References to the "Company," "Forum Merger IV Corporation," "our," "us" or "we"
refer to Forum Merger IV Corporation. The following discussion and analysis of
the Company's financial condition and results of operations should be read in
conjunction with our audited financial statements and the notes related thereto
which are included in "Item 8. Financial Statements and Supplementary Data" of
this Annual Report on Form 10-K. Certain information contained in the discussion
and analysis set forth below includes forward-looking statements. Our actual
results may differ materially from those anticipated in these forward-looking
statements as a result of many factors, including those set forth under "Special
Note Regarding Forward-Looking Statements," "Item 1A. Risk Factors" and
elsewhere in this Annual Report on Form 10-K.
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 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. 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 set forth under
"Item 1A. Risk Factors" in this Annual Report on Form 10-K. 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 blank check company formed under the laws of the State of Delaware on
January 15, 2021 for the purpose of effecting a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses. We intend to effectuate our business
combination using cash from the proceeds of the initial public offering and the
sale of the private placement units, our capital stock, debt or a combination of
cash, stock and debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete a business
combination will be successful.
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Recent Developments
Extension
Our initial public offering prospectus and amended and restated certificate of
incorporation provided that we had until March 22, 2023 (the date which was 24
months after the consummation of the initial public offering) to complete an
initial business combination. As stated in the Current Report on Form 8-K filed
with SEC on March 9, 2023, we held a special meeting of stockholders and
approved the Extension Amendment to extend the date by which we have to
consummate an initial business combination from March 22, 2023 to April 22, 2023
or such earlier date as determined by our board of directors and to allow us,
without another stockholder vote, to elect to extend the completion window to
consummate a business combination on a monthly basis up to seven times by an
additional one month each time after the Extended Date, by resolution of our
board of directors, if requested by the Sponsor, and upon five days' advance
notice prior to the applicable completion window, until November 22, 2023 or a
total of up to eight months after the Current Outside Date, unless the closing
of a business combination shall have occurred prior thereto. In connection with
the approval of the Extension, stockholders elected to redeem an aggregate of
27,240,210 public shares, of which we paid cash from the trust account in the
aggregate amount of approximately $276,640,526.86 (approximately $10.16 per
share) to redeeming stockholders.
Extension Promissory Note
We agreed to deposit from our working capital account into the trust account,
for each such Additional Charter Extension Date, the lesser of (a) $175,000 or
(b) $0.05 for each public share then outstanding, which we agreed to deposit
into the trust account at the beginning of each month, for an aggregate deposit
of up to the lesser of (a) $1,225,000 or (b) $0.05 for each public share then
outstanding (if all additional extensions are exercised). In the event our
working capital account has been depleted, the Lender agreed to lend us the
Monthly Deposit in the form of a non-interest bearing, unsecured promissory
note, which we agreed to deposit into the trust account. If we complete a
business combination and have borrowed money from the Lender under the Note, we
will, at the option of the Lender, repay the amounts loaned under the Note or
convert a portion or all of the amounts loaned under such Note into units of the
post-business combination entity at a price of $10.00 per unit at the option of
the Lender, which units will be identical to the private placement units.
Additionally, if we do not complete a business combination by the Extended Date
(or Additional Charter Extension Date, if applicable), and a Note has been
issued to us by the Lender, such Note will be repaid only from funds held
outside of the trust account or will be forfeited, eliminated or otherwise
forgiven. If the Sponsor designates a third party as Lender, we may negotiate
with the Lender and vary the terms of the Note and its conversion, issue
securities and pay certain fees to the Lender in connection with the Note. In
the event our working capital account has been depleted, the Lender agreed to
lend us the Monthly Deposit in the form of the Note, which we shall deposit into
the trust account.
Letter of Intent
As disclosed in a Current Report on Form 8-K filed with the SEC on February 14,
2023, we have entered into a letter of intent with a target that is non-binding
with respect to all its material terms, except with respect to provisions
regarding a limited period of exclusivity. We are currently in discussions with
the LOI Target to extend the limited period of exclusivity in the letter of
intent. The LOI Target is a profitable and growing company in the online gaming
industry, providing its customers with an expansive portfolio of digital gaming
products and services. Subject to completion of its related audit, for the
calendar year ended December 31, 2022, the LOI Target expects adjusted revenue
in excess of $300 million and expects adjusted EBITDA margins of approximately
30%. The LOI Target also expects strong free cash flow conversion for fiscal
year 2023 substantially in excess of 2022 levels. The execution and negotiation
of a definitive business combination agreement is subject to several conditions,
including the completion of due diligence, securing certain concurrent financing
and negotiation and preparation of related definitive documentation. We cannot
assure stockholders that it will be able to enter into a definitive business
combination agreement with the LOI Target on terms acceptable to us or the LOI
Target prior to the Extended Date. In the event we and the LOI Target enter into
a business combination agreement and related definitive documents, we can also
not provide any assurance that the business combination agreement will be
consummated prior to the Extended Date.
46
Results of Operations
We have neither engaged in any operations (other than searching for a business
combination after our initial public offering) nor generated any revenues to
date. Our only activities through December 31, 2022 were organizational
activities, those necessary to prepare for the initial public offering,
described below, and identifying a target company for a business combination. We
do not expect to generate any operating revenues until after the completion of
our business combination. We generate non-operating income in the form of
interest income on marketable securities held in the trust account. We incur
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 year ended December 31, 2022, we had a net income of $7,642,377, which
consisted of interest earned on marketable securities held in the trust account
of $5,066,781 and a gain on the change in fair value of warrants of $6,834,200,
offset by general and administrative expenses of $3,059,119 and provision for
income taxes of $1,199,485.
For the period from January 15, 2021 (inception) through December 31, 2021, we
had a net loss of $2,091,085, which consisted of formation and operating costs
of $1,891,019, transaction costs allocated to warrants of $399,286, offset by
interest earned on marketable securities held in trust account of $26,202 and a
change in fair value of warrants of $173,018.
Liquidity and Capital Resources
On March 22, 2021, we consummated the initial public offering of 30,000,000
units at $10.00 per unit, generating gross proceeds of $300,000,000.
Simultaneously with the closing of the initial public offering, we completed the
private sale of 930,000 private placement units at a price of $10.00 per private
placement unit in which the Sponsor purchased 780,000 private placement units
and Jefferies LLC purchased 150,000 private placement units, generating gross
proceeds of $9,300,000.
On March 30, 2021, in connection with the underwriters' partial exercise of
their over-allotment option, we consummated the sale of an additional 3,601,509
units at a price of $10.00 per unit and the sale of an additional 72,301 private
placement units at a price of $10.00 per private placement unit, generating
total gross proceeds of $36,738,100. In connection with the underwriters'
partial exercise of their over-allotment option, the Sponsor purchased an
additional 54,022 private placement units and Jefferies LLC purchased an
additional 18,008 private placement units. Each private placement unit consists
of one share of Class A common stock and one-fourth of one warrant.
Following the initial public offering, the partial exercise of the
over-allotment option, and the sale of the private placement units, a total of
$336,015,090 was placed in the trust account. We incurred $18,998,772 in initial
public offering related costs, including $6,720,300 of underwriting fees,
$11,760,528 of deferred underwriting fees and $517,944 of other costs.
For the year ended December 31, 2022, cash used in operating activities was
$2,530,154. Net income of $7,642,377 was affected by changes in fair value of
warrant liabilities of $6,834,200 and interest earned on investments held in the
trust account of $5,066,781. Changes in operating assets and liabilities
provided $1,728,450 of cash for operating activities.
For the period from January 15, 2021 (inception) through December 31, 2021, cash
used in operating activities was $1,282,875. Net loss of $2,091,085 was affected
by transaction costs allocable to warrants of $399,286, change in fair value of
warrant liabilities of $173,018 and interest earned on marketable securities
held in trust account of $26,202. Changes in operating assets and liabilities
provided $608,144 of cash for operating activities.
On December 31, 2022, assets held in the trust account were comprised of $350 in
cash and $339,676,781 invested in U.S. Treasury Bills. Total investments in
marketable securities as of December 31, 2022 is $371,022. During the year ended
December 31, 2022, the Company had withdrawn $1,059,920 of interest income from
the trust account. Income on the balance in the trust account may be used by us
to pay taxes. We intend to use substantially all of the funds held in the trust
account, including any amounts representing interest earned on the trust account
(less income taxes payable), to complete our business combination. To the extent
that our capital stock or debt is used, in whole or in part, as consideration to
complete our business combination, the remaining proceeds held in the trust
account will be used as working capital to finance the operations of the target
business or businesses, make other acquisitions and pursue our growth
strategies.
47
As of December 31, 2022, we had cash of $53,947. We intend to use the funds held
outside the trust account primarily to identify and evaluate target businesses,
perform business due diligence on prospective target businesses, travel to and
from the offices, plants or similar locations of prospective target businesses
or their representatives or owners, review corporate documents and material
agreements of prospective target businesses, and structure, negotiate and
complete a business combination.
In addition, in order to finance transaction costs in connection with an
intended initial business combination, our Sponsor or an affiliate of our
Sponsor or certain of our officers and directors may, but are not obligated to,
loan us funds as may be required. If we complete our initial business
combination, we will repay such loaned amounts. In the event that our initial
business combination does not close, we may use a portion of the working capital
held outside the trust account to repay such loaned amounts but no proceeds from
our trust account would be used for such repayment. Up to $1,200,000 of such
working capital loans may be convertible into private placement-equivalent units
at a price of $10.00 per unit at the option of the lender. Such units would be
identical to the private placement units, including as to exercise price,
exercisability and exercise period of the underlying warrants. The terms of such
working capital loans by our Sponsor or its affiliates, or our officers and
directors, if any, have not been determined and no written agreements exist with
respect to such loans. We do not expect to seek loans from parties other than
our Sponsor or an affiliate of our Sponsor as we do not believe third parties
will be willing to loan such funds and provide a waiver against any and all
rights to seek access to funds in our trust account.
The Company may not have sufficient liquidity to fund the working capital needs
of the Company. Moreover, we may need to obtain additional financing either to
complete our business combination or because we become obligated to redeem a
significant number of our public shares upon consummation of our business
combination, in which case we may issue additional securities or incur debt in
connection with such business combination.
Going Concern
As of December 31, 2022, we had $53,947 in our operating bank account,
$340,048,153 in securities held in the trust account to be used for a business
combination or to repurchase or redeem our common stock in connection therewith
and a working capital deficit of $1,782,415, which excludes franchise and income
taxes payable as such amounts can be paid from the interest earned in the trust
account. As of December 31, 2022, $4,033,063 of the amount on deposit in the
trust account represented interest income, which is available to pay our tax
obligations.
Until the consummation of a business combination, we will be using the funds not
held in the trust account for identifying and evaluating prospective acquisition
candidates, performing due diligence on prospective target businesses, paying
for travel expenditures, selecting the target business to acquire, and
structuring, negotiating and consummating the business combination.
In connection with our assessment of going concern considerations in accordance
with Financial Accounting Standard Board's ASU 2014-15, "Disclosures of
Uncertainties about an Entity's Ability to Continue as a Going Concern," we have
until April 22, 2023, or the Extended Date, if applicable, to consummate a
business combination. It is uncertain that we will be able to consummate a
business combination by this time. Additionally, we may not have sufficient
liquidity to fund our working capital needs until one year from the issuance of
these financial statements. If a business combination is not consummated by this
date, there will be a mandatory liquidation and subsequent dissolution of the
Company. Management has determined that the liquidity condition and mandatory
liquidation, should a business combination not occur, and potential subsequent
dissolution, raises substantial doubt about our ability to continue as a going
concern. No adjustments have been made to the carrying amounts of assets or
liabilities should we be required to liquidate after April 22, 2023, or the
Extended Date, if applicable. We intend to complete a business combination
before the mandatory liquidation date.
48
Related Party Transactions
Founder Shares
On January 15, 2021, the Sponsor purchased 8,625,000 shares of our Class B
common stock for an aggregate price of $25,000. The founder shares included an
aggregate of up to 1,125,000 shares of Class B common stock subject to
forfeiture by the Sponsor to the extent that the underwriters' over-allotment
was not exercised in full or in part, so that the Sponsor will own, on an
as-converted basis, 20% of our issued and outstanding shares after the initial
public offering (assuming the Sponsor does not purchase any public shares in the
initial public offering and excluding the private placement shares). As a result
of the underwriters' election to partially exercise their over-allotment option
on March 30, 2021, a total of 224,623 founder shares were forfeited and 900,377
founder shares are no longer subject to forfeiture, resulting in an aggregate of
8,400,377 founder shares issued and outstanding.
The Sponsor has agreed, subject to certain limited exceptions, not to transfer,
assign or sell any of its founder shares until the earlier to occur of: (A) one
year after the completion of a business combination or (B) subsequent to a
business combination, (x) if the closing price of the Class A common stock
equals or exceeds $12.00 per share (as adjusted for stock splits, stock
dividends, reorganizations, recapitalizations and the like) for any 20 trading
days within any 30-trading day period commencing at least 150 days after a
business combination, or (y) the date on which we complete a liquidation,
merger, capital stock exchange or other similar transaction that results in all
of our stockholders having the right to exchange their shares of common stock
for cash, securities or other property.
Administrative Support Agreement
We entered into an agreement, commencing on March 17, 2021, to pay an affiliate
of the Sponsor a total of $30,000 per month for 24 months, or $720,000 in the
aggregate, for office space, utilities and secretarial and administrative
support (which payments will be accelerated if we consummate our initial
business combination prior to the end of our 24-month term, or $720,000 in the
aggregate). For the year ended December 31, 2022, we incurred $360,000 and paid
$330,000 in fees for these services, of which $30,000 is included in accrued
expenses in the accompanying balance sheet. For the period from January 15, 2021
(inception) through December 31, 2021, we incurred $278,000 and paid $308,000 in
fees for these services, of which $30,000 is included in prepaid expenses in the
accompanying balance sheet.
Related Party Loans
On January 28, 2021, the Sponsor agreed to loan us an aggregate of up to
$300,000 to cover expenses related to the initial public offering pursuant to a
promissory note (the "promissory note"). The promissory note was non-interest
bearing and payable on the earlier of December 31, 2021 or the completion of the
initial public offering. The outstanding balance under the promissory note of
$110,000 was repaid at the closing of the initial public offering on March 22,
2021. Borrowings under the promissory note are no longer available to us.
Due to Sponsor
The Sponsor advanced $675,038 to us in anticipation of the amount to be paid for
the purchase of additional private placement units in the event the
underwriters' exercise their over-allotment option. The advance is non-interest
bearing and due on demand. As of December 31, 2022, $34 remains outstanding.
Indemnification Advances
During the year ended December 31, 2022, the Company incurred and paid $857,000
of legal expenses related to advances made pursuant to indemnity agreements on
behalf of the Company's Co-Chief Executive Officers.
49
Other Contractual Obligations
Other than as described herein, we do not have any long-term debt, capital lease
obligations, operating lease obligations or long-term liabilities.
Registration Rights Agreement
Pursuant to a registration rights agreement entered into on March 17, 2021, the
holders of the founder shares (including any shares of Class A common stock
issuable upon conversion of the founder shares), private placement units,
private placement shares, private placement warrants (and any shares of Class A
common stock issuable upon the exercise of the private placement warrants), and
securities that may be issued upon conversion of working capital loans are
entitled to registration rights requiring us to register such securities for
resale (in the case of the founder shares, only after conversion to Class A
common stock). The holders of these securities will be entitled to make up to
three demands, excluding short form demands, that we register such securities
for sale under the Securities Act. In addition, the holders have certain
"piggy-back" registration rights with respect to registration statements filed
subsequent to the completion of a business combination and rights to require us
to register for resale such securities pursuant to Rule 415 under the Securities
Act. Notwithstanding the foregoing, the underwriters may not exercise their
demand and "piggyback" registration rights after five and seven years after the
effective date of the registration statement related to the initial public
offering and may not exercise their demand rights on more than one occasion. We
will bear the expenses incurred in connection with the filing of any such
registration statements.
Underwriting Agreement
We granted the underwriters a 45-day option from the date of the initial public
offering to purchase up to 4,500,000 additional units to cover over-allotments,
if any, at the initial public offering price less the underwriting discounts and
commissions. On March 30, 2021, the underwriters elected to partially exercise
their over-allotment option to purchase an additional 3,601,509 units and
forfeited their option to purchase an additional 898,491 units.
The underwriters are entitled to a deferred fee of $0.35 per unit, or
$11,760,528 in the aggregate. The deferred fee will be forfeited by the
underwriters solely in the event that we fail to complete a business
combination, subject to the terms of the underwriting agreement.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
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 critical accounting estimates:
Warrant Liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. We evaluate all of our financial instruments, including
issued stock purchase warrants, to determine if such instruments are derivatives
or contain features that qualify as embedded derivatives, pursuant to ASC Topic
480, "Distinguishing Liabilities from Equity" ("ASC 480") and ASC 815. We
account for the warrants in accordance with the guidance contained in ASC 815-40
under which the warrants do not meet the criteria for equity treatment and must
be recorded as liabilities. Accordingly, we classify the warrants as liabilities
at their fair value and adjust the warrants to fair value at each reporting
period. This liability is subject to re-measurement at each balance sheet date
until exercised, and any change in fair value is recognized in our statements of
operations. The private placement warrants and the public warrants for periods
where no observable traded price was available are valued using a Monte Carlo
simulation. For periods subsequent to the detachment of the public warrants from
the units, the public warrant quoted market price was used as the fair value as
of each relevant date.
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Class A Common Stock Subject to Possible Redemption
We account for our 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 feature redemption rights that is either within the control of the holder
or subject to redemption upon the occurrence of uncertain events not solely
within our control) is classified as temporary equity. At all other times,
common stock is classified as stockholders' deficit. Our public Class A common
stock features certain redemption rights that are considered to be outside of
our control and subject to occurrence of uncertain future events. Accordingly,
shares of Class A common stock subject to possible redemption are presented as
temporary equity, outside of the stockholders' deficit section of our balance
sheets.
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 shares outstanding for the period. The
Company has two classes of shares, which are referred to as Class A common stock
and Class B common stock. Income and losses are shared pro rata between the two
classes of shares. Accretion associated with the redeemable shares of Class A
common stock is excluded from income (loss) per common share as the redemption
value approximates fair value.
Recent Accounting Standards
In June 2016, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 2016-13, Financial Instruments-Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU
2016-13"), which requires entities to measure all expected credit losses for
financial assets held at the reporting date based on historical experience,
current conditions, and reasonable and supportable forecasts. ASU 2016-13 also
requires additional disclosures regarding significant estimates and judgments
used in estimating credit losses, as well as the credit quality and underwriting
standards of an entity's portfolio. We expect to adopt the provisions of this
guidance on January 1, 2023. The adoption is not expected to have a material
impact on our financial statements.
Beside the above, our management does not believe that any recently issued, but
not yet effective, accounting standards, if currently adopted, would have a
material effect on the accompanying financial statements.
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