The following discussion and analysis of our 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. 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 "Cautionary Note Regarding Forward-Looking
Statements," "Item 1A. Risk Factors" and elsewhere in this Annual Report.
Overview
We are a blank check company incorporated on July 23, 2020 as a Delaware
corporation and formed for the purpose of entering into a merger, share
exchange, asset acquisition, stock purchase, recapitalization, reorganization or
similar business combination with one or more businesses or entities. We intend
to effectuate our initial business combination using cash from the proceeds of
the initial public offering and the sale of the private warrants, 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.
Extension
On September 29, 2022, our stockholders approved a Charter Amendment and Trust
Amendment, in each case to allow us to extend the Combination Period for an
additional three months, from October 5, 2022 to January 5, 2023, by depositing
into the trust account $350,000 for the three-month extension, and thereafter to
extend the Combination Period up to six (6) times by an additional month each
time (or up to July 5, 2023) by depositing into the trust account $120,000 for
each additional month extension. Pursuant to the Trust Agreement, on October 4,
2022, the co-sponsors deposited $350,000 into the trust account to extend the
Combination Period to January 5, 2023 and, thereafter, deposited an aggregate of
$480,000 into the trust account to extend the Combination Period to May 5, 2023,
the current mandatory liquidation date.
In connection with the vote on the Charter Amendment, our stockholders had the
right to redeem their shares of common stock. The holders of 9,480,616 shares of
common stock elected to redeem their shares at a per share redemption price of
$10.13. As a result, approximately $96.1 million was removed from the trust
account on October 3, 2022 to pay such holders, leaving approximately $20.5
million in the trust account.
Results of Operations
Our only activities from July 23, 2020 (inception) through December 31, 2022
were organizational activities, those necessary to consummate 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
are incurring 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 net loss of $1,273,875, which
consisted of operating costs of $2,039,004 and provision for income taxes of
$115,963, partially offset by interest income on marketable securities held in
the trust account of $881,092.
For the year ended December 31, 2021, we had net loss of $583,227, which
consisted of operating costs of $522,882, change in fair value loss of
over-allotment option liability of $62,716, partially offset by interest income
on marketable securities held in the trust account of $2,371.
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Liquidity and Capital Resources
On October 5, 2021, we consummated the initial public offering of 10,000,000
units, at $10.00 per unit, generating total gross proceeds of $100,000,000.
Simultaneously with the closing of the initial public offering, we consummated
the sale of 5,000,000 private warrants at a price of $1.00 per private warrant
in private placements to Chardan Monterey and NorthStar, generating gross
proceeds of $5,000,000.
On October 6, 2021, in connection with the underwriter's exercise of their
over-allotment option in full, we consummated the sale of an additional
1,500,000 units, at $10.00 per unit, and the sale of an additional 450,000
private warrants, at $1.00 per private warrant, generating gross total proceeds
of $15,450,000.
Following the initial public offering, the full exercise of the over-allotment
option, and the sale of private warrants, a total of $116,150,000 was placed in
the trust account. We incurred transaction costs of $2,822,084, consisting of
$2,300,000 of underwriting fees, and $522,084 of other offering costs.
For the year ended December 31, 2022, cash used in operating activities was
$1,004,040. Net loss of $1,273,875 was affected by interest earned on marketable
securities held in the trust account of $881,092. Changes in operating assets
and liabilities provided $1,150,927 of cash for operating activities.
For the year ended December 31, 2021, cash used in operating activities was
$939,686. Net loss of $583,227 was affected by the change in fair value loss of
the of the over-allotment of $62,716 and interest earned on marketable
securities held in the trust account of $2,371. Changes in operating assets and
liabilities used $416,804 of cash for operating activities.
As of December 31, 2022, we had marketable securities held in the trust account
of $21,029,708 (including approximately $883,463 of interest income) consisting
of securities held in a money market fund that invests in U.S Treasury
securities with a maturity of 185 days or less. Interest income on the balance
in the trust account may be used by us to pay taxes. Through December 31, 2022,
we had withdrawn $299,338 from interest earned on the trust account to pay our
taxes. As discussed above, approximately $96.1 million was removed from the
trust account on October 3, 2022 to pay redeeming stockholders, leaving
approximately $20.5 million in the trust account. On October 4, 2022, NorthStar
deposited $350,000 into the trust account in connection with the extension of
the Combination Period to January 5, 2023.
We intend to use substantially all of the funds held in the trust account,
including any amount representing interest earned on the trust account (less
income taxes payable), to complete our business combination. To the extent that
our capital stock is used in whole or in part as consideration to effect a
business combination, the remaining funds held in the trust account will be used
as working capital to finance the operations of the target business. Such
working capital funds could be used in a variety of ways including continuing or
expanding the target business' operations, for strategic acquisitions and for
marketing, research and development of existing or new products. Such funds
could also be used to repay any operating expenses or finders' fees which we had
incurred prior to the completion of our business combination if the funds
available to us outside of the trust account were insufficient to cover such
expenses.
As of December 31, 2022, we had cash of $145,812. We intend to use the funds
held outside the trust account for identifying and evaluating prospective
acquisition candidates, performing business due diligence on prospective target
businesses, traveling to and from the offices, plants or similar locations of
prospective target businesses, reviewing corporate documents and material
agreements of prospective target businesses, selecting the target business to
acquire and structuring, negotiating and consummating the business combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a business combination, the insiders, or certain of our officers
and directors or their affiliates may, but are not obligated to, loan us funds
as may be required. If we complete our initial business combination, we would
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 $1,500,000 of such loans may be
convertible into private warrants at a price of $1.00 per private warrant at the
option of the lender. The private warrants would be identical to the public
warrants issued in the initial public offering.
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In March 2022, NorthStar committed to provide us up to $500,000 in working
capital loans as described in Note 5. On October 7, 2022, the co-sponsors issued
unsecured promissory notes to evidence Working Capital Loans for an aggregate
principal balance of $700,000 (See Note 5). As of December 31, 2022, an
aggregate principal balance of $700,000 has been advanced to the Company under
the Working Capital Loans. We may raise additional capital through loans or
additional investments from our co-sponsors, officers, directors, or their
affiliates.
We monitor the adequacy of our working capital in order to meet the expenditures
required for operating our business prior to our initial business combination.
However, if our estimates of the costs of identifying a target business,
undertaking in-depth due diligence and negotiating an initial business
combination are less than the actual amount necessary to do so, we may have
insufficient funds available to operate our business prior to our business
combination. 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 completion of our business
combination, in which case we may issue additional securities or incur debt in
connection with such business combination. If we are unable to complete our
initial business combination because we do not have sufficient funds available
to us, we will be forced to cease operations and liquidate the trust account.
Going Concern
In connection with the Company's assessment of going concern considerations in
accordance with Financial Accounting Standard Board's Accounting Standards
Codification Subtopic 205-40, "Presentation of Financial Statements - Going
Concern," we have until May 5, 2023 (as extended) to consummate a business
combination. We have the option to extend the date for mandatory liquidation if
our insiders or their affiliates deposit into the trust account $120,000 for
each month extension up to July 5, 2023. We intend to complete a business
combination before the mandatory liquidation date or its extended liquidation
date, if applicable. It is uncertain that we will be able to consummate a
business combination by this time. If a business combination is not consummated
by this date and an extension not requested by our insiders or their affiliates,
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 an extension is not
requested by our insiders or their affiliates, and potential subsequent
dissolution, raise substantial doubts about the Company's 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 July 5, 2023 (as may be
extended).
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of December 31, 2022.
Contractual Obligations
We do not have any long-term debt obligations, capital lease obligations,
operating lease obligations, purchase obligations or other long-term
liabilities, other than an agreement to pay to one of our co-sponsors a monthly
fee of $10,000 for general and administrative services, including office space,
utilities and secretarial support and a consulting agreement to pay a consultant
up successful completion of a business combination. However, pursuant to the
terms of such agreement, we may delay payment of such monthly fee upon a
determination by our audit committee that we lack sufficient funds held outside
the trust to pay actual or anticipated expenses in connection with our initial
business combination. Any such unpaid amount will accrue without interest and be
due and payable no later than the date of the consummation of our initial
business combination. We began incurring these fees on September 30, 2021 and
will continue to incur these fees monthly until the earlier of the completion of
our initial business combination and our liquidation. We entered into a
consulting agreement, dated as of September 14, 2021, as amended, with a
consultant to assist us in facilitating a business combination with one or more
targets, subject to certain conditions. The consultant will receive a success
fee of (i) $100,000 or (ii) in the event our successful business combination is
consummated with an entity or target first introduced to us by the consultant,
$150,000, in either case, subject to, and payable upon, our successful
consummation of an initial business combination, provided that the consulting
agreement is not terminated prior to such date. Additionally, we will reimburse
the consultant for any out-of-pocket expenses and pre-approved travel-related
expenses incurred in connection with the provision of services under the
consulting agreement.
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Critical Accounting Policies
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 policies:
Use of Estimates
The preparation of the financial statements in conformity with GAAP requires the
Company's 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.
Making estimates requires management to exercise significant judgment. It is at
least reasonably possible that the estimate of the effect of a condition,
situation or set of circumstances that existed at the date of the financial
statements, which management considered in formulating its estimate, could
change in the near term due to one or more future confirming events.
Accordingly, the actual results could differ significantly from those estimates.
Common Stock Subject to Possible Redemption
We account for our common stock subject to possible conversion in accordance
with the guidance in Accounting Standards Codification ("ASC") Topic 480
"Distinguishing Liabilities from Equity." Common stock subject to mandatory
redemption is classified as a liability instrument and measured at fair value.
Conditionally redeemable common stock (including common stock that features
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) is classified as temporary equity. At all other times, common stock is
classified as stockholders' equity. Our common stock features certain redemption
rights that are considered to be outside of our control and subject to
occurrence of uncertain future events. Accordingly, common stock subject to
possible redemption is presented at redemption value as temporary equity,
outside of the stockholders' equity section of our balance sheet.
Net Loss Per Common Stock
Net income (loss) per common stock is computed by dividing net income (loss) by
the weighted average number of common stock outstanding for the period.
Accretion associated with the redeemable shares of common stock is excluded from
earnings per share as the redemption value approximates fair value.
Recent Accounting Standards
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 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 for fiscal years beginning after December 15, 2021 and should be
applied on a full or modified retrospective basis. Early adoption is permitted,
but no earlier than fiscal years beginning after December 15, 2020, including
interim periods within those fiscal years. Management is currently evaluating
the impact of adopting ASU 2020-06.
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on the
Company's financial statements.
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