14, 2021, was $362,673, or $6.04 per share. The Company used a Monte
Carlo Model Simulation to arrive at the fair value of the stock compensation. The key assumptions in the option-pricing model utilized
are assumptions related to expected separation date of Units, anticipated business combination date, purchase price, share-price volatility,
expected term, exercise date, risk-free interest rate and present value. The expected volatility as of the IPO closing date was derived
based upon similar SPAC warrants and technology exchange-traded funds which aligns with Company’s stated industry target and present
value factor was based on risk-free rate and terms until the exercise date. The Company’s Founder Shares sold to independent directors
were deemed within the scope of ASC 718 and are subject to a performance condition, namely the occurrence of a Business Combination. Compensation
expense related to the Founder Shares transferred is recognized only when the performance condition is probable of occurrence, or more
specifically when a Business Combination is consummated. Management believes that the occurrence of the performance condition is not probable;
therefore, no stock-based compensation expense has been recognized during the nine months ended September 30, 2022.
Recent Accounting Pronouncements
The Company’s management
does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a
material effect on the Company’s unaudited condensed financial statements.
Note 3 — Initial Public Offering
Pursuant to the IPO, the
Company sold 11,500,000 Units at a price of $10.00 per Unit. Each Unit consists of one share of Class A common stock (such Class A common
stock included in the Units being offered, the “Public Shares”), and one-half a redeemable warrant (each, a “Public
Warrant”). Each Public Warrant entitles the holder to purchase one share of Class A common stock at a price of $11.50 per share,
subject to adjustment (see Note 7).
Note 4 — Private Placement Warrants
On October 29, 2021, simultaneously
with the consummation of the IPO and the underwriters’ exercise of their over-allotment option, the Company consummated the issuance
and sale of 8,175,000 Private Placement Warrants in a private placement transaction at a price of $1.00 per Private Placement Warrant,
generating gross proceeds of $8,175,000. Each whole Private Placement Warrant will be exercisable to purchase one share of Class A common
stock at a price of $11.50 per share. A portion of the proceeds from the Private Placement Warrants was added to the proceeds from the
IPO which is being held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the
proceeds from the sale of the Private Placement Warrants will be used to fund the redemption of the Public Shares (subject to the requirements
of applicable law), and the Private Placement Warrants and all underlying securities will be worthless.
Note 5 — Related-Party Transactions
Founder Shares
On March 31, 2021, the Sponsor
paid $25,000, or approximately $0.009 per share, to cover certain offering costs on the Company’s behalf in consideration of 2,875,000
shares (the “Founder Shares”) of the Company’s Class B common stock, par value $0.0001 (“Class B common stock”).
The Founder Shares will automatically convert into shares of Class A common stock at the time of the Company’s initial Business
Combination and are subject to certain transfer restrictions, as described in Note 7. Holders of Founder Shares may also elect to convert
their shares of Class B common stock into an equal number of shares of Class A common stock, subject to adjustment, at any time. The initial
stockholders had agreed to forfeit up to 375,000 Founder Shares to the extent that the over-allotment option is not exercised in full
by the underwriters. Subsequent to December 31, 2021, since the underwriters exercised the over-allotment option in full, the Sponsor
did not forfeit any Founder Shares.
The initial stockholders
have agreed, subject to limited exceptions, not to transfer, assign or sell any of their Founder Shares until the earlier to occur of:
(A) one year after the completion of the initial Business Combination or (B) subsequent to the initial Business Combination, (x) if the
last sale price of the Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations,
recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the initial
Business Combination, or (y) the date on which the Company completes a liquidation, merger, capital stock exchange or other similar transaction
that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities
or other property.
Related-Party Loans
On March 31, 2021, the Sponsor
agreed to loan the Company an aggregate of up to $300,000 to cover expenses related to the Proposed Public Offering pursuant to a promissory
note (the “Note”). Any amounts drawn via this loan have been fully paid off on October 29, 2021, and the Note has been cancelled.
In addition, to finance transaction
costs in connection with a Business Combination, the Sponsor, or an affiliate of the Sponsor, or certain of the Company’s officers
and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company
completes a Business Combination, the Company will repay the Working Capital Loans out of the proceeds of the Trust Account released to
the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. If a Business Combination
does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds
held in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital
Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either
be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $2,000,000 of such
Working Capital Loans may be convertible into warrants of the post Business Combination entity at a price of $1.00 per warrant. The warrants
would be identical to the Private Placement Warrants. As of September 30, 2022 and December 31, 2021, no Working Capital Loans were outstanding.
Due to affiliate
The Company entered into
an agreement, commencing on the date of its listing on Nasdaq through the earlier of the consummation of a Business Combination and the
Company’s liquidation, to pay an affiliate of the Sponsor a monthly fee of $5,000 for office space, secretarial and administrative
services. As of September 30, 2022 and December 31, 2021, $53,000 and $10,000, respectively, has been accrued under this arrangement.
Note 6 — Commitments and Contingencies
Registration Rights
The holders of Founder Shares,
Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans, if any, will be entitled to registration
rights (in the case of the Founder Shares, only after conversion of such shares to Class A common stock) pursuant to a registration rights
agreement dated October 26, 2021. These holders will be entitled to certain demand and “piggyback” registration rights. However,
the registration rights agreement provides that the Company will not permit any registration statement filed under the Securities Act
to become effective until the termination of the applicable lock-up period for the securities to be registered. The Company will bear
the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The Company has granted the
underwriters a 45-day option from the date of the IPO to purchase up to 1,500,000 additional Units to cover over-allotments, if any, at
the Proposed Public Offering price less the underwriting discounts and commissions. On October 29, 2021, the underwriters elected to fully
exercise the over-allotment option and purchased 1,500,000 Units.
The underwriters were paid
an underwriting discount of $0.20 per unit, or $2,300,000 in the aggregate upon the closing of the IPO and exercise of the over-allotment
option. Additionally, the underwriters are entitled to $0.35 per unit, or $4,025,000 in the aggregate as a deferred underwriting commission.
The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely if the Company completes a
Business Combination, subject to the terms of the underwriting agreement. A portion of the deferred underwriting commission may be allocated
to third parties at the discretion of the Sponsor.
Note 7 — Stockholders’ Deficit
Class A common stock-The
Company is authorized to issue 100,000,000 Class A common stock with a par value of $0.0001 per share. As of September 30, 2022 and December
31, 2021, there were no Class A Common stock issued and outstanding, excluding the 11,500,000 of Class A common stock subject to possible
redemption and classified as temporary equity.
Class B common stock-
The Company is authorized to issue 10,000,000 Class B common stock with a par value of $0.0001 per share. Holders of Class B common stock
are entitled to one vote for each share. As of September 30, 2022 and December 31, 2021, there were 2,875,000 Class B common stock outstanding,
none of which are subject to forfeiture.
Holders of Class A common
stock and Class B common stock will vote together as a single class on all other matters submitted to a vote of stockholders except as
required by law.
The shares of Class B common
stock will automatically convert into shares of Class A common stock at the time of the initial Business Combination on a one-for-one
basis, subject to adjustment. In the case that additional shares of Class A common stock, or equity-linked securities, are issued or deemed
issued in excess of the amounts offered in the IPO and related to the closing of the initial Business Combination, the ratio at which
shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of
the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance) so
that the number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate,
on an as-converted basis, 20% of the sum of the total number of all shares of common stock outstanding upon the completion of the IPO
plus all shares of Class A common stock and equity-linked securities issued or deemed issued in connection with the initial Business Combination
(excluding any shares or equity-linked securities issued, or to be issued, to any seller in the initial Business Combination and any private
placement-equivalent warrants issued to the Sponsor or its affiliates upon conversion of loans made to the Company). Holders of Founder
Shares may also elect to convert their shares of Class B common stock into an equal number of shares of Class A common stock, subject
to adjustment as provided above, at any time.
Preferred stock -The
Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences as
may be determined from time to time by the Company’s board of directors. As of September 30, 2022 and December 31, 2021, there were
no shares of preferred stock issued or outstanding.
Public Warrants -
The Public Warrants will become exercisable 30 days after the completion of a Business Combination. No warrants will be exercisable for
cash unless the Company has an effective and current registration statement covering the shares of common stock issuable upon exercise
of the warrants and a current prospectus relating to such shares of common stock. Notwithstanding the foregoing, if a registration statement
covering the shares of common stock issuable upon exercise of the Public Warrants is not effective within a specified period following
the consummation of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during
any period when the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant
to the exemption provided by Section 3(a)(9) of the Securities Act, provided that such exemption is available. If that exemption, or another
exemption, is not available, holders will not be able to exercise their warrants on a cashless basis. The Public Warrants will expire
five years after the completion of a Business Combination or earlier upon redemption or liquidation.
Redemption of warrants when the price per Class
A common stock equals or exceeds $18.00:
Once the warrants become
exercisable, the Company may redeem the outstanding warrants (except as described herein with respect to the private placement warrants)
as follows:
| ● | in whole and not in part; |
|
● |
at a price of $0.01 per warrant; |
|
● |
upon a minimum of 30 days’ prior written notice of redemption, which the Company refers to as the “30-day redemption period;” and |
|
● |
if, and only if, the last reported sale price (the “closing price”) of the Company’s Class A common stock equals or exceeds $18.00 per share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a warrant as described under the heading “Description of Securities - Warrants - Public Stockholders’ Warrants - Anti-Dilution Adjustments” for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders. |
The Company will not redeem
the warrants as described above unless an effective registration statement under the Securities Act covering the Class A common stock
issuable upon exercise of the warrants is effective and a current prospectus relating to those Class A common stock is available throughout
the 30-day redemption period. When the warrants become redeemable by the Company, the Company may exercise its redemption right even if
the Company is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
None of the private placement
warrants will be redeemable by the Company so long as they are held by the Company’s sponsor or its permitted transferees.
No fractional Class A common
stock will be issued upon redemption. If, upon redemption, a holder would be entitled to receive a fractional interest in a share, the
Company will round down to the nearest whole number of the number of Class A common stock to be issued to the holder. Please see the section
entitled “Description of Securities - Warrants - Public Stockholders’ Warrants”
for additional information.
If the Company calls the
Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do
so on a “cashless basis,” as described in the warrant agreement.
Private Warrants -
The Private Warrants will be identical to the Public Warrants underlying the Units sold in the IPO, except that the Private Warrants and
the shares of common stock issuable upon the exercise of the Private Warrants will not be transferable, assignable or salable until after
the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Warrants will be exercisable
for cash or on a cashless basis, at the holder’s option, and will be non-redeemable so long as they are held by the initial purchasers
or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees,
the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
The exercise price and number
of shares of common stock issuable on exercise of the warrants may be adjusted in certain circumstances including in the event of a stock
dividend, extraordinary dividend or the Company’s recapitalization, reorganization, merger or consolidation. However, the warrants
will not be adjusted for issuances of shares of common stock at a price below their respective exercise prices. Additionally, in no event
will the Company be required to net cash settle the warrants. If the Company is unable to complete a Business Combination within the Combination
Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect
to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect
to such warrants. Accordingly, the warrants may expire worthless.
In addition, if the Company
issues additional shares of common stock or equity-linked securities for capital raising purposes in connection with the closing of a
Business Combination at an issue price or effective issue price of less than $9.20 per share of common stock (with such issue price or
effective issue price to be determined in good faith by the Company’s board of directors, and in the case of any such issuance to
the initial stockholders or their affiliates, without taking into account any Founder Shares held by them prior to such issuance), (y)
the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available
for the funding of a Business Combination on the date of the consummation of a Business Combination (net of redemptions), and (z) the
volume weighted-average trading price of the Company’s common stock during the 20 trading day period starting on the trading day
prior to the day on which the Company consummates the Business Combination (such price, the “Market Value”) is below $9.20
per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the greater of (i) the Market
Value or (ii) the price at which the Company issues the additional shares of Common stock or equity-linked securities.
Note 8 — Fair Value Measurements
The fair value of the Company’s
financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with
the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants
at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the
use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal
assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify
assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1: Quoted prices in
active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the
asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2: Observable inputs
other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted
prices for identical assets or liabilities in markets that are not active.
Level 3: Unobservable inputs
based on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability.
The Company determines the
level in the fair value hierarchy within which each fair value measurement falls based on the lowest level input that is significant to
the fair value measurements and performs an analysis of the assets and liabilities at each reporting period end. At September 30, 2022
and December 31, 2021, the assets held in the Trust Account were held in a money market fund. All of the Company’s investments held
in the Trust Account are classified as trading securities.
The following tables present
information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at September 30, 2022
and December 31, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.
Description | |
September 30, 2022 | | |
Quoted
Prices in
Active Markets (Level 1) | | |
Significant
Other
Observable
Inputs (Level 2) | | |
Significant
Other
Unobservable
Inputs (Level 3) | |
Assets: | |
| | |
| | |
| | |
| |
Investment in Trust Account - Money Market Fund | |
$ | 118,580,072 | | |
$ | 118,580,072 | | |
$ | - | | |
$ | - | |
Liabilities: | |
| | | |
| | | |
| | | |
| | |
Derivative Warrant Liability - Private Warrants | |
$ | 817,500 | | |
$ | - | | |
$ | - | | |
$ | 817,500 | |
Description | |
December 31, 2021 | | |
Quoted
Prices in
Active Markets (Level 1) | | |
Significant
Other
Observable
Inputs (Level 2) | | |
Significant
Other
Unobservable
Inputs (Level 3) | |
Assets: | |
| | |
| | |
| | |
| |
Investment in Trust Account - Money Market Fund | |
$ | 117,876,981 | | |
$ | 117,876,981 | | |
$ | - | | |
$ | - | |
Liabilities: | |
| | | |
| | | |
| | | |
| | |
Derivative Warrant Liability - Private Warrants | |
$ | 4,741,500 | | |
$ | - | | |
$ | - | | |
$ | 4,741,500 | |
The Company utilizes a Monte
Carlo simulation model to value the warrants at each reporting period, with changes in fair value recognized in the unaudited condensed
statements of operations. The estimated fair value of the warrant liability is determined using Level 3 inputs. Inherent in a Monte Carlo
pricing model are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield. The
Company estimates the volatility of its common stock based on industry historical volatility that matches the expected remaining life
of the warrants. The decrease in the volatility is in line with the entire SPAC industry. The risk-free interest rate is based on the
U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected
life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate,
which the Company anticipates to remain at zero.
The Company recognized $23,086,200
for the derivative warrant liabilities upon their issuance on October 29, 2021. The Sponsor paid an aggregate of $8,175,000 for Private
Placement Warrants with an initial aggregate fair value of $23,086,200. The difference between the purchase price and the initial fair
value on the Private Placement closing date of $14,911,200 was described as a Private Placement Warrant adjustment to record the warrants
at initial fair value at issuance date and recorded against accumulated deficit.
The aforementioned warrant liabilities are not subject to
qualified hedge accounting.
The following table provides quantitative information regarding
Level 3 fair value measurements:
| |
At | | |
At | |
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Stock Price | |
$ | 10.03 | | |
$ | 9.85 | |
Exercise Price | |
| 11.50 | | |
| 11.5 | |
Term (years) | |
| 5.58 | | |
| 5.83 | |
Volatility | |
| 5.2 | % | |
| 10 | % |
Risk-Free Rate | |
| 3.95 | % | |
| 1.34 | % |
Dividend Yield | |
| 0.00 | % | |
| 0.00 | % |
At September 30, 2022 and
December 31, 2021, the fair value of the Private Placement Warrants was $0.10 and $0.58, respectively.
The following table presents the changes in the fair value
of Level 3 warrant liabilities:
| |
Private | |
| |
Warrants | |
Fair value as of December 31, 2021 | |
$ | 4,741,500 | |
Change in fair value | |
| (1,553,250 | ) |
Fair value as of March 31, 2022 | |
$ | 3,188,250 | |
Change in fair value | |
| (1,962,000 | ) |
Fair value as of June 30, 2022 | |
$ | 1,226,250 | |
Change in fair value | |
| (408,750 | ) |
Fair value as of September 30, 2022 | |
$ | 817,500 | |
There were no transfers into
or out of Level 3 from other levels in the fair value hierarchy for the period December 31, 2021 through September 30, 2022.
Note 9 — Subsequent Events
The Company evaluated subsequent
events and transactions that occurred after the balance sheet date through the date the interim financial statements were to be issued.
Based on this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the interim
financial statements.