Bowlero (BOWL) - 2022 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the company's unaudited financial statements, management's discussion, market risk disclosures, and control procedures Item 1. Financial Statements This section presents unaudited condensed financial statements, notes on accounting policies, IPO, related parties, and a restatement Condensed Balance Sheets (unaudited) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific dates | Metric | September 30, 2021 ($) | December 31, 2020 ($) | |:----------------------------|:-------------------|:------------------| | Cash | $1,215,849 | $— | | Total Current Assets | $1,421,326 | $47,500 | | Marketable Securities in Trust Account | $254,845,389 | $— | | Total Assets | $256,345,825 | $47,500 | | Total Current Liabilities | $221,963 | $27,500 | | Forward Purchase Agreement Liability | $4,225,138 | $— | | Warrant Liability | $19,233,202 | $— | | Total Liabilities | $32,599,598 | $27,500 | | Class A Ordinary Shares Subject to Redemption | $254,844,389 | $— | | Total Shareholders' (Deficit) Equity | $(31,098,162) | $20,000 | Condensed Statements of Operations (unaudited) This section details the company's financial performance, including revenues, expenses, and net loss over specific periods | Metric | Three Months Ended Sep 30, 2021 ($) | Nine Months Ended Sep 30, 2021 ($) | |:----------------------------------------|:--------------------------------|:-------------------------------| | General and Administrative Expenses | $785,494 | $1,260,847 | | Loss from Operations | $(785,494) | $(1,260,847) | | Trust Interest Income | $3,848 | $7,389 | | Unrealized Loss on Change in Fair Value of FPA | $(2,208,594) | $(3,667,048) | | Unrealized Loss on Change in Fair Value of Warrants | $(5,266,872) | $(811,507) | | Total Other Expense | $(7,471,618) | $(5,110,013) | | Net Loss | $(8,257,112) | $(6,370,860) | | Basic and Diluted Net Loss Per Ordinary Share (Class A) | $(0.26) | $(0.26) | | Basic and Diluted Net Loss Per Ordinary Share (Class B) | $(0.25) | $(0.25) | Condensed Statements of Changes in Shareholders' Equity (Deficit) (unaudited) This section outlines the changes in the company's equity, reflecting net losses, share transactions, and reclassifications - The company's total shareholders' equity (deficit) decreased significantly from $20,000 at December 31, 2020, to $(31,098,162) at September 30, 2021, primarily due to net losses and reclassifications related to Class A ordinary shares subject to possible redemption and warrant/FPA liabilities[14] - Key changes include the sale of IPO units and private placement warrants, incurring underwriting and offering costs, initial classification of warrant and FPA liabilities, forfeiture of founder shares, and the impact of net losses[14] Condensed Statement of Cash Flows (unaudited) This section summarizes the cash inflows and outflows from operating, investing, and financing activities | Cash Flow Activity | Nine Months Ended Sep 30, 2021 ($) | |:-------------------------------|:-------------------------------| | Net Cash Used in Operating Activities | $(1,178,204) | | Net Cash Used in Investing Activities | $(254,838,000) | | Net Cash Provided by Financing Activities | $257,232,053 | | Net Change in Cash | $1,215,849 | | Cash, End of the Period | $1,215,849 | - Significant non-cash activities include deferred underwriting commissions ($8,919,295), initial value of Class A ordinary shares subject to possible redemption ($254,837,000), and initial classification of warrant and FPA liabilities ($18,421,695 and $558,090 respectively)[17] Notes to Condensed Financial Statements (unaudited) This section provides detailed explanations and disclosures supporting the condensed financial statements Note 1 - Organization and Business Operations This note details the company's formation, purpose as a SPAC, IPO, and proposed business combination with Bowlero Corp - Isos Acquisition Corporation (the "Company") was incorporated on December 29, 2020, as a Cayman Islands exempted company, primarily for effecting a business combination[20] - On July 1, 2021, the Company entered into a Business Combination Agreement (BCA) with Bowlero Corp., the world's largest owner and operator of bowling centers[20][24] - Post-merger, the Company will be renamed "Bowlero" and its stock will trade under "BOWL" on the NYSE[20][24] - The Company consummated its Initial Public Offering (IPO) on March 5, 2021, selling 22,500,000 units at $10.00 per unit, generating $225,000,000 gross proceeds, and simultaneously sold 5,000,000 Private Placement Warrants for $7,500,000[25][26] - Following the IPO and over-allotment exercise, $254,837,000 was placed in a Trust Account, to be invested in U.S. government securities or money market funds, pending the completion of a Business Combination[30] - As of September 30, 2021, the Company had approximately $1.2 million in its operating bank account and working capital, with management believing it has sufficient liquidity to meet needs through the earlier of a Business Combination or one year from filing[38][41] Note 2 — Restatement of Previously Issued Financial Statements This note explains the restatement of financial statements due to reclassification of Class A ordinary shares - The Company restated its previously reported financial statements to reclassify Class A ordinary shares subject to possible redemption as temporary equity in their entirety, in accordance with ASC 480-10-S99, as redemption provisions are outside the Company's control[43] - This reclassification resulted in adjustments to additional paid-in capital, accumulated deficit, and Class A ordinary shares, and also impacted the earnings per share calculation to allocate net income (loss) pro rata to Class A and Class B ordinary shares[43][45] - The restatement did not change the Company's total assets, liabilities, or operating results, only the classification within equity[47] Note 3 - Significant Accounting Policies This note outlines the key accounting principles and methods used in preparing the financial statements - The unaudited condensed financial statements are prepared in conformity with US GAAP and SEC rules, with management making estimates for fair value measurements of financial instruments[49][53] - The Company is an "emerging growth company" under the JOBS Act and has elected to use the extended transition period for complying with new or revised financial accounting standards, which may affect comparability with other public companies[51][52] - Marketable securities in the Trust Account are classified as trading securities and measured at fair value, with gains/losses included in Trust interest income[54] - Fair value measurements are categorized into a three-tier hierarchy (Level 1, 2, 3), with Private Placement Warrants and Forward Purchase Agreement (FPA) liabilities classified as Level 3 due to unobservable inputs[56][59] - All Class A ordinary shares are classified outside of permanent equity due to redemption features not solely within the Company's control, with changes in redemption value recognized immediately[61][62] - Warrants are accounted for as derivative instruments, recorded at fair value at grant date and re-valued at each reporting date, with changes reported in the statements of operations[67] - The Company accounts for income taxes under ASC 740, recognizing deferred tax assets/liabilities and establishing a valuation allowance if needed, and notes no taxation on income by the Cayman Islands government[69][73] Note 4 - Initial Public Offering This note details the terms and proceeds of the company's initial public offering, including warrants - The IPO involved selling 22,500,000 units at $10.00 each, with each unit comprising one Class A ordinary share and one-third of one redeemable warrant[75] - The underwriters partially exercised an over-allotment option for an additional 2,983,700 units[76] - Public warrants become exercisable on the later of 30 days after the initial Business Combination or 12 months from IPO closing, expiring five years after the Business Combination[75][78] - The Company may redeem outstanding warrants for cash at $0.01 per warrant if Class A ordinary shares equal or exceed $18.00, or at $0.10 per warrant if shares equal or exceed $10.00 (with cashless exercise option)[81][83] Note 5 - Private Placement This note describes the private placement of warrants to the Sponsor and LionTree Partners LLC - The Sponsor and LionTree Partners LLC purchased 5,000,000 Private Placement Warrants at $1.50 each, generating $7,500,000, with additional purchases made upon over-allotment exercise[86][87] - Private Placement Warrants are subject to transfer restrictions and are generally not redeemable by the Company as long as held by the Sponsor or its permitted transferees, who also have a cashless exercise option[88] Note 6 - Related Party Transactions This note discloses transactions and agreements between the company and its related parties, including the Sponsor - The Sponsor initially received 5,750,000 Class B ordinary shares for $25,000, which increased to 6,468,750 founder shares after a stock dividend, with 97,825 shares forfeited due to partial over-allotment exercise[89][118] - The Sponsor and founding team waived redemption rights for their founder shares and public shares in connection with a Business Combination or certain charter amendments, and agreed to vote in favor of the initial Business Combination[90] - The Sponsor overfunded the Trust Account by $1,000 as of September 30, 2021, which the Company intends to return[93] - The Sponsor provided an unsecured, non-interest-bearing promissory note loan of $125,267 to the Company, which was repaid in full on March 15, 2021[94][95] - The Company pays an affiliate of the Sponsor $51,667 per month for administrative services, totaling $155,001 for the three months and $361,669 for the nine months ended September 30, 2021[97] Note 7 - Fair Value Measurements This note details the fair value hierarchy and valuation methods for financial instruments and liabilities | Asset/Liability | September 30, 2021 ($) | Fair Value Hierarchy | |:---------------------------------|:-------------------|:---------------------| | Money Market Funds in Trust Account | $254,845,389 | Level 1 | | FPA Liability | $4,225,138 | Level 3 | | Warrant Liability - Private Placement Warrants | $7,510,700 | Level 3 | | Warrant Liability - Public Warrants | $11,722,502 | Level 1 | - The initial fair value of Public Warrants and Private Placement Warrants was established using a Monte Carlo simulation model, classifying them as Level 3 due to unobservable inputs[101] - As of September 30, 2021, Public Warrants are classified as Level 1 due to observable market quotes, while Private Placement Warrants and FPA liability remain Level 3, valued using a Monte Carlo simulation[103][104] | Input | Warrant Liability (Sep 30, 2021) | FPA Liability (Sep 30, 2021) | |:--------------------------|:---------------------------------|:-----------------------------| | Expected Term (years) | 5.29 | 0.27 | | Expected Volatility | 29.3% | N/A | | Risk-Free Interest Rate | 1.03% | 0.04% | | Stock Price | $9.98 | $9.88 | | Warrant Value | $1.39 | N/A | | Change in Fair Value (Level 3 Liability) | Warrant Liability ($) | FPA Liability ($) | |:-----------------------------------------|:------------------|:--------------| | Fair value as of December 31, 2020 | $— | $— | | Initial fair value | $18,421,695 | $558,090 | | Transfer out of Level 3 to Level 1 | $(8,494,567) | $— | | Change in fair value | $(2,416,428) | $3,667,048 | | Fair value as of September 30, 2021 | $7,510,700 | $4,225,138 | Note 8 - Commitments and Contingencies This note outlines the company's contractual obligations, potential liabilities, and business combination agreements - Holders of founder shares, Private Placement Warrants, and securities from the forward purchase agreement are entitled to registration rights[108] - The Company granted underwriters a 45-day over-allotment option and incurred a fixed underwriting discount of $4,500,000, plus a deferred underwriting discount of 3.5% ($7,875,000) payable upon Business Combination completion[109][110] - The Forward Purchase Agreement (FPA) with Apollo affiliates was amended to increase the purchase of units to 10,000,000 for $100,000,000, to occur concurrently with the Business Combination closing[112] - The Business Combination Agreement with Bowlero Corp. outlines a merger where Bowlero will merge into the Company, which will then be renamed "Bowlero," with Bowlero's stockholders receiving cash, common stock, and preferred stock[115] Note 9 - Shareholders' Equity This note details the authorized and outstanding share capital, including Class A and Class B ordinary shares - The Company is authorized to issue 1,000,000 preference shares, 300,000,000 Class A ordinary shares, and 20,000,000 Class B ordinary shares[116][117][118] - As of September 30, 2021, there were no preference shares or Class A ordinary shares (excluding 25,483,700 shares subject to possible redemption) issued and outstanding, but 6,370,925 Class B ordinary shares were outstanding[117][118] - Class B ordinary shares will automatically convert into Class A ordinary shares upon consummation of the initial Business Combination, at a ratio ensuring they represent 20% of the total ordinary shares outstanding post-combination[120] Note 10 - Subsequent Events This note confirms the evaluation of events occurring after the reporting period, with no material adjustments - The Company evaluated subsequent events up to the financial statement issuance date and identified no events requiring adjustment or disclosure[121] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's financial condition, results of operations, liquidity, and critical accounting policies as a blank check company - The Company is a blank check company formed to effect a business combination, with plans to merge with Bowlero Corp., which will result in the Company being renamed "Bowlero" and its stock listed under "BOWL" on the NYSE[125][130] - The issuance of additional shares in a business combination could significantly dilute existing equity interests, subordinate Class A ordinary shares if preference shares are issued, and potentially affect control or market prices[126] - Incurring significant debt could lead to default, acceleration of obligations, inability to obtain additional financing, and limitations on dividend payments and operational flexibility[128] | Metric | Three Months Ended Sep 30, 2021 ($) | Nine Months Ended Sep 30, 2021 ($) | |:----------------------------------------|:--------------------------------|:-------------------------------| | Net Loss | $(8,257,112) | $(6,370,860) | | Operating Costs | $785,494 | $1,260,847 | | Trust Interest Income | $3,848 | $7,389 | | Unrealized Loss on Change in Fair Value of Warrants | $(5,266,872) | $(811,507) | | Unrealized Loss on Change in Fair Value of FPA | $(2,208,594) | $(3,667,048) | - As of September 30, 2021, the Company had $1.2 million in its operating bank account and working capital, with management expecting sufficient liquidity until the earlier of a Business Combination or one year from filing[136][139] - The Company classifies all Class A ordinary shares subject to redemption as temporary equity and accounts for warrants as liability-classified derivative instruments, with fair value changes recognized in operations[141][145][146] - The Company has no off-balance sheet arrangements and, as an emerging growth company, elects to delay adoption of new accounting standards and may rely on other reduced reporting requirements under the JOBS Act[147][148][149] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section states that market risk disclosures are not required for the company as a smaller reporting company - Quantitative and Qualitative Disclosures about Market Risk are not required for smaller reporting companies[151] Item 4. Control and Procedures Management concluded disclosure controls were ineffective due to a material weakness in classifying complex financial instruments, leading to restatements - The Company's disclosure controls and procedures were deemed ineffective as of September 30, 2021, due to a material weakness in analyzing complex financial instruments, including the proper classification of warrants as liabilities and redeemable Class A ordinary shares as temporary equity[153] - This material weakness necessitated restatements of previously filed financial statements for March 31, 2021, and June 30, 2021, to correctly classify all Class A ordinary shares as temporary equity[154] - The non-cash adjustments from the restatements did not impact the reported cash, cash equivalents, or total assets[155] - Remediation plans include enhanced access to accounting literature, research materials, and increased communication among personnel and third-party professionals to address complex accounting applications[156] PART II – OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings This section confirms that there are no legal proceedings to report - There are no legal proceedings to report[160] Item 1A. Risk Factors This section reports no material changes to previously disclosed risk factors - No material changes from the risk factors previously disclosed in the Company's final prospectus dated March 2, 2021, and subsequent Form 10-Q filings[162] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms no unregistered sales of equity securities or use of proceeds to report - There were no unregistered sales of equity securities and no use of proceeds to report[164] Item 3. Defaults Upon Senior Securities This section confirms no defaults upon senior securities - There were no defaults upon senior securities[166] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[168] Item 5. Other Information This section confirms no other information to report - There is no other information to report[170] Item 6. Exhibits This section lists all exhibits filed or incorporated by reference, including the Business Combination Agreement and certifications - Key exhibits include the Business Combination Agreement with Bowlero Corp., Form of Common and Preferred Subscription Agreements, Amended and Restated Forward Purchase Agreement, and various certifications (e.g., Section 302 and 906 of Sarbanes-Oxley Act)[173] SIGNATURES This section contains the signatures of the Co-Chairman and Co-CEO, Michelle Wilson, and CFO, Winston Meade - The report is signed by Michelle Wilson, Co-Chairman of the Board and Co-Chief Executive Officer, and Winston Meade, Chief Financial Officer, on November 15, 2021[177]