Cautionary Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Report
including, without limitation, statements in this section regarding our
financial position, business strategy and the plans and objectives of management
for future operations, are forward- looking statements. When used in this
Report, words such as "anticipate," "believe," "estimate," "expect," "intend"
and similar expressions, as they relate to us or our management, identify
forward-looking statements. Such forward-looking statements are based on the
beliefs of our management, as well as assumptions made by, and information
currently available to, our management. Actual results could differ materially
from those contemplated by the forward-looking statements as a result of certain
factors detailed in our filings with the SEC. All subsequent written or oral
forward-looking statements attributable to us or persons acting on our behalf
are qualified in their entirety by this paragraph.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the financial statements and the
notes thereto contained elsewhere in this Report.
Recent Developments
On February 13, 2023, we entered into the Drilling Tools Merger Agreement with
Drilling Tools and Merger Sub. Drilling Tools is a Houston based oilfield
services company that rents downhole drilling tools used in horizontal and
directional drilling of oil and natural gas wells. Drilling Tools operates from
22 locations across North America, Europe and the Middle East. At the closing of
the transactions contemplated by the Drilling Tools Merger Agreement, in
accordance with the DGCL, Merger Sub will be merged with and into Drilling
Tools, with Drilling Tools surviving the merger as a wholly-owned subsidiary of
the Company.
For a full description of the Drilling Tools Merger Agreement and the proposed
Drilling Tools Business Combination, please see "Item 1. Business."
Overview
We are a blank check company formed under the laws of the State of Delaware on
September 2, 2021 for the purpose of effecting a business combination with one
or more businesses. We intend to effectuate an initial business combination
using cash from the proceeds of the initial public offering and the sale of the
private units, our capital stock, debt or a combination of cash, stock and debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete an initial
business combination, including the Drilling Tools Business Combination, will be
successful.
Results of Operations
We have neither engaged in any operations (other than searching for an initial
business combination after our initial public offering) nor generated any
revenues to date. Our only activities from September 2, 2021 (inception) through
December 31, 2022 were organizational activities, those necessary to prepare for
the initial public offering, described below, and, subsequent to the initial
public offering, identifying a target company for an initial business
combination. We do not expect to generate any operating revenues until after the
completion of our initial business combination. We expect to generate
non-operating income in the form of interest earned on investments held after
the initial public offering. We incur expenses as a result of being a public
company (for legal, financial reporting, accounting and auditing compliance), as
well as for due diligence expenses, including due diligence expenses in
connection with the Drilling Tools Business Combination.
For the year ended December 31, 2022, we had a net income of $1,015,702, which
consists of interest income on investments held in the Trust Account of
$2,843,649, offset by operating costs of $1,281,902 and provision for income
taxes of $546,045.
For the period from September 2, 2021 (inception) through December 31, 2021, we
had a net loss of $235,380, which consists of operating costs of $252,254,
offset by interest income on investments held in the trust account of $16,874.
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Liquidity and Capital Resources
On December 6, 2021, we consummated the initial public offering of 18,000,000
units at $10.00 per unit, generating gross proceeds of $180,000,000. An
additional $1,800,000 was funded by our sponsor which resulted in a total
balance in the trust account of $181,800,000. Simultaneously with the closing of
the initial public offering, we consummated the sale of 715,000 private units at
a price of $10.00 per private unit to the sponsor generating gross proceeds of
$7,150,000.
On December 9, 2021, the underwriters fully exercised their over-allotment
option, resulting in an additional 2,700,000 units issued for an aggregate
amount of $27,000,000. In connection with the underwriters' full exercise of
their over-allotment option, we also consummated the sale of an additional
81,000 private units at $10.00 per private unit, generating total proceeds of
$27,810,000. A total of $27,270,000 was deposited into the trust account,
bringing the aggregate proceeds held in the trust account to $209,070,000.
Following the initial public offering, the full exercise of the over-allotment
option, and the sale of the private units, a total of $181,800,000 was placed in
the trust account. We incurred $4,012,520 in initial public offering related
costs, including $3,600,000 of underwriting fees and $412,520 of other costs. In
connection with the underwriters' full exercise of their over-allotment option,
we also consummated the sale of an additional 81,000 private units at $10.00 per
private unit, generating total proceeds of $27,810,000. A total of $27,270,000
was deposited into the trust account, including an additional $540,000 of
underwriting fees, bringing the aggregate proceeds held in the trust account to
$209,070,000.
For the year ended December 31, 2022, cash used in operating activities was
$1,667,273. Net loss of $1,015,702 was affected by interest earned on
investments held in the Trust Account of $2,843,649 and changes in operating
assets and liabilities, which provided $69,102 of cash from operating
activities.
For the period from September 2, 2021 (inception) through December 31, 2021,
cash used in operating activities was $13,000. Net loss of $235,380 was affected
by interest earned on investments held in the trust account of $16,874 and
changes in operating assets and liabilities, which provided $239,254 of cash
from operating activities.
As of December 31, 2022, we had cash and marketable securities held in the trust
account of $213,475,172. We intend to use substantially all of the funds held in
the trust account, including any amounts representing interest earned on the
trust account to complete our business combination. We may withdraw interest to
pay taxes. During the period ended December 31, 2022, we withdrew $525,351 of
interest income from the trust account. To the extent that our capital stock or
debt is used, in whole or in part, as consideration to complete our business
combination, the remaining proceeds held in the trust account will be used as
working capital to finance the operations of the target business or businesses,
make other acquisitions and pursue our growth strategies.
As of December 31, 2022, we had $207,915 of cash held outside of the trust
account. We intend to use the funds held outside the trust account primarily
perform business due diligence on Drilling Tools, travel to and from the
offices, plants or similar locations of Drilling Tools or their representatives
or owners, review corporate documents and material agreements of, and structure,
negotiate and complete an initial business combination with Drilling Tools.
In order to fund working capital deficiencies or finance transaction costs in
connection with an initial business combination, the sponsor, or certain of our
officers and directors or their affiliates may, but are not obligated to, loan
us funds as may be required. If we complete an initial business combination, we
would repay such loaned amounts. In the event that an initial business
combination does not close, we may use a portion of the working capital held
outside the trust account to repay such loaned amounts but no proceeds from our
trust account would be used for such repayment. Up to $1,500,000 of such loans
may be convertible into units at a price of $10.00 per unit, at the option of
the lender. The units would be identical to the private units.
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Going Concern
In connection with the Company's assessment of going concern considerations in
accordance with FASB's ASU 2014-15, "Disclosures of Uncertainties about an
Entity's Ability to Continue as a Going Concern," the Company has until June 6,
2023, fifteen months from the closing of its Initial Public Offering, to
consummate a business combination. It is uncertain that the Company will be able
to consummate a business combination by this time. Additionally, the Company may
not have sufficient liquidity to fund the working capital needs of the Company
through the Company's liquidation date or one year from the issuance of these
financial statements. If a business combination is not consummated by the
liquidation date, there will be a mandatory liquidation and subsequent
dissolution of the Company. Management has determined that the liquidity
condition and mandatory liquidation, should a business combination not occur,
and potential subsequent dissolution, raises substantial doubt about the
Company's ability to continue as a going concern. No adjustments have been made
to the carrying amounts of assets or liabilities should the Company be required
to liquidate after June 6, 2023. There can be no assurance that the Company will
be able to consummate any business combination by June 6, 2023.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of December 31, 2022. We do not participate in
transactions that create relationships with unconsolidated entities or financial
partnerships, often referred to as variable interest entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements.
We have not entered into any off-balance sheet financing arrangements,
established any special purpose entities, guaranteed any debt or commitments of
other entities, or purchased any non-financial assets.
Contractual Obligations
We entered into an agreement, commencing on December 1, 2021, through the
earlier of our consummation of an initial business combination and its
liquidation, to pay Fifth Partners, an affiliate of the sponsor, a total of
$13,000 per month for general and administrative services including office
space, utilities and secretarial support.
The Company had granted the underwriters a 45-day option from the date of
initial public offering to purchase up to 2,700,000 additional Units to cover
over-allotments, if any, at the initial public offering price less the
underwriting discounts and commissions.
On December 9, 2021, the underwriters elected to fully exercise the
over-allotment option to purchase an additional 2,700,000 public shares at a
price of $10.00 per public share.
We engaged EarlyBirdCapital as an advisor in connection with the initial
business combination to assist in holding meetings with the stockholders to
discuss the potential business combination and the target business' attributes,
introduce the us to potential investors that are interested in purchasing
securities in connection with the initial business combination, assist in
obtaining stockholder approval for the business combination and assist with
press releases and public filings in connection with the initial business
combination. We will pay EarlyBirdCapital a cash fee for such services upon the
consummation of the initial business combination in an amount equal to 3.5% of
the gross proceeds of the initial public offering (exclusive of any applicable
finders' fees which might become payable). In addition, we will pay
EarlyBirdCapital a cash fee in an amount equal to 1.0% of the total
consideration payable to the target in the initial business combination if
EarlyBirdCapital introduces the target business with whom we complete the
initial business combination; provided that the foregoing fee will not be paid
prior to the date that is 60 days from the effective date of the IPO
Registration Statement, unless such payment would not be deemed underwriters'
compensation in connection with the initial public offering pursuant to FINRA
Rule 5110. In connection with the Merger Agreement on February 13, 2023, we have
amended EarlyBirdCapital's fees under the Business Combination Marketing
Agreement from (i) 3.5% of the total gross proceeds raised in the initial public
offering and (ii) 1% of the total consideration of an initial business
combination transaction to a flat cash fee of $2,000,000
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the
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periods reported. Actual results could materially differ from those estimates.
We have identified the following critical accounting policies:
Common Stock Subject to Possible Redemption
We account for our common stock subject to possible redemption in accordance
with the guidance in ASC Topic 480 "Distinguishing Liabilities from Equity."
Common stock subject to mandatory redemption is classified as a liability
instrument and is measured at fair value. Conditionally redeemable common stock
(including common stock that features redemption rights that are either within
the control of the holder or subject to redemption upon the occurrence of
uncertain events not solely within the Company's control) is classified in
temporary equity. At all other times, common stock is classified as
stockholders' equity. The Company's public shares feature certain redemption
rights that are considered to be outside of the Company's control and subject to
occurrence of uncertain future events. Accordingly, at December 31, 2022 and
2021, the public shares are presented at redemption value as temporary equity,
outside of the stockholders' equity (deficit) section of the Company's balance
sheet. We recognize changes in redemption value immediately as they occur and
adjusts the carrying value of the common stock subject to possible redemption to
equal the redemption value at the end of each reporting period. This method
would view the end of the reporting period as if it were also the redemption
date for the security.
Net Income (Loss) per Common Share
Net income (loss) per common share is computed by dividing net income (loss) by
the weighted average number of shares of common stock outstanding for the
period. Accretion associated with the redeemable shares of common stock is
excluded from earnings per share as the redemption value approximates fair
value.
Recent Accounting Standards
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on our financial statements.
Factors That May Adversely Affect Our Results of Operations
Our results of operations and our ability to complete an initial business
combination may be adversely affected by various factors that could cause
economic uncertainty and volatility in the financial markets, many of which are
beyond our control. Our business could be impacted by, among other things,
downturns in the financial markets or in economic conditions, increases in oil
prices, inflation, increases in interest rates, supply chain disruptions,
declines in consumer confidence and spending, the ongoing effects of the
COVID-19 pandemic, including resurgences and the emergence of new variants, and
geopolitical instability, such as the military conflict in Ukraine. We cannot at
this time fully predict the likelihood of one or more of the above events, their
duration or magnitude or the extent to which they may negatively impact our
business and our ability to complete initial business combination.
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