Item 7. Management’s Discussion and Analysis o f Financial Condition and Results of Operations
References in this Annual Report to “we,” “us” or the “company” refer to Skydeck Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors, references to the “sponsor” refer to Skydeck Management, LLC, a Delaware limited liability company. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with our audited financial statements and the notes thereto which are included in “Item 8. Financial Statements and Supplementary Data” of this Annual Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “Special Note Regarding Forward-Looking Statements,” “Item 1A. Risk Factors” and elsewhere in this Annual Report.
Special Note Regarding Forward-Looking Statements
This Annual Report includes “forward-looking statements” that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Annual Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the company’s final prospectus for its Initial Public Offering filed with the SEC. The company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a blank check company incorporated in the Cayman Islands on February 9, 2021, formed for the purpose of effecting a merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization or other business combination with one or more businesses (the “business combination”). We intend to effectuate our business combination using cash derived from the proceeds of our initial public offering (the “Initial Public Offering”) and the sale of the private placement warrants (the “private placement warrants”), our shares, debt or a combination of cash, shares and debt.
Results of Operations
Our entire activity since inception up to December 31, 2022, relates to our formation, the Initial Public Offering and, since the closing of the Initial Public Offering, a search for a business combination candidate. We will not be generating any operating revenues until the closing and completion of our initial business combination, at the earliest.
For the year ended December 31, 2022, we had net income of $12,190,177, which consisted of a gain from the change in fair value of liabilities related to public warrants and private placement warrants of $9,751,852, a gain from the change in fair value of the forward purchase warrants of $790,000, $2,480,824 in interest earned on marketable securities held in the trust account partially offset by $832,499 in operating costs.
For the period from February 9, 2021 (inception) through December 31, 2021, we had net income of $5,702,221, whi ch consisted of a gain from the change in fair value of liabilities related to public warrants and private placement warrants of $5,554,852, a gain from the change in fair value of the forward purchase warrants of $450,000, $7,671 in interest earned on marketable securities held in the trust account, and other income of $1,139,755 relating to fair value exceeding the amount paid for warrants partially offset by $893,854 in formation and operating costs and offering expenses related to warrant issuance of $556,203 .
Liquidity and Capital Resources
On May 21, 2021, we consummated our Initial Public Offering and the sale of the private placement warrants, and the underwriters closed their partial exercise of their over-allotment option on May 25, 2021. Of the net proceeds from the Initial Public Offering, exercise of the underwriters’ over-allotment option, and associated sales of the private placement warrants, at December 31, 2022, $224,148,115 was held in the trust account and $888,375 of cash was held outside of the trust account and is available for the company’s working capital purposes. As of December 31, 2022, we had working capital of $670,762.
Our initial shareholders, officers, directors or their affiliates may, but are not obligated to, loan the company funds as may be required. If we complete a business combination, we may repay the working capital loans out of the proceeds of the trust account released to the company. Otherwise, the working capital loans may be repaid only out of funds held outside the trust account. In the event that a business combination does not close, the company may use a portion of proceeds held outside the trust account to repay the working capital loans but no proceeds held in the trust account would be used to repay the working capital loans, other than the interest on such proceeds that may be released for working capital purposes. Except for the foregoing, the terms of such working capital loans, if any, have not been determined and no written agreements exist with respect to such loans. The working capital loans would either be repaid upon consummation of a business combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such working capital loans may be convertible into private placement warrants of the post-business combination entity at a price of $1.50 per warrant. As of December 31, 2022 and 2021, no working capital loans were outstanding.
Based on the foregoing, we believe that we will have sufficient working capital to meet our 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 business combination.
In connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s (“ FASB ”) Accounting Standards Update (“ ASU ”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that the mandatory liquidation and subsequent dissolution, should the Company be unable to complete a business combination, raises substantial doubt about the Company’s ability to continue as a going concern. The Company has until May 21, 2023 to consummate a business combination. It is uncertain that the Company will be able to consummate a business combination by this time. If a business combination is not consummated by this date, there will be a mandatory liquidation and subsequent dissolution. No adjustments have been made to the carrying amounts of assets or liabilities should the company be required to liquidate after May 21, 2023.
Off-Balance Sheet Financing Arrangements
As of December 31, 2022, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities.
Underwriting Agreement
The underwriters are entitled to a deferred fee of $0.35 per Unit, or $7,758,087 in the aggregate. The deferred fee will become payable to the underwriters from the amounts held in the trust account solely in the event that we complete a business combination, subject to the terms of the underwriting agreement.
Registration and Shareholder Rights Agreement
Pursuant to a registration and shareholder rights agreement entered into on May 18, 2021, the holders of the founder shares, private placement warrants and any warrants that may be issued upon conversion of working capital
l oans (and any Class A ordinary shares issuable upon the exercise of the private p lacement w arrants and w arrants that may be issued upon conversion of the working c apital l oans ) are be entitled to registration rights. The holders of these securities are entitled to make up to three demands, excluding short form demands, that we register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to completion of a b usiness c ombination . However, the registration and shareholder rights agreement provide that we will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable lockup period. The registration and shareholder rights agreement does not contain liquidating damages or other cash settlement provisions resulting from delays in registering our securities. We will bear the expenses incurred in connection with the filing of any such registration statements.
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 period reported. Actual results could materially differ from those estimates. During the period ended December 31, 2022, we did not identify any critical accounting policies.
We have identified the following critical accounting policies with respect to our securities issued in the Initial Public Offering.
Public Warrant and Private Placement Warrant Liability
The company has accounted for the 12,344,116 warrants (comprised of the 7,388,654 public warrants and the 4,955,462 private placement warrants) in accordance with the guidance contained in FASB Accounting Standards Codification (“ASC”) 815 “Derivatives and Hedging” whereby under that provision the warrants do not meet the criteria for equity treatment and must be recorded as a liability.
We established the initial fair value for the warrants on May 21, 2021, the date of the consummation of our initial public offering, and used a Monte Carlo simulation model to value the warrants. At December 31, 2022, we used the closing market price to value the public warrants and determine the fair value of the private placement warrants.
The valuation model utilizes inputs and other assumptions and may not be reflective of the price at which they can be settled. Such warrant classification is also subject to re-evaluation at each reporting period.
Forward Purchase Agreement Warrant Liability
We account for the 1,000,000 forward purchase warrants in the units associated with the forward purchase agreement in accordance with the guidance contained in FASB ASC 815 “Derivatives and Hedging” whereby under that provision the forward purchase warrants do not meet the criteria for equity treatment and must be recorded as a liability. We classify the forward purchase warrants as a liability at fair value and adjust the forward purchase warrants to fair value at each reporting period. This liability will be re-measured at each balance sheet date until the forward purchase warrants are exercised or expire, and any change in fair value will be recognized in the company’s statement of operations.
We established the initial fair value for the forward purchase warrants on May 21, 2021, the date of the consummation of our Initial Public Offering, and used a Monte Carlo simulation model to value the forward purchase warrants. At December 31, 2022, we used the closing market price for the public warrants to determine the fair value of the forward purchase warrants.
The valuation model utilizes inputs and other assumptions and may not be reflective of the price at which they can be settled. Such forward purchase warrant classification is also subject to re-evaluation at each reporting period. Upon recognition of the forward purchase warrant liability a corresponding reduction was recognized to equity.
Class A Ordinary Shares Subject to Possible Redemption
The company accounts for its ordinary shares subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Ordinary shares subject to mandatory redemption (if any) are classified as a liability instrument and measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the company’s control) are classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. The company’s ordinary shares feature certain redemption rights that are considered to be outside of the company’s control and subject to the occurrence of uncertain future events. Accordingly, ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’ equity section of the company’s balance sheet.
Net Income Per Ordinary Share
We have two classes of ordinary shares, which are referred to as Class A ordinary shares and Class B ordinary shares. Earnings and losses are shared pro rata between the two classes of ordinary shares. Private warrants and public warrants to purchase 12,344,116 Class A ordinary shares at $11.50 per share were issued on May 21, 2021 and May 25, 2021. No warrants were exercised during the period ended December 31, 2022. The calculation of diluted income per ordinary share does not consider the effect of the warrants issued in connection with the (i) Initial Public Offering, (ii) exercise of the underwriters’ over-allotment option, and (iii) private placement, because the exercise of the warrants is contingent upon the occurrence of future events. As a result, diluted net income per ordinary share is the same as basic net income per ordinary share for the periods. Accretion associated with the redeemable Class A ordinary share is excluded from earnings per share as the redemption value approximates fair value.
Recent Accounting Standards
See Note 2 to the financial statements required by Item 1 of this Annual Report.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” and under the JOBS Act are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company,” we choose to rely on such exemptions we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), (iv) hold a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved and (v) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the principal executive officer’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our Initial Public Offering or until we are no longer an “emerging growth company,” whichever is earlier.
