References to the "Company," "KnightSwan Acquisition Corporation," "our," "us"
or "we" refer to KnightSwan Acquisition Corporation, references to "management"
or "management team" refer to the Company's officers and directors and
references to the "Sponsor" refer to KnightSwan Sponsor LLC. 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 Annual Report on Form 10-K (this
"Annual Report"). Certain information contained in the discussion and analysis
set forth below includes forward-looking statements that involve risks and
uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report includes, and oral statements made from time to time by
representatives of the Company may include, forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Exchange Act and are intended to be covered by the safe
harbor created thereby. The Company has based these forward-looking statements
on management's current expectations, projections and forecasts about future
events. These forward-looking statements are subject to known and unknown risks,
uncertainties and assumptions about the Company that may cause its actual
business, financial condition, results of operations, performance and/or
achievements to be materially different from any future business, financial
condition, results of operations, performance and/or achievements expressed or
implied by these forward-looking statements. Factors that might cause or
contribute to such a discrepancy include, but are not limited to, those
described in the Company's other filings with the SEC. All of these factors are
subject to additional uncertainty in the context of the COVID-19 pandemic and
the conflict in Ukraine, which are having impacts on our business and markets
generally and the economy as a whole. The words "anticipate," "believe,"
"continue," "could," "estimate," "expect," "intends," "may," "might," "plan,"
"possible," "potential," "predict," "project," "target," "goal," "shall,"
"should," "will," "would" and similar expressions may identify forward-looking
statements, but the absence of these words does not mean that a statement is not
forward-looking. In addition, any statements that refer to expectations,
projections, forecasts or other characterizations of future events or
circumstances, including any underlying assumptions, are forward-looking
statements.
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Overview
We are a blank check company incorporated as a Delaware corporation and formed
for the purpose of effecting a merger, consolidation, capital stock exchange,
asset acquisition, stock purchase, reorganization or similar initial business
combination with one or more businesses or entities. We intend to effectuate our
initial business combination using cash derived from the proceeds of the initial
public offering (the "Initial Public Offering") and the sale of the private
placement warrants, our share capital, debt or a combination of cash, share
capital and debt.
We expect to continue to incur significant costs in the pursuit of our initial
business combination. We cannot assure you that our plans to complete our
initial business combination will be successful.
Results of Operations
All activity for the period from August 13, 2021 (inception) through
December 31, 2022 were organizational activities, those necessary to prepare for
the Initial Public Offering as described below and, subsequent to the closing of
the Initial Public Offering, identifying a target company for a business
combination. We do not expect to generate any operating revenues until after the
completion of our initial business combination. We generate non-operating income
in the form of interest income on investments 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 period August 13, (inception) to December 31, 2021, we had a net loss of
$92,078 which consisted of $92,078 of formation and operating costs, including
consulting fees.
For the year ended December 31, 2022, we had a net loss of $564,499, which
consists of operating costs of $3,256,991 offset by interest income on
investments held in the trust account of $3,399,497. Operating costs for the
year ended December 31, 2022 consist of legal fees ($504,000), profits interest
expense ($549,854), sponsors management fee ($223,871), professional fees
($1,227,308), directors and officers insurance ($287,402), Delaware franchise
tax accrual ($200,000), listing fees ($165,478), and other miscellaneous fees
($99,078). In addition, for the year ended December 31, 2022, the company
recorded an income tax provision of $707,005 due to the increase in taxable
interest income in the Trust Account.
Liquidity and Capital Resources
On January 25, 2022, we consummated the Initial Public Offering of 23,000,000
Units at $10.00 per Unit, including the issuance of 3,000,000 Units as a result
of the underwriter's exercise of its over-allotment option, generating gross
proceeds of $230,000,000 as described in Note 3 to the financial statements.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 13,100,000 private placement warrants (the "Private Placement
Warrants") at a price of $1.00 per Private Placement Warrant in a private
placement transaction to the Sponsor, generating gross proceeds of $13,100,000
as described in Note 4 to the financial statements.
Following the Initial Public Offering and the sale of the Private Placement
Warrants, a total of $235,750,000 was placed in the trust account. We incurred
$11,634,010 in costs related to the Initial Public Offering, consisting of
$4,200,000 of net underwriting fees, $6,900,000 of deferred underwriting fees
and $534,010 of other offering costs.
For the year ended December 31, 2022, cash used in operating activities was
$1,489,598. A loss of $564,499 was affected by interest earned on investments
held in the trust account of $3,399,497, profit interest compensation of
$549,854 and changes in operating assets and liabilities provided $1,924,544 of
cash for operating activities. During the year ended December 31, 2022, the
Company's primary uses of cash were D&O Insurance ($459,000), a payment for a
one-time consulting fee ($400,000), listing fees ($165,478) and management fees
($223,871).
As of December 31, 2022, we had investments held in the trust account of
$239,149,497 (including $3,399,497 of interest income) consisting of U.S.
Treasury Bills with a maturity of 185 days or less. We may withdraw interest
from the trust account to pay taxes, if any. To the extent that our capital
stock or debt is used, in whole or in part, as consideration to complete our
initial 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. 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 initial business combination.
As of December 31, 2022, we had cash of $1,052,953 held outside of the trust
account. 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 our initial business
combination.
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In connection with the Company's assessment of going concern considerations in
accordance with Accounting Standards Update ("ASU") 2014-15, "Disclosures of
Uncertainties about an Entity's Ability to Continue as a Going Concern,"
management has determined that if the Company is unsuccessful in consummating an
initial business combination within 18 months from the closing of the IPO (July
25, 2023 - less than 12 months from the date of these financial statements), the
mandatory liquidation requirement that the Company cease all operations, redeem
the public shares and thereafter liquidate and dissolve raises substantial doubt
about the ability to continue as a going concern. Management has determined that
the Company has funds that are sufficient to fund the working capital needs of
the Company until the consummation of an initial business combination or the
winding up of the Company as stipulated in the Company's amended and restated
certificate of incorporation. The accompanying financial statements have been
prepared in conformity with GAAP, which contemplate continuation of the Company
as a going concern. These financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
In order to fund working capital deficiencies or finance transaction costs in
connection with our initial business combination, the Sponsor, or an affiliate
of the Sponsor, or certain of the Company's executive officers and directors
may, but are not obligated to, loan the Company funds as may be required. If we
complete our initial business combination, we will repay such working capital
loans. 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 working capital loans but no proceeds from the trust account would be used
for such repayment. Up to $2,000,000 of such working capital loans may be
convertible into warrants at a price of $1.50 per warrant, at the option of the
lender. The warrants would be identical to the Private Placement Warrant.
We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business. However, if our estimate of
the costs of identifying a target business, undertaking in-depth due diligence
and negotiating our initial business combination is less than the actual amount
necessary to do so, we may have insufficient funds available to operate our
business prior to our initial business combination. Moreover, we may need to
obtain additional financing either to complete our initial business combination
or because we become obligated to redeem a significant number of the Public
Shares upon consummation of our initial business combination, in which case we
may issue additional securities or incur debt in connection with such initial
business combination.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2022.
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:
Class A Common Stock Subject to Possible Redemption
We account for our Class A ordinary shares subject to possible conversion in
accordance with the guidance in Accounting Standards Codification ("ASC") Topic
480 "Distinguishing Liabilities from Equity." Class A ordinary shares subject to
mandatory redemption are classified as a liability instrument and are measured
at fair value. Conditionally redeemable ordinary shares (including ordinary
shares 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 our control) are classified as temporary equity. At all other
times, ordinary shares are classified as shareholders' equity. Our Class A
ordinary shares feature certain redemption rights that are considered to be
outside of our control and subject to occurrence of uncertain future events.
Accordingly, Class A ordinary shares subject to possible redemption are
presented at redemption value as temporary equity, outside of the stockholders'
equity section of our balance sheets.
We recognize changes in redemption value immediately as they occur and adjusts
the carrying value of redeemable ordinary shares to equal the redemption value
at the end of each reporting period. Immediately upon the closing of the Initial
Public Offering, the Company recognized the accretion from initial book value to
redemption amount value. The change in the carrying value of redeemable ordinary
shares resulted in charges against additional paid-in capital and accumulated
deficit.
Net Income/(Loss) per Common Share
Net income (loss) per common share is computed by dividing net loss by the
weighted average number of ordinary shares outstanding during the period. We
apply the two-class method in calculating net income (loss) per ordinary share.
Accretion associated with the redeemable Class A ordinary shares is excluded
from net income (loss) per ordinary share as the redemption value approximates
fair value.
Stock Based Compensation
The Sponsor has granted profits interest units in the Sponsor for the benefit of
the Company to compensate employees and others that provide services to the
Company. The Company accounts for stock compensation for accounting purposes in
accordance with ASC 718 "Compensation - Stock Compensation", which recognizes
awards at fair value on the date of grant and recognition of compensation over
the service period for awards expected to vest. The Company measured the fair
value of the units on the grant date of the award utilizing a valuation model
which considers assumptions such as probability of the IPO not occurring, the
probability of the Business Combination not occurring, estimated concessions to
facilitate a transaction completion, and a discount for lack of marketability.
Deferred Offering Costs
The Company complies with the requirements of ASC 340-10-S99-1 and SEC Staff
Accounting Bulletin Topic 5A - "Expenses of Offering". Offering costs consist of
underwriting, legal, accounting and other expenses incurred through the Initial
Public Offering that are directly related to the Initial Public Offering.
Offering costs are allocated to the separable financial instruments issued in
the Initial Public Offering based on a relative fair value basis, compared to
total proceeds received. As of December 31, 2022, there were no deferred
offering costs recorded in the accompanying balance sheet.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay an
affiliate of the Sponsor a sum of $20,000 per month for office space and
secretarial and administrative services. We began incurring these fees on
January 25, 2022 and will continue to incur these fees monthly until the earlier
of the completion of the initial business combination and our liquidation.
The underwriters and a consultant are entitled to deferred fees in the aggregate
of $0.35 per Unit, or $6,900,000 due to the underwriter and $1,150,000 pursuant
to a consulting agreement (see below). The deferred underwriting fee and the
consulting fee will become payable to the underwriters and consultant from the
amounts held in the trust account solely in the event that the Company completes
an initial business combination, subject to the terms of the underwriting
agreement.
Consulting Agreement
Prior to the consummation of the Initial Public Offering, the Company entered
into a consulting agreement with an advisory firm that will assist in the
identification, due diligence and assistance in the valuation of potential
business combination opportunities for the Company. Pursuant to the agreement,
the Company paid the advisory firm $400,000 at the consummation of the Initial
Public Offering for services rendered from the inception of the agreement
through that date. In addition, in accordance with the terms of the agreement, a
percentage of the gross proceeds from the Company's initial public offering is
to be paid to the consultant for services rendered throughout the term of the
contract to be due and payable upon the completion of a successful business
combination. The Company has included $1,150,000 in other long-term liabilities
pertaining to this amount owed.
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