FIRST LIGHT ACQUISITION GROUP, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

References to the "Company," "First Light Acquisition Group, Inc.," "our," "us"
or "we" refer to First Light Acquisition Group, Inc.. The following discussion
and analysis of the Company's financial condition and results of operations
should be read in conjunction with the 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.
Special Note Regarding Forward-Looking Statements
This Quarterly 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 Quarterly 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 U.S. Securities and Exchange Commission (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 newly incorporated blank check company formed as a Delaware corporation
whose business purpose is to effect a merger, capital stock exchange, asset
acquisition, stock purchase, reorganization or similar business combination with
one or more businesses or entities. We have not identified any business
combination partner and we have not, nor has anyone on our behalf, initiated any
substantive discussions, directly or indirectly, with respect to any potential
business combination with us.
Our sponsor is First Light Acquisition Group, LLC ("Sponsor"), and Metric
Finance Holdings I, LLC ("Metric") an affiliate of Guggenheim Securities, LLC.
The registration statement for our Initial Public Offering was declared
effective on September 9, 2021. On September 14, 2021, we consummated the
Initial Public Offering of 23,000,000 units (the "Units" and, with respect to
the Class A common stock included in the Units being offered, the "Class A
common stock" or "public shares"), including the issuance of 3,000,000 Units as
a result of the underwriter's exercise of its over-allotment option, at $10.00
per Unit, generating gross proceeds of approximately $230 million, and incurring
offering costs of approximately $22,517,064 million, consisting of $2,335,058
underwriter fees, $8,050,000 deferred underwriting commissions, $640,129 of
actual offering costs, and $11,491,876 of excess fair value of Founder Shares.
Simultaneously with the closing of the Initial Public Offering, we consummated
the private placement ("Private Placement") of 3,397,155 warrants (each, a
"Private Placement Warrant" and collectively, the "Private Placement Warrants"),
at a price of $1.50 per Private Placement Warrant with our Sponsor, generating
gross proceeds of approximately $5,095,733 million.
Following the closing of the Initial Public Offering, the full exercise of the
over-allotment option and the sale of the Private Placement Warrants, an amount
of $230 million ($10.00 per Unit) from the net proceeds of the sale of the Units
in the Initial Public Offering and the sale of the Private Placement Warrants
was placed in a trust account (the "Trust Account").
We have until September 14, 2022 to consummate a Business Combination (the
"Combination Period") (or March 14, 2023 if we were to exercise the two
three-month extensions). However, if we have not completed a 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 100% of 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 and not previously released to us to
pay our taxes, if any (less up to $100,000 of interest to pay dissolution
expenses), divided by the number of then issued and outstanding public shares,
which redemption will completely extinguish the rights of the public
shareholders as shareholders (including the right to receive further liquidating
distributions, if any), and (iii) as promptly as reasonably possible following
such redemption, subject to the approval of the Company's remaining public
shareholders and its 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.

                                       20
--------------------------------------------------------------------------------
  Table of Contents
Results of Operations
Our entire activity from inception through September 30, 2021 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
Business Combination at the earliest.
For the three months ended September 30, 2021 and for the period from March 24,
2021 (inception) through September 30, 2021, we had net loss of approximately
$1.2 million and $1.1 million, respectively, which consisted entirely of general
and administrative expenses.
Going Concern
As of September 30, 2021, the Company had $1,197,342 in operating cash and
working capital of $1,957,037.
The Company's liquidity needs up to September 14, 2021 had been satisfied
through a payment from the Sponsor and Metric of $25,000 for Class B common
stock, par value $0.0001 per share ("Class B common stock" and shares thereof,
"Founder Shares") (see Note 5), the Initial Public Offering and the issuance of
the Private Placement Warrants. Additionally, the Company drew on an unsecured
promissory note to pay certain offering costs.
The Company has incurred and expects to continue to incur significant costs in
pursuit of its financing and acquisition plans. The Company lacks the financial
resources it needs to sustain operations for a reasonable period of time, which
is considered to be one year from the issuance date of the financial statements.
Although no formal agreement exists, the Sponsor is committed to extend Working
Capital Loans as needed (defined in Note 5 below). The Company cannot assure
that its plans to consummate an initial Business Combination will be successful.
In addition, management is currently evaluating the impact of the
COVID-19
pandemic and its effect on the Company's financial position, results of its
operations and/or search for a target company.
These factors, among others, raise substantial doubt about the Company's ability
to continue as a going concern one year from the date this financial statement
is issued. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities as of September 30, 2021 other than as
described below.
We have an agreement to pay an affiliate of our Sponsor a monthly fee of $10,000
for office space and administrative and support services provided to the
Company. We began incurring these fees on September 14, 2021 and will continue
to incur these fees monthly until the earlier of the completion of a Business
Combination and the Company's liquidation.
The underwriter of the IPO is entitled to a deferred discount of $0.35 per Unit,
or $8,050,000 in the aggregate. The deferred discount will become payable to the
underwriter 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.
Commitments and Contingencies
Registration Rights
The holders of the Founder Shares (including the anchor investors), Private
Placement Warrants (and holders of their component securities, as applicable)
and any warrants that may be issued upon conversion of the Company Loans will be
entitled to registration rights pursuant to a registration and stockholder
rights agreement to be signed prior to or on the effective date of the
registration statement relating to the Initial Public Offering, requiring the
Company to register such securities for resale (in the case of the Founder
Shares, only after conversion to shares of Class A common stock). On and after
the date the Company consummates an initial Business Combination, the holders of
at least a majority of these securities are entitled to make up to three
demands, excluding short form demands, that the Company register such
securities. In addition, the holders have certain "piggy-back" registration
rights with respect to registration statements filed subsequent to the
consummation of a Business Combination and rights to require the Company to
register for resale such securities pursuant to Rule 415 under the Securities
Act. The Company will bear the expenses incurred in connection with the filing
of any such registration statements.

                                       21
--------------------------------------------------------------------------------
  Table of Contents
Pursuant to the forward purchase agreement, the Company has agreed (a) to use
commercially reasonable efforts to file within 30 calendar days after the
closing of the initial business combination a registration statement with the
SEC for a secondary offering of the forward purchase securities, (b) to use
commercially reasonable efforts to cause such registration statement to be
declared effective as soon as practicable thereafter but no later than the
earlier of (i) the 90th calendar day (or 120th calendar day if the SEC notifies
us that it will "review" the registration statement) following the closing of
the initial business combination and (ii) the 10th business day after the date
we are notified by the SEC that the registration statement will not be
"reviewed" or will not be subject to further review and (iii) to maintain the
effectiveness of such registration statement until the earliest of (A) the date
on which Franklin or its assignees cease to hold the securities covered thereby,
(B) the date all of the securities covered thereby can be sold publicly without
restriction or limitation under Rule 144 under the Securities Act and (C) 2
years from the effective date of the registration statement. The Company will
bear the cost of registering these securities.
Forward Purchase Agreement
In August 2021, the Company entered into a forward purchase agreement with
Franklin Strategic Series-Franklin Small Cap Growth Fund (the "forward purchase
agreement"), a Delaware statutory trust ("Franklin"), whereby Franklin has
agreed to purchase (subject to certain conditions set forth therein) 5,000,000
shares of Class A common stock plus 2,500,000 forward purchase warrants,
exercisable to purchase one share of Class A common stock at $11.50 per share,
for an aggregate purchase price of $50,000,000, or $10.00 for one share of
Class A common stock and
one-half
of one warrant, in a private placement to occur concurrently with the closing of
the initial business combination. The obligations under the forward purchase
agreement do not depend on whether any shares of Class A common stock are
redeemed by the Company's public stockholders.
Subject to certain conditions set forth in the forward purchase agreement,
Franklin may transfer the rights and obligations under the forward purchase
agreement, in whole or in part, to forward transferees, provided that upon such
transfer the forward transferees assume the rights and obligations of Franklin
under the forward purchase agreement. The proceeds from the sale of the forward
purchase securities may be used as part of the consideration to the sellers in
the Company's initial Business Combination, for expenses in connection with its
initial Business Combination or for working capital in the post-transaction
company.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States 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 periods
reported. Actual results could materially differ from those estimates. We have
identified the following as our critical accounting policies:
Class A common stock Subject to Possible Redemption
The Company accounts for its Class A common stock subject to possible redemption
in accordance with the guidance in ASC 480. Shares of Class A common stock
subject to mandatory redemption is classified as a liability instrument and is
measured at fair value. Conditionally redeemable common stock (including common
stock that features redemption rights that is either within the control of the
holder or subject to redemption upon the occurrence of uncertain events not
solely within the Company's control) is classified as temporary equity. At all
other times, common stock is classified as stockholders' equity. The Company's
Class A common stock features certain redemption rights that are considered to
be outside of the Company's control and subject to occurrence of uncertain
future events. Accordingly, at September 30, 2021, Class A common stock subject
to possible redemption is presented at redemption value as temporary equity,
outside of the stockholders' equity section of the Company's balance sheet.

                                       22
--------------------------------------------------------------------------------
  Table of Contents
Net Loss per Common Stock
The Company's statements of operations include a presentation of income (loss)
per share for Class A common stock subject to possible redemption in a manner
similar to the
two-class
method of income (loss) per common stock. Net income per common stock, basic and
diluted, for redeemable Class A common stock is calculated by dividing the
interest income earned on the Trust Account, by the weighted average number of
redeemable Class A common stock outstanding since original issuance. Net loss
per common stock, basic and diluted, for
non-redeemable
Class A and Class B common stock is calculated by dividing the net income
(loss), adjusted for income attributable to Class A common stock subject to
possible redemption, by the weighted average number of
non-redeemable
Class A and Class B common stock outstanding for the period.
Non-redeemable
Class B common stock include the Founder Shares as these common stocks do not
have any redemption features and do not participate in the income earned on the
Trust Account.
Warrant Liability
The Company accounted for the 14,897,155 warrants issued in connection with the
Initial Public Offering and the Private Placement Warrants (collectively, the
"Warrants") as either equity-classified or liability-classified instruments
based on an assessment of the Warrant's specific terms and applicable
authoritative guidance in ASC 480 and ASC 815, "Derivatives and Hedging" ("ASC
815"). The assessment considers whether the warrants are freestanding financial
instruments pursuant to ASC 480, meet the definition of a liability pursuant to
ASC 480, and whether the warrants meet all of the requirements for equity
classification under ASC 815, including whether the warrants are indexed to the
company's own common stock, among other conditions for equity classification.
This assessment, which requires the use of professional judgment, is conducted
at the time of warrant issuance and as of each subsequent quarterly period end
date while the warrants are outstanding.
Such guidance provides that because the warrants do not meet the criteria for
equity treatment thereunder, each warrant must be recorded as a liability. The
accounting treatment of derivative financial instruments requires that the
Company record a derivative liability upon the closing of the Initial Public
Offering. Accordingly, the Company will classify each warrant as a liability at
its fair value and the warrants will be allocated a portion of the proceeds from
the issuance of the Units equal to its fair value. This liability is subject to
re-measurement
at each balance sheet date. With each such
re-measurement,
the warrant liability will be adjusted to fair value, with the change in fair
value recognized in the Company's statement of operations. The Company will
reassess the classification at each balance sheet date. If the classification
changes as a result of events during the period, the warrants will be
reclassified as of the date of the event that causes the reclassification.
Recent Accounting Pronouncements
Our management does not believe that there are any other recently issued, but
not yet effective, accounting pronouncements, if currently adopted, would have a
material effect on our balance sheet.
Off-Balance
Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance
sheet arrangements as of September 30, 2021. We do not participate in
transactions that create relationships with unconsolidated entities or financial
partnerships, often referred to as variable interest entities, which would have
been established for the purpose of facilitating
off-balance
sheet arrangements. We have not entered into any
off-balance
sheet financing arrangements, established any special purpose entities,
guaranteed any debt or commitments of other entities, or purchased any
non-financial
assets.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule
12b-2
of the Exchange Act and are not required to provide the information otherwise
required under this item.
Item 4. Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in our reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in our
reports filed or submitted under the Exchange Act is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure.

                                       23
--------------------------------------------------------------------------------
  Table of Contents
Evaluation of Disclosure Controls and Procedures
As required by Rules
13a-15
and
15d-15
under the Exchange Act, our Chief Executive Officer and Chief Financial Officer
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures as of September 30, 2021. Based upon
their evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures (as defined in Rules
13a-15
(e) and
15d-15
(e) under the Exchange Act) were effective.
Changes in Internal Control Over Financial Reporting
During the most recently completed fiscal quarter, there has been no change in
our internal control over financial reporting that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.

                                       24

--------------------------------------------------------------------------------

Table of Contents

© Edgar Online, source Glimpses