NOTES
TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
Note
1 — Organization and Plan of Business Operations
Legato
Merger Corp. (the “Company”) is a blank check company incorporated in Delaware on June 26, 2020. The Company was formed for
the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business
transaction with one or more businesses or assets (a “Business Combination”).
The
Company is not limited to a particular industry or sector for purposes of consummating a Business Combination, although it has focused
on target businesses in the renewables, infrastructure, engineering and construction and industrial industries. 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.
All
activity through June 30, 2021 relates to the Company’s formation, and the public offering described below and since the public
offering, the search for a prospective initial Business Combination and the transaction with Algoma (described below). The Company will
generate non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering.
The
registration statement for the Company’s Initial Public Offering was declared effective on January 19, 2021. On January 22, 2021,
the Company consummated the Initial Public Offering of 20,500,000 units at $10.00 per Unit, generating gross proceeds of $205,000,000
which is described in Note 4.
Simultaneously
with the closing of the Initial Public Offering, the Company consummated the sale of 542,500 units, at a price of $10.00 per unit in
a private placement to certain holders of the Company’s founder shares (“Initial Stockholders”) and Earlybird Capital,
Inc., the representative of the underwriters in the Initial Public Offering (“EBC”), generating gross proceeds of $5,425,000
(“Private Units”), which is described in Note 5.
On
January 25, 2021, the underwriters fully exercised their over-allotment option, resulting in an additional 3,075,000 Units issued for
an aggregate amount of $30,750,000. In connection with the underwriters’ exercise of their over-allotment option, the Company also
consummated the sale of an additional 61,500 private units at $10.00 per unit, generating total proceeds of $615,000.
Transaction
costs associated with the underwriters’ full exercise of their over-allotment option amounted to $4,715,000 in cash underwriting
fees. A total of $235,750,000 was deposited into the Trust Account.
Following
the closing of the Initial Public Offering on January 22, 2021, and the underwriters full exercise of their over-allotment option on
January 25, 2021, $235,750,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the
sale of the Placement Units was placed in a trust account (the “Trust Account”) and was invested in 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 in any open-ended
investment company that holds itself out as a money market fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment
Company Act, as determined by the Company, until the earlier of: (i) the consummation of a Business Combination; (ii) the redemption
of any Public Shares in connection with a stockholder vote to amend the Company’s Amended and Restated Certificate of Incorporation
to modify the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if it does not complete an initial
Business Combination within 18 months from the consummation of the Initial Public Offering (the “Combination Period”); or
(iii) the distribution of the Trust Account, as described below, except that interest earned on the Trust Account can be released to
pay the Company’s tax obligations, if the Company is unable to complete an initial Business Combination within the Combination
Period or upon any earlier liquidation of the Company.
LEGATO
MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
The
Company’s management has broad discretion with respect to the specific application of the net proceeds of its Initial Public
Offering and Private Units, although substantially all of the net proceeds are intended to be applied generally toward consummating
a Business Combination. NASDAQ rules provide that the Company’s initial combination must be with one or more target businesses
that together have a fair market value equal to at least 80% of the balance in the Trust Account (less taxes payable) at the time of
the signing a definitive agreement in connection with a Business Combination. The Company will only complete a Business Combination
if the post-Business Combination company owns or acquires 50% or more of the outstanding voting securities of the target or
otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company
under the Investment Company Act. There is no assurance that the Company will be able to successfully effect a Business
Combination.
The
Company will provide its 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, solely in its discretion. The stockholders will be entitled to redeem their Public Shares for a pro
rata portion of the amount then on deposit in the Trust Account (initially approximately $10.00 per Public Share, plus any pro rata interest
earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations). There will
be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants.
The
Company will proceed with a Business Combination if the Company has net tangible assets of at least $5,000,001 either immediately prior
to or upon such consummation of a Business Combination and, if the Company seeks stockholder approval, a majority of the outstanding
shares voted are voted in favor of the Business Combination. If a stockholder vote is not required by law and the Company does not decide
to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its Amended and Restated 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 law, or the Company decides to obtain stockholder approval for business or other legal reasons, the Company will offer
to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If
the Company seeks stockholder approval in connection with a Business Combination, the Company’s officers, directors and initial
stockholders (the “Insiders”) have agreed to vote their Founder Shares (as defined in Note 5), the shares of common stock
included in the Placement Units (the “Placement Shares”) and any Public Shares held by them in favor of approving a Business
Combination. Additionally, each public stockholder may elect to redeem their Public Shares irrespective of whether they vote for or against
the proposed transaction.
The
Company will also provide its stockholders with the opportunity to redeem all or a portion of their Public Shares in connection with
any stockholder vote to approve an amendment to the Company’s Amended and Restated Certificate of Incorporation that would affect
the substance or timing of the Company’s obligation to redeem 100% of Public Shares if it does not complete an initial Business
Combination within the Combination Period. The stockholders will be entitled to redeem their shares for a pro rata portion of the amount
then on deposit in the Trust Account (initially approximately $10.00 per share, plus any pro rata interest earned on the funds held in
the Trust Account, net of taxes payable). There will be no redemption rights with respect to the Company’s warrants in connection
with such a stockholder vote to approve such an amendment to the Company’s Amended and Restated Certificate of Incorporation.
LEGATO
MERGER CORP.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
JUNE
30, 2021
(Unaudited)
The
Company will have until the expiration of the Combination Period to consummate its initial Business Combination. If the Company is unable
to consummate a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purposes
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 any interest earned on
the Trust Account not previously released to the Company to pay its tax obligations 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 the case of clauses (ii) and (iii) to the Company’s
obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption
rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to
complete a Business Combination within the Combination Period.
The
Insiders have agreed to waive their redemption rights with respect to any Founder Shares and Placement Shares, as applicable, (i) in
connection with the consummation of a Business Combination, (ii) in connection with a stockholder vote to amend the Company’s Amended
and Restated Certificate of Incorporation to modify the substance or timing of the Company’s obligation to allow redemption as
provided in its charter, and (iii) if the Company fails to consummate a Business Combination within the Combination Period. The Insiders
have also agreed to waive their redemption rights with respect to any Public Shares held by them in connection with the consummation
of a Business Combination and in connection with a stockholder vote to amend the Company’s Amended and Restated Certificate of
Incorporation as described above. However, the Insiders will be entitled to redemption rights with respect to Public Shares if the Company
fails to consummate a Business Combination or liquidates within the Combination Period. 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 less than
the initial public offering price per Unit in the Initial Public Offering. Placing funds in the Trust Account may not protect those funds
from third party claims against the Company. Although the Company will seek to have all vendors, service providers (except our independent
registered public accounting firm), prospective target businesses or other entities it engages, execute agreements with the Company waiving
any claim of any kind in or to any monies held in the Trust Account, there is no guarantee that such persons will execute such agreements.
Crescendo Advisors, LLC, an entity affiliated with Mr. Rosenfeld, the Company’s Chief SPAC Officer, has agreed that it will be
liable to ensure that the proceeds in the trust account are not reduced below $10.00 per share by the claims of target businesses or
claims of vendors or other entities that are owed money by us for services rendered or contracted for or products sold to us. However,
the Company has not independently verified whether Crescendo Advisors LLC has sufficient funds to satisfy its indemnity obligations,
the Company has not asked it to reserve for such obligations and the Company does not believe it has any significant liquid assets.
Proposed
Business Combination
On
May 24, 2021, the Company entered into an Agreement and Plan of Merger (“Merger Agreement”) with 1295908 B.C. Ltd., a British
Columbia corporation (“Algoma”), and Algoma Merger Sub, Inc., a Delaware corporation and a direct, wholly-owned subsidiary
of Algoma (“Merger Sub”). Pursuant to the Merger Agreement, Merger Sub will merge with and into the Company, with
the Company surviving the merger (“Merger”). As a result of the Merger, the Company will become a wholly-owned subsidiary
of Algoma, with the stockholders of the Company becoming shareholders of Algoma.
Algoma
is the parent holding company of Algoma Steel Inc., a Canadian fully integrated steel producer of hot and cold rolled steel products,
including sheet and plate, whose product applications are used in the automotive, construction, energy, defense, and manufacturing sectors.
Concurrently
with the execution of the Merger Agreement, Algoma and the Company entered into subscription agreements with investors for an aggregate
investment in the combined company of $100,000,000, contingent upon the consummation of the Merger.
LEGATO
MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
The
Merger and the other transactions contemplated by the Merger Agreement are expected to be consummated in the third quarter of 2021, following
receipt of the required approval by the Company’s stockholders and the fulfilment of certain other conditions set forth in the
Merger Agreement.
Note
2 — Summary of Significant Accounting Policies
Basis
of Presentation
The
accompanying financial statements are presented in accordance with accounting principles generally accepted in the United States of America
(“GAAP”) and pursuant to the rules and regulations of the SEC.
The
accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto
included in the Company’s final prospectus for its Initial Public Offering as filed with the SEC on January 21, 2021. The interim
results for the three and six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the year ending
December 31, 2021 or for any future interim periods.
Emerging
Growth Company
The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities
Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of
certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies
including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements
of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and
proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder
approval of any golden parachute payments not previously approved.
Further,
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting
standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do
not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting
standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements
that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of
such extended transition period which means that when a standard is issued or revised and it has different application dates for public
or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies
adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which
is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult
or impossible because of the potential differences in accounting standards used.
Use
of Estimates
The
preparation of the condensed financial statements in conformity with 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 condensed
financial statements and the reported amounts of revenues and expenses during the reporting periods.
Making
estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of
a condition, situation or set of circumstances that existed at the date of the financial statement, which management considered in formulating
its estimate, could change in the near term due to one or more
future confirming events. One of the more significant accounting estimates included in these financial statements is the determination
of the fair value of the warrant liability. Such estimates maybe subject to change as more current information becomes available, accordingly
the actual results could differ significantly from those estimates.
LEGATO
MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
Cash
and Cash Equivalents
The
company considers all short-term investments with an original maturity of three months or less when purchased to be a cash equivalent.
The Company had no cash equivalents as of June 30, 2021 and December 31, 2020.
Investments
held in Trust Account
The
Company’s portfolio of investments 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, or a combination thereof. The Company’s investments held in the Trust Account are classified as trading securities.
Trading securities 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 is included in investment income on Trust Account in the accompanying unaudited condensed
statement of operations. The estimated fair values of investments held in the Trust Account are determined using available market information.
Common
stock subject to possible redemption
The
Company accounts for its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification
(“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemptions (if
any) is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock
that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain
events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified
as stockholders’ equity. The Company’s common stock 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 June 30, 2021, 22,987,148 shares
of common stock subject to possible redemption is presented as temporary equity, outside of the stockholders’ equity section of
the Company’s condensed balance sheet.
Offering
Costs
Offering
costs consist of underwriting, legal, accounting and other expenses incurred through the Initial Public Offering that are directly related
to the Initial Public Offering. Offering costs amounting to $5,210,204 were charged to stockholders’ equity upon the completion
of the Initial Public Offering. Offering costs attributable to the private warrants amounted to $15,748 and were expensed as incurred.
Warrant
Liability
The
Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s
specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC
815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial
instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements
for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own shares and whether the
warrant 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, is conducted at the
time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
LEGATO
MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
For
issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component
of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification,
the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter.
Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The fair
value of the warrants was estimated using a Monte Carlo simulation approach.
Income
Taxes
The
Company complies with the accounting and reporting requirements of ASC Topic 740 “Income Taxes,” 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
Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax
positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not
to be sustained upon examination by taxing authorities. The Company 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 January
22, 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 may be subject to potential examination by federal, state and city taxing authorities in the areas of income taxes. These potential
examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance
with federal, state and city 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 is subject to income tax examinations by major taxing authorities since
inception. Deferred tax assets were deemed de minimis as of June 30, 2021 and December 31, 2020.
Net
Income (Loss) Per Share
The
Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” Net income
per share is computed by dividing net income applicable to common stockholders by the weighted average number of shares of common stock
outstanding for the period. The Company has not considered the effect of the warrants sold in the Initial Public Offering and Private
Placement to purchase an aggregate of 23,575,000 shares of Public Shares in the calculation of diluted earnings per share, since
their inclusion would be anti-dilutive under the treasury stock method. As a result, diluted earnings per share is the same as basic earnings
per share for the periods.
The
Company’s statements of operations includes a presentation of income per share for common stock subject to redemption in a manner
similar to the two-class method of income per share. Net income per share, basic and diluted for Public Shares is calculated
by dividing the interest income earned on the Trust Account, net of applicable taxes and funds available to be withdrawn from Trust for
working capital purposes, by the weighted average number of Public Shares outstanding since the original issuance. Net income per common
share, basic and diluted for Founder Shares is calculated by dividing the net income, less income attributable to Public shares, by the
weighted average number of Founder Shares outstanding for the periods.
LEGATO
MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
At
June 30, 2021, the Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted
into ordinary shares and then participate in the earnings.
The
following table reflects the calculation of basic and diluted net income (loss) per common share (in dollars, expect per share amounts):
|
|
Three Months Ended
June 30,
2021
|
|
|
Six Months Ended
June 30,
2021
|
|
|
For the Period from June 26, 2020 (inception) through
June 30,
2020
|
|
Public Shares
|
|
|
|
|
|
|
|
|
|
Numerator: Earnings allocable to Public Shares
|
|
|
|
|
|
|
|
|
|
Investment income on Trust Account
|
|
$
|
6,880
|
|
|
$
|
43,946
|
|
|
$
|
-
|
|
Less: Company’s portion available to be withdrawn to pay taxes
|
|
|
(6,880
|
)
|
|
|
(43,946
|
)
|
|
|
-
|
|
Net income attributable to Public Shares
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Denominator: Weighted Averages Public Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Public Shares, basic and diluted
|
|
|
23,575,000
|
|
|
|
23,750,000
|
|
|
|
-
|
|
Basic and diluted net income per Public Shares
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Founders Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: Net income (loss) less net income allocable to Public Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,244,301
|
)
|
|
$
|
(1,018,778
|
)
|
|
|
(354
|
)
|
Denominator: Weighted Average Founders Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Founders Shares, Basic and Diluted
|
|
|
6,732,036
|
|
|
|
6,543,471
|
|
|
|
5,031,250
|
|
Basic and diluted net loss per Founder share
|
|
$
|
(0.18
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
0.00
|
|
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution,
which, at times, may exceed the Federal Depository Insurance Corporation limit of $250,000. At June 30, 2021 and December 31, 2020, the
Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
Fair
Value of Financial Instruments
The
fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair
Value Measurements and Disclosures,” approximate the carrying amounts represented in the accompanying balance sheets, primarily
due to their short-term nature.
The
Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each
reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
LEGATO
MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
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 and 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 our assessment of the assumptions that market participants would use in pricing the asset or liability.
|
Recent
Accounting Pronouncements
Management
does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect
on the Company’s unaudited condensed financial statement.
Note
3 — Initial Public Offering
Pursuant
to the Initial Public Offering, the Company sold 20,500,000 Units, at a purchase price of $10.00 per Unit. Each Unit consists of
one share of common stock and one redeemable warrant (“Public Warrant”). Each whole Public Warrant entitles the holder to
purchase one share of common stock at an exercise price of $11.50 per share, subject to adjustment (see Note 8).
On
January 25, 2021, the Company consummated the closing of the sale of an additional 3,075,000 Units (“Option Units”) at $10.00
per Option Unit pursuant to the underwriters’ exercise in full of their over-allotment option, generating gross proceeds of $30,750,000.
Note
4 — Private Placement
Simultaneously
with the Initial Public Offering, the initial stockholders and EBC purchased an aggregate of 542,500 Private Units, at $10.00 per Private
Unit for a total purchase price of $5,425,000. Each Private Unit consists of one share of common stock or “private share,”
and one warrant or “private warrant”. The proceeds from the Private Units were added to the proceeds from the Initial Public
Offering held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the proceeds
from the sale of the Private Units will be used to fund the redemption of the Public Shares (subject to the requirements of applicable
law) and the Private Warrants will expire worthless. There will be no redemption rights or liquidating distributions from the Trust Account
with respect to the private warrants.
LEGATO
MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
On
January 25 2021, the Company also consummated the closing of the sale of an additional 61,500 Private Units at $10.00 per Private Unit,
generating gross proceeds of $615,000, to the original purchasers of the Private Units in respect of their obligation to purchase such
additional Private Units upon the exercise of the underwriters’ over-allotment option.
Note
5 — Related Party Transactions
Founders
Shares
In
August 2020, the Company issued an aggregate of 5,031,250 shares of common stock (the “Founder Shares”) for an aggregate
purchase price of $25,000. In January 2021, the Company effected a stock dividend of approximately 0.17 shares for each outstanding
share resulting in there being an aggregate of 5,893,750 Founder Shares outstanding. All share and per-share amounts have been retroactively
restated to reflect the share dividend. The Founder Shares included an aggregate of up to 768,750 shares that were subject to forfeiture
by the holders to the extent that the underwriters’ over-allotment was not exercised in full or in part, so that the holders
would collectively own 20% of the Company’s issued and outstanding shares after the Proposed Offering (assuming the initial stockholders
do not purchase any Public Shares in the Proposed Offering and excluding the Representative Shares (as defined in Note 7)). On
January 25, 2021, the underwriters fully exercised their over-allotment option. As a result of the underwriters’ election to fully
exercise their over-allotment option, a total of 768,750 Founder Shares are no longer subject to forfeiture.
The
holders of the Founder Shares will agree not to transfer, assign or sell any of the Founder Shares (except to certain permitted transferees)
until (i) with respect to 50% of the Founder Shares, the earlier of one year after the completion of a Business Combination and
the date on which the closing price of the common shares equals or exceeds $12.50 per share (as adjusted for share splits, share capitalizations,
reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing after a Business Combination
and (ii) with respect to the remaining 50% of the Founder Shares, one year after the completion of a Business Combination, or earlier,
in either case, if, subsequent to a Business Combination, the Company completes a liquidation, merger, share exchange or other similar
transaction which results in all of the Company’s shareholders having the right to exchange their ordinary shares for cash, securities
or other property.
Administrative
Service Fee
The
Company presently occupies office space provided by an entity controlled by Crescendo Advisors II, LLC. Such entity has agreed that until
the Company consummates a Business Combination, it will make such office space, as well as general and administrative services including
utilities and administrative support, available to the Company as may be required by the Company from time to time. The Company has agreed
to pay an aggregate of $15,000 per month to Crescendo Advisors II, LLC for such services commencing on the effective date of the Initial
Public Offering. The Company incurred and paid the affiliate $45,000 and $81,290 for such services for the three and six months ended
June 30, 2021, respectively.
Promissory
Note — Related Party
On
August 11, 2020, Eric Rosenfeld, the Company’s Chief SPAC Officer, issued a $65,000 principal amount unsecured promissory
note to the Company. The note was non-interest bearing and payable on the earlier of (i) August 10, 2021, (ii) the
consummation of the Proposed Public Offering or (iii) the date on which the Company determined not to proceed with the Proposed
Public Offering. The outstanding balance at December 31, 2020 was 65,000. The outstanding balance under the Promissory Note of $65,000
was repaid at the closing of the Initial Public Offering on January 22, 2021.
LEGATO
MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
Working
Capital Loans
In
order to finance transaction costs in connection with a Business Combination, the Initial Shareholders, the Company’s officers and
directors or their affiliates may, but are not obligated to, loan the Company funds from time to time or at any time, as may be required
(“Working Capital Loans”). Each Working Capital Loan would be evidenced by a promissory note. The Working Capital Loans would
either be paid upon consummation of a Business Combination, without interest. In the event that a Business Combination does not close,
the Company may use a portion of the proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds held
in the Trust Account would be used to repay the Working Capital Loans. Working Capital Loans may be convertible into units, at a price
of $10.00 per unit, of the post Business Combination entity. As of June 30, 2021 and December 31, 2020, no Working Capital Loans
were outstanding.
Note
6 — Commitments and Contingencies
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 completion of 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.
Registration
Rights
The
holders of the founders’ shares and representative shares issued and outstanding, as well as the holders of the private units and
any units our initial stockholders, officers, directors or their affiliates may be issued in payment of working capital loans made to
us (and all underlying securities), will be entitled to registration rights pursuant to an agreement to be signed prior to or on the
effective date of this offering. The holders of a majority of these securities are entitled to make up to two demands that the Company
register such securities. The holders of the majority of the founders’ shares can elect to exercise these registration rights at
any time commencing three months prior to the date on which these shares of common stock are to be released from escrow. The holders
of a majority of the representative shares, private units and units issued to our initial stockholders, officers, directors or their
affiliates in payment of working capital loans made to us (or underlying securities) can elect to exercise these registration rights
at any time after the Company consummates a business combination. Notwithstanding anything to the contrary, EBC may only make a demand
on one occasion and only during the five-year period beginning on the effective date of the registration statement of which this
prospectus forms a part. In addition, the holders have certain “piggy-back” registration rights with respect to registration
statements filed subsequent to our consummation of a business combination; provided, however, that EBC may participate in a “piggy-back”
registration only during the seven-year period beginning on the effective date of the registration statement of which this prospectus
forms a part. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting
Agreement
The
Company granted the underwriters a 45-day option from the date of Initial Public Offering to purchase up to 3,075,000 additional Units
to cover over-allotments, if any, at the Initial Public Offering price less the underwriting discounts and commissions. On January 25,
2021, the underwriters exercised the over-allotment option to purchase an additional 3,075,000 Units at $10.00 per Unit. The
underwriters were entitled to an underwriting discount of $0.20 per unit, or $4,715,000 paid upon the closing of the Initial Public
Offering.
LEGATO
MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
Business
Combination Marketing Agreement
The
Company has engaged EarlyBirdCapital as an advisor in connection with the business combination to assist in holding meetings with the
shareholders to discuss the potential business combination and the target business’ attributes, introduce the Company to potential
investors that are interested in purchasing the Company’s securities in connection with the initial business combination, assist
in obtaining shareholder approval for the business combination and assist with the press releases and public filings in connection with
the business combination. The Company will pay EarlyBirdCapital a cash fee for such services upon the consummation of the initial business
combination in an amount equal to 3.5% of the gross proceeds of this offering (exclusive of any applicable finders’ fees which
might become payable); provided that up to 33% of the fee may be allocated in our sole discretion to other third parties who are investment
banks or financial advisory firms not participating in this offering that assist in identifying and consummating an initial business
combination.
Additionally,
the Company will pay EarlyBirdCapital a cash fee equal to 1.0% of the total consideration payable in the proposed business combination
if it introduces the Company to the target business with which it completes a business combination; provided that the foregoing fee will
not be paid prior to the date that is 60 days from the effective date of the registration statement of which this prospectus forms
a part, unless FINRA determines that such payment would not be deemed underwriters’ compensation in connection with this offering
pursuant to FINRA Rule 5110.
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 with such designation, rights
and preferences as may be determined from time to time by the Company’s board of directors. As of June 30, 2021 and December 31,
2020, there were no shares of preferred stock issued or outstanding.
Common
Stock
The
Company is authorized to issue 60,000,000 shares of common stock with a par value of $0.0001 per share. Holders of the Company’s
common stock are entitled to one vote for each share. At June 30, 2021, there were 30,307,036 shares of common stock, 234,286 of
which are Representative Shares, issued and outstanding (including 22,987,148 shares of common stock subject to forfeiture). At December
31, 2021, there were 6,128,036 shares of common stock issued and outstanding.
Representative
Shares
In
August 2020, the Company has issued to the designees of EBC 234,286 shares of common stock (the “Representative Shares”)
for a nominal consideration (after giving effect to the dividend effected in January 2021). The Company accounted for the Representative
Shares as an offering cost of the Proposed Offering, with a corresponding credit to stockholders’ equity. The Company estimated
the fair value of Representative Shares to be $994 based upon the price of the Founder Shares issued to the Initial Stockholders. The
holders of the Representative Shares have agreed not to transfer, assign or sell any such shares until the completion of a Business Combination.
In addition, the holders have agreed (i) to waive their redemption rights with respect to such shares in connection with the completion
of a Business Combination and (ii) to waive their rights to liquidating distributions from the Trust Account with respect to such
shares if the Company fails to complete a Business Combination within the Combination Period.
LEGATO
MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
The
Representative Shares have been deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days
immediately following the effective date of the registration statement related to the Proposed Offering pursuant to Rule 5110(e)(1)
of FINRA’s NASD Conduct Rules. Pursuant to FINRA Rule 5110(e)(1), these securities will not be the subject of any hedging,
short sale, derivative, put or call transaction that would result in the economic disposition of the securities by any person for a period
of 180 days immediately following the effective date of the registration statement related to the Proposed Offering, nor may they
be sold, transferred, assigned, pledged or hypothecated for a period of 180 days immediately following the effective date of the
registration statement related to the Proposed Offering except to any underwriter and selected dealer participating in the Proposed Offering
and their bona fide officers or partners.
Note
8 — Warrant Liabilities
As
of June 30, 2021, the Company had 23,575,000 Public Warrants and 604,000 Private Warrants outstanding. There were no warrants outstanding
at December 31, 2020. The Company has accounted for the Public Warrants as equity while the Private Warrants have been accounted for
as liabilities.
Warrants —
Public Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Public
Warrants. The Public Warrants will become exercisable 30 days after the completion of a Business Combination; provided in that the
Company has an effective registration statement under the Securities Act covering the shares of common stock issuable upon exercise
of the Public Warrants and a current prospectus relating to them is available. The Company has agreed that as soon as practicable,
the Company will use its best efforts to file with the SEC a registration statement for the registration, under the Securities Act,
of the shares of common stock issuable upon exercise of the Public Warrants. The Company will use its best efforts to cause the same
to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto,
until the expiration of the Public Warrants in accordance with the provisions of the warrant agreement. Notwithstanding the
foregoing, if a registration statement covering the shares of common stock issuable upon exercise of the Public Warrants is not
effective 90 days following the consummation of 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.
In
addition, if (x) the Company issues additional shares of common stock or equity-linked securities for capital raising purposes in
connection with the closing of its initial business combination at an issue price or effective issue price of less than $9.20 per share
of common stock (with such issue price or effective issue price to be determined in good faith by our board of directors, and in the
case of any such issuance to the Company’s initial stockholders or their affiliates, without taking into account any founders’
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 the initial business combination on the date of the consummation
of our initial business combination (net of redemptions), and (z) the volume weighted average trading price of the Company’s common
stock during the 20 trading day period starting on the trading day prior to the day on which the Company consummates its initial
business combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be
adjusted (to the nearest cent) to be equal to 115% of the 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.
LEGATO
MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
The
Company may redeem the Public Warrants:
|
●
|
in whole and not in part;
|
|
|
|
|
●
|
at a price of $0.01 per warrant;
|
|
|
|
|
●
|
at any time during the exercise period;
|
|
|
|
|
●
|
upon a minimum of 30 days’ prior written notice of redemption; and
|
|
|
|
|
●
|
if, and only if, the last sale price of the Company’s common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third business day prior to the date on which the Company sends the notice of redemption to the warrant holders.
|
|
|
|
|
●
|
If, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying such warrants.
|
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.
The
exercise price and number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances
including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will
not be adjusted for issuance of common stock at a price below its exercise price. 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.
The
warrants included in the Private Units (“Private Warrants”) are identical to the Public Warrants, except that the Private
Warrants will be exercisable for cash or on a cashless basis, at the holder’s option, and 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. As of June 30, 2021, the Company had 23,575,000 Public Warrants and 604,000 Private Warrants outstanding. There
were no warrants outstanding at December 31, 2020.
Note
9 — Fair Value Measurements
At
June 30, 2021, assets held in the Trust Account were comprised of $423 in cash and $235,793,523 in a U.S. money market fund. As of June
30, 2021, the Company has not withdrawn any interest income from the Trust Account. There were no assets held in a Trust Account at December
31, 2020.
The
following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring
basis and indicate the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value.
LEGATO
MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
June
30, 2021
Description
|
|
Quoted Price in Active Markets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant Other Unobservable Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held in Trust Account
|
|
$
|
235,793,946
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative private warrant liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,177,800
|
|
Transfers
to/from Levels 1, 2, and 3 are recognized at the end of the reporting period. There were no transfers to/from Levels 1, 2, and 3
securities at the end of the reporting period. The Company had approximately $236.0 million and no investments held in
the Trust Account as of June 30, 2021 and December 31, 2020, respectively.
Level
1 instruments include investments in U.S. Treasury securities. The Company uses inputs such as actual trade data, benchmark yields, quoted
market prices from dealers or brokers, and other similar sources to determine the fair value of its investments.
The
fair value of the Private Placement Warrants were estimated using a Monte Carlo model using the quoted underlying common stock. For the
three months ended June 30, 2021, the Company recognized an expense on the unaudited condensed statement of operations resulting from
an increase in the fair value of liabilities of $875,890 presented as change in fair value of derivative warrant liabilities on the accompanying
unaudited condensed statement of operations. For the six months ended June 30, 2021, the Company recognized an expense on the unaudited
condensed statement of operations resulting from an increase in the fair value of liabilities of $447,248 presented as change in fair
value of derivative warrant liabilities on the accompanying unaudited condensed statement of operations.
The
estimated fair value of the Private Placement Warrants prior to being separately listed and traded, is determined using Level 3 inputs.
The features in the warrants that were analyzed and incorporated into the model included the variable term, the exercise features, the
reset provisions, the call options and the fundamental transactions terms. The model simulated the underlying economic factors that influenced
which of these events would occur, when they were likely to occur, and the specific terms that would be in effect at the time (i.e.,
stock price, exercise price, etc.). Probabilities were assigned to each variable such as the timing and pricing of events over the term
of the instruments based on management projections. This led to a cash flow simulation over the life of the instrument. A discounted
cash flow was completed to determine a value for the derivative liability.
The
following table provides quantitative information regarding Level 3 fair value measurements inputs utilized to measure the fair value
of the Private Placement Warrants at the measurement dates as of June 30, 2021:
|
|
June 30, 2021
|
|
Volatility
|
|
|
26.0
|
%
|
Risk Free Rate
|
|
|
0.90
|
%
|
Estimated Term Remaining
|
|
|
0.17
|
|
The
change in the fair value of the derivative warrant liabilities for the three and six months ended June 30, 2021 is summarized as follows:
Derivative warrant liabilities as of January 1, 2021
|
|
$
|
0
|
|
Issuance of Private warrants
|
|
$
|
730,552
|
|
Change in fair value of derivative warrant liabilities
|
|
$
|
(428,642
|
)
|
Derivative warrant liabilities as of March 31, 2021
|
|
$
|
301,910
|
|
Change in fair value of derivative warrant liabilities
|
|
$
|
875,890
|
|
Derivative warrant liabilities as of June 30, 2021
|
|
$
|
1,177,800
|
|
Note
10 — 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 and have determined there are no such transactions to disclose.