NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Note 1 - Organization and Business Operations
Shelter Acquisition Corporation I (the “Company”)
is a blank check company incorporated as a Delaware corporation on December 11, 2020. The Company was formed for the purpose of effecting
a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses
(“Business Combination”). 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. The Company’s sponsor is Shelter Sponsor LLC, a Delaware
limited liability company (the “Sponsor”).
The Company is not limited to a particular industry
or sector for purposes of consummating a Business Combination, however, the Company intends to concentrate on identifying businesses that
provide technologically innovative solutions to the real estate industry, broadly defined as “PropTech.”
As of September 30, 2021, the Company had not
commenced any operations. All activity for the period from December 11, 2020 (inception) through September 30, 2021, relates to the Company’s
formation and its initial public offering (the “Initial Public Offering”) as described below. The Company will not generate
any operating revenues until after the completion of a Business Combination, at the earliest. The Company will generate non-operating
income in the form of interest income on cash and cash equivalents from the proceeds derived from the Initial Public Offering. The Company
has selected December 31 as its fiscal year end.
The registration statement for the Company’s
Initial Public Offering was declared effective on June 29, 2021. On July 2, 2021, the Company consummated its Initial Public Offering
of 20,000,000 units (the “Units”). Each Unit consists of one share of Class A common stock, par value $0.0001 per
share (“Class A common stock” and shares thereof sold in the Initial Public Offering, “Public Shares”), and one-half
of one redeemable warrant of the Company (“Public Warrant”), each whole Public Warrant exercisable into one share of Class
A common stock at an exercise price of $11.50 per share. The Units were sold at a price of $10.00 per unit, generating gross
proceeds to the Company of $200,000,000, which is discussed in Note 3.
Simultaneously with the consummation of the Initial
Public Offering and the sale of the Units, the Company consummated the sale of 6,250,000 warrants (each, a “Private Placement
Warrant” and collectively, the “Private Placement Warrants”), at a price of $1.00 per Private Placement Warrant
to the Sponsor, in a private placement (the “Private Placement”) generating gross proceeds of $6,250,000, which is discussed
in Note 4.
On July 14, 2021, the Company issued an additional 2,164,744 Units
in connection with the partial exercise by the underwriters of their over-allotment option, generating gross proceeds of $21,647,440,
which is discussed in Note 3. Simultaneously with the closing of the underwriters’ partial exercise of the over-allotment option,
the Company sold an additional 432,949 Private Placement Warrants, at a price of $1.00 per Private Placement Warrant, to
the Sponsor in a private placement (together with the Private Placement, the “Private Placements”) generating gross proceeds
of $432,949, which is discussed in Note 4.
Transaction costs of the Initial Public Offering
amounted to $12,879,739, consisting of $4,432,949 of underwriting discount, $7,757,660 of deferred underwriting discount and
$689,130 of other offering costs. Of the transaction costs upon the closing of the Initial Public Offering and the underwriters’
partial exercise of the over-allotment option, the Company recorded $12,183,237 of offering costs as a reduction of equity in connection
with the Class A common stock included in the Units, and immediately expensed $696,502 of offering costs in connection with the warrants
that were classified as liabilities.
Following the closing of the Initial Public
Offering on July 2, 2021, and the partial exercise of the over-allotment option on July 14, 2021, a total of $221,647,440 ($10.00 per
Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and pursuant to the partial exercise of the over-allotment
option, together with certain of the proceeds from the sale of the Private Placement Warrants in the Private Placements, was placed in
a trust account (the “Trust Account”) located in the United States with Continental Stock Transfer & Trust Company, acting
as trustee, and invested only in U.S. government securities with a maturity of 185 days or less or in money market funds meeting certain
conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended (the “Investment Company Act”), which invest
only in direct U.S. government treasury obligations. Except with respect to interest earned on the funds held in the Trust Account that
may be released to the Company to pay its franchise and income tax obligations (less up to $100,000 of interest to pay dissolution expenses),
the proceeds from the Initial Public Offering and the sale of the Private Placement Warrants will not be released from the Trust Account
until the earliest of (a) the completion of a Business Combination, (b) the redemption of any Public Shares properly submitted in connection
with a stockholder vote to amend the Company’s amended and restated certificate of incorporation (i) to modify the substance or
timing of the Company’s obligation to redeem 100% of the Public Shares if the Company does not complete a Business Combination within
18 months from the closing of the Initial Public Offering (ii) with respect to any other provision relating to stockholders’ rights
or pre-Business Combination activity, and (c) the redemption of the Public Shares if the Company is unable to complete a Business Combination
within 18 months of the closing of the Initial Public Offering. The proceeds deposited in the Trust Account could become subject to the
claims of the Company’s creditors, if any, which could have priority over the claims of the holders of Public Shares (“public
stockholders”).
The Company will provide its 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 proposed Business Combination or conduct a tender offer will be made by the Company, solely
in its discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction
would require the Company to seek stockholder approval under applicable law or stock exchange listing requirement. The public stockholders
will be entitled to redeem all or a portion of their Public Shares upon the completion of a Business Combination at a per share price,
payable in cash, equal to the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation
of a Business Combination, including interest earned on the funds held in the Trust Account and not previously released to the Company
to pay its franchise and income taxes, divided by the number of then outstanding Public Shares, subject to the limitations described herein.
The Company will have only 18 months from the
closing of the Initial Public Offering (the “Combination Period”) to complete a Business Combination. 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 franchise and income taxes (less up to $100,000 of
interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish
public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject
to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s
remaining stockholders and the 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 Sponsor, officers, directors and certain stockholders
of the Company have entered into a letter agreement with the Company, pursuant to which they have agreed to: (i) waive their redemption
rights with respect to any founder shares (as defined below) and Public Shares held by them, as applicable, in connection with the completion
of a Business Combination, (ii) waive their redemption rights with respect to any founder shares and Public Shares held by them, as applicable,
in connection with a stockholder vote to approve an amendment to the Company’s amended and restated certificate of incorporation
(A) to modify the substance or timing of the Company’s obligation to redeem 100% of the Public Shares if the Company does not
complete a Business Combination within the Combination Period or (B) with respect to any other provision relating to stockholders’
rights or pre-initial Business Combination activity and (iii) waive their rights to liquidating distributions from the Trust Account with
respect to any founder shares they hold if the Company fails to complete a Business Combination within the Combination Period, although
they will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares they hold if we fail to complete
a Business Combination within the Combination Period. If the Company submits a Business Combination to the public stockholders for a vote,
the Sponsor, officers, directors and certain stockholders have agreed to vote any founder shares and any Public Shares held by them in
favor of a Business Combination.
The Sponsor has agreed that it will be liable
to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective
target business with which the Company has entered into a written letter of intent, confidentiality or similar agreement or Business Combination
agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per public share and (ii) the actual
amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per
share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims
by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account (whether
or not such waiver is enforceable) nor will it apply to any claims under the Company’s indemnity of the underwriters of the Initial
Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities
Act”). However, the Company has not asked the Sponsor to reserve for such indemnification obligations, nor have we independently
verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations and believe that the Sponsor’s only assets
are securities of the Company. Therefore, the Company cannot assure you that the Sponsor would be able to satisfy those obligations.
Note 2 - Summary of Significant Accounting
Policies
Basis of Presentation
The accompanying unaudited condensed financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”)
for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the U.S. Securities
and Exchange Commission (the “SEC”). Certain information or footnote disclosures normally included in financial statements
prepared in accordance with US GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial
reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position,
results of operations or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all
adjustments, consisting of a normal recurring nature, which are necessary for a fair statement of the financial position, operating results
and cash flows for the periods presented. The interim results for the three and nine months ended September 30, 2021 are not necessarily
indicative of the results that may be expected for the year ended December 31, 2021 or for any future interim period.
The accompanying unaudited condensed financial
statements should be read in conjunction with the audited financial statements contained in Company’s prospectus for its Initial
Public Offering, as filed with the SEC on July 1, 2021, and the Company’s Current Report on Form 8-K, as filed with the SEC on July
12, 2021.
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, reduced disclosure obligations regarding executive compensation in its periodic reports
and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder
approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act
exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies
(that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered
under the Securities Exchange Act of 1934, as amended) are required to comply with the new or revised financial accounting standards.
The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply
to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such
extended transition period which means that when a standard is issued or revised and it has different application dates for public or
private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt
the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is
neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult
or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of financial statements in conformity
with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the
reporting period. Actual results could differ from those estimates. One of the more significant accounting estimates included in
these condensed financial statements is the determination of the fair value of warrant liabilities.
Cash and Cash Equivalents
The Company considers all short-term investments
with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents
as of September 30, 2021.
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. Such securities and investments in money market funds are presented
on the balance sheet at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of these
securities are included in income from investments held in the Trust Account in the statement 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 Coverage of $250,000. The Company has not experienced losses on these accounts, and management believes it is not
exposed to significant risk on such accounts.
Financial Instruments
The fair value of the Company’s assets and
liabilities, other than the warrant liabilities, which qualify as financial instruments under FASB ASC Topic 820, “Fair Value Measurement”,
approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature.
Fair Value Measurement
Fair value is defined as the price which would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. A three-tier fair value hierarchy which prioritizes the inputs used in the valuation methodologies is as follows:
Level 1 Inputs - Unadjusted quoted prices in active
markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs - Inputs other than quoted prices
included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for
similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not
active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment
speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
Level 3 Inputs - Unobservable inputs for determining
the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants
would use in pricing the assets or liabilities.
Offering Costs Associated with Initial Public Offering
The Company complies with the requirements of
the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin Topic 5A—”Expenses of Offering”. Offering costs consist principally
of professional and registration fees incurred that are related to the Initial Public Offering. Offering costs are charged to stockholders’
equity or the statement of operations based on the relative value of the Public Warrants and the Private Placement Warrants to the proceeds
received from the Units sold upon the completion of the Initial Public Offering. Accordingly, of the $12,879,739 transaction costs
upon the closing of the Initial Public Offering and the underwriters’ partial exercise of the over-allotment option (consisting
of $4,432,949 of underwriters’ discount, $7,757,660 of deferred underwriters’ discount and $689,130 of other
offering costs), the Company recorded $12,183,237 of offering costs as a reduction of equity in connection with the Class A common
stock included in the Units, and immediately expensed $696,502 of offering costs in connection with the warrants that were classified
as liabilities.
Class A Common Stock Subject to Possible
Redemption
All of the 22,164,744 Class A common
stock sold as part of the Units in the Initial Public Offering 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 Business
Combination and in connection with certain amendments to the Company’s amended and restated certificate of incorporation. In accordance
with guidance from the staff of the SEC on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions
not solely within the control of the Company require common stock subject to redemption to be classified outside of permanent equity.
Therefore, all Class A common stock has been classified outside of permanent equity.
The Company recognizes changes in redemption value
immediately as they occur and adjusts the carrying value of redeemable 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.
Derivative Warrant Liabilities
The Company does not use derivative instruments
to hedge exposures to cash flow, market, or foreign currency risk. The Company evaluates all of its financial instruments to determine
if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with FASB ASC Topic 480, “Distinguishing
Liabilities from Equity” (“ASC 480”) and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”).
For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair
value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated
at the end of each reporting period.
The Company accounts for the 17,765,321 warrants
issued in connection with the Initial Public Offering (including the partial exercise of the underwriters’ over-allotment option)
and Private Placements as derivative liabilities in accordance with the guidance contained in ASC 815. Accordingly, the Company classifies
the warrant instruments as liabilities at fair value and adjusts the instruments to fair value at each reporting period. The liabilities
will be re-measured at each balance sheet date until the warrants are exercised or expire, and any change in fair value will be recognized
in the Company’s statements of operations. The fair value of Private Placement Warrants are estimated using an internal valuation
model. The valuation model utilizes inputs and other assumptions and may not be reflective of the price at which they can be settled.
Such warrant classification is also subject to re-evaluation at each reporting period. Derivative warrant liabilities are classified 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.
Net Income Per Share of Common Stock
The Company has two classes of common stock, which
are referred to as Class A common stock and Class B common stock. Earnings and losses are shared pro rata between the two classes of common
stock. The 17,765,321 shares of common stock issuable upon the exercise of the Company’s outstanding warrants were excluded
from diluted earnings per share for the three and nine months ended September 30, 2021 because the warrants are contingently exercisable,
and the contingencies have not yet been met. As a result, diluted net loss per common share is the same as basic net loss per common share
for the periods. 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 common stock:
| |
For the Three Months
Ended September 30,
2021 | | |
For the Nine Months
Ended September 30,
2021 | |
| |
Class A | | |
Class B | | |
Class A | | |
Class B | |
Basic and diluted net income per share: | |
| | |
| | |
| | |
| |
Numerator: | |
| | |
| | |
| | |
| |
Allocation of net income | |
$ | 6,412,079 | | |
$ | 1,635,587 | | |
$ | 4,664,676 | | |
$ | 3,334,022 | |
| |
| | | |
| | | |
| | | |
| | |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Weighted average shares outstanding | |
| 21,400,544 | | |
| 5,458,832 | | |
| 7,211,905 | | |
| 5,154,625 | |
Basic and diluted net income per share | |
$ | 0.30 | | |
$ | 0.30 | | |
$ | 0.65 | | |
$ | 0.65 | |
Income Taxes
The Company accounts for income taxes under FASB
ASC Topic 740, “Income Taxes” (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities
for both the expected impact of differences between the financial statement and tax basis of assets and liabilities and for the expected
future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be
established when it is more likely than not that all or a portion of deferred tax assets will not be realized. Deferred tax assets as
of September 30, 2021, were deemed immaterial.
ASC 740 prescribes a recognition threshold and
measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.
ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and
transition. The provision for income taxes was deemed to be immaterial for the nine months ended September 30, 2021.
The Company recognizes accrued interest and penalties
related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest
and penalties as of September 30, 2021 and December 31, 2020. The Company is currently not aware of any issues under review that could
result in significant payments, accruals or material deviation from its position.
The Company is subject to income tax examinations
by major taxing authorities since inception. These examinations may include questioning the timing and amount of deductions, the nexus
of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management does not expect
that the total amount of unrecognized tax benefits will materially change over the next twelve months. The Company has identified the
United States as its only “major” tax jurisdiction.
Recent Accounting Standards
In August 2020, the FASB issued ASU No. 2020-06,
Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic
815-40). The new guidance eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also
amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of
specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that
may be settled in cash or shares impact the diluted EPS computation. This guidance is effective as of January 1, 2022 (Early adoption
is permitted effective January 1, 2021). The Company is currently evaluating the effect the updated standard will have on its financial
position, results of operations or financial statement disclosure.
The Company’s management does not believe
that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying
financial statements.
Note 3 - Initial Public Offering
Public Units
On July 2, 2021, Company consummated its Initial
Public Offering of 20,000,000 “Units”. Each Unit consists of one share of Class A common stock and one-half
of one Public Warrant, each whole Public Warrant entitling the holder thereof to purchase one Class A common stock for $11.50 per share.
The Units were sold at a price of $10.00 per unit, generating gross proceeds to the Company of $200,000,000.
On July 14, 2021, the Company issued an additional 2,164,744 Units
in connection with the partial exercise by the underwriters of their over-allotment option, generating gross proceeds of $21,647,440.
All of the 21,164,744 shares of Class
A common stock sold as part of the Units in the Initial Public Offering 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 Business Combination and in connection with certain amendments to the Company’s certificate of incorporation. Given that the
Class A common stock was issued with other freestanding instruments (i.e., public warrants), the initial carrying value of the Class A
common stock was classified as temporary equity is the allocated proceeds based on the guidance in ASC 470-20.
If it is probable that the equity instrument will
become redeemable, the Company has the option to either 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 to 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 recognizes changes in redemption value immediately as they
occur. Immediately upon the closing of the Initial Public Offering, the Company recognized the accretion from initial book value
to redemption amount value. The change in the carrying value of redeemable Class A common stock resulted in charges against additional
paid-in capital and accumulated deficit.
As of September 30, 2021, the Class A common stock
reflected on the balance sheet are reconciled in the following table:
Gross proceeds from Initial Public Offering | | $ | 221,647,440 | |
Less: | | | | |
Proceeds allocated to Public Warrants | | | (11,680,978 | ) |
Class A shares issuance costs | | | (12,183,237 | ) |
Plus: | | | | |
Accretion of carrying value to redemption value | | | 23,864,215 | |
Income from investments held in Trust Account | | | 2,670 | |
Contingently redeemable Class A common stock | | $ | 221,650,110 | |
Note 4 - Related Party Transactions
Founder Shares
On December 18, 2020, the Sponsor paid $25,000 to
cover certain offering costs in consideration for the issuance of 5,750,000 shares of Class B common stock, par value $0.001 per
share, of the Company (“founder shares”). The number of founder shares outstanding was determined based on the expectation
that the total size of the Initial Public Offering would be a maximum of 23,000,000 units if the underwriters’ over-allotment
option is exercised in full, and therefore that such founder shares would represent 20% of the outstanding shares after the Initial
Public Offering. Up to 750,000 of the founder shares were subject to forfeiture depending on the extent to which the underwriters’
over-allotment option is exercised. As a result of the underwriters’ election to partially exercise their over-allotment option, 208,814 founder
shares were forfeited for no consideration on August 13, 2021, resulting in 5,541,186 founder shares outstanding.
With certain limited exceptions, the founder shares
are not transferable, assignable or salable (except to the Company’s officers and directors and other persons or entities affiliated
with the Sponsor, each of whom will be subject to the same transfer restrictions) until the earlier of (A) one year after the completion
of the Company’s initial Business Combination or (B) subsequent to the Company’s initial Business Combination, (x) if
the reported closing price of Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends,
reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days
after the Company’s initial Business Combination or (y) the date, following the completion of the Company’s initial Business
Combination, on which the Company completes a liquidation, merger, capital stock exchange, reorganization 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.
Private Placement Warrants
Simultaneously with the closing of the Initial
Public Offering, the Sponsor purchased 6,250,000 Private Placement Warrants at a price of $1.00 per Private Placement
Warrant, generating total proceeds of $6,250,000. Simultaneously with the closing of the underwriters’ partial exercise of the over-allotment
option, the Sponsor purchased an additional 432,949 Private Placement Warrants at a price of $1.00 per Private Placement
Warrant, generating gross proceeds of $432,949.
The Private Placement Warrants are non-redeemable in
certain circumstances so long as they are held by the Sponsor or its permitted transferees. The Private Placement Warrants may also be
exercised by the Sponsor and its permitted transferees for cash or on a “cashless basis”. Otherwise, the Private Placement
Warrants have terms and provisions that are identical to those of the Public Warrants, including as to exercise price, exercisability
and exercise period. No underwriting discounts or commissions were paid with respect to such sale. 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.
Related Party Loans
The Sponsor agreed to loan the Company up to $300,000 to
be used for a portion of the expenses of the Initial Public Offering pursuant to a promissory note (the “Promissory Note”).
The Promissory Note was non-interest bearing, unsecured and due at the earlier of September 30, 2021 or the closing of the Initial Public
Offering. The Company borrowed $240,000 under the Promissory Note and repaid it in full upon the closing of the Initial Public Offering.
In addition, in order to finance transaction costs
in connection with an initial Business Combination, the Sponsor, an affiliate of the Sponsor or certain of the Company’s officers
and directors may, but is not obligated to, loan the Company funds as may be required (the “Working Capital Loans”). If the
Company completes a Business Combination, the Company would repay such Working Capital Loans out of the proceeds of the Trust Account
released to the Company. Otherwise, such 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 funds held outside the Trust Account to repay such
Working Capital Loans but no proceeds from the Trust Account would be used to repay such loaned amounts. Up to $1,500,000 of Working
Capital Loans may be convertible into Private Placement Warrants of the post Business Combination entity, at a price of $1.00 per
warrant at the option of the lender. The warrants would be identical to the Private Placement Warrants issued to the Sponsor. As of September
30, 2021 and December 31, 2020, no Working Capital Loans were outstanding.
Administrative Support Agreement
The Company has agreed to pay the Sponsor or one
or more of its affiliates, commencing on the date of the final prospectus for the Company’s Initial Public Offering, a total of
$20,000 per month for office space and administrative and support services. Payments for such services began on June 29, 2021. Upon
completion of a Business Combination or its liquidation, the Company will cease paying these monthly fees.
Note 5 - Commitments and Contingencies
Registration and Stockholder Rights
Pursuant to a registration rights agreement entered
into in connection with the Initial Public Offering, the holders of the founder shares, Private Placement Warrants, and warrants that
may be issued upon conversion of Working Capital Loans (and any shares of common stock issuable upon the exercise of the Private Placement
Warrants or warrants issued upon conversion of the Working Capital Loans and upon conversion of the founder shares) will be entitled to
registration rights requiring the Company to register such securities for resale (in the case of the founder shares, only after conversion
to shares of Class A common stock). The holders of these securities will be entitled to make up to three demands, excluding short
form registration demands, that the Company registers such securities. In addition, these holders will have certain “piggy-back”
registration rights with respect to registration statements filed subsequent to the completion of a Business Combination and rights to
require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. The Company will bear the
expenses incurred with the filing of any such registration statements.
Underwriting Agreement
The Company granted the underwriters a 45-day
option to purchase up to 3,000,000 additional Units to cover over-allotments, if any, at the Initial Public Offering price less
the underwriting discounts and commissions.
On July 2, 2021, the Company paid a fixed underwriting
discount of $4,000,000, which was calculated as two percent (2%) of the gross proceeds of the Initial Public Offering. On July 14, 2021,
the underwriters partially executed their over-allotment option to purchase an additional 2,164,744 Units at a price of $10.00 per
Unit, and were paid a fixed underwriting discount of $432,949.
Additionally, the underwriters will be entitled
to a deferred underwriting discount of 3.5% of the gross proceeds of the Initial Public Offering and over-allotment held in the Trust
Account, or $7,757,660, upon the completion of the Company’s initial Business Combination.
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 the financial statement. The financial statement does not include any adjustments that might result from
the outcome of this uncertainty.
Note 6 - Derivative Warrant Liabilities
The Company accounted for the Public Warrants
and Private Placement Warrants as liabilities in accordance with the guidance contained in ASC 815-40, Derivatives and Hedging—Contracts
in Entity’s Own Equity. Because the Company does not control the occurrence of events, such as a tender offer or exchange that may
trigger cash settlement of the warrants where not all of the stockholders also receive cash, the warrants do not meet the criteria for
equity treatment thereunder, and as such, the warrants must be recorded as derivative liabilities.
Additionally, certain adjustments to the settlement
amount of the Private Placement Warrants are based on a variable that is not an input to the fair value of a “fixed-for-fixed”
option as defined under ASC 815-40, and thus the Private Placement Warrants are not considered indexed to the Company’s own stock
and not eligible for an exception from derivative accounting.
Each whole warrant entitles the registered holder
to purchase one share of the Class A common stock at a price of $11.50 per share, subject to adjustment as discussed below, at any
time commencing on the later of 12 months from the effective date of the registration statement for the Initial Public Offering and 30
days after the completion of a Business Combination. Pursuant to the warrant agreement, a warrant holder may exercise its warrants only
for a whole number of shares of Class A common stock. This means that only a whole warrant may be exercised at any given time by a warrant
holder. No fractional warrants will be issued upon separation of the units and only whole warrants will trade. The warrants will expire five
years after the completion of the Company’s initial Business Combination, at 5:00 p.m., New York City time, or earlier upon
redemption or liquidation.
The Company has agreed that as soon as practicable,
but in no event later than 15 business days after the closing of its initial Business Combination, the Company will use its best efforts
to file with the SEC a registration statement covering the shares of Class A common stock issuable upon exercise of the warrants, to cause
such registration statement to become effective and to maintain a current prospectus relating to those shares of Class A common stock
until the warrants expire or are redeemed, as specified in the warrant agreement. If a registration statement covering the shares of Class
A common stock issuable upon exercise of the warrants is not effective by the 60th business day after the closing of a 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. Notwithstanding the foregoing, if a registration statement covering the Class A common
stock issuable upon exercise of the 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.
Redemption of warrants when the price per share
of 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):
| ● | in whole and not in part; |
| ● | at a price of $0.01 per warrant; |
| ● | upon not less than 30 days’
prior written notice of redemption given after the warrants become exercisable (the “30-day redemption period”) to each warrant
holder; and |
| ● | if, and only if, the reported
last sale price of the Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations,
recapitalizations and the like) for any 20 trading days within a 30-trading day period commencing once the warrants become exercisable
and ending three business days before we send the notice of redemption to the warrant holders. |
In addition, if (x) the Company issues additional
shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of a Business Combination
at a Newly Issued Price of less than $9.20 per share of Class A common stock (with such issue price or effective issue price to be determined
in good faith by the Company’s board of directors and, in the case of any such issuance to the Sponsor or its affiliates, without
taking into account any founder shares held by the Sponsor or such affiliates, as applicable, 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 Market Value is
below $9.20 per share, then the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the greater
of the Market Value and the Newly Issued Price, and the $18.00 per share redemption trigger price described above will be adjusted (to
the nearest cent) to be equal to 115% of the greater of the Market Value and the Newly Issued Price, and the $18.00 per share redemption
trigger price described above will be adjusted (to the nearest cent) to be equal to 180% of the greater of the Market Value and the Newly
Issued Price.
Redemption of warrants when the price per share
of Class A common stock equals or exceeds $10.00. Once the warrants become exercisable, the Company may call
the Public Warrants for redemption:
| ● | 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, or the 30-day redemption period, to each warrant holder; |
| ● | if, and only if, the closing
price of our Class A common stock equals or exceeds $10.00 per public share (as adjusted for stock splits, stock dividends, 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 common stock 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 share (as adjusted for stock splits, stock
dividends, reorganizations, recapitalizations and the like), 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 the table below, based on the redemption
date and the “fair market value” (as defined below) of our Class A common stock. |
If the warrants become redeemable, the Company
may exercise the redemption right even if the Company is unable to register or qualify the underlying securities for sale under all applicable
state securities laws.
The Company has established the last of the redemption
criterion discussed above to prevent a redemption call unless there is at the time of the call a significant premium to the warrant exercise
price. If the foregoing conditions are satisfied and the Company issues a notice of redemption of the warrants, each warrant holder will
be entitled to exercise his, her or its warrant prior to the scheduled redemption date. However, the price of the Class A common stock
may fall below the $18.00 redemption trigger price as well as the $11.50 warrant exercise price after the redemption notice
is issued.
Redemption Procedures and Cashless Exercise. If
the Company calls the warrants for redemption as described above, the Company will have the option to require all holders that wish to
exercise warrants to do so on a “cashless basis.” In determining whether to require all holders to exercise their warrants
on a “cashless basis,” the management will consider, among other factors, the cash position, the number of warrants that are
outstanding and the dilutive effect on the stockholders of issuing the maximum number of shares of Class A common stock issuable upon
the exercise of the warrants. In such event, each holder would pay the exercise price by surrendering warrants in exchange for a number
of shares of Class A common stock equal to the lesser of (A) the quotient obtained by dividing (x) the product of (a) the number of shares
of Class A common stock underlying the warrants and (b) the excess of the “fair market value” of the Class A common stock
over the exercise price of the warrants by (y) such fair market value and (B) the product of the number of warrants surrendered and 0.361,
subject to adjustment. The fair market value means the volume weighted average price of Class A common stock as reported during the ten-trading
day period ending on the trading day prior to the first date on which the shares of Class A common stock trade on the applicable exchange
or in the applicable market, regular way, without the right to receive such rights.
Note 7 - Stockholders’ Equity
Preferred Stock - The Company
is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share. As of September 30, 2021
and December 31, 2020, there were no shares of preferred stock issued or outstanding.
Class A common stock - The
Company is authorized to issue 500,000,000 shares of Class A common stock with a par value of $0.0001 per share. Holders
of Class A common stock are entitled to one vote for each share. As of September 30, 2021, there were 21,164,744 shares
of Class A common stock issued and subject to possible redemption. The Class A common stock is presented at redemption value as temporary
equity, outside of the stockholders’ equity section of the balance sheet. As of December 31, 2020 there were no shares of Class
A common stock issued or outstanding.
Class B common stock - The
Company is authorized to issue 50,000,000 shares of Class B common stock with a par value of $0.0001 per share. Holders
of the Class B common stock are entitled to one vote for each common stock. At September 30, 2021 and December 31, 2020, there were 5,541,186 and 5,750,000 shares
of Class B common stock issued and outstanding, respectively.
The shares of Class B common stock will automatically
convert into shares of the Company’s Class A common stock at the time of a 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 sold in the Initial Public Offering and related to the closing of a 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 anti-dilution 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 total number of all shares of
common stock outstanding upon completion of the Initial Public Offering plus all shares of Class A common stock and equity-linked securities
issued or deemed issued in connection with a Business Combination (net of the number of shares of Class A common stock redeemed in
connection with a Business Combination), excluding any shares or equity-linked securities issued, or to be issued, to any seller
in a Business Combination in consideration for such seller’s interest in the Business Combination target and any Private Placement
Warrants issued upon the conversion of Working Capital Loans made to the Company.
Holders of the Class B common stock and holders
of the Class A common stock will vote together as a single class, except as required by applicable law or stock exchange rule.
Note 8 –Fair Value Measurements
The following table presents information about
the Company’s asset and liabilities that were measured at fair value on a recurring basis as of September 30, 2021, and indicates
the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.
Description | |
September 30, 2021 | | |
Quoted Prices In Active Markets (Level 1) | | |
Significant Other Observable Inputs (Level 2) | | |
Significant Other Unobservable Inputs (Level 3) | |
Asset: | |
| | |
| | |
| | |
| |
Investments held in Trust Account | |
$ | 221,650,110 | | |
$ | 221,650,110 | | |
$ | - | | |
$ | - | |
Liabilities: | |
| | | |
| | | |
| | | |
| | |
Derivative Warrant Liability - Private Placement Warrants | |
| 3,368,470 | | |
| - | | |
| - | | |
| 3,368,470 | |
Derivative Warrant Liability - Public Warrants | |
| 5,536,754 | | |
| 5,536,754 | | |
| - | | |
| - | |
| |
$ | 8,905,224 | | |
$ | 5,536,754 | | |
$ | - | | |
$ | 3,368,470 | |
The Public Warrants and Private Placement Warrants
are accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on the condensed balance sheet.
The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within
change in fair value of warrants in the condensed statements of operations.
Initial Measurement
The Company established the initial fair value
of the Public Warrants and Private Placement Warrants on July 2, 2021, the date of the Company’s Initial Public Offering, using
a Monte Carlo simulation model. The Public Warrants and Private Placement Warrants were classified as Level 3 at the initial measurement
date due to the use of unobservable inputs.
The key inputs into the Monte Carlo simulation
model for the Public Warrants and Private Placement Warrants were as follows at initial measurement:
Risk-free interest rate | |
| 0.98 | % |
Expected term (years) | |
| 5.71 | |
Expected volatility | |
| 19.0 | % |
Stock price | |
$ | 9.47 | |
Strike price | |
$ | 11.50 | |
Subsequent Measurement
The warrants are measured at fair value on a recurring
basis. The subsequent measurement of the Public Warrants as of September 30, 2021, is classified as Level 1 due to the use of an observable
market quote in an active market. As of September 30, 2021, the aggregate value of Public Warrants was $5,536,754.
The subsequent measurement of the Private Placement
Warrants was calculated using a Monte Carlo simulation model which is considered a Level 3 measurement.
The key inputs into the Monte Carlo simulation
model for the Private Placement Warrants were as follows as of September 30, 2021:
Risk-free interest rate | |
| 1.09 | % |
Expected term (years) | |
| 5.62 | |
Expected volatility | |
| 10.6 | % |
Stock price | |
$ | 9.72 | |
Strike price | |
$ | 11.50 | |
The following table sets forth a summary of the
changes in the fair value of the Level 3 liability for the nine months ended September 30, 2021:
| |
Warrant Liability | |
Fair value as of December 31, 2020 | |
$ | - | |
Initial fair value of warrant liability | |
| 18,751,655 | |
Transfer out of Level 3 to Level 1 | |
| (5,536,754 | ) |
Change in fair value | |
| (9,846,431 | ) |
| |
| | |
Fair value as of September 30, 2021 | |
$ | 3,368,470 | |
Note 9 - Subsequent Events
The Company evaluated subsequent events and transactions
that occurred after the balance sheet date up to the date that the condensed financial statements were issued. Except as described in
these condensed financial statements, the Company did not identify any subsequent events that would have required adjustment or disclosure
in the financial statements.