Business context and reporting period
This is Isos Acquisition Corporation’s unaudited Form 10-Q for the quarter ended June 30, 2021—not an operating-company filing for Lucky Strike Entertainment. Isos was a SPAC and had not commenced operations; its activity through quarter-end related to formation, its March 2021 IPO, and pursuing a business combination. On July 1, 2021, after the reporting period, Isos signed a business combination agreement with Bowlero Corp. The filing anticipated the combined company would be named Bowlero and trade as BOWL.
Key financial metrics
| Metric | Three months ended June 30, 2021 | Six months ended June 30, 2021 / June 30 balance |
|---|---|---|
| Operating revenue | None; the company had not commenced operations | None |
| Formation and operating costs | $380,526 | $475,353 |
| Net income | $2,803,140 | $1,886,252 |
| Operating cash flow | Not provided for the quarter | $(590,197) |
| Cash and working capital | — | $1,803,856 cash; approximately $1.9 million working capital |
| Trust account investments | — | $254,841,541 |
| Total liabilities | — | $24,460,197, including $13,966,330 warrant liabilities, $1,512,408 forward purchase agreement liability, and $8,919,295 deferred underwriting discount |
Net income primarily reflected noncash fair-value gains on warrants: $4,889,502 for the quarter and $4,455,365 for the six-month period. These were partly offset by fair-value losses on the forward purchase agreement of $1,709,377 and $1,458,454, respectively. Trust interest income was $3,541 for each period. The filing reports no operating-company revenue or operating margins. Cash flow included $254.8 million invested in the trust account and $257.2 million of net financing cash inflows for the six months.
Material changes and unusual items
- The company revised its prior warrant accounting after SEC staff guidance: warrants previously classified as equity were reclassified as derivative liabilities measured at fair value, with changes recognized in earnings. The March 5, 2021 balance sheet was revised.
- Public shares subject to possible redemption were presented as temporary equity at $227,507,470 at June 30, 2021.
- The July 1 Bowlero transaction was a subsequent event. Bowlero stockholders were to receive a mix of cash, common stock, and preferred stock. The related forward purchase agreement was amended on July 1 to provide for 10 million units and $100 million of gross proceeds.
- There is no prior-year comparable operating period in the presented statements; Isos was incorporated in December 2020.
Outlook, risks, and controls
Management said available working capital and borrowing capacity should be sufficient through the earlier of a business combination or one year from the filing. No operating guidance was provided. Isos noted that it would not generate operating revenue until after a business combination, at the earliest, and that sponsor or insider working-capital loans were optional; none were outstanding at June 30.
The company disclosed uncertainty about potential COVID-19 effects, which it said could negatively affect its financial position, cash flows, operations, or target search, although the impact was not determinable. It also warned of potential dilution, preference-share seniority, and debt-related risks in a business combination. The warrant-accounting revision resulted in a material weakness and management concluded disclosure controls were not effective as of June 30. Remediation steps were planned, but the company gave no assurance they would be effective. No legal proceedings were reported.
Important facts for investors to verify
- Confirm the status, final terms, closing conditions, and financing of the Bowlero business combination; the agreement was signed after quarter-end.
- Review the revised warrant accounting and the assumptions underlying Level 3 private-warrant and forward-purchase valuations.
- Assess redemption levels and the cash available outside the trust account; the trust balance is not equivalent to unrestricted operating cash.
- Verify the transaction’s dilution, preferred-stock rights, and ownership allocations against definitive transaction disclosures.
- Track remediation of the disclosed material weakness and any subsequent changes to disclosure controls.