References to the "Company," "our," "us" or "we" refer to Integral Acquisition
Corporation 1. The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with the
unaudited interim 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 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. Factors that might cause or contribute to
such a discrepancy include, but are not limited to, those described in our other
SEC filings.
Overview
We are a newly organized blank check company incorporated on February 16, 2021
as a Delaware corporation and formed for the purpose of effect a merger, capital
stock exchange, asset acquisition, stock purchase, reorganization or similar
business combination with one or more businesses (the "Business Combination").
Our sponsor is Integral Sponsor, LLC, a Delaware limited liability company (the
"Sponsor"). The registration statement for our initial public offering was
declared effective on November 2, 2021. On November 5, 2021, we consummated our
initial public offering (the "Initial Public Offering") of 11,500,000 Units,
including the full exercise of the underwriters' over-allotment option to
purchase 1,500,000 units, at a purchase price of $10.00 per Unit. Offering costs
amounted to $10,757,787 consisting of $2,000,000 of underwriting commissions,
$6,050,000 of deferred underwriting commissions, an excess of fair value of the
Founder Shares acquired by the Anchor Investors of $3,386,739, and $556,048 of
other offering costs (before $1,235,000 of offering costs reimbursed by the
underwriter). Of the total offering costs, $10,247,056 was charged to temporary
equity and the remailing $510,731 is included in equity.
Simultaneously with the closing of the IPO, we completed the private sale of an
aggregate of 4,950,000 warrants, including 90,000 warrants issued in connection
with the exercise in full by the underwriter of its option to purchase
additional Units (the "Private Placement Warrants") to the Sponsor at a purchase
price of $1.00 per Private Placement Warrant, generating gross proceeds to the
Company of $4,950,000.
Upon the closing of the IPO, management has agreed that an amount equal to at
least $10.15 per Unit sold in the IPO, including the proceeds of the private
placement warrants, will be held in a Trust Account ("Trust Account"), located
in the United States with Continental Stock Transfer & Trust Company acting as
trustee, and will invest only in U.S. government securities, within the meaning
set forth in Section 2(a)(16) of the Investment Company Act, having a maturity
of 185 days or less or in money market funds meeting certain conditions under
Rule 2a-7 promulgated under the Investment Company Act which invest only in
direct U.S. government treasury obligations. Except with respect to interest
earned on the funds held in the Trust Account that may be released to the
Company to pay taxes, if any, the proceeds from the IPO and the sale of the
private placement warrants will not be released from the Trust Account until the
earliest of (i) the completion of initial Business Combination, (ii) the
redemption of the Company's public shares if we are unable to complete an
initial Business Combination within 18 months from the closing of the IPO,
subject to applicable law, or (iii) the redemption of the Company's public
shares properly submitted in connection with a stockholder vote to amend its
amended and restated certificate of incorporation to modify the substance or
timing of the Company's obligation to redeem 100% of its public shares if the
Company has not consummated an initial Business Combination within 18 months
from the closing of the IPO or with respect to any other material provisions
relating to stockholders' rights or pre-initial Business Combination activity.
The proceeds deposited in the Trust Account could become subject to the claims
of our creditors, if any, which could have priority over the claims of our
public stockholders.
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We will have only 18 months from the closing of the IPO to complete the initial
Business Combination (the "Combination Period"). However, if we are unable to
complete the initial Business Combination within the Combination Period, 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 (which interest shall be net of taxes payable
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 liquidation 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.
Liquidity, Capital Resources and Going Concern
As of September 30, 2022, we had approximately $0.8 million in our operating
bank account and working capital of approximately $1.1 million.
Prior to the completion of the IPO our liquidity needs had been satisfied
through a loan under an unsecured promissory note with the Sponsor totaling
$252,950 and the issuance of 2,875,000 Class B common stock at approximately
$0.009 per share for gross proceeds of $25,000. There is no balance outstanding
under the promissory note as of September 30, 2022. Subsequent to the
consummation of the initial public offering our liquidity needs have been
satisfied through the issuance of the Private Placement Warrants which generated
gross proceeds of $4,950,000.
In connection with our assessment of going concern considerations in accordance
with Financial Accounting Standard Board's 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 we be unable to complete a business combination,
raises substantial doubt about our ability to continue as a going concern. We
have until May 5, 2023 to consummate a Business Combination. It is uncertain
that we 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 we be required to liquidate
after May 5, 2023.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic on the
industry and has concluded that while it is reasonably possible that the virus
could have a negative effect on our 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 financial statements. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Inflation Reduction Act of 2022
On August 16, 2022, the Inflation Reduction Act of 2022 (the "IR Act") was
signed into federal law. The IR Act provides for, among other things, a new U.S.
federal 1% excise tax on certain repurchases of stock by publicly traded U.S.
domestic corporations and certain U.S. domestic subsidiaries of publicly traded
foreign corporations occurring on or after January 1, 2023. The excise tax is
imposed on the repurchasing corporation itself, not its shareholders from which
shares are repurchased. The amount of the excise tax is generally 1% of the fair
market value of the shares repurchased at the time of the repurchase. However,
for purposes of calculating the excise tax, repurchasing corporations are
permitted to net the fair market value of certain new stock issuances against
the fair market value of stock repurchases during the same taxable year. In
addition, certain exceptions apply to the excise tax. The U.S. Department of the
Treasury (the "Treasury") has been given authority to provide regulations and
other guidance to carry out and prevent the abuse or avoidance of the excise
tax.
Any redemption or other repurchase that occurs after December 31, 2022, in
connection with a Business Combination, extension vote or otherwise, may be
subject to the excise tax. Whether and to what extent the Company would be
subject to the excise tax in connection with a Business Combination, extension
vote or otherwise would depend on a number of factors, including (i) the fair
market value of the redemptions and repurchases in connection with the Business
Combination, extension or otherwise, (ii) the structure of a Business
Combination, (iii) the nature and amount of any "PIPE" or other equity issuances
in connection with a Business Combination (or otherwise issued not in connection
with a Business Combination but issued within the same taxable year of a
Business Combination) and (iv) the content of regulations and other guidance
from the Treasury. In addition, because the excise tax would be payable by the
Company and not by the redeeming holder, the mechanics of any required payment
of the excise tax have not been determined. The foregoing could cause a
reduction in the cash available on hand to complete a Business Combination and
in the Company's ability to complete a Business Combination.
Results of Operations
As of September 30, 2022, we had not commenced any operations. All activity for
the period from February 16, 2021 (inception) through September 30, 2022 relates
to our formation and the IPO and since the closing of the IPO, the search for a
prospective initial Business Combination. We have neither engaged in any
operations nor generated any revenues to date. We will not generate any
operating revenues until after the completion of our initial Business
Combination, at the earliest. We will generate non-operating income in the form
of interest income on cash and cash equivalents from the proceeds derived from
the Initial Public Offering and held in out Trust Account. We expect to incur
increased 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 three months ended September 30, 2022, we had net income of $78,861,
which consisted of trust interest income of $391,582, offset by operating costs
of $240,378, an unrealized loss on the change in the fair value of the FPA
liability of $43,577 and provision from income tax of $28,766.
For the nine months ended September 30, 2022, we had net loss of $1,395,455,
which consisted of operating costs of $780,468, provision from income taxes of
$28,766 and an unrealized loss on the change in the fair value of the FPA
liability of $1,033,639, partially offset by trust interest income of $447,418.
For the three months ended September 30, 2021, we had a net loss of $9,990
consisting of operating costs of $11,262 partially offset by an unrealized gain
on the change in the fair value of the FPA liability of $1,272.
For the period from February 16, 2021 (inception) to September 30, 2021, we had
net loss of $28,038, which consisted of formation and operating costs of $29,310
partially offset by an unrealized gain on the change in the fair value of the
FPA liability of $1,272.
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Contractual Obligations
We do not have any long-term debt obligations, capital lease obligations,
operating lease obligations, purchase obligations or long-term liabilities.
Administrative Services Agreement
Commencing on the date the Units are first listed on the Nasdaq, we have agreed
to pay the Sponsor a total of $20,000 per month for office space, utilities, and
secretarial and administrative support. Upon completion of the Initial Business
Combination or its liquidation, we will cease paying these monthly fees. Total
administrative fee for the three and nine months ended September 30, 2022 are
$60,000 and $160,000, respectively. No administrative fees had been recorded for
the three months ended September 30, 2021 and for the period from February 16,
2021 (inception) to September 30, 2021. At September 30, 2022 and December 31,
2021, $0 is reported on the balance sheet as due to Sponsor for the
administrative fees due.
Registration and Stockholder Rights
The holders of the (i) Founder Shares, which were issued in a private placement
prior to the closing of this offering, (ii) Private Placement Warrants, which
will be issued in a private placement simultaneously with the closing of this
offering and the shares of Class A common stock underlying such private
placement warrants, (iii) private placement warrants that may be issued upon
conversion of working capital loans and (iv) the forward purchase shares that
may be purchased pursuant to the related forward purchase agreements will have
registration rights to require us to register a sale of any of our securities
held by them prior to the consummation of our initial business combination
pursuant to a registration rights agreement to be signed prior to or on the
effective date of this offering. 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 our
completion of our initial business combination. We will bear the expenses
incurred in connection with the filing of any such registration statements.
Engagement of Services
On May 28, 2021, the Company entered into a letter agreement with J.V.B.
Financial Group, LLC ("J.V.B.") pursuant to which the Company engaged Cohen &
Company Capital Markets, a division of J.V.B., to provide consulting and
advisory services in connection with the IPO in return for a transaction fee to
be paid to J.V.B. in an amount equal to 10.0% of the aggregate underwriting
discount and commissions earned by the underwriters in connection with the IPO
to be paid simultaneously with the actual payment of such underwriting discount
and commissions to the underwriters upon (i) the closing of the IPO and (ii) the
completion of the Company's initial Business Combination. J.V.B. was one of the
Company's Anchor Investors that purchased Units in the IPO and became a member
of the Company's Sponsor at the closing of our IPO to hold an indirect interest
in a specified number of the Founder Shares held by the Sponsor.
On November 4, 2021, the Company paid J.V.B. $85,000 in cash from funds outside
of the Trust Account. Funds due to J.V.B. upon the completion of the Company's
initial Business Combination ($605,000 in the aggregate) will be paid by the
underwriters.
Underwriter Agreement
The underwriters' were due a commission of $0.20 per unit, or $2,000,000 in the
aggregate, on the first 10,000,000 Units sold in the IPO and the commission was
capped at $2,000,000. Additionally, the underwriters agreed to reimburse us
$1,235,000 for certain offering costs upon the IPO. On November 5, 2021, we paid
a cash underwriting commissions of $765,000 net of the reimbursement.
The underwriters are entitled to deferred underwriting commissions of $0.50 on
the first 10,000,000 Units sold in the IPO and $0.70 per unit per Unit sold
thereafter, or $6,050,000 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 an Initial Business Combination, subject to the terms of
the underwriting agreement for the offering.
Anchor Investment
Certain qualified institutional buyers or institutional accredited investors
(none of which are affiliated with any member of the Company's management team,
the Sponsor or any other anchor investor) (the "Anchor Investors"), have
purchased an aggregate of approximately $60.8 million of the units in the IPO at
the public offering price. There can be no assurance that the Anchor Investors
will retain their Units prior to or upon the consummation of the initial
Business Combination. In addition, none of the Anchor Investors has any
obligation to vote any of their public shares in favor of the initial Business
Combination.
The anchor investors have not been granted any stockholder or other rights that
are in addition to those granted to our other public stockholders, and will only
be issued equity interests in our sponsor, with no right to control our sponsor
or vote or dispose of any securities held by our sponsor. Further, unlike some
anchor investor arrangements of other blank check companies, the anchor
investors are not required to (i) hold any units, Class A common stock or
warrants they may purchase in this offering or thereafter for any amount of
time, (ii) vote any shares of Class A common stock they may own at the
applicable time in favor of our initial business combination or (iii) refrain
from exercising their right to redeem their public shares at the time of our
initial business combination. The anchor investors will have the same rights to
the funds held in the trust account with respect to the Class A common stock
underlying the units they may purchase in the IPO as the rights afforded to the
Company's other public stockholders. The excess of the fair value of the Founder
Shares was determined to be an offering cost in accordance with Staff Accounting
Bulletin Topic 5A. Accordingly, offering cost associated with the IPO includes
$3,386,739 of excess value of the anchor investors. The valuation of $6.78 per
Founder Share (or $3,391,739 in the aggregate) of the anchor investors was
reduced by $0.01 per founder share (or $5,000 in the aggregate), the price paid
for the founder shares.
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Forward Purchase Shares
Crescent Park, which is one of the Company's Anchor Investors, and Carnegie Park
have agreed, as the forward purchasers pursuant to their respective forward
purchase agreements entered into with the Company, to purchase up to 2,500,000
shares of Class A common stock in the case of Crescent Park and up to 500,000
shares of Class A common stock in the case of Carnegie Park (referred to herein
as the forward purchase shares) at $10.00 per share (as such price per share may
be reduced to $9.20 per share or further reduced to below $9.20 per share with
respect to all or part of the forward purchase shares that are purchased in the
manner described below) for gross proceeds up to $30,000,000 in the aggregate if
all of the forward purchase shares are purchased at $10.00 per share (or up to
$27,600,000 in the aggregate if all of the forward purchase shares are purchased
at $9.20 per share or up to a lower amount in the aggregate if all of the
forward purchase shares are purchased at less than $9.20 per share) in private
placements that occurred concurrently with the consummation of the initial
Business Combination.
The price to be paid for forward purchase shares will be reduced to or below
$9.20 per share in the following circumstances:
• to $9.20 if the aggregate purchase price paid by the forward purchaser at
$10.00 per share would exceed the lesser of (i) a specified dollar amount
and (ii) a specified percentage of the aggregate purchase price paid by
the purchasers of the SPAC's Class A common stock in private placements
that occur on or prior to the date of the SPAC's initial business
combination ("PIPEs");
• and to below $9.20 if the price per share in any PIPE is less than $9.20
(in which case the price per share paid by the forward purchaser will be
at an 8% discount from the price per share in such PIPE).
One of the forward purchasers and/or its affiliates is expected to purchase the
Company's public units. If such forward purchaser and/or any of its affiliates
sell more than 50% of the aggregate number of the public units purchased in the
IPO or, following the separate trading of the public shares and the public
warrants, the public shares that are a component of the public units that are
purchased by the forward purchaser or any of its affiliates in the IPO, in sales
that are consummated on or prior to the initial business combination, then the
price per share for the forward purchase shares will remain at $10.00 per share
for forward purchase shares in an aggregate number equal to the number of public
units and public shares sold by the forward purchaser and/or its affiliates in
such manner.
The following assumptions were utilized in the determination of fair value for
the FPA liability:
• Each forward purchase share is one share of the Company's Class A common
stock. No payment is due from the forward purchaser until immediately
before the initial business combination. The purchase price is $10.00 per
forward purchase share, subject to the discounted purchase price. The
discounted purchase price is either at $9.20 per share or at an 8%
discount to the PIPE price if the PIPE is priced below $9.20.
• The conditions upon obtaining a $9.20 purchase price are within the
control of the holder of the forward purchase share (the "FPA holder")
because the FPA holder will control the aggregate purchase price of the
forward purchase shares to be purchased by the FPA holder and, in the
case of the forward purchaser that is expected to purchase public units,
such forward purchaser and its affiliates will control whether such
forward purchaser and its affiliates sell or redeem more than 50% of the
public units (or, following the separate trading of the public shares and
the public warrants, the public shares) on or prior to the initial
business combination. The FPA holder that is expected to purchase public
units is assumed to have no negative economic impact from not selling or
redeeming more than 50% of the public units (or, following the separate
trading of the public shares and the public warrants) on or prior to the
initial business combination since such forward purchaser would be
selling at market price, without knowledge of future pricing, so that not
selling or redeeming and realizing the 8% discount to market price on its
future purchase is actually a positive feature to such FPA holder.
Therefore, the Company's management assumed that the likelihood of the
FPA holder to have a $10.00 purchase price is de minimus.
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• Management assumed a PIPE would be priced below $9.20 per share only 5%
of the time and would be priced at $9.00 per share when it is priced
below $9.20 per share.
The purchase of forward purchase shares by Crescent Park and Carnegie Park as
the forward purchasers pursuant to their respective forward purchase agreements
will be subject to their respective internal approval processes and the other
closing conditions set forth in their respective forward purchase agreements.
Since the decision whether or not to purchase the forward purchase shares will
be in the sole discretion of the forward purchasers, there can be no assurance
that such purchases will be consummated.
Each of the forward purchasers has the right to transfer all or a portion of its
rights and obligation to purchase the forward purchase shares to one or more
transferees who are affiliates of the forward purchaser (the "forward
transferees"), subject to compliance with applicable securities laws. Any such
forward transferee will be subject to the same terms and conditions under the
relevant forward purchase agreement. The forward purchase shares will be
identical to the shares of Class A common stock underlying the units being sold
in the IPO, except that they will be subject to certain registration rights and
transfer restrictions. The funds from the sale of the forward purchase shares
will be used as part of the consideration to the sellers in the initial Business
Combination and any excess funds will be used for working capital in the
post-transaction company. This commitment is independent of the percentage of
stockholders electing to redeem their public shares and is intended to provide
the Company with a minimum funding level for the initial Business Combination.
Critical Accounting Policies
Deferred Offering Costs
We comply with the requirements of the ASC 340-10-S99-1. Deferred offering costs
consist of underwriting, legal, accounting and other expenses incurred through
the balance sheet date that are directly related to the IPO. Offering costs are
allocated to the separable financial instruments to be issued in the IPO based
on a relative fair value basis, compared to total proceeds received. Upon
closing of the IPO on November 5, 2021, offering costs amounted to $10,757,787
consisting of $2,000,000 of underwriting commissions, $6,050,000 of deferred
underwriting commissions, an excess of fair value of the Founder Shares acquired
by the Anchor Investors of $3,386,739, and $556,048 of other offering costs
(before $1,235,000 of offering costs reimbursed by the underwriter), of the
total offering costs, $10,247,056 was charged to temporary equity and the
remaining $510,731 is included in equity.
Forward Purchase Agreement liability
We account for the 3,000,000 forward purchase shares (as described in Note 6)
issued pursuant to the Forward Purchase Agreements (the "FPA") in accordance
with the guidance contained in ASC 815-40. Such guidance provides that because
the FPA shares do not meet the criteria for equity treatment thereunder, each
FPA share must be recorded as a liability. Accordingly, we classify each FPA
share as a liability at its fair value. This liability is subject
tore-measurement at each balance sheet date. With each such re-measurement, the
FPA liability will be adjusted to fair value, with the change in fair value
recognized in the statement of operations.
Common Stock Subject to Possible Redemption
All of the 11,500,000 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 our liquidation, if there is a shareholder vote or tender offer
in connection with the Business Combination and in connection with certain
amendments to our 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. Therefore, all shares of Class A
common stock have been classified outside of permanent equity.
We recognize changes in redemption value immediately as they occur and adjusts
the carrying value of redeemable common stock to equal the redemption value at
the end of each reporting period. Increases or decreases in the carrying amount
of redeemable common stock are affected by charges against additional paid in
capital and accumulated deficit.
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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 common stock outstanding during the period,
excluding common stock subject to forfeiture by the Sponsor. Weighted average
shares were reduced for the effect of an aggregate of 375,000 common stock that
are subject to forfeiture if the over-allotment option is not exercised by the
underwriters. At September 30, 2022, we did not have any dilutive securities and
other contracts that could, potentially, be exercised or converted into common
stock and then share in the earnings of the Company. As a result, diluted income
(loss) per share is the same as basic income (loss) per share for the period
presented.
Warrants
We account for the 10,700,000 warrants issued in connection with the IPO
(comprised of 5,750,000 Public Warrants and 4,950,000 Private Placement
Warrants) in accordance with the guidance contained in ASC 815-40. Such guidance
provides that the warrants described are not precluded from equity
classification. Equity-classified contracts are initially measured at fair value
(or allocated value). Subsequent changes in fair value are not recognized as
long as the contracts continue to be classified in equity.
Recent Accounting Pronouncements
In August 2020, 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. On February 16, 2021, the
date of the Company's inception, the Company adopted the new standard.
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.
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