UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-40789
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
(Address of principal executive offices) |
(Zip Code) | |
Registrant’s telephone number, including area code: (202 ) 503-9255
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbols |
Name of each exchange on which registered | ||
one-half of one redeemable warrant |
||||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations Yes ☒ No ☐
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2
of the Exchange Act. (Check one): | Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
☒ |
Smaller reporting company | |||||
| Emerging growth company | ||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule ☒ No ☐
12b-2
of the Exchange Act). Yes Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date.
As of November 4,128,024 shares of the Company’s Class A common stock, par value $0.0001 per share, and 5,750,000 shares of the Company’s Class B common stock, par value $0.0001, issued and outstanding.
10
, 2022, there were First Light Acquisition Group, Inc.
QUARTERLY REPORT ON FORM
10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2022
Table of Contents
i
PART I. FINANCIAL INFORMATION
| Item 1. | Financial Statements |
FIRST LIGHT ACQUISITION GROUP, INC.
CONDENSED BALANCE SHEETS
September 30, 2022 |
December 31, 2021 |
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ASSETS |
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Current assets |
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Cash |
$ | $ | ||||||
Prepaid expenses – current |
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Total Current Assets |
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Non-current assets |
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Marketable securities held in Trust Account |
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Prepaid expenses – non-current |
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Total Non-current Assets |
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Total Assets |
$ | $ | ||||||
LIABILITIES, CLASS A SHARES SUBJECT TO POSSIBLE REDEMPTION AND STOCKHOLDERS’ DEFICIT |
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Current liabilities |
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Accrued expenses |
$ | $ | ||||||
Accounts payable |
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Promissory notes – related parties |
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Total Current Liabilities |
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Non-Current liabilities |
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Warrant Liability |
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Forward purchase unit liability |
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Deferred underwriter fee payable |
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Total Non-current Liabilities |
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Total Liabilities |
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Commitments and Contingencies (Note 8) |
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Class A common stock subject to possible redemption, and shares outstanding as of September 30, 2022 and December 31, 2021, respectively, at redemption value |
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Stockholders’ Deficit |
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Preferred stock, $ |
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Class A common stock, $ 4,128,024 and 23,000,000 shares subject to possible redemption as of September 30, 2022 and December 31, 2021, )respectively |
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Class B common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
( |
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Total Stockholders’ Deficit |
( |
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TOTAL LIABILITIES, CLASS A SHARES SUBJECT TO POSSIBLE REDEMPTION AND STOCKHOLDERS’ DEFICIT |
$ | $ | ||||||
The accompanying notes are an integral part of the financial statements.
1
FIRST LIGHT ACQUISITION GROUP, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
| For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
For the Period From March 24, 2021 (Inception) Through September 30, |
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2022 |
2021 |
2022 |
2021 |
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| Operating costs |
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| Loss from operations |
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| Other income (expense): |
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| Change in fair value of warrant liability |
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| Change in fair value of forward purchase unit liability |
( |
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| Earnings on marketable securities held in Trust Account |
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| Unrealized gain on marketable securities held in Trust Account |
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| Other income, net |
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| Income (loss) before provision for income taxes |
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| Provision for income taxes |
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| Net income (loss) |
$ | $ | ( |
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| Weighted average shares outstanding of redeemable Class A common stock |
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| Basic and diluted net income per share, redeemable Class A common stock |
$ | $ | $ | $ | ||||||||||||
| Weighted average shares outstanding of non-redeemable Class B common stock |
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| Basic and diluted net income per share, non-redeemable Class B common stock |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | ||||||
The accompanying notes are an integral part of the financial statements.
2
FIRST LIGHT ACQUISITION GROUP, INC.
CONDENSED STATEMENTS OF CHANGES IN CLASS A COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION AND
SHAREHOLDERS’ DEFICIT (UNAUDITED)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2022
Class A |
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Common stock Subject to Possible Redemption |
Class B Common stock |
Additional Paid-in Capital |
Accumulated |
Total Shareholders’ Deficit |
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Shares |
Amount |
Shares |
Amount |
Deficit |
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| Balance – December 31, 2021 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
| Remeasurement of Class A common stock to redemption value |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
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| Balance – March 31, 2022 |
— | ( |
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| Remeasurement of Class A common stock to redemption value |
— | — | — | — | ( |
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| Net income |
— | — | — | — | — | |||||||||||||||||||||||
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| Balance – June 30, 2022 |
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| Redemption of Class A common stock |
( |
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) | — | — | — | — | — | |||||||||||||||||||
| Sponsor share repurchase financing |
— |
— |
— |
— |
— |
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| Remeasurement of Class A common stock to redemption value |
— | — | — | ( |
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| Net income |
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| Balance – September 30, 2022 |
$ |
$ |
$ |
— |
$ |
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FOR THE PERIOD FROM
MARCH 24, 2021 (INCEPTION) THROUGH SEPTEMBER 30, 2021
Class A |
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Common stock Subject to Possible Redemption |
Class B Common stock |
Additional Paid-in |
Accumulated |
Total Shareholders’ |
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Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Deficit |
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| Balance – March 24, 2021 (inception) |
$ |
$ | $ | $ | $ | |||||||||||||||||||||||
| Issuance of Class B common stock to Sponsor |
— | — | — | |||||||||||||||||||||||||
| Issuance of Class B common stock to Metric |
— | — | — | |||||||||||||||||||||||||
| Net loss |
— | — | — | — | — | |||||||||||||||||||||||
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| Balance – March 31, 2021 |
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| Net loss |
— | — | — | — | — | ( |
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| Balance – June 30, 2021 |
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| Issuance of Class A common stock |
— | — | — | — | — | |||||||||||||||||||||||
| Excess fair value of Founder Shares from anchor agreement |
— | — | — | — | — | — | ||||||||||||||||||||||
| Deemed capital contribution from issuance of private placement warrants |
— | — | — | — | — | |||||||||||||||||||||||
| Forward purchase units liability |
— | — | — | — | ( |
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| Remeasurement of Class A common stock to redemption value |
— | — | — | ( |
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| Net loss |
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| Balance – September 30, 2021 |
$ |
$ |
$ |
$ |
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The accompanying notes are an integral part of the financial statements.
3
FIRST LIGHT ACQUISITION GROUP, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended September 30, 2022 |
For the Period from March 24, 2021 (inception) through September 30, 2021 |
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| Cash Flows from Operating Activities: |
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| Net income (loss) |
$ | $ | ( |
) | ||||
| Adjustments to reconcile net income to net cash used in operating activities: |
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| Earnings on marketable securities held in Trust Account |
( |
) | ||||||
| Unrealized gain on marketable securities held in Trust Account |
( |
) | ||||||
| Change in fair value of warrant liability |
( |
) | ( |
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| Change in fair value of forward purchase unit liability |
( |
) | ||||||
| Sponsor share repurchase financing expense |
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| Allocation of deferred offering cost for warrant liability |
— | |||||||
| Changes in operating assets and liabilities: |
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| Prepaid expenses |
( |
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| Accounts expenses |
— | |||||||
| Accounts payable |
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| Deferred offering costs |
( |
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| Net cash used in operating activities |
( |
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| Cash Flows from Investing Activities |
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| Investment of cash in Trust Account |
— | ( |
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| Extension payment |
( |
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| Withdrawal for redemption payment |
— | |||||||
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| Net cash provided by ( used in) investing activities |
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| Cash Flows from Financing Activities: |
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| Proceeds from issuance of Class A common stock |
— | |||||||
| Proceeds from sale of warrants |
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| Proceeds from issuance of promissory note s |
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| Payment of promissory note – related party |
— | ( |
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| Payments for underwriting fee |
— | ( |
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| Payment of Class A common stock redemptions |
( |
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| Proceeds from issuance of Class B common stock to Sponsor |
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| Proceeds from issuance of Class B common stock to Metric |
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| Net cash (used in) provided by financing activities |
( |
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| Net Change in Cash |
( |
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| Cash – Beginning |
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| Cash – Ending |
$ | $ | ||||||
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| Non-Cash Investing and Financing Activities: |
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| Remeasurement of Class A common stock subject to possible redemption |
$ | $ | ||||||
| Deferred offering costs included in accrued offering costs |
$ | $ | ||||||
| Initial classification of Class A common stock subject to possible redemption |
$ | — | $ | |||||
| Initial fair value of warrant liability |
$ | — | $ | |||||
| Initial fair value of forward purchase units liability |
$ | — | $ | |||||
| Deferred underwriter fees liability |
$ | — | $ | |||||
The accompanying notes are an integral part of the financial statements.
4
FIRST LIGHT ACQUISITION GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND PLANS OF BUSINESS OPERATIONS
First Light Acquisition Group, Inc. (the “Company”) is a blank check company formed in Delaware on March 24, 2021. The Company was formed for the purpose of entering into a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”).
As of September 30, 2022, the Company had not commenced any operations. All activity through September 30, 2022 relates to the Company’s formation, the initial public offering (the “Initial Public Offering” or “IPO”), which is described below, and identifying a target for a Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company generates
non-operating
income in the form of interest income from the proceeds derived from the Initial Public Offering. The Company has selected December 31 as its fiscal year end. The registration statement for the Company’s Initial Public Offering was declared effective on September 9, 2021 (the “Effective Date”). On September 14, 2021, the Company consummated the IPO of 23,000,000 Units at $10.00 per Unit, generating gross proceeds of $230,000,000 , which is discussed in Note 3. Simultaneously with the closing of the IPO, the Company consummated the sale of 3,397,155 Private Placement Warrants (the “Private Warrants”) at a price of $1.50 per Private Warrant in a private placement to certain funds and accounts managed by First Light Acquisition Group, LLC (the “Sponsor”) and Metric Finance Holdings I, LLC (“Metric”) generating proceeds of $5,095,733
Following the closing of the IPO on September 14, 2021, $230,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the IPO and the sale of the Private Warrants was placed in a trust account (“Trust Account”), located in the United States, which is and will be invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of Rule to exercise three three-month extensions available to us pursuant to our amended and restated certificate of incorporation) (the “Combination Period”). In connection with the Charter Amendment Proposal, stockholders elected to redeem 18,871,976 shares of the Company’s Class A common stock, par value $0.0001 per share (“common stock”). After giving effect to such redemptions, there was $41,679,745 remaining in the Trust Account.
2a-7
of the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination and (ii) the redemption of any Public Shares properly submitted in connection with a stockholder vote to amend the Company’s amended and restated certificate of incorporation. On September 13, 2022, the Company’s stockholders approved an amendment to the Company’s amended and restated certificate of incorporation to extend the date by which the Company must consummate a business combination transaction (the “Charter Amendment Proposal”) from September 14, 2022 (the date which is 12 months from the closing date of the Company’s initial public offering of units) to December 14, 2022 (or up to September 14, 2023 if the Company was
Risks and Uncertainties
Management continues to evaluate the impact of the
COVID-19
pandemic, rising interest rates and increased inflation and their macro-economic impact, and the Russia-Ukraine war on the industry and has concluded that while it is reasonably possible that such could have negative effects on the Company’s financial position, results of its operations, and/or search for a target company, the specific impacts are not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. Going Concern
As of September 30, 2022 and December 31, 2021, the Company had $39,944 and $1,062,653 operating cash, respectively, and working capital (deficit) of $(860,553 ) and $1,072,576 , respectively.
The Company’s liquidity needs since September 30, 2022 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 and entered into two promissory note agreements to fund the extension of the Combination Period.
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, rising interest rates and increased inflation and their macro-economic impact, and their effect on the Company’s financial position, results of its operations and/or search for a target company. 5
These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern one year from the date these financial statements are issued. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form
10-Q
and Article 8 of Regulation S-X
of the Securities and Exchange Commission (the “SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair statement of the financial position, operating results and cash flows for the periods presented. The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Annual Report on Form
10-K
as filed with the SEC on March 31, 2022. The interim results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any future periods. Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to
non-emerging
growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company, which is either not an emerging growth company or an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. Use of Estimates
The preparation of these financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes in the reported period. While the significant estimates made by management in the preparation of the financial statements are reasonable, prudent, and evaluated on an ongoing basis, actual results may differ materially from those estimates. The information below outlines several accounting policies applied by the Company in preparing its financial statements that involve complex situations and judgment in the development of significant estimates and assumptions.
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.
6
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company had $39,944 and $1,062,653 of operating cash and no
Cash Held in Trust Account
Following the closing of the Initial Public Offering on September 14, 2021, an amount of $230,000,000 from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Placement Warrants were placed in the Trust Account and were invested only in U.S. government securities with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 100 % of the public shares if the Company does not complete the initial Business Combination within 15 months from the closing of the Initial Public Offering (or up to 24 months if we were to exercise the three three-month extensions available to us pursuant to our amended and restated certificate of incorporation, provided that the Sponsor pays an amount equal to 1% of the amount then on deposit in the Trust Account for each three-month extension, (the “Extension Fee”) which amount shall be deposited in the Trust Account, and further provided that if the Company enters into a merger, acquisition or other business combination agreement in connection with the initial Business Combination, the subsequent two three-month extensions will occur automatically without requiring the Sponsor to pay the Extension Fee) or (B) with respect to any other provision relating to shareholders’ rights or 18,871,976 shares of Class A common stock for $190,010,529 , resulting in a reduction to shares of Class A common stock outstanding to 4,128,024 . The Company had $41,679,745 and $230,004,784 of cash held in the trust account as of September 30, 2022 and December 31, 2021, respectively.
2a-7
under the Investment Company Act which invest only in direct U.S. government treasury obligations. The Trust Account is intended as a holding place for funds pending the earliest to occur of: (i) the completion of the initial Business Combination; (ii) the redemption of any public shares properly submitted in connection with a shareholder vote to amend the Company’s amended and restated certificate of incorporation (A) to modify the substance or timing of the Company’s obligation to redeem pre-initial
Business Combination activity; or (iii) absent an initial Business Combination within 15 months from the closing of the Initial Public Offering, or during any Extension Period, the return of the funds held in the Trust Account to the public shareholders as part of redemption of the public shares. On September 19, 2022, certain investors redeemed Offering Costs Associated with IPO
The Company complies with the requirements of the ASC and SEC Staff Accounting Bulletin (“SAB”) Topic 5A—”Expenses of Offering”. Offering costs consist principally of professional and registration fees incurred through the balance sheet date that are related to the IPO. Offering costs are charged to stockholders’ equity or the statement of operations based on the relative value of the Public Warrants and the Private Placement Warrants to the proceeds received from the Units sold upon the completion of the IPO. Accordingly, on September 14, 2021, offering costs totaling $22,517,064 (consisting of $2,335,058 of underwriting fee, $8,050,000 of deferred underwriting fee (see Note 8), $640,129 of actual offering costs, and $11,491,877 of excess fair value of Founder Shares) were recognized with $989,674 included in accumulated deficit as an allocation for the Public Warrants and the Private Placement Warrants, and $21,527,389 included in additional
340-10-S99-1
paid-in
capital. Class A Common Stock Subject to Possible Redemption
The Company accounts for its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption (if any) is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock 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 the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s common stock feature certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. On September 19, 2022, certain investors redeemed 18,871,976 shares of Class A common stock for $190,010,529 , resulting in a reduction to shares of Class A common stock outstanding to 4,128,024 . Accordingly, at September 30, 2022 and December 31, 2021, 4,128,024 and 23,000,000
shares
, respectively,
of Class A common stock subject to possible redemption is presented, at redemption value, as temporary equity, outside of the shareholders’ deficit section of the Company’s balance sheets
. The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. Such changes are reflected in additional 1,506,720 and $1,685,490 for the three and nine months ended September 30, 2022, respectively, to remeasure Class A common stock subject to possible redemption to redemption value. Class A common stock subject to possible redemption totaled $41,679,745 and $230,004,784 as of September 30, 2022 and December 31, 2021, respectively.
paid-in
capital, or in the absence of additional capital, in accumulated deficit. The Company recorded accretion of $Income Taxes
The Company follows the asset and liability method of accounting for income taxes under ASC 740, “Income Taxes” (“ASC 740”). Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
7
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statements recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no no 203,688 0
Net Income per Share
The Company complies with accounting and disclosure requirements of ASC Topic 260, “Earnings Per Share”. The statements of operations include a presentation of income per Class A redeemable common stock and loss per
non-redeemable
common stock following the two-class
method of income per common stock. In order to determine the net income attributable to both the Class A redeemable common stock and non-redeemable
common stock, the Company first considered the total income allocable to both sets of stock. This is calculated using the total net income less any dividends paid. For purposes of calculating net income per share, any remeasurement of the Class A common stock subject to possible redemption was treated as dividends paid to the public stockholders. The following table reflects the calculation of basic and diluted net income per common share for the three months ended September 30, 2022 (in dollars, except per share amounts):
Three Months Ended September 30, 2022 |
||||
| Net income for the three months ended September 30, 2022 |
$ | |||
| Less: Accretion of temporary equity to redemption value |
( |
) | ||
| |
|
|||
| Net income including accretion of temporary equity to redemption value |
$ | ( |
) | |
| |
|
|||
| Three Months Ended September 30, 2022 |
||||||||
| Class A | Class B | |||||||
| Total number of shares |
||||||||
| Ownership percentage |
% | % | ||||||
| Allocation of net income based on ownership percentage |
$ | $ | ||||||
| Less: Allocation of accretion based on ownership percentage |
( |
) | ( |
) | ||||
| Plus: Accretion applicable to Class A redeemable shares |
||||||||
| |
|
|
|
|||||
| Total income (loss) by Class |
$ | $ | ( |
) | ||||
| |
|
|
|
|||||
| Weighted average shares outstanding |
||||||||
| Income (loss) per share |
$ | $ | ( |
) | ||||
The following table reflects the calculation of basic and diluted net income per common share for the nine months ended September 30, 2022 (in dollars, except per share amounts):
| Nine Months Ended September 30, 2022 |
||||
| Net income for the nine months ended September 30, 2022 |
$ | |||
| Less: Accretion of temporary equity to redemption value |
( |
) | ||
| |
|
|||
| Net income including accretion of temporary equity to redemption value |
$ | |||
| |
|
|||
8
| Nine Months Ended September 30, 2022 |
||||||||
| Class A | Class B | |||||||
Total number of shares |
||||||||
Ownership percentage |
% | % | ||||||
Allocation of net income based on ownership percentage |
$ | $ | ||||||
Less: Allocation of accretion based on ownership percentage |
( |
) | ( |
) | ||||
Plus: Accretion applicable to Class A redeemable shares |
||||||||
Total income by Class |
$ | $ | ||||||
Weighted average shares outstanding |
||||||||
Income per share |
$ | $ | ||||||
The following table reflects the calculation of basic and diluted net income per common share for the three months ended September 30, 2021 (in dollars, except per share amounts):
Three Months Ended September 30, 2021 |
||||
Net loss from July 1, 2021 to date of Initial Public Offering |
$ |
( |
) | |
Net loss from date of Initial Public Offering to September 30, 2021 |
( |
) | ||
Total loss for the three months ended September 30, 2021 |
( |
) | ||
Less: Accretion of temporary equity to redemption value |
( |
) | ||
Net income including accretion of temporary equity to redemption value |
$ | ( |
) | |
Three Months Ended September 30, 2021 |
||||||||
Class A |
Class B |
|||||||
Total number of shares |
||||||||
Ownership percentage |
% | % | ||||||
Allocation of net loss - July 1, 2021 through date of Initial Public Offering based on ownership percentage |
$ |
$ |
( |
) | ||||
Allocation of net loss - date of Initial Public Offering through September |
( |
) | ( |
) | ||||
Less: Allocation of accretion based on ownership percentage |
( |
) | ( |
) | ||||
Plus: Accretion applicable to Class A redeemable shares |
||||||||
Total income (loss) by Class |
$ | $ | ( |
) | ||||
Weighted average shares outstanding |
||||||||
Income (loss) per share |
$ | $ | ( |
) | ||||
The following table reflects the calculation of basic and diluted net income per common share for the period from March 24, 2021 (inception) through September 30, 2021 (in dollars, except per share amounts):
March 24, 2021 (inception) through September 30, 2021 |
||||
Net loss from inception to date of Initial Public Offering |
$ |
( |
) | |
Net loss from date of Initial Public Offering to September 30, 2021 |
( |
) | ||
Total loss for the period from March 24, 2021 (inception) through September 30, 2021 |
( |
) | ||
Less: Accretion of temporary equity to redemption value |
( |
) | ||
Net loss including accretion of temporary equity to redemption value |
$ | ( |
) | |
March 24, 2021 (inception) through September 30, 2021 |
||||||||
Class A |
Class B |
|||||||
Total number of shares |
||||||||
Ownership percentage |
% | % | ||||||
Allocation of net loss - March 24, 2021 (inception) through date of Initial Public Offering based on ownership percentage |
$ |
$ |
( |
) | ||||
Allocation of net loss - date of Initial Public Offering through September 30, 2021 based on ownership percentage |
( |
) | ( |
) | ||||
Less: Allocation of accretion based on ownership percentage |
( |
) | ( |
) | ||||
Plus: Accretion applicable to Class A redeemable shares |
||||||||
Total income (loss) by Class |
$ | $ | ( |
) | ||||
Weighted average shares outstanding |
||||||||
Income (loss) per share |
$ | $ | ( |
) | ||||
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage of $250,000 . The Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC 820, “Fair Value Measurement” (“ASC 820”), approximates the carrying amounts represented in the accompanying condensed balance sheets, primarily due to their short-term nature.
9
Fair Value Measurements
Fair value is defined as the price that would be received for sale of an asset or paid to transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
| • | Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; |
| • | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| • | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then
re-valued
at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current
based on whether or not net-cash
settlement or conversion of the instrument could be required within 12 months of the balance sheet date. Warrant Liability
The Company accounts for warrants for the Company’s common stock that are not indexed to its own shares as liabilities at fair value on the balance sheet. The warrants are subject to remeasurement at each balance sheet date and any change in fair value is recognized as a component of other income (expense), net in the statement of operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the ordinary share warrants. At that time, the portion of the warrant liability related to the ordinary share warrants was reclassified to additional
paid-in
capital. Related Parties
Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Companies are also considered to be related if they are subject to common control or common significant influence.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU
No. 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):
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”),
which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06
removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06
is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations or cash flows. Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s condensed financial statements.
10
NOTE 3. INITIAL PUBLIC OFFERING
On September 9, 2021, pursuant to the Initial Public Offering, the Company sold 23,000,000 Units, which includes the full exercise by the underwriter of its over-allotment option in the amount of 3,000,000 Units, at a price of $10.00 per Unit. Each Unit consists of one share of Class A common stock and 11.50 per share, subject to adjustment (see Note 8).
one-half
of one (each whole warrant, a “Public Warrant”). Each whole Public Warrant entitles the holder to purchase one share of Class A common stock at an exercise price of $An aggregate of $10.00 per Unit sold in the Initial Public Offering was held in the Trust Account and invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund meeting the conditions of Rule
2a-7
of the Investment Company Act, as determined by the Company. Following the closing of the Initial Public Offering, $230,000,000 of the IPO proceeds was held in the Trust Account. In addition, $2,081,180 of cash was not held in the Trust Account and was available for working capital purposes.
Transaction costs of the IPO amounted to $22,517,064 consisting of $2,335,058 of underwriting discount, $8,050,000 of deferred underwriting discount, $640,129 of actual offering costs, and $11,491,877 of excess fair value of Founder Shares over the purchase price.
NOTE 4. PRIVATE PLACEMENT
The Company entered into an agreement with the Sponsor and Metric pursuant to which the Sponsor and Metric purchased an aggregate of 3,397,155 Private Placement Warrants, at a price of $1.50 per Private Placement Warrant, or $5,095,733 , in a private placement that occurred simultaneously with the closing of the Initial Public Offering. Each Private Placement Warrant is exercisable to purchase one share of common stock at an exercise price of $11.50 per share, subject to adjustment (see Note 6). A portion of the proceeds from the Private Placement Warrants was added to the proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Private Placement Warrants held in the Trust Account will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law), and the Private Placement Warrants will expire worthless.
NOTE 5. RELATED PARTY TRANSACTIONS
Founder shares
On March 24, 2021, the Sponsor and Metric purchased 5,750,000 Founder Shares for an aggregate purchase price of $25,000 . This amount was paid on behalf of the Company to cover certain expenses. The number of Founder Shares will collectively represent approximately 20 % of the Company’s issued and outstanding shares after the Initial Public Offering.
The Sponsor and the Company’s directors and executive officers have agreed, subject to certain limited exceptions, not to transfer, assign or sell any of the Founder Shares until the earlier of (A) one year after the completion of a Business Combination and (B) subsequent to a Business Combination, (x) if the last reported sale price of the Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock reorganizations, recapitalizations and the like) for any 20 trading days within any 30 -trading day period commencing at least 120 days after a Business Combination, or (y) the date on which the Company completes a liquidation, merger, amalgamation, stock exchange, reorganization or other similar transaction that results in all of the Company’s shareholders having the right to exchange their shares of Class A common stock for cash, securities or other property.
The Founder Shares will automatically convert into shares of Class A common stock upon consummation of a Business Combination on a
one-for-one
basis, subject to certain adjustments, as described in Note 6. In connection with the closing of the Initial Public Offering, certain anchor investor acquired from the Sponsor and Metric in the aggregate 1,452,654 Founder Shares at the original purchase price that the Sponsor and Metric paid for the Founder Shares. Each anchor investor has agreed with the Sponsor and Metric that, if it does not purchase in the Initial Public Offering the number of Units in its indication of interest, it will automatically forfeit its interest in all such Founder Shares.
The excess of the fair value of the Founder Shares was determined to be an offering cost in accordance with Staff Accounting Bulletin Topic 5A. Accordingly, the offering cost was allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared to total proceeds received. Offering costs allocated to derivative warrant liabilities was expensed as incurred in the statement of operations. Offering costs allocated to the Public Shares were charged to stockholders’ equity upon the completion of the Initial Public Offering.
In September 2022, the Sponsor and Metric sold an aggregate of 850,000 of its Founder Shares to two third-party investors for cash and, as needed, consulting services, to fund the Company’s extension period and provide and general working capital. The consulting services offered were considered a benefit that the Company realized as a result of the Sponsor and Metric’s transaction with the third-party investors. The fair value of the consulting services was determined to be a financing expense in accordance with Staff Accounting Bulletin Topic 5A.
11
Promissory notes-related parties
In March 2021, the Sponsor agreed to loan the Company an aggregate of up to $300,000 to cover expenses related to the Initial Public Offering pursuant to a promissory note (the “Note”). The Note is 188,804 under the Note and repaid the outstanding amount in full on September 14, 2021. As of September 30, 2022 and December 31, 2021, the Company does no
non-interest
bearing and is payable on the earlier of December 31, 2021 or the completion of the Initial Public Offering. The Company had borrowed $On September 13, 2022, the Company entered into promissory note agreements with the Sponsor and Metric for an aggregate $490,000 . The 460,000 outstanding under the promissory note
Notes are
non-interest
bearing and are
payable on the earlier of the date on which a business combination is consummated or the date that the winding up of the Company is effective. As of September 30, 2022, there is $s
. Related party loans
In order to finance transaction costs in connection with a Business Combination, the Company’s Sponsor, an affiliate of the Sponsor, or the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (the “Working Capital Loans”). Further, if the Sponsor elects to extend the period of time to consummate an initial Business Combination beyond 12 months, the Sponsor (or its affiliates or designees) may loan to the Company additional funds as described in the prospectus (the “Extension Loans”, together with the Working Capital Loans, the “Company Loans”). Such Company Loans would be evidenced by promissory notes. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Company Loans but no proceeds held in the Trust Account would be used to repay the Company Loans. As of September 30, 2022 and December 31, 2021, no
Administrative support agreement
The Company has the option, commencing on the date that the Company’s securities are first listed on a U.S. national securities exchange through the earlier of the Company’s consummation of a Business Combination and its liquidation, to pay an affiliate of the Sponsor a total of $10,000 per month for office space, secretarial, and administrative support.
NOTE 6. STOCKHOLDERS’ EQUITY
Preferred stock
Class
A common stock
and 23,000,000
, respectively
Class
B common stock
The shares of Class B common stock (Founder Shares) will automatically convert into shares of Class A common stock at the time of a Business Combination on a 20 % of the sum of the total number of all shares of common stock outstanding upon the completion of the Initial Public Offering plus all shares of Class A common stock and equity-linked securities issued or deemed issued in connection with a Business Combination (excluding any shares or equity- linked securities issued, or to be issued, to any seller in a Business Combination).
one-for-one
basis, subject to adjustment. In the case that additional shares of Class A common stock, or equity-linked
securities, are issued or deemed issued in excess of the amounts offered in the Initial Public Offering and related to the closing of a Business Combination, the ratio at which shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate, on an as-converted
basis, NOTE 7. WARRANTS
Public Warrants may only be exercised for a whole number of shares. No fractional warrants will be issued upon separation of the Units and only whole warrants will trade. The Public Warrants will become exercisable on the later of (a) 12 months from the closing of the Initial Public Offering and (b) 30 days after the completion of a Business Combination.
12
The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the shares of Class A common stock underlying the warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration, or a valid exemption from registration is available. No warrant will be exercisable, and the Company will not be obligated to issue any shares of Class A common stock upon exercise of a warrant unless the share of Class A common stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants.
The Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of a Business Combination, it will use its commercially reasonable efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the shares of Class A common stock issuable upon exercise of the warrants, and the Company will use its commercially reasonable efforts to cause the same to become effective within 60 business days after the closing of a Business Combination, and to maintain the effectiveness of such registration statement and a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed, as specified in the warrant agreement; provided that if the Class A common stock is at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement, but it will use its commercially reasonably efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. If a registration statement covering the shares of Class A common stock issuable upon exercise of the warrants is not effective by the 60th business day after the closing of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption, but the Company will use its commercially reasonably efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Redemption of warrants when the price per Class A common stock equals or exceeds $18.00. Once the Public Warrants become exercisable, the Company may redeem the Public Warrants:
| • | in whole and not in part; |
| • | at a price of $ |
| • | upon not less than |
| • | if, and only if, the last reported sale price of the Class A common stock for any |
If and when the Public Warrants become redeemable by the Company, it may exercise its redemption right even if the Company is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
Redemption of warrants when the price per Class A common stock equals or exceeds $10.00. Once the Public Warrants become exercisable, the Company may redeem the Public Warrants:
| • | in whole and not in part; |
| • | at $ |
| • | upon a minimum of |
| • | if, and only if, the Reference Value (as defined above under “— Redemption of warrants when the price per share of our Class A common stock equals or exceeds $18.00”) equals or exceeds $ 10-K for the year ended December 31, 2021); and |
| • | if the Reference Value is less than $ 10-K for the year ended December 31, 2021), the private placement warrants must also be concurrently called for redemption on the same terms as the outstanding public warrants, as described above. |
13
In addition, if (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of a Business Combination at an issue price or effective issue price of less than $9.20 per share of Class A common stock (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance to the Sponsor or its affiliates, without taking into account any Founder Shares held by the Sponsor or such affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60 % of the total equity proceeds, and interest thereon, available for the funding of a Business Combination on the date of the consummation of a Business Combination (net of redemptions), and (z) the volume weighted average trading price of the shares of Class A common stock during the 20 trading day period starting on the trading day prior to the day on which the Company consummates a Business Combination (such price, the “Market Value”) is below $9.20 per share, then the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115 % of the higher of the Market Value and the Newly Issued Price, the $18.00 per share redemption trigger price and the “Redemption of Warrants when the price per share of Class A common stock equals or exceeds $10.00 ” described above will be adjusted (to the nearest cent) to be equal to 180 % of the higher of the Market Value and the Newly Issued Price, and the $10.00 per share redemption trigger price described above.
The Private Placement Warrants are identical to the Public Warrants underlying the Units being sold in the Initial Public Offering, except that the Private Placement Warrants and the shares of Class A common stock issuable upon the exercise of the Private Placement Warrants are not transferable, assignable or saleable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants are exercisable for cash or on a cashless basis, at the holder’s option, and are
non-redeemable
so long as they are held by the initial purchasers or their permitted transferees (except for a number of shares of Class A common stock as described above under Redemption of warrants for Class A common stock). If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company in all redemption scenarios and exercisable by such holders on the same basis as the Public Warrants. The Company accounts for the 14,897,155 warrants that were issued in connection with the Initial Public Offering (comprised of the 11,500,000 Public Warrants and the 3,397,155 Private Placement Warrants) in accordance with the guidance contained in ASC
815-40.
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 classifies each warrant as a liability at its fair value and the warrants were 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. NOTE 8. COMMITMENTS AND CONTINGENCIES
Registration and Shareholder Rights
The holders of the Founder Shares and Private Placement Warrants (and any shares of Class A common stock issuable upon the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of the Working Capital Loans and upon conversion of the Founder Shares) will be entitled to registration rights pursuant to a registration rights and shareholder agreement to be signed prior to or on the effective date of 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). The holders of these securities will be entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders will have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of a Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. However, the registration and shareholder rights agreement provides that the Company will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable
lock-up
period. The Company will bear the expenses incurred in connection with the filing of any such registration statements. Underwriter’s agreement
The Company granted the underwriter a 45 -day option from the date of the Initial Public Offering to purchase up to 3,000,000 additional Units to cover over-allotments at the Initial Public Offering price less the underwriting discount, which the underwriter exercised in full on September 14, 2021. The underwriter was paid a cash underwriting discount of $2,335,058 in the aggregate, paid
14
on the closing of the Initial Public Offering. In addition, the underwriter is entitled to a deferred fee of $0.35 per Unit, or $8,050,000 in the aggregate. The deferred fee is payable to the underwriter from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
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 warrantSubject 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.
The Company accounts for the forward purchase agreement in accordance with the guidance in ASC
815-40
as derivative liability. The liability is subject to re-measurement
at each balance sheet date, with changes in fair value recognized in the statement of operations. NOTE 9. FAIR VALUE MEASUREMENTS
At September 30, 2022 and December 31, 2021, the Company’s warrant liability was valued at $885,000 and $7,469,150 , respectively. Under the guidance in ASC
815-40,
the Public Warrants and the Private Placement Warrants do not meet the criteria for equity treatment. As such, the Public Warrants and the Private Placement Warrants must be recorded on the balance sheet at fair value. This valuation is subject to re-measurement
at each balance sheet date. With each re-measurement,
the valuations will be adjusted to fair value, with the change in fair value recognized in the Company’s statement of operations. The following table presents fair value information as of September 30, 2022 and December 31, 2021, of the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. The Company’s warrant liability is based on a valuation model utilizing management judgment and pricing inputs from observable and unobservable markets with less volume and transaction frequency than active markets. Significant deviations from these estimates and inputs could result in a material change in fair value. The fair value of the private warrant liability and forward purchase unit liability are classified within Level 3 of the fair value hierarchy. The Company’s transferred the fair value of Public Warrants from a Level 3 measurement to a Level 1 measurement as a result of the Public Warrants detaching from the Units and becoming separately tradable:
Forward Purchase Units |
Public Warrants |
Private Placement Warrants |
Total Level 3 Financial Instruments |
|||||||||||||
Level 3 financial instruments as of December 31, 2021 |
$ |
$ |
$ |
$ |
||||||||||||
Change in fair value |
— | ( |
) | ( |
) | |||||||||||
Level 3 financial instruments as of March 31, 2022 |
||||||||||||||||
Change in fair value |
( |
) | ( |
) | ( |
) | ||||||||||
Transfer to Level 2 |
— | — | ( |
) | ( |
) | ||||||||||
Level 3 financial instruments as of June 30, 2022 |
||||||||||||||||
Change in fair value |
( |
) | ( |
) | ||||||||||||
Level 3 financial instruments as of September 30, 2022 |
$ |
$ |
$ |
$ |
||||||||||||
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs. (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities).
15
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| September 30, 2022 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
Assets |
||||||||||||
Cash and marketable securities held in trust account |
$ | $ | — | $ | — | |||||||
Liabilities |
||||||||||||
Public Warrants |
$ | $ | — | $ | — | |||||||
Private Placement Warrants |
$ | — | $ | $ | — | |||||||
Forward Purchase Units |
$ | — | $ | — | $ | |||||||
| December 31, 2021 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
Assets |
||||||||||||
Cash and marketable securities held in trust account |
$ | $ | — | $ | — | |||||||
Liabilities |
||||||||||||
Public Warrants |
$ | $ | — | $ | — | |||||||
Private Placement Warrants |
$ | — | $ | — | $ | |||||||
Forward Purchase Units |
$ | — | $ | — | $ | |||||||
Transfers to/from Levels 1, 2, and 3 are recognized at the beginning of the reporting period. During the period ended December 31, 2021, the Public Warrants began trading separately on November 1, 2021 at the option of the holder and thus were transferred from Level 3 to Level 1. The Company transferred the Private Placement Warrants from Level 3 to Level 2 during the nine months ended September 30, 2022, as the inputs significant to the valuation became observable as they are benchmarked to those used for the Public Warrants.
The following table presents the changes in the fair value of financial instruments from December 31, 2021 through September 30, 2022:
Public Warrants |
Private Placement Warrants |
Forward Purchase Units |
||||||||||
Derivative warrant liabilities as of December 31, 2021 |
$ |
$ |
$ |
|||||||||
Change in fair value |
( |
) | ( |
) | ||||||||
Derivative warrant liabilities as of March 31, 2022 |
|
|||||||||||
Change in fair value |
( |
) | ( |
) | ( |
) | ||||||
Derivative warrant liabilities as of June 30, 2022 |
|
|||||||||||
Change in fair value |
( |
) | ( |
) | ( |
) | ||||||
Derivative warrant liabilities as of September 30 2022 |
$ |
$ |
$ |
|||||||||
Measurement
The Company established the initial fair value for the warrants on September 14, 2021, the date of the consummation of the Company’s IPO. The Company used a lattice model and Monte Carlo simulation model to value the warrants. The Company allocated the proceeds received from (i) the sale of Units (which is inclusive of one share of Class A common stock and
one-half
of one Public WarrantThe key inputs into the lattice model and Monte Carlo simulation model formula were as follows at September 30, 2022 and December 31, 2021:
| Private Placement Warrants | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
Input |
||||||||
Ordinary share price |
$ | $ | ||||||
Exercise price |
$ | $ | ||||||
16
| Private Placement Warrants | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Risk-free rate of interest |
% | % | ||||||
| Volatility |
% | % | ||||||
| Term |
||||||||
| Warrant to buy one share |
$ | $ | ||||||
| Dividend yield |
% | % | ||||||
The forward purchase agreement is a plain vanilla forward contract with delivery of the Units and payment contingent on the consummation of an acquisition. The value per forward purchase unit is determined using the market conversion textbook formula for a forward contract and based upon the exchange closing prices of common stock and the Public Warrants. As the exchange closing price of the Public Warrants implicitly includes a probability of the warrants being worthless in the absence of a Business combination, the observed closing price was grossed up to reflect their value specific to scenarios where a Business Combination is effectuated. The market conversion textbook formula is VF = St – F0 x
e^[-r
x (T-t)] where: | • | V F = Value of forward contract to the long party |
| • | S t = Asset price at measurement date |
| • | F 0 = Contractual forward price |
| • | R = Risk-free rate |
| • | T-t = Remaining term to expiration |
The key inputs into the formula were as follows at September 30, 2022 and December 31, 2021:
| Forward Purchase Liability | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Input |
||||||||
| Implied Unit price |
$ | $ | ||||||
| Contractual forward price |
$ | $ | ||||||
| Risk-free rate of interest |
% | % | ||||||
| Remaining term to expiration |
||||||||
NOTE 10. INCOME TAX
The Company recorded a tax provision of
$
NOTE 11. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed consolidated financial statements were issued. Based upon this review and except as set forth below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements.
17
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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 within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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 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.
Our sponsors are 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,