Item
I. Financial Statements (Unaudited)
THE
MUSIC ACQUISITION CORPORATION
CONDENSED BALANCE SHEETS
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September 30,
2021
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December 31,
2020
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(unaudited)
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Assets:
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Current Assets:
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Cash
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$
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466,438
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|
$
|
55,000
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|
Prepaid Expenses
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404,116
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—
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Total current assets
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870,554
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55,000
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Deferred offering costs
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—
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173,427
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Cash and Investments held in Trust Account
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230,013,260
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—
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Other assets
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130,966
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—
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Total Assets
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$
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231,014,780
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$
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228,427
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Liabilities and Stockholders’ Equity (Deficit)
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Current liabilities:
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Accrued offering costs and expenses
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$
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167,000
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$
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84,178
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Promissory note – related party
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—
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120,000
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Total current liabilities
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167,000
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204,178
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Deferred underwriting fee
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8,050,000
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—
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Warrant liability
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13,575,000
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—
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Total liabilities
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21,792,000
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204,178
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Commitments and Contingencies
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Common Stock subject to possible redemption, 23,000,000 and no shares at redemption value of $10.00 per share at September 30, 2021 and December 31, 2020, respectively
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230,000,000
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—
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Stockholders’ Equity (Deficit):
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Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding at September 30, 2021 and December 31, 2020
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—
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—
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Class A common stock, $0.0001 par value; 380,000,000 shares authorized; no shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
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—
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—
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Class B common stock, $0.0001 par value; 20,000,000 shares authorized; 5,750,000 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
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575
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575
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Additional paid-in capital
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—
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24,425
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Accumulated deficit
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(20,777,795
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)
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(751
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)
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Total stockholders’ equity (deficit)
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(20,777,220
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)
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24,249
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Total Liabilities and Stockholders’ Equity (Deficit)
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$
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231,014,780
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$
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228,427
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The
accompanying notes are an integral part of these unaudited condensed financial statements.
THE
MUSIC ACQUISITION CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2021
(UNAUDITED)
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For
the
Three Months
Ended
September 30,
2021
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For
the
Nine Months
Ended
September 30,
2021
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Formation and operating costs
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$
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275,887
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$
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738,298
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Loss from Operations
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(257,887
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)
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(738,298
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)
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Other income (expense):
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Interest earned on cash and marketable securities held in Trust Account
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2,960
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13,260
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Offering costs allocated to warrants
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—
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(556,614
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)
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Change in fair value of warrant liability
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1,810,000
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1,824,370
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Total other income
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1,812,960
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1,281,016
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Net income
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$
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1,537,073
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$
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542,718
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Weighted average shares outstanding, Class A common stock
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23,000,000
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20,051,282
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Basic and diluted net income per share, Class A common stock
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$
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0.05
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$
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0.02
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Basic weighted average shares outstanding, Class B common stock
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5,750,000
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5,653,846
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Basic net loss per share, Class B common stock
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$
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0.05
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0.02
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Diluted weighted average shares outstanding, Class B common stock
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5,750,000
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5,750,000
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Diluted net loss per share, Class B common stock
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$
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0.05
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0.02
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The
accompanying notes are an integral part of these unaudited condensed financial statements.
THE
MUSIC ACQUISITION CORPORATION
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
NINE MONTHS ENDED SEPTEMBER 30, 2021
(UNAUDITED)
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Class A
Common stock
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Class B
Common stock
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Additional
Paid-in
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(Accumulated
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Total
Stockholder’s
Equity
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Shares
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Amount
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Shares
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Amount
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Capital
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Deficit)
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(Deficit)
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Balance as of January 1, 2021
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—
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$
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—
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5,750,000
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$
|
575
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$
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24,425
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$
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(751
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)
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$
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24,249
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Accretion of Class A common stock subject to possible redemption
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—
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—
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—
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—
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(996,605
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)
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(21,319,762
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)
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(22,316,367
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)
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Excess cash proceeds from Private Placement over fair value of Private Warrants liability
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—
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—
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—
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—
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972,180
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—
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972,180
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Net income
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—
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—
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—
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—
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—
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3,639,196
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3,639,196
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Balance as of March 31, 2021 (unaudited)
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—
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$
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—
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|
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|
5,750,000
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|
|
$
|
575
|
|
|
$
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—
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$
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(17,681,317
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)
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$
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(17,680,742
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)
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Net loss
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—
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—
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—
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—
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—
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(4,633,551
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)
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|
(4,633,551
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)
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Balance as of June 30, 2021 (unaudited)
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—
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$
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—
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5,750,000
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$
|
575
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$
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—
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$
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(22,314,868
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)
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$
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(22,314,293
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)
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Net income
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—
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—
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—
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—
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1,537,073
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1,537,073
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|
Balance as of September 30, 2021 (unaudited)
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—
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$
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—
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5,750,000
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$
|
575
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|
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$
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—
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$
|
(20,777,795
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)
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$
|
(20,777,220
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)
|
The
accompanying notes are an integral part of these unaudited condensed financial statements.
THE
MUSIC ACQUISITION CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2021
(UNAUDITED)
Cash flows from operating activities:
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Net income
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$
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542,718
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|
Adjustments to reconcile net loss to net cash used in operating activities:
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Interest earned on marketable securities held in Trust Account
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(13,260
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)
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Offering costs allocated to warrants
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556,614
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Change in fair value of warrant liability
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(1,824,370
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)
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Changes in operating assets and liabilities:
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Prepaid assets
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(404,116
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)
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Other assets
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(130,966
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)
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Accrued expenses
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166,549
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Net cash used in operating activities
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(1,106,831
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)
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Cash Flows from Investing Activities:
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Investment of cash in Trust Account
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(230,000,000
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)
|
Net cash used in investing activities
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(230,000,000
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)
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|
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|
Cash Flows from Financing Activities:
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|
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Proceeds from sale of Units, net of underwriting discount
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225,400,000
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|
Proceeds from issuance of Private Placement Warrants
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|
6,600,000
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|
Proceeds from promissory note – related party
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50,000
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|
Repayment of promissory note – related party
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(170,000
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)
|
Payment of offering costs
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(361,731
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)
|
Net cash provided by financing activities
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231,518,269
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Net change in cash
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441,438
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Cash, beginning of period
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|
55,000
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|
Cash, end of the period
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|
$
|
466,438
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
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|
|
|
|
Deferred underwriters’ discount payable charged to additional paid-in capital
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|
$
|
8,050,000
|
|
The
accompanying notes are an integral part of these unaudited condensed financial statements.
THE
MUSIC ACQUISITION CORPORATION
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1 — Organization and Business
Operations
The Music Acquisition Corporation (the “Company”)
is a newly organized blank check company incorporated as a Delaware corporation on October 14, 2020. The Company was formed for the purpose
of effecting a merger, stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more
businesses (“Business Combination”).
As of September 30, 2021, the Company had not
commenced any operations. All activity through September 30, 2021 relates to the Company’s formation and the Initial Public Offering
(“IPO”) which is described below, and identifying a target company for a Business Combination. The Company will not generate
any operating revenues until after the completion of a Business Combination, at the earliest. The Company generates non-operating income
in the form of interest income from the proceeds derived from the IPO.
The registration
statement for the Company’s IPO was declared effective by the U.S. Securities and Exchange Commission (the “SEC”) on
February 2, 2021 (the “Effective Date”). On February 5, 2021, the Company consummated the IPO of 23,000,000 units (the
“Units” and, with respect to the shares of Class A common stock included in the Units sold, the “public shares”),
which included the full exercise by the underwriters of the over-allotment option to purchase an additional 3,000,000 Units, at $10.00
per Unit, generating gross proceeds of $230,000,000, which is discussed in Note 3. Each Unit consists of one share of common stock, and
one-half of one redeemable warrant to purchase one share of Class A common stock at a price of $11.50 per whole share.
Simultaneously with the closing of the IPO, the
Company consummated the sale of 6,600,000 Private Placement Warrants (the “Private Placement Warrants”), at a price of $1.00
per Private Placement Warrant, in a private placement to Music Acquisition Sponsor, LLC, a Delaware limited liability company (the “Sponsor”),
generating gross proceeds of $6,600,000, which is discussed in Note 4.
Transaction costs of the IPO amounted to $13,101,431
consisting of $4,600,000 of underwriting discount, $8,050,000 of deferred underwriting discount, and $451,431 of other offering costs.
Following the closing of the IPO on February
5, 2021, $230,000,000 ($10.00 per Unit) from the net offering proceeds of the sale of the Units in the IPO and the sale of the
Private Placement Warrants was placed in a trust account (the “Trust Account”) and invested in United States
“government securities” within the meaning of Section 2(a)(16) of the Investment Company Act of 1940, as amended (the
“Investment Company Act”), having a maturity of 185 days or less or in money market funds meeting certain conditions of Rule 2a-7
promulgated under the Investment Company Act which invests only in direct U.S. government treasury obligations, until the earliest
of (a) the completion of the Company’s initial Business Combination, (b) the redemption of the Company’s public shares
if the Company is unable to complete the initial Business Combination within 24 months from the closing of the IPO, subject to
applicable law, and (c) the redemption of the Company’s public shares properly submitted in connection with a stockholder vote
to amend the Company’s amended and restated certificate of incorporation.
The Company’s Business Combination must
be with one or more operating businesses or assets with a fair market value equal to at least 80% of the net assets held in the Trust
Account (excluding the amount of any deferred underwriting discount held in trust and taxes payable) at the time of
the signing a definitive agreement in connection with an initial Business Combination. However, the Company will only complete a Business
Combination if the post transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise
acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment
Company Act. There is no assurance that the Company will be able to successfully
effect a Business Combination.
The Company will provide its public holders of
its outstanding public shares (the “public stockholders”) with the opportunity to redeem all or a portion of their public
shares upon the completion of the initial Business Combination either (i) in connection with a stockholder meeting called to approve
the initial Business Combination or (ii) without a stockholder vote by means of a tender offer. Except for as required by applicable
law or stock exchange listing requirements, 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.
The stockholders will be entitled to redeem their
shares for a pro rata share of the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the
consummation of the initial Business Combination, including interest earned on the funds held in the Trust Account (net of amounts which
may be withdrawn to pay our taxes), divided by the number of then outstanding public shares, subject to the limitations described in this
prospectus. The amount in the Trust Account is initially anticipated to be $10.00 per public share. The redemption rights will include
the requirement that a beneficial holder must identify itself in order to validly redeem its shares. The per share amount the Company
will distribute to investors who properly redeem their shares will not be reduced by the deferred underwriting commissions the Company
will pay to the underwriters in the IPO.
The Company will have only 24 months from the
closing of the IPO to complete an initial Business Combination (the “Combination Period”). However, if the Company doesn’t
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 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), 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, liquidate and dissolve, 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 Company’s initial stockholders, officers
and directors have agreed to (i) waive their redemption rights with respect to any Founder Shares (as defined below) and public shares
they hold in connection with the completion of the initial Business Combination, (ii) waive their redemption rights with respect
to any Founder Shares and public shares they hold in connection with a stockholder vote to approve an amendment to the Company’s
amended and restated certificate of incorporation, (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 the initial Business Combination within the Combination Period,
and (iv) vote any Founder Shares and any public shares held by them in favor of the Company’s initial Business Combination.
The Company’s 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 other 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 IPO against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities
Act”). However, the Company has not asked its Sponsor to reserve for such indemnification obligations, nor has the Company independently
verified whether its Sponsor has sufficient funds to satisfy its indemnity obligations and the Company believes that the Company’s
Sponsor’s only assets are securities of the Company. Therefore, the Company cannot assure that its Sponsor would be able to satisfy
those obligations.
Liquidity and Capital Resources
As of September 30, 2021,
the Company had approximately $0.5 million in its operating bank account, and working capital of approximately $0.7 million.
The Company’s liquidity needs up to February
5, 2021 had been satisfied through a capital contribution from the Sponsor of $25,000 (see Note 6) for the Founder Shares and the loan
under an unsecured promissory note from the Sponsor of $170,000 (see Note 6). The promissory note from the Sponsor was paid in full as
of February 8, 2021. In addition, in order to finance transaction costs in connection with a Business Combination, the Company’s
Sponsor or an affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, provide
the Company Working Capital Loans (see Note 6). As of September 30, 2021 and December 31, 2020, there were no amounts outstanding under
any Working Capital Loans.
Based on
the foregoing, management believes that the Company will have sufficient working capital and borrowing capacity to meet its needs through
the earlier of the consummation of a Business Combination or one year from this filing. Over this time period, the Company will be using
these funds for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing
due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire,
and structuring, negotiating and consummating the initial Business Combination.
Risks and Uncertainties
Management is continuing to evaluate the impact
of the COVID-19 pandemic and has concluded that while it is reasonably possible that it could have a negative effect on the Company’s
financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of
the date of these condensed financial statements. The condensed financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Note 2 — Revision of Previously Issued
Financial Statements
In the Company’s previously issued financial
statements, a portion of the public shares were classified as permanent equity to maintain stockholders’ equity greater than $5,000,000
on the basis that the Company will consummate its initial Business Combination only if the Company has net tangible assets of at least
$5,000,001. Thus, the Company can only complete a merger and continue to exist as a public company if there are sufficient public shares
that do not redeem at the merger and so it is appropriate to classify the portion of its public shares required to keep its shareholders’
equity above the $5,000,000 threshold as “shares not subject to redemption.”
However, in light of recent comment letters issued
by the Securities & Exchange Commission (“SEC”) to several special purpose acquisition companies, management re-evaluated
the Company’s application of ASC 480-10-99 to its accounting classification of public shares. Upon re-evaluation, management determined
that the public shares include certain provisions that require classification of the public shares as temporary equity regardless of the
minimum net tangible asset required by the Company to complete its initial Business Combination.
In accordance with SEC Staff Accounting Bulletin
No. 99, “Materiality,” and SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements;” the Company evaluated the changes and has determined that
the related impacts were not material to any previously presented financial statements. Therefore, the Company, in consultation with its
Audit Committee, concluded that its previously issued financial statements impacted should be revised to report all public shares as temporary
equity.
As a result, the Company revised its previously
filed financial statements to classify all of its Class A common stock as temporary equity and to recognize accretion from the initial
book value to redemption value at the time of the IPO and in accordance with ASC 480. The change in the carrying value of the redeemable
shares of Class A common stock at the IPO resulted in a decrease of approximately $5.6 million in additional paid-in capital and an increase
of approximately $21.3 million to accumulated deficit, as well as a reclassification of 2,688,011 shares of Class A common stock from
permanent equity to temporary equity. The Company will present this revision in a prospective manner in all future filings. Under this
approach, the previously issued IPO Balance Sheet and Form 10-Qs will not be amended, but historical amounts presented in the current
and future filings will be recast to be consistent with the current presentation.
The impact of the revision to the unaudited condensed
balance sheets as of March 31, 2021, and June 30, 2021, is a reclassification of $22.7 million and $27.3 million, respectively, from total
shareholders’ equity to Class A common stock subject to possible redemption. There is no impact to the reported amounts for total
assets, total liabilities, cash flows, net income (loss), or the net income (loss) per share.
In connection with the change in presentation
for the Class A common stock subject to possible redemption, the Company also revised its earnings per share calculation to allocate income
and losses shared pro rata between the two classes of common stock. This presentation contemplates a Business Combination as the most
likely outcome, in which case, both classes of shares share pro rata in the income and losses of the Company.
Note 3 — Significant Accounting Policies
Basis of Presentation
The accompanying
unaudited condensed financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in
the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the SEC. Accordingly,
they do not include all of the information and footnotes required by GAAP. In the opinion of management, the unaudited condensed financial
statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and
results for the periods presented.
The accompanying
unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included
in the Form 10-K filed by the Company with the SEC on March 29, 2021. The interim results for the three months and nine months
ended September 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any
future period.
Emerging Growth Company Status
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 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 unaudited condensed 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 unaudited condensed financial statements and the
reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates.
Making estimates requires management to exercise
significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances
that existed at the date of the unaudited condensed financial statements, which management considered in formulating its estimate, could
change in the near term due to one or more future confirming events. One of the more significant accounting estimates included in these
unaudited condensed financial statements is the determination of the fair value of the warrant liability. Accordingly, the actual results
could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments
with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents
as of September 30, 2021 and December 31, 2020.
Marketable Securities Held in Trust Account
At September 30, 2021, the assets held in the
Trust Account were held in money market funds which invest U.S. Treasury securities, and are presented at fair value based upon the quoted market price
(see Note 9). During the nine months ended September 30, 2021,
the Company did not withdraw any of the interest income from the Trust Account to pay its tax obligations.
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 Company coverage of $250,000. The Company has not experienced losses on these accounts and management believes the
Company is not exposed to significant risks on such accounts.
Warrant Liabilities
The Company does not use derivative instruments
to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including
issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives,
pursuance to ASC 480 and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”).
The Public Warrants and Private Placement Warrants
are recognized as derivative liabilities in accordance with ASC 815. Accordingly, the Company recognizes the warrant instruments as liabilities
at fair value and adjusts the carrying value of the instruments to fair value at each reporting period until they are exercised. The initial
fair value of the Public Warrants issued in connection with the IPO and the fair value of the Private Placement Warrants were estimated
using the Monte Carlo simulation model. The fair value of the Public Warrants as of September 30, 2021 is based on observable listed prices
for such warrants. The fair value of the Private Placement Warrants as of September 30, 2021 was estimated using the Monte Carlo simulation model. 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.
Offering Costs Associated
with the Initial Public Offering
The Company complies
with the requirements of the ASC 340-10-S99-1. Offering costs consisted of legal, accounting, underwriting fees and other costs incurred
through the IPO that were directly related to the IPO. Offering costs are allocated to the separable financial instruments issued
in the IPO based on a relative fair value basis, compared to total proceeds received. Offering costs associated with warrant liabilities
are expensed as incurred, presented as non-operating expenses in the statements of operations. Offering costs associated with the
Class A common stock were charged to temporary equity upon the completion of the IPO.
Class A Common Stock Subject to Possible Redemption
All of the shares of Class A common stock
sold as part of the Units in the IPO 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 initial Business Combination
and in connection with certain amendments to the Company’s second amended and restated certificate of incorporation. In accordance
with SEC and its staff’s guidance 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.
Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded
from the provisions of ASC 480. Accordingly, at September 30, 2021, all shares of Class A common
stock subject to possible redemption is presented as temporary equity, outside of the stockholders’
equity section of the Company’s condensed balance sheets, respectively.
The Class A common stock subject to possible redemption
reflected on the balance sheet as of September 30, 2021 is reconciled in the following table:
Gross Proceeds
|
|
$
|
230,000,000
|
|
Less:
|
|
|
|
|
Proceeds allocated to Public Warrants
|
|
|
(9,771,550
|
)
|
Class A common stock issuance costs
|
|
|
(12,544,817
|
)
|
Plus:
|
|
|
|
|
Accretion of carrying value to redemption value
|
|
|
22,316,367
|
|
Class A common stock subject to possible redemption
|
|
$
|
230,000,000
|
|
Income Taxes
The Company accounts for income taxes under ASC
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. The deferred tax assets were deemed to be
de minimis as of September 30, 2021 and December 31, 2020.
ASC 740 also clarifies the accounting for uncertainty
in income taxes recognized in an enterprise’s financial statements and 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 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 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 has identified the United States as its only “major”
tax jurisdiction. The Company is subject to income tax examinations by major taxing authorities since inception. These potential 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 provision for income taxes was deemed to be de minimis for the three and nine months ended September
30, 2021.
Net Income (Loss) Per Common 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 (loss) by the weighted
average number of shares outstanding during the period, excluding shares subject to forfeiture. The calculation of diluted income per
common share does not consider the effect of the warrants issued since the exercise of the warrants are contingent upon the occurrence
of future events. However, the diluted earnings per share calculation includes the shares subject to forfeiture from the first day of
the interim period in which the contingency on such shares was resolved. (at least for this one because it resolved this year).
Basic and diluted net income per share for Class A common stock
and Class B common stock is calculated by dividing net income attributable to the Company by the weighted average number of shares of
Class A common stock and shares of Class B common stock outstanding, allocated proportionally to each class of common stock. Accretion
associated with the redeemable shares of Class A common stock is excluded from earnings per share as the redemption value approximates
fair value.
Reconciliation of Net Income (Loss) per Common
Share
Basic and
diluted income per share for Class A common stock and for Class B common stock is calculated as follows:
|
|
Three Months
Ended
September 30,
2021
|
|
|
Nine months Ended
September 30,
2021
|
|
Net Income per share for Class A common stock:
|
|
|
|
|
|
|
Allocation of net income to Class A common stock
|
|
$
|
1,229,658
|
|
|
$
|
423,347
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares, Class A common stock
|
|
|
23,000,000
|
|
|
|
20,051,282
|
|
Basic and diluted net income per share
|
|
$
|
0.05
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
Net Income per share for Class B common stock:
|
|
|
|
|
|
|
|
|
Allocation of net income to Class B common stock
|
|
$
|
307,415
|
|
|
$
|
119,371
|
|
|
|
|
|
|
|
|
|
|
Basic weighted Average Shares, Class B common stock
|
|
|
5,750,000
|
|
|
|
5,653,846
|
|
Basic net income per share
|
|
$
|
0.05
|
|
|
$
|
0.02
|
|
Diluted weighted Average Shares, Class B common stock
|
|
|
5,750,000
|
|
|
|
5,750,000
|
|
Diluted net income per share
|
|
$
|
0.05
|
|
|
$
|
0.02
|
|
Fair Value of Financial Instruments
The fair value of the Company's assets and liabilities
approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature.
The Company follows the guidance in ASC 820, “Fair
Value Measurement,” 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.
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 —
|
Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not being applied. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.
|
|
|
Level 2 —
|
Valuations based on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived principally from or corroborated by market through correlation or other means.
|
|
|
Level 3 —
|
Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
|
See Note 9 for additional information on assets
and liabilities measured at fair value.
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other
Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”)
to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial
conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining
to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible
debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings
per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective
January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1,
2021. The Company is currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations
or cash flows.
Management does not believe that any other recently
issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial
statements.
Note 4 — Initial Public Offering
Public Units
On February 5, 2021, the Company sold 23,000,000
Units, at a purchase price of $10.00 per Unit, which included the full exercise by the underwriters of the over-allotment option to purchase
an additional 3,000,000 Units. Each Unit consists of one share of Class A common stock, and one-half of one redeemable warrant to purchase
one share of Class A common stock (the “Public Warrants”).
Public Warrants
Each whole warrant entitles the holder to purchase
one share of the Company’s Class A common stock at a price of $11.50 per share, subject to adjustment as discussed herein. The warrants
will become exercisable on the later of 12 months from the closing of the IPO or 30 days after the completion of its initial Business
Combination, and 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. 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 its initial Business Combination at an
issue price or effective issue 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 Company’s
initial stockholders or their affiliates, without taking into account any Founder Shares held by the Company’s initial stockholders
or their affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds
from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of the initial
Business Combination on the date of the consummation of the initial Business Combination (net of redemptions), and (z) the volume
weighted average trading price of the Company’s Class A common stock during the 20 trading day period starting on the
trading day after the day on which the Company consummates the initial Business Combination (such price, the “Market Value”)
is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher
of the Market Value and the Newly Issued Price, and the $18.00 per share redemption trigger price described below under “Redemption
of warrants” will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price.
The Company will not be obligated to deliver any
shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless
a registration statement under the Securities Act with respect to the shares of Class A common stock underlying the warrants is then effective
and a prospectus relating thereto is current, or valid exemption from registration is available. No warrant will be exercisable and the
Company will not be obligated to issue a share of Class A common stock upon exercise of a warrant unless the share of Class A common stock
issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence
of the registered holder of the warrants. In no event will the Company be required to net cash settle any warrant. In the event that a
registration statement is not effective for the exercised warrants, the purchaser of a Unit containing such warrant will have paid the
full purchase price for the Unit solely for the share of Class A common stock underlying such Unit.
The Company has agreed that as soon as practicable,
but in no event later than fifteen (15) business days after the closing of the initial Business Combination, it will use its reasonable
best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the Class A common stock
issuable upon exercise of the 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 warrants in accordance
with the provisions of 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 sixtieth (60th) business day after the closing of the initial Business Combination, warrant holders
may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain
an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities
Act or another exemption. Notwithstanding the above, if the Class A common stock is at the time of any exercise of a warrant not listed
on a national securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of
the Securities Act, the Company may, at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless
basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, it will not be required
to file or maintain in effect a registration statement, and in the event the Company does not so elect, it will use its best efforts to
register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Once the warrants become exercisable, the Company
may call the Public Warrants for redemption:
|
●
|
in whole and not in part;
|
|
|
|
|
●
|
at a price of $0.01 per warrant;
|
|
|
|
|
●
|
upon a minimum of 30 days’ prior written notice of redemption to each warrant holder; and
|
|
|
|
|
●
|
if, and only if, the last reported 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 ending three business days before the Company sends the notice of redemption to the warrant holders.
|
If the Company calls the warrants for redemption
as described above, the Company will have the option to require any holder that wishes to exercise his, her or its warrant to do so on
a “cashless basis.” If the Company takes advantage of this option, all holders of warrants would pay the exercise price by
surrendering their warrants in exchange for a number of shares of Class A common stock equal to 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 Company’s Class A common stock (defined in the next sentence) over the exercise price of the warrants by (y) the fair market
value. The “fair market value” will mean the average last reported sales price of the Class A common stock for the 10 trading
days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants.
Note 5 — Private Placement
Simultaneously with the closing of the IPO, the
Sponsor purchased an aggregate of 6,600,000 Private Placement Warrants at a price of $1.00
per Private Placement Warrant, for an aggregate purchase price of $6,600,000, in a private placement. A portion of the proceeds from the
private placement was added to the proceeds from the IPO held in the Trust Account.
The Private Placement Warrants are identical to
the Public Warrants sold in the IPO except that the Private Placement Warrants, so long as they are held by the initial stockholders or
its permitted transferees, (i) they will not be redeemable by the Company for cash, (ii) they (including the Class A common stock issuable
upon exercise of these warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold until 30 days after
the completion of the Company’s initial Business Combination, and (iii) they may be exercised by the holders on a cashless basis.
If the Private Placement Warrants are held by holders other than the initial purchasers or their permitted transferees, the Private Placement
Warrants will be redeemable by the Company and exercisable by the holders on the same basis as the warrants included in the Units being
sold in the IPO.
Note 6 — Related Party Transactions
Founder Shares
On November 25, 2020, the Sponsor paid $25,000
in cash, or approximately $0.004 per share, to the Company in consideration for 5,750,000 shares of Class B common stock (the “Founder
Shares”). The Founder Shares included an aggregate of up to 750,000 shares which were subject to forfeiture if the over-allotment
option was not exercised by the underwriters in full. On February 5, 2021, the underwriters fully exercised their over-allotment option,
hence, the 750,000 Founder Shares are no longer subject to forfeiture.
The Sponsor has agreed not to transfer, assign
or sell any of its Founder Shares (subject to certain limited exceptions) until the earlier to occur of (i) one year after the completion
of the Company’s initial Business Combination or (ii) the date on which the Company completes a liquidation, merger, capital
stock exchange, reorganization or other similar transaction after the initial Business Combination that results in all of the Company’s
stockholders having the right to exchange their Class A common stock for cash, securities or other property (the “Lock-up”).
Notwithstanding the foregoing, if (A) the last reported sales price of the Company’s Class A common stock equals or exceeds
$12.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20 trading
days within any 30-trading day period commencing at least 150 days after the initial Business Combination or (B) the Company
consummates a transaction after the initial Business Combination which results in its stockholders having the right to exchange their
shares for cash, securities or other property, the Founder Shares will be released from the Lock-up.
Promissory Note — Related Party
On November 25, 2020, the Company issued an unsecured
promissory note to the Sponsor, pursuant to which the Company may borrow up to an aggregate principal amount of $300,000 to be used for
a portion of the expenses of the IPO. This loan was non-interest bearing, unsecured and due at the earlier of September 30, 2021 or the
closing of the IPO. As of the IPO on February 5, 2021, the Company had drawn down $170,000 under the promissory note. On February 8, 2021,
the Company paid the $170,000 balance on the note in full. As of September 30, 2021 and December
31, 2020, there were borrowings outstanding under the promissory note of $0 and $120,000, respectively. As of September 30, 2021, the
note is no longer available to be drawn upon.
Related Party Loans
In order to fund working capital
deficiencies or finance transaction costs in connection with an intended initial Business Combination, the Sponsor or an affiliate
of the Sponsor or certain of the Company’s officers and directors or their respective affiliates may, but are not obligated
to, loan the Company funds as may be required on a non-interest basis (“Working Capital Loans”). If the Company
completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account
released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside of the Trust Account.
In the event that a Business Combination does not close, the Company may use a portion of the working capital held outside the Trust
Account to repay the Working Capital Loans but no proceeds from the Trust Account would be used to repay the Working Capital Loans.
Up to $1,500,000 of such Working Capital Loans may be convertible into warrants of the post Business Combination entity at a price
of $1.00 per warrant at the option of the lender. The warrants would be identical to the Private Placement Warrants, including as to
exercise price, exercisability and exercise period. As of September 30, 2021 and December 31, 2020, no such Working Capital Loans
were outstanding.
Administrative Service Fee
The Company agreed to pay an affiliate of the
Company’s Sponsor a monthly fee of $15,000 for office space, secretarial and administrative services. Upon completion of the Company’s
Business Combination or its liquidation, the Company will cease paying these monthly fees. For the three months and nine months
ended September 30, 2021, the Company has incurred and paid administrative service fees of $45,000 and $120,000, respectively.
Note 7 — Commitments and Contingencies
Registration and Shareholder Rights
The holders of the Founder Shares, Private
Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans will be entitled to registration rights
pursuant to a registration rights agreement dated as of February 2, 2021 by and between the Company and the parties thereto,
requiring the Company to register such securities and any other securities of the company acquired by them prior to the consummation
of the initial Business Combination for resale. The holders of these securities are entitled to make up to three demands, excluding
short form demands, that the Company registers such securities. In addition, the holders have certain “piggy-back”
registration rights to include their securities in other registration statements filed by the Company.
Underwriting Agreement
The underwriters had a 45-day option from the
date of the IPO to purchase up to an aggregate of 3,000,000 additional Units at the public offering price less the underwriting commissions
to cover over-allotments, if any. On February 5, 2021, the underwriters fully exercised their
over-allotment option and were paid a cash underwriting discount of $0.20 per Unit, or $4,600,000 in the aggregate.
The underwriters are entitled to deferred underwriting
fee of 3.5% of the gross proceeds of the IPO, or $8,050,000 in the aggregate. The deferred
fee will be payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes an initial
Business Combination, subject to the terms of the underwriting agreement.
Note 8 — Stockholders’ Equity
Preferred Stock — The Company
is authorized to issue a total of 1,000,000 preferred shares at par value of $0.0001 each. At 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 a total of 380,000,000 shares of Class A common stock at par value of $0.0001 each. At September 30, 2021
and December 31, 2020, there were no shares issued and outstanding, excluding 23,000,000 and no shares subject to possible redemption,
respectively.
Class B Common Stock — The
Company is authorized to issue a total of 20,000,000 shares of Class B common stock at par value of $0.0001 each. At September 30, 2021
and December 31, 2020, there were 5,750,000 shares issued and outstanding
The shares of Class B common stock will automatically
convert into shares of the Company’s Class A common stock at the time of the closing of its initial Business Combination on a one-for-one
basis, subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like, and subject to further
adjustment as provided herein. In the case that additional shares of Class A common stock, or equity-linked securities, are issued or
deemed issued in connection with the initial Business Combination, the number of shares of Class A common stock issuable upon conversion
of all Founder Shares will equal, in the aggregate, on an as-converted basis, 20% of the total number of shares of Class A common stock
outstanding after such conversion (after giving effect to any redemptions of shares of Class A common stock by public stockholders), including
the total number of shares of Class A common stock issued, or deemed issued or issuable upon conversion or exercise of any equity-linked
securities or rights issued or deemed issued, by the Company in connection with or in relation to the consummation of the initial Business
Combination, excluding any shares of Class A common stock or equity-linked securities or rights exercisable for or convertible into shares
of Class A common stock issued, or to be issued, to any seller in the initial Business Combination and any Private Placement Warrants
issued to the Sponsor, officers or directors upon conversion of Working Capital Loans, provided that such conversion of Founder Shares
will never occur on a less than one-for-one basis.
Stockholders of record are entitled to one vote
for each share held on all matters to be voted on by stockholders. Holders of the Class A common stock and holders of the Class B common
stock will vote together as a single class on all matters submitted to a vote of the Company’s stockholders except as required by
law. Unless specified in the Company’s amended and restated certificate of incorporation, or as required by applicable provisions
of the Delaware General Corporation Law or applicable stock exchange rules, the affirmative vote of a majority of the Company’s
shares of common stock that are voted is required to approve any such matter voted on by the Company’s stockholders.
Note 9 — Fair Value Measurements
The following table presents information about
the Company’s assets and liabilities that are measured at fair value on a recurring basis at September 30, 2021, and indicates the
fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
|
|
September 30,
|
|
|
Quoted
Prices In
Active
Markets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Other
Unobservable
Inputs
|
|
|
|
2021
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Money Market held in Trust Account
|
|
$
|
230,013,260
|
|
|
$
|
230,013,260
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public Warrants Liability
|
|
$
|
8,625,000
|
|
|
$
|
8,625,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Private Placement Warrants Liability
|
|
|
4,950,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,950,000
|
|
|
|
$
|
13,575,000
|
|
|
$
|
8,625,000
|
|
|
$
|
—
|
|
|
$
|
4,950,000
|
|
Transfers to/from Levels 1, 2 and 3 are
recognized at the end of the reporting period. The estimated fair value of the Public Warrants of $8,625,000 transferred from a
Level 3 fair value measurement to a Level 1 fair value measurement and the estimated fair value of the Private Placement Warrants of
$4,950,000 as of September 30, 2021.
Warrant Liabilities
The 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 warrant
liabilities in the Condensed Statements of Operations.
The Company established the initial fair value
of the Public Warrants and Private Placement Warrants on February 5, 2021, the date of the Company’s IPO, using a Monte Carlo simulation
model. The Public Warrants and Private Placement Warrants were classified as Level 3 at the initial measurement date. As of September
30, 2021, the Public Warrants were classified as Level 1 due to use of the observed trading price of the separated Public Warrants, and
the Private Placement Warrants were classified as Level 3 due to the use of unobservable inputs.
The following table presents the changes in the
fair value of Level 3 warrant liabilities for the nine months ended September 30, 2021:
|
|
Level 3 Warrant
Liabilities
|
|
Fair Value as of December 31, 2020
|
|
$
|
—
|
|
Initial measurement on February 5, 2021
|
|
|
15,399,370
|
|
Change in valuation as of March 31, 2021
|
|
|
(4,333,290
|
)
|
Transfer of Public Warrants to Level 1
|
|
|
(7,015,000
|
)
|
Fair Value as of March 31, 2021
|
|
|
4,051,080
|
|
Change in valuation as of June 30, 2021
|
|
|
1,558,920
|
|
|
|
|
|
|
Fair Value as of June 30, 2021
|
|
|
5,610,000
|
|
Change in valuation as of September 30, 2021
|
|
|
(660,000
|
)
|
Fair Value as of September 30, 2021
|
|
$
|
4,950,000
|
|
Level 3 inputs have inherent uncertainties that are involved. If factors or assumptions change, the estimated fair values could be materially
different. The key inputs into the Monte Carlo simulation
as of September 30, 2021 were as follows:
Inputs
|
|
September 30,
2021
|
|
Risk-free interest rate
|
|
|
1.13
|
%
|
Expected term remaining (years)
|
|
|
5.92
|
|
Expected volatility
|
|
|
12.1
|
%
|
Underlying stock price
|
|
$
|
9.73
|
|
Note 10 — Subsequent Events
Management has evaluated subsequent events to
determine if events or transactions occurring through November 10, 2021, the date the unaudited condensed financial statements were available
for issuance, require potential adjustment to or disclosure in the unaudited condensed financial statements and has concluded that there
were no such events that would have required adjustment or disclosure.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
References to the “Company,”
“our,” “us” or “we” refer to The Music Acquisition Corporation. The following discussion and analysis
of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial
statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set
forth below includes forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on
Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have based these forward-looking statements
on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks,
uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements.
In some cases, you can identify forward- looking statements by terminology such as “may,” “should,” “could,”
“would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,”
“continue,” or the negative of such terms or other similar expressions. Such statements include, but are not limited to, possible
business combinations and the financing thereof, and related matters, as well as all other statements other than statements of historical
fact included in this Form 10-Q. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described
in our other Securities and Exchange Commission (“SEC”) filings.
Overview
We are a blank check company
incorporated in Delaware on October 14, 2020, for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock
purchase, reorganization or other similar business combination with one or more businesses (the “Business Combination”).
Our Sponsor is Music Acquisition
Sponsor LLC (the “Sponsor”), a Delaware limited liability company. The registration statement on Form S-1 for our initial
public offering (the “Initial Public Offering” or “IPO”) was declared effective on February 2, 2021. On February
5, 2021, we consummated our Initial Public Offering of 23,000,000 units (the “Units” and, with respect to the Class A common
stock included in the Units, the “public shares”), which included the full exercise of the underwriters’ option to purchase
up to an additional 3.0 million Units at the Initial Public Offering price to cover over-allotments, at $10.00 per Unit, generating gross
proceeds of $230.0 million. Each Unit consists of one share of Class A common stock of the Company, par value $0.0001 per share (“Class
A common stock”), and one-half of one redeemable warrant of the Company (“Warrants”), with each whole Warrant entitling
the holder thereof to purchase one share of Class A Common Stock at an exercise price of $11.50 per share, subject to adjustment, pursuant
to the Company’s registration statement on Form S-1 (File No. 333-252152).
Simultaneously with the closing
of the Initial Public Offering, we consummated the private placement (“Private Placement”) of 6,600,000 warrants (each, a
“Private Placement Warrant” and collectively, the “Private Placement Warrants”) to our Sponsor, each exercisable
to purchase one share of Class A common stock at $11.50 per share, at a price of $1.00 per Private Placement Warrant, generating gross
proceeds to us of $6.6 million.
Upon the closing of the Initial
Public Offering and the Private Placement (including the additional Units and additional Private Placement Warrants sold in connection
with the full exercise of the underwriters’ over-allotment option), a total of $230.0 million of the net proceeds of the Initial
Public Offering and the Private Placement, including $8,050,000, of deferred underwriting discounts and commissions, were placed in a
trust account (“Trust Account”) located in the United States at JP Morgan Chase Bank, N.A. with Continental Stock Transfer
& Trust Company acting as trustee.
If we are unable to complete
an initial Business Combination within 24 months from the closing of the Initial Public Offering, or February 5, 2023, we 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 (net of permitted withdrawals 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), and (iii) as promptly as reasonably
possible following such redemption, subject to the approval of the remaining stockholders and the board of directors, liquidate and dissolve,
subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable
law.
Liquidity and Capital Resources
As of September 30, 2021,
we had approximately $0.5 million in our operating bank account, and working capital of approximately $0.7 million.
Our liquidity needs have been
satisfied with the net proceeds from the consummation of the Private Placement not held in the Trust Account. In addition, in order to
fund working capital deficiencies or finance transaction costs in connection with an intended initial Business Combination, the Sponsor,
an affiliate of the Sponsor, or certain of the Company’s officers and directors or their affiliates may, but are not obligated to,
loan the Company funds as may be required on a non-interest basis (“Working Capital Loans”). To date, there are no amounts
outstanding under any Working Capital Loan.
Based on the foregoing, management
believes that we will have sufficient working capital and borrowing capacity to meet our needs through the earlier of the consummation
of an initial Business Combination or one year from this filing. Over this time period, we will be using these funds for paying existing
accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective
target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating
and consummating the initial Business Combination.
Management continues to evaluate
the impact of the COVID-19 pandemic and has concluded that the specific impact is not readily determinable as of the date of these financial
statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Results of Operations
Our only activities from October
14, 2020 (inception) up to September 30, 2021 were organizational activities and those necessary to prepare for our Initial Public Offering,
and, after our Initial Public Offering, identifying a target company for an initial Business Combination. We do not expect to generate
any operating revenues until the closing and completion of our initial Business Combination, at the earliest. We generate non-operating
income in the form of interest income on marketable securities held in the Trust Account. We are incurring expenses as a result of being
a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
For the nine months ended
September 30, 2021, we had a net income of 543,000, which included a loss from operations of $738,000, offering cost expense allocated
to warrants of $556,000, and offset by a gain from the change in fair value of warrant liabilities of $1,824,000 and interest income of
$13,000.
For the three months ended
June 30, 2021, we had a net income of $1,537,000, which included a loss from operations of $276,000, and offset by a gain from the change
in fair value of warrant liabilities of $1,810,000 and interest income of $3,000.
Commitments and Contractual Obligations
Registration Rights
The holders of 5,750,000 shares
of the Company’s Class B common stock (as adjusted, the “Founder Shares”), Private Placement Warrants and warrants that
may be issued upon conversion of Working Capital Loans, if any (and any Class A common stock issuable upon the exercise of the Private
Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans and upon conversion of the Founder Shares),
will be entitled to certain registration rights pursuant to a registration rights agreement. These holders will be entitled to certain
demand and “piggyback” registration rights. We will bear the expenses incurred in connection with the filing of any such registration
statements.
Underwriting Agreement
The underwriters had a 45-day
option from the date of the IPO on February 5, 2021 to purchase up to an aggregate of 3,000,000 additional Units at the public offering
price less the underwriting commissions to cover over-allotments, if any. On February 5, 2021, the underwriters fully exercised their
over-allotment option.
The underwriters were entitled
to a cash underwriting fee of $0.20 per Unit payable upon the closing of the IPO. When the IPO closed on February 5, 2021, the underwriters
were paid an aggregate of $4,600,000, or $0.20 per Unit.
The underwriters will be entitled
to deferred underwriting commission of 3.5% of the gross proceeds of the IPO held in the Trust Account, or $8,050,000, upon the completion
of the Company’s initial Business Combination subject to the terms of the underwriting agreement.
Contractual Obligations
We do not have any long-term
debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to reimburse an affiliate
of our Sponsor for office space, secretarial and administrative services provided to members of our management team in an amount not to
exceed $15,000 per month. We began incurring these fees on February 2, 2021 and will continue to incur these fees monthly until the earlier
of the completion of our initial Business Combination or our liquidation. For the nine months ended September 30, 2021, the Company has
incurred and paid $120,000 of administrative service fees.
Critical Accounting Policies
The preparation of financial
statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“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. 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 statements, which management considered
in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, actual results could
differ from those estimates.
We have identified the following
critical accounting policies:
Warrant Liabilities
The Company evaluated the
Public Warrants and Private Placement Warrants (collectively, “Warrants”, which are discussed in Note 3, Note 4, and Note
8) in accordance with ASC 815-40, “Derivatives and Hedging -- Contracts in Entity’s Own Equity”, and concluded that
a provision in the Warrant Agreement related to certain tender or exchange offers precludes the Warrants from being accounted for as components
of equity. As the Warrants meet the definition of a derivative as contemplated in ASC 815, the Warrants are recorded as derivative liabilities
on the Condensed Balance Sheet and measured at fair value at inception (on the date of the IPO) and at each reporting date in accordance
with ASC 820, “Fair Value Measurement”, with changes in fair value recognized in the Condensed Statements of Operations in
the period of change.
Offering Costs Associated with the Initial
Public Offering
The Company complies with
the requirements of the ASC 340-10-S99-1. Offering costs consisted of legal, accounting, underwriting fees and other costs incurred through
the Initial Public Offering that were directly related to the Initial Public Offering. Offering costs are allocated to the separable financial
instruments issued in the Initial Public Offering based on a relative fair value basis, compared to total proceeds received. Offering
costs associated with warrant liabilities are expensed as incurred, presented as non-operating expenses in the statements of operations.
Offering costs associated with the Class A common stock were charged to temporary equity upon the completion of the Initial Public Offering.
Class A Common Stock Subject to Possible
Redemption
All of the 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 initial Business Combination and in connection with certain amendments to the Company’s second amended and restated certificate
of incorporation. In accordance with SEC and its staff’s guidance 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. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity
instruments, are excluded from the provisions of ASC 480. Accordingly, at September 30, 2021, all
shares of Class A common stock subject to possible redemption is presented as temporary
equity, outside of the stockholders’ equity section of the Company’s condensed balance sheets, respectively.
Net Income (Loss) Per Common 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 (loss) by the weighted average number of shares outstanding during the period, excluding shares subject to forfeiture.
The calculation of diluted income per common share does not consider the effect of the warrants issued since the exercise of the
warrants are contingent upon the occurrence of future events. However, the diluted earnings per share calculation includes the
shares subject to forfeiture from the first day of the interim period in which the contingency on such shares was resolved. (at least
for this one because it resolved this year).
Basic and diluted net income per share
for Class A common stock and Class B common stock is calculated by dividing net income attributable to the Company by the weighted average
number of shares of Class A common stock and shares of Class B common stock outstanding, allocated proportionally to each class of common
stock. Accretion associated with the redeemable shares of Class A common stock is excluded from earnings per share as the redemption value
approximates fair value.
Income Taxes
The Company accounts for income
taxes under ASC 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. The deferred tax assets were deemed
to be de minimis as of September 30, 2021 and December 31, 2020.
ASC 740 also clarifies the
accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and 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 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 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 has identified the United States as its only “major”
tax jurisdiction. The Company is subject to income tax examinations by major taxing authorities since inception. These potential 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 provision for income taxes was deemed to be de minimis for the nine months ended September 30,
2021.
Recently Adopted Accounting Standards
In August 2020, the FASB issued
ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s
Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”),
which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also
removes certain settlement conditions that are required for equity-linked contracts to qualify for scope exception, and it simplifies
the diluted earnings per share calculation in certain areas. The Company adopted ASU 2020-06 on January 1, 2021. Adoption of the ASU did
not impact the Company’s financial position, results of operations or cash flows.
Recent Accounting Pronouncements
Management does not believe
that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on
the Company’s financial statements.
Emerging Growth Company Status
We are 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 we 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 our 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. We have 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, we, 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 our 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.