References in this report (the "Quarterly Report") to "we," "us," "our" or the
"Company" refer to Parabellum Acquisition Corp. References to our "management"
or our "management team" refer to our officers and directors, and references to
the "Founder" or "Sponsor" refer to Parabellum Acquisition Partners, LLC. The
following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the condensed financial
statements and the notes thereto contained elsewhere in this Quarterly 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" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act
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,"
"may," "might," "plan," "possible," "potential," "should, "would" 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 our 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 blank check company, incorporated in the State of Delaware on February
5, 2021 and formed for the purpose of effectuating a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or other similar
business combination with one or more businesses. We have not identified an
acquisition target. We intend to effectuate our initial Business Combination
using cash from the proceeds from the sale of Public Units in our Offering, the
sale of the Private Placement Warrants to our Sponsor, our common equity or any
preferred equity that we may create in accordance with the terms of our charter
documents, debt, or a combination of cash, common or preferred equity and debt.
The Public Units sold in the Offering each consisted of one share of Class A
common stock, and three-quarters (3/4) of one redeemable warrant to purchase one
share of Class A common stock (no fractional shares will be issued upon exercise
of the warrants). The Private Placement Warrants were substantially similar to
the Public Units sold in the Offering, but for certain differences in the
warrants included in each of them. For clarity, the warrants included in the
Public Units are referred to herein as the "public warrants," and the warrants
included in the Private Placement Warrants are referred to herein as the
"private warrants."
The issuance of additional shares of any class of common stock or the creation
of one or more classes of preferred stock during our initial Business
Combination:
? may significantly dilute the equity interest of investors in the Offering who
would not have pre-emption rights in respect of any such issue;
may subordinate the rights of holders of any class of common stock if the
? rights, preferences, designations and limitations attaching to the preferred
shares are senior to those afforded our shares of Class A common stock;
could cause a change in control if a substantial number of shares of common
? stock are issued, which may affect, among other things, our ability to use our
net operating loss carry forwards, if any, and could result in the resignation
or removal of our present officers and directors;
may have the effect of delaying or preventing a change of control of us by
? diluting the share ownership or voting rights of a person seeking to obtain
control of us; and
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? may adversely affect prevailing market prices for our shares of Class A common
stock.
Similarly, if we issue debt securities or otherwise incur significant
indebtedness, it could result in:
? default and foreclosure on our assets if our operating revenues after our
initial Business Combination are insufficient to repay our debt obligations;
acceleration of our obligations to repay the indebtedness even if we make all
? principal and interest payments when due if we breach certain covenants that
require the maintenance of certain financial ratios or reserves without a
waiver or renegotiation of that covenant;
? our immediate payment of all principal and accrued interest, if any, if the
debt is payable on demand;
our inability to obtain necessary additional financing if any document
? governing such debt contains covenants restricting our ability to obtain such
financing while the debt security is outstanding;
? our inability to pay dividends on our shares of common stock;
using a substantial portion of our cash flow to pay principal and interest on
? our debt, which will reduce the funds available for dividends on our common
stock if declared, expenses, capital expenditures, acquisitions and other
general corporate purposes;
? limitations on our flexibility in planning for and reacting to changes in our
business and in the industry in which we operate;
? increased vulnerability to adverse changes in general economic, industry and
competitive conditions and adverse changes in government regulation; and
limitations on our ability to borrow additional amounts for expenses, capital
? expenditures, acquisitions, debt service requirements, execution of our
strategy and other purposes and other disadvantages compared to our competitors
who have less debt.
We expect to incur significant costs in the pursuit of our acquisition plans. We
cannot assure you that our plans to raise capital or to complete our initial
Business Combination will be successful.
Results of Operations and Known Trends or Future Events
We have neither engaged in any operations nor generated any revenues to date.
From February 5, 2021 (inception) through June 30, 2022, our only activities
have been organizational activities, those necessary to prepare for the Public
Offering and to identify a target business for the Business Combination. We do
not expect to generate any operating revenues until after completion of our
initial Business Combination. We expect to generate non-operating income in the
form of interest income on cash and marketable securities held in the Trust
Account at JP Morgan Chase Bank, N.A. in New York, New York with Continental
Stock Transfer & Trust Company acting as trustee, which was funded after the
Public Offering to hold an amount of cash and marketable securities equal to the
redemption amount of the Public Units sold in the Public Offering. We expect to
incur increased 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 three months ended June 30, 2022, we had net income of $1,597,893, which
included $1,738,126 of other income related to the change in the fair value of
the warrant liability and $220,299 of dividend and interest income earned in the
trust account, offset by $284,724 in general and administrative expenses and
$75,808 of current tax expense.
For the six months ended June 30, 2022, we had net income of $5,152,885, which
included $5,562,001 of other income related to the change in the fair value of
the warrant liability and $246,536 of dividend and interest income earned in the
trust account, offset by $579,844 in general and administrative expenses and
$75,808 of current tax expense.
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Liquidity and Capital Resources
As of June 30, 2022, we had cash of $613,599, and net working capital of
$400,287. Until the consummation of the Initial Public Offering, our only source
of liquidity was an initial purchase of common stock by the Sponsor and loans
from our Sponsor.
On September 30, 2021, we consummated the Initial Public Offering of 12,500,000
Units, at a price of $10.00 per Unit, generating gross proceeds of $125,000,000.
On October 15, 2021, the underwriter exercised in full its over-allotment option
to purchase additional 1,875,000 Units at a price of $10.00 per Unit.
Simultaneously with the closing of the Initial Public Offering and the exercise
of the over-allotment option by the underwriter, we consummated the sale of
6,600,000 Private Placement Warrants to the Sponsor at a price of $1.00 per
Private Placement Warrant generating gross proceeds of $6,600,000.
An aggregate of nine Anchor Investors were allocated and purchased a total of
11,137,500 Units or 77.5% of the outstanding Units following the Initial Public
Offering and exercise of the over-allotment option by the underwriter, for gross
proceeds of approximately $111.4 million.
In addition, subject to each Anchor Investor purchasing 100% of the Units
allocated to it, in connection with the closing of the Initial Public Offering,
the Sponsor sold a portion of Founder Shares to each Anchor Investor, or an
aggregate of 495,000 Founders Shares to all Anchor Investors. The Company
estimated the aggregate fair value of these Founder Shares attributable to
Anchor Investors to be approximately $2.93 million, or $5.93 per share.
Simultaneously with the exercise of the over-allotment option by the
underwriter, the Company sold the additional total of 112,500 Founder Shares to
the Anchor Investors. The Company estimated the aggregate fair value of these
Founder Shares to be approximately $667,125, or $5.93 per share.
Following the closing of the Initial Public Offering on September 30, 2021 and
the exercise of the over-allotment option by the underwriter on October 15,
2021, an amount of $145,187,500 ($10.10 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 the Trust Account.
As of the IPO Date, transaction costs amounted to $10,343,978, consisting of
$2,500,000 of underwriting fees, $4,375,000 of deferred underwriting fees,
$2,930,399 representing the aggregate fair value of Founder Shares sold to
Anchor Investors and $538,579 of other offering costs. The Company's remaining
cash after payment of the Initial Public Offering costs is held outside the
Trust Account for working capital purposes. Of the total transaction costs of
$10,343,978 as of the IPO Date, $9,809,375 was allocated to the Class A common
stock and $534,603 was allocated to the Public Warrants.
As of October 15, 2021, transaction costs related to the exercise of the
over-allotment option amounted to $1,941,520, consisting of $375,000 of
underwriting fees, $656,250 of deferred underwriting fees, $667,125 representing
the aggregate fair value of Founder Shares sold to Anchor Investors, and
$243,145 of other offering costs. Of the total transaction costs of $1,941,520
related to the exercise of the over-allotment option, $1,865,801 was allocated
to the Class A common stock and $75,719 was allocated to the Public Warrants.
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
deferred underwriting commissions and 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.
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 order to fund working capital deficiencies or finance transaction costs in
connection with a 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 a business combination, we may
repay such loaned amounts out of the proceeds of the Trust Account released to
us. In the event that a 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 warrants, at a
price of $1.00 per warrant, at the option of the lender. The warrants would be
identical to the Private Placement Warrants.
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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 estimates of
the costs of undertaking in-depth due diligence and negotiating our 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 initial
Business Combination. Moreover, we may need to obtain additional financing
either to consummate our initial Business Combination or because we become
obligated to redeem a significant number of our public shares upon consummation
of our initial Business Combination, in which case we may issue additional
securities or incur debt in connection with such Business Combination. Subject
to compliance with applicable securities laws, we would only complete such
financing simultaneously with the completion of our business combination. If we
are unable to complete our business combination because we do not have
sufficient funds available to us, we will be forced to cease operations and
liquidate the Trust Account. In addition, following our business combination, if
cash on hand is insufficient, we may need to obtain additional financing in
order to meet our obligations.
As described more fully in Note 1 to the Financial Statements if the Company is
unable to obtain approval for an extension of the deadline or complete a
Business Combination by March 30, 2023, then the Company will cease all
operations except for the purpose of liquidating. The Company has until March
30, 2023 to consummate a Business Combination. It is uncertain that the Company
will be able to consummate a Business Combination by the specified period. If a
Business Combination is not consummated by March 30, 2023, there will be a
mandatory liquidation and subsequent dissolution. The date for mandatory
liquidation and subsequent dissolution raises substantial doubt about the
Company's ability to continue as a going concern for one year from the date that
these financial statements are issued. 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 the Company be
unable to continue as a going concern.
Critical Accounting Policies and Estimates
The Company prepares its financial statements and accompanying notes in
conformity with accounting principles generally accepted in the United States of
America, which require management to make estimates and assumptions about future
events that affect reported amounts. Estimations are considered critical
accounting estimates based on, among other things, its impact on the portrayal
of the Company's financial condition, results of operations, or liquidity, as
well as the degree of difficulty, subjectivity, and complexity in its
deployment. Critical accounting estimates address accounting matters that are
inherently uncertain due to unknown future resolution of such matters.
Management routinely discusses the development, selection, and disclosure of
each critical accounting estimates. There have been no significant changes to
the Company's policies, estimates and assumptions during the six-months ended
June 30, 2022, except as noted below. Reference should be made to the financial
statements and related notes included in the Company's Annual Report on Form
10-K for the year ended December 31, 2021 for a full description of other
significant accounting policies.
Recent Accounting Standards
In February 2016, the FASB issued ASU No. 2016-02, which establishes new
accounting and disclosure requirements for leases. ASU No. 2016-02 requires
lessees to classify most leases as either finance or operating leases and to
initially recognize a lease liability and right-of-use asset. The Company
adopted ASU No. 2016-02 on January 1, 2022 using the effective date approach to
recognize and measure leases as of the adoption date. The Company has elected to
utilize the available practical expedient to not separate lease components from
non-lease components as well as the package of practical expedients that allows
the Company not to reassess (1) whether any expired or existing contracts as of
the adoption date are or contain a lease, (2) lease classification for any
expired or existing leases as of the adoption date and (3) initial direct costs
for any existing leases as of the adoption date. As a result of the adoption of
this guidance, the Company recorded a non-cash transaction to recognize on
January 1, 2022 lease liabilities totaling $76,141 and right-of-use-assets
totaling $72,007, which will be amortized over the remaining terms of the lease.
Management does not believe that other any recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on our financial statements.
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