References to "we", "us", "our" or the "Company" are to Bannix Acquisition
Corp., except where the context requires otherwise. The following discussion
should be read in conjunction with our financial statements and related notes
thereto included elsewhere in this report.
This "Management's Discussion and Analysis of Financial Condition and Results of
Operations" has been amended and restated to give effect to the restatement of
our financial statements, as more fully described in Note 2 to our financial
statements entitled "Restatement of Previously Issued Financial Statements." For
further detail regarding the restatement, see "Explanatory Note" and "Item 9A.
Controls and Procedures."
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Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended (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 Securities and
Exchange Commission ("SEC") filings.
Overview
We are a blank check company incorporated on January 21, 2021 as a Delaware
corporation and formed for the purpose of effecting a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses.
On September 14, 2021, we consummated our IPO of 6,900,000 units at $10.00 per
unit (the "Units"). The units sold included the full exercise of the
underwriters' over-allotment. Each Unit consists of one share of our common
stock (the "Public Shares"), one redeemable warrant to purchase one share of our
common stock at a price of $11.50 per share and one right. Each right entitles
the holder thereof to receive one-tenth (1/10) of one share of our common stock
upon the consummation of the Business Combination.
Simultaneously with the closing of the IPO and the over-allotment, we
consummated the issuance of 406,000 private placement units (the "Private
Placement Units") as follows: we sold 181,000 Private Placement Units to certain
investors for aggregate cash proceeds of $2,460,000 and issued an additional
225,000 private placement units to our Sponsor in exchange for the cancellation
of $1,105,000 in loans and a promissory note due to them. Each Private Placement
Unit consists of one share of our common stock, one redeemable warrant to
purchase one share of our common stock at a price of $11.50 per whole share and
one right. Each right entitles the holder thereof to receive one-tenth (1/10) of
one share of our common stock upon the consummation of our Business Combination.
Our management has broad discretion with respect to the specific application of
the net proceeds of the IPO and the Private Placement Units, although
substantially all of the net proceeds are intended to be generally applied
toward consummating our Business Combination.
Upon the closing of the initial public offering on September 14, 2021, a total
of $69,690,000 of the net proceeds from the IPO, the Over-Allotment and the
Private Placement were deposited in a trust account established for the benefit
of our public stockholders.
If we have not completed our initial business combination within 15 months, 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 (which
interest shall be net of taxes payable, and less 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), subject to applicable law, and (iii) as promptly as
reasonably possible following such redemption, subject to the approval of our
remaining stockholders and our board of directors, dissolve and liquidate,
subject in each case to our obligations under Delaware law to provide for claims
of creditors and the requirements of other applicable law.
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In December 2022, we extended the deadline by which we must complete a business
combination by three months, from December 14, 2022 to March 14, 2023. In order
to fund the $690,000 deposit required to allow for such extension, we obtained a
loan from Instant Fame, LLC evidenced by a non-interest-bearing promissory note
that is payable upon the consummation of a business combination by us. If we
fail to consummate a business combination, the outstanding debt under the
promissory note will be forgiven, except to the extent of any funds held outside
of the trust account after paying all other fees and expenses of the Company.
As approved by its stockholders at the Special Meeting of Stockholders of the
Company held on March 8, 2023, the Company filed an amendment to its Amended and
Restated Certificate of Incorporation with the Delaware Secretary of State on
March 9, 2023 (the "Extension Amendment"), to extend the date (the "Extension")
by which the Company must (1) complete a merger, share exchange, asset
acquisition, stock purchase, recapitalization, reorganization or similar
business combination involving the Company and one or more businesses (an
"initial business combination"), (2) cease its operations except for the purpose
of winding up if it fails to complete such initial business combination, and (3)
redeem 100% of the Company's common stock ("common stock") included as part of
the units sold in the Company's initial public offering that was consummated on
September 14, 2021 (the "IPO"), from March 14, 2023, and to allow the Company,
without another stockholder vote, to further extend the date to consummate a
business combination on a monthly basis up to twelve (12) times by an additional
one (1) month each time after March 14, 2023 or later extended deadline date, by
resolution of the Company's board of directors (the "Board"), if requested by
Instant, upon five days' advance notice prior to the applicable deadline date,
until March 14, 2024, or a total of up to twelve (12) months after March 14,
2023 (such date as extended, the "Deadline Date"), unless the closing of a
business combination shall have occurred prior thereto.
On March 13, 2023, the Board, at the request of the Sponsor, determined to
implement a first Extension and to extend the Deadline Date for an additional
month to April 14, 2023. In connection with the Sponsor's contribution for the
Extension, which was funded on March 10, 2023, on March 13, 2023, Bannix issued
an unsecured promissory note to the Sponsor with a principal amount equal to
$75,000 (the "Extension Note"). The Extension Note bears no interest and is
repayable in full upon the earlier of (a) the date of the consummation of
Bannix's initial business combination, or (b) the date of Bannix's liquidation.
If Bannix does not consummate an initial business combination by the Deadline
Date, the Notes will be repaid only from funds held outside of the trust account
or will be forfeited, eliminated or otherwise forgiven.
In connection with the vote on the Extension Amendment at the Special Meeting on
May 8, 2023, stockholders holding a total of 3,960,387 shares of the Company's
common stock exercised their right to redeem such shares for a pro rata portion
of the funds in the Company's trust account. As a result, approximately
$41,077,189.13 (approximately $10.37201 per share) will be removed from the
Company's trust account to pay such holders. Following redemptions, the Company
will have 5,463,613 shares outstanding.
We cannot assure you that our plans to complete our initial business combination
will be successful.
Results of Operations
Our entire activity since inception up to December 31, 2022 was in preparation
for our initial public offering and since the initial public offering, the
search for a suitable business combination. We will not generate any operating
revenues until the closing and completion of our initial business combination,
at the earliest.
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For the year ended December 31, 2022, we had a net income of $47,107, which
consisted of an unrealized gain from the change in fair value of Private Warrant
liability of $182,700, and interest income on the trust account of $1,088,633,
partially offset by operating costs of $1,000,944 and provision for income taxes
of $223,282.
For the period from January 21, 2021 (inception) through December 31, 2021, we
had a net loss of $277,203, which consisted of formation and operating costs of
$395,702, an unrealized gain from the change in fair value of private warrant
liability of $150,220, interest income on the trust account of $1,502, and
offering expenses related to the warrant issuance of $33,223.
Liquidity and Capital Resources
As of December 31, 2022, we had $19,257 in cash in our operating account and a
working capital deficit of $1,025,509.
Our liquidity needs up to December 31, 2022 had been satisfied through a capital
contribution from the Sponsors of $28,750 for common stock and from loans from a
Sponsor and related parties in order to pay offering costs and operating
expenses. In addition, in order to finance transaction costs in connection with
a business combination, our sponsors or an affiliate of our sponsors or certain
of our officers and directors may, but are not obligated to, provide us working
capital loans. As of December 31, 2022, there was $1,002,850 owed to Sponsors
and related parties and no other amounts outstanding under any Working Capital
loans. Included in the $1,002,850 owed to Sponsors and related parties is a Note
to Instant Fame for $690,000 to fund the trust account for the three-month
extension.
Based on the foregoing, management believes that we may not have sufficient
working capital and borrowing capacity to meet its needs through the earlier of
the consummation of a Business Combination. Over this time period, the Company
will be using the funds in the operating bank account to pay 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.
The Company is within 12 months of its mandatory liquidation date as of the date
of the filing of this report. In connection with our assessment of going concern
considerations, we had until December 14, 2022 to consummate a Business
Combination. The Company has extended the deadline by which the Company must
complete a business combination by three months, from December 14, 2022 to March
14, 2023. In order to fund the $690,000 deposit required to allow for such
extension ("extension funds"), the Company has obtained a loan from Instant
evidenced by a non-interest-bearing promissory note that is payable upon the
consummation of a business combination by the Company.
As approved by its stockholders at the Special Meeting of Stockholders of the
Company held on March 8, 2023, the Company filed the Extension Amendment for the
Extension by which the Company must (1) complete an initial business
combination, (2) cease its operations except for the purpose of winding up if it
fails to complete such initial business combination, and (3) redeem 100% of the
Company's common stock included as part of the units sold in the Company's IPO
from March 14, 2023, and to allow the Company, without another stockholder vote,
to further extend the date to consummate a business combination on a monthly
basis up to twelve (12) times by an additional one (1) month each time after
March 14, 2023 or later extended deadline date, by resolution of the Board if
requested by Instant, upon five days' advance notice prior to the Deadline Date
unless the closing of a business combination shall have occurred prior thereto.
On March 13, 2023, the Board, at the request of the Sponsor, determined to
implement a first Extension and to extend the Deadline Date for an additional
month to April 14, 2023. In connection with the Sponsor's contribution for the
Extension, which was funded on March 10, 2023, on March 13, 2023, Bannix issued
the Extension Note. The Extension Note bears no interest and is repayable in
full upon the earlier of (a) the date of the consummation of Bannix's initial
business combination, or (b) the date of Bannix's liquidation. If Bannix does
not consummate an initial business combination by the Deadline Date, the Notes
will be repaid only from funds held outside of the trust account or will be
forfeited, eliminated or otherwise forgiven.
It is uncertain that we will be able to consummate a Business Combination by
that time. If a Business Combination is not consummated by this date, there will
be a mandatory liquidation and subsequent dissolution of the Company. We have
determined that the insufficient funds to meet the operating needs of the
Company through the liquidation date as well as the mandatory liquidation,
should a business combination not occur, and potential subsequent dissolution
raises substantial doubt about our ability to continue as a going concern.
59
These financial statements do not include any adjustments relating to the
recovery of the recorded assets or the classification of the liabilities that
might be necessary should we be unable to continue as a going concern.
Critical Accounting Policies
The preparation of these financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
expenses during the reporting period. Actual results could differ from those
estimates. We have identified the following as our critical accounting policies:
Fair Value of Warrant Liability
The Company accounted for the Private Placement Warrants issued in connection
with the IPO and private placement in accordance with the guidance contained in
ASC Topic 815, "Derivatives and Hedging" whereby under that provision, the
Private Warrants did not meet the criteria for equity treatment and were
recorded as a liability. Accordingly, the Company classified the Private
Warrants as a liability at fair value in the years ended December 31, 2022 and
2021 and will adjust them to fair value at each reporting period. This liability
will be re-measured at each balance sheet date until the Private Warrants are
exercised or expire, and any change in fair value will be recognized in the
Company's statement of operations. The Public Warrants are classified as equity.
Common Stock Subject to Redemption
The Company accounts for its 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 (if any) are classified as
a liability instrument and measured at fair value. Conditionally redeemable
common stock (including common stock 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 and subsequently measured at redemption value. At
all other times, shares of common stock are classified as stockholders' equity.
The Company's shares of common stock sold as part of the IPO 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, all shares of
common stock subject to possible redemption are presented at their net carrying
value and classified as temporary equity, outside of the stockholders' equity
section of the Company's balance sheet. The initial carrying value of the common
stock subject to redemption is recorded at an amount equal to the proceeds of
the public offering less (i) the fair value of the public warrants and less (ii)
offering costs allocable to the common stock sold as part of the units in the
public offering. In accordance with the alternative methods described in ASC
Subtopic 480-10-S99-3A(15), "Classification and Measurement of Redeemable
Securities." the Company has made an accounting policy election to accrete
changes in the difference between the initial carrying amount and the redemption
amount ($10.10 per share) over the period form the IPO date to the expected
redemption date. For purposes of accretion, the Company has estimated that it
will take 15 months for a business combination to occur and accordingly will
accrete the carrying amount to the redemption value using the effective interest
method over that period. Such changes are reflected in additional paid in
capital, or in the absence of additional paid-in capital, in accumulated
deficit.
With the three-month extension of the Combination Period and the additional
funding of $690,000 ($0.10 per share) in the Trust Account the Company changed
the methodology on a go-forward basis to 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 (to the extent available)
and accumulated deficit.
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Deferred Offering Costs
We comply with the requirements of ASC Subtopic 340-10-S99-1, "Expenses of
Offering." Our offering costs consist of legal, accounting, underwriting fees
and other costs incurred through December 31, 2021 that were directly related to
the IPO. Upon consummation of the IPO, offering costs were allocated to the
separable financial instruments issued in the IPO on a relative fair value basis
compared to total proceeds received. Offering costs associated with our warrant
liabilities were expensed as incurred and presented as non-operating expenses in
our statement of operations. Offering costs associated with the shares of our
common stock were charged to temporary equity (common stock subject to possible
redemption) upon the completion of the IPO.
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board ("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, with early adoption permitted beginning on
January 1, 2021. The Company adopted ASU 2020-06 as of January 1, 2021.
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.
Off-Balance Sheet Arrangements; Commitments and Contractual Obligations
Registration Rights
Pursuant to a registration rights agreement entered into on September 10, 2021,
the holders of the founder shares, the private placement units and private
placement units that may be issued upon conversion of working capital loans will
be entitled to registration rights pursuant to a registration rights agreement
to be signed prior to or on the closing date of this offering requiring us to
register such securities for resale. 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
the completion of our initial business combination. We will bear the expenses
incurred in connection with the filing of any such registration statements.
Underwriters Agreement
We granted the underwriters a 30-day option from the date of the initial public
offering to purchase up to an additional 900,000 units to cover over-allotments,
if any at the initial public offering price less the underwriting discounts and
commissions. This option was fully exercised at the time of the IPO.
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The underwriters were entitled to a cash underwriting discount of 3% of the
gross proceeds of the IPO, or $2,070,000, which includes a deferred underwriting
discount of $225,000 in the aggregate which will be payable to the underwriters
from the amounts to be brought in by the sponsors solely in the event that we
complete a business combination, subject to the terms of the underwriting
agreement. Additionally, the underwriters will be entitled to a business
combination marketing fee of 3.5% of the gross proceeds of the sale of Units in
the initial public offering held in the trust account upon the completion of the
initial Business Combination subject to the terms of the underwriting agreement.
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.
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