UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from _______to_______
Commission
File Number:
| (Exact name of registrant as specified in its charter) |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code: (
|
909 Bannock Street Denver, Colorado 80204 |
| (Former name or former address, if changed since last report) |
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.
Indicate
by check mark whether the registrant has submitted electronically, if any, every Interactive Date File required to be submitted pursuant
to Rule 405 of Regulation 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, a 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.
| 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 12b-2 of the Exchange Act).
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The Stock Market LLC | ||||
| The Stock Market LLC | ||||
| The Stock Market LLC |
As of November [15], 2021, there were shares of the Company’s Class A Common Stock, $0.0001 par value per share (the “Class A Shares”) and of the Company’s Class B Common Stock, $0.0001 par value per share issued and outstanding (the “Class B Shares”).
NORTHERN LIGHTS ACQUISITION CORP.
TABLE OF CONTENTS
| i |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NORTHERN LIGHTS ACQUISITION CORP.
CONDENSED BALANCE SHEET
(Unaudited)
| September 30, | ||||
| 2021 | ||||
| ASSETS | ||||
| Current Assets | ||||
| Cash | $ | |||
| Prepaid expense | ||||
| Prepaid insurance | ||||
| Total current assets | ||||
| Investments held in Trust Account | ||||
| Total assets | $ | |||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||
| Current liabilities | ||||
| Accrued expenses | ||||
| Total current liabilities | ||||
| Warrant liabilities | ||||
| Deferred underwriter fee payable | ||||
| Total liabilities | ||||
| Commitments and Contingencies (Note 6) | ||||
| Class A common stock subject to possible redemption; shares at redemption value of $ | ||||
| Stockholders’ Deficit | ||||
| Preferred stock, $ par value; shares authorized; issued and outstanding | - | |||
| Class A common stock, $ par value; shares authorized; issued and outstanding, excluding shares subject to redemption | ||||
| Class B common stock, $ par value; shares authorized; issued and outstanding | ||||
| Additional paid in capital | - | |||
| Accumulated deficit | ( | ) | ||
| Total stockholders’ deficit | ( | ) | ||
| Total liabilities and stockholders’ deficit | $ | |||
The accompanying notes are an integral part of these condensed unaudited financial statements
| 1 |
NORTHERN LIGHTS ACQUISITION CORP.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Period from | ||||||||
| February 26, 2021 | ||||||||
| Three Months | (Inception) | |||||||
| Ended | Through | |||||||
| September 30, 2021 | September 30, 2021 | |||||||
| Formation and operating costs | $ | ( | ) | $ | ( | ) | ||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income and expense: | ||||||||
| Unrealized gain from marketable securities held in Trust Account | ||||||||
| Change in fair value of warrant liability | ||||||||
| Offering costs allocated to warrants | - | ( | ) | |||||
| Net income | $ | $ | ||||||
| Weighted average shares outstanding of Class A common stock subject to redemption | ||||||||
| Basic and diluted net income per common stock subject to redemption | $
| $ | ||||||
| Weighted average shares outstanding of Class A and Class B non-redeemable common stock | ||||||||
| Basic and diluted net income per common stock not subject to redemption | $ | $ | ||||||
The accompanying notes are an integral part of these condensed unaudited financial statements.
| 2 |
NORTHERN LIGHTS ACQUISITION CORP.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Period from February 26, 2021 (Inception) Through September 30, 2021
(Unaudited)
| Class A | Class B | Additional | Retained Earnings | Total Stockholders’ | ||||||||||||||||||||||||
| Common Stock | Common Stock | Paid in | (Accumulated | Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit) | (Deficit) | ||||||||||||||||||||||
| Balance - February 26, 2021 (inception) | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Issuance of Class B Common stock to Sponsor | — | |||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance – March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Sale of IPO Units, net of offering costs | — | |||||||||||||||||||||||||||
| Deferred underwriter fee | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Warrant liabilities | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Subsequent measurement of Class A Common Stock Subject to Redemption under ASC 480-10-S99(1) | ( | ) | ( | ) | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance – June 30, 2021 | $ | ( | ) | ( | ) | |||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance – September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| (1) |
The accompanying notes are an integral part of these condensed unaudited financial statements
| 3 |
NORTHERN LIGHTS ACQUISITION CORP.
CONDENSED STATEMENT OF CASH FLOWS
For the Period from February 26, 2021 (Inception) Through September 30, 2021
(Unaudited)
| Cash flow from operating activities: | ||||
| Net income | $ | |||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||
| Unrealized gain from securities held in Trust Account | ( | ) | ||
| Offering costs allocated to warrants | ||||
| Change in fair value of warrant liabilities | ( | ) | ||
| Changes in operating assets and liabilities: | ||||
| Prepaid insurance | ( | ) | ||
| Prepaid expense | ( | ) | ||
| Accrued expense | ||||
| Net cash used in operating activities | ( | ) | ||
| Cash flows from investing activities: | ||||
| Investment of cash in Trust Account | ( | ) | ||
| Net cash used in investing activities | ( | ) | ||
| Cash flow from financing activities: | ||||
| Proceeds from issuance of Class B common stock to Sponsor | ||||
| Proceeds from sale of Units, net of underwriting discount paid | ||||
| Proceeds from sale of private placement units | ||||
| Payment of offering costs | ( | ) | ||
| Net cash provided by financing activities | ||||
| Net change in cash | ||||
| Cash at the beginning of the period | ||||
| Cash at the end of the period | $ | |||
| Supplemental disclosure of non-cash financing activities: | ||||
| Deferred underwriting fee payable | $ | |||
| Initial classification of Class A common stock subject to redemption | $ | |||
| Initial classification of warrant liabilities | $ | |||
| Offering costs charged to additional paid-in capital included in accrued expenses | $ | |||
The accompanying notes are an integral part of these condensed unaudited financial statements
| 4 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1 — Description of Organization and Business Operations
Northern
Lights Acquisition Corp. (the “Company”) is a blank check company incorporated in Delaware on
As of September 30, 2021, the Company had not yet commenced any operations. All activity for the period February 26, 2021 (inception) through September 30, 2021 relates to the Company’s formation and the initial public offering (the “Initial Public Offering”), and, since the closing of the initial public offering, a search for a Business Combination candidate. 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 June 23, 2021. On June 28, 2021, the
Company consummated the Initial Public Offering of units (“Units” and, with respect to the shares of Class A common
stock included in the Units offered, the “Public Shares”), generating gross proceeds of $
Simultaneously
with the closing of the Initial Public Offering, the Company consummated the sale of private placement units (the “Private
Placement Units”) at a price of $ per unit in a private placement to 5AK, LLC (the “Sponsor”), generating gross
proceeds of $
Following
the closing of the Initial Public Offering on June 28, 2021, an amount of $
Transaction
costs of the Initial Public Offering amounted to $
Following
the closing of the Initial Public Offering $
The
Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering
and the sale of the Private Placement Units, although substantially all of the net proceeds are intended to be applied generally toward
consummating a Business Combination.
| 5 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1 — Description of Organization and Business Operations (Continued)
The
Company will provide its holders of the outstanding Public Shares (the “public stockholders”) with the opportunity to redeem
all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting
called to approve the Business Combination or (ii) by means of a tender offer. In connection with a proposed Business Combination, the
Company may seek stockholder approval of a Business Combination at a meeting called for such purpose at which stockholders may seek to
redeem their shares, regardless of whether they vote for or against a Business Combination.
| 6 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1 — Description of Organization and Business Operations (Continued)
Liquidity
As
of September 30, 2021, the Company had $
The
Company’s liquidity needs prior to the consummation of its IPO were satisfied through the proceeds of $
Based on the foregoing, management believes that the Company will have sufficient working capital and borrowing capacity to meet its needs through the earlier of the consummation of a Business Combination or one year from this filing. Over this time period, the Company will be using the funds held outside of the Trust Account for paying existing accounts payable and accrued liabilities, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination. The Company does not believe it will need to raise additional funds in order to meet the expenditures required for operating the business. However, if the Company’s estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an Initial Business Combination are less than the actual amount necessary to do so, the Company may have insufficient funds available to operate the business prior to the Initial Business Combination. Moreover, the Company may need to obtain additional financing either to complete the Initial Business Combination or to redeem a significant number of our public shares upon completion of the Initial Business Combination, in which case the Company may issue additional securities or incur debt in connection with such Initial Business Combination. If the Company is unable to complete an Initial Business Combination because it does not have sufficient funds available, it will be forced to cease operations and liquidate the Trust Account.
There is no assurance that the Company’s plans to consummate an Initial Business Combination will be successful within the Combination Period. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Risks and Uncertainties
Management is currently evaluating the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of the financial statement. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| 7 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 2. Restatements of Previously Issued Financial Statements
In
accordance with the SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption
provisions not solely within the control of the Company require common stock subject to redemption to be classified outside of permanent
equity. The Company had previously classified
shares and shares of Class A common stock in temporary equity on June 28, 2021 and June 30, 2021. Although
the Company did not specify a maximum redemption threshold, its charter provides that currently, the Company will not redeem its public
shares in an amount that would cause its net tangible assets to be less than $
Management reviewed the Company’s initial application of ASC 480-10-S99-3A to its accounting classification of public shares and determined that the public shares include certain redemption provisions outside of the Company’s control that require the public shares to be presented as temporary equity regardless of the minimum net tangible asset required by the Company to complete its initial business combination.
In accordance with SEC Staff Accounting Bulletin No. 99, “Materiality,” and SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements;” the Company evaluated the changes and has determined that the related impact was material to any previously presented financial statements. Therefore, the Company, in consultation with its Audit Committee, concluded that its previously issued financial statements should be restated to report all public shares as temporary equity. As such the Company is reporting upon restatements to those periods in this Quarterly Report.
| As of June 28, 2021 | ||||||||||||
| As previously reported | Restatement adjustment | As restated | ||||||||||
| Balance Sheet: | ||||||||||||
| Class A common stock subject to possible redemption; | ||||||||||||
| Stockholders’ Equity/ (Deficit) | - | |||||||||||
| Class A common stock, $ par value; | ( | ) | ||||||||||
| Class B common stock $ par value; | - | |||||||||||
| Additional paid-in capital | ( | ) | - | |||||||||
| Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||
| Total Stockholder’s Equity | ( | ) | ( | ) | ||||||||
| Total Liabilities and Stockholder’s Equity | $ | $ | $ | |||||||||
| Shares of Class A common stock subject to possible redemption | ||||||||||||
| As of June 30, 2021 | ||||||||||||
| As previously reported | Restatement adjustment | As restated | ||||||||||
| Balance Sheet: | ||||||||||||
| Class A common stock subject to possible redemption; | ||||||||||||
| Stockholders’ Equity/ (Deficit) | ||||||||||||
| Class A common stock, $ par value; | ( | ) | ||||||||||
| Class B common stock, $ par value; | - | |||||||||||
| Additional paid-in capital | ( | ) | - | |||||||||
| Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||
| Total Stockholder’s Equity | ( | ) | ( | ) | ||||||||
| Total Liabilities and Stockholder’s Equity | $ | $ | $ | |||||||||
| Statement of Operations: | ||||||||||||
| Weighted average shares outstanding of Class A common stock subject to redemption | ||||||||||||
| Basic and diluted net income per common stock | $ | $ | ( | ) | $ | ( | ) | |||||
| Weighted average shares outstanding of Class A and Class B non-redeemable common stock | ( | ) | ||||||||||
| Basic and diluted net income per common stock | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Statement of Changes in Stockholders’ Equity: | ||||||||||||
| Initial shares subject to possible redemption | ( | ) | ||||||||||
| Change in shares subject to possible redemption | ( | ) | ||||||||||
| Subsequent measurement of Class A Common Stock Subject to Redemption under ASC 480-10-S99 | ( | ) | ( | ) | ||||||||
| Statement of Cash Flows: | ||||||||||||
| Initial classification of common stock subject to possible redemption | ( | ) | ||||||||||
| Change in shares subject to possible redemption | ( | ) | ||||||||||
| Initial classification of Class A Common Stock Subject to Redemption | ||||||||||||
| 8 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 3 — Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the accounting and disclosure rules and regulations of the U.S. Securities and Exchange Commission.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (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 neither an emerging growth company nor 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 the balance sheet in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The
Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash
equivalents are carried at cost, which approximates fair value. The Company had $
Trust Account
Upon
the closing of the Initial Public Offering and the Private Placement, $
Income Taxes
The Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC
Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement 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, if any, as income tax expense. There were
The provision for income taxes was deemed to be immaterial for the period from February 26, 2021 (inception) through September 30, 2021.
| 9 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 3 — Summary of Significant Accounting Policies (Continued)
Offering Costs Associated with the Initial Public Offering
Offering costs consisted of legal, accounting, underwriting fees and other costs incurred that were directly related to the Initial Public Offering. Offering costs are allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared to total proceeds received. Offering costs associated with warrant liabilities are expensed as incurred, presented as offering costs allocated to warrants in the condensed statements of operations. Offering costs associated with the Public Shares were charged to stockholders’ equity upon the completion of the Initial Public Offering.
The Company accounts for its shares subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Shares subject to mandatory redemption (if any) is classified as a liability instrument and is measured at fair value. Conditionally redeemable shares of common stock (including shares of 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, shares are classified as stockholders’ equity. The Company’s shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events.
On September 30, 2021, there are shares of Class A Common Stock in Private Placement Unit (Note 5) outstanding. shares of Class A Common Stock are subject to possible redemption.
If it is probable that the equity instrument will become redeemable, the Company has the option to either accrete changes in the redemption value over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of the instrument or to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The Company has elected to recognize the changes immediately. The accretion or remeasurement is treated as a deemed dividend (i.e., a reduction to retained earnings, or in absence of retained earnings, additional paid-in capital).
As of September 30, 2021, the Class A Common Stock reflected on the balance sheet are reconciled in the following table:
| As of September 30, 2021 | ||||
| Gross Proceeds | $ | |||
| Less: | ||||
| Proceeds allocated to public warrants | ( | ) | ||
| Proceeds allocated to shares not subject to redemption | ( | ) | ||
| Issuance costs related to Class A common stock | ( | ) | ||
| Plus: | ||||
| Accretion of carrying value to redemption value | ||||
| Class A common stock subject to possible redemption | ||||
| 10 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution
which, at times, may exceed the Federal Depository Insurance Corporation coverage limit of $
Net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common stock shares outstanding for the period. The calculation of diluted income (loss) per share does not consider the effect of the warrants issued in connection with the Initial Public Offering and warrants issued as components of the Private Placement Units (the “Placement Warrants”) since the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive.
The Company applies the two-class method in calculating earnings per share. The contractual formula utilized to calculate the redemption amount approximates fair value. The Class feature to redeem at fair value means that there is effectively only one class of stock. Changes in fair value are not considered a dividend of the purposes of the numerator in the earnings per share calculation. Net income per common share is computed by dividing the pro rata net loss between the redeemable shares and the non-redeemable shares by the weighted average number of common shares outstanding for each of the periods. The calculation of diluted income per common stock does not consider the effect of the warrants issued in connection with the IPO since the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive. The warrants are exercisable for 6,014,088 shares of common stock in the aggregate.
For the Three Months | For the Period from February 26, 2021 (inception) | |||||||
Ended September 30, 2021 | Through September 30, 2021 | |||||||
| Redeemable Class A common stock subject to possible redemption | ||||||||
| Numerator: earnings allocable to redeemable Class A common stock subject to possible redemption | $ | $ | ||||||
| Denominator: weighted average number of redeemable Class A common stock | ||||||||
| Basic and diluted net income per redeemable Class A common stock | $ | $ | ||||||
| Non-redeemable Class A and Class B common stock | ||||||||
| Numerator: net income allocable to non-redeemable Class A and Class B common stock | $ | $ | ||||||
| Denominator: weighted average number of non-redeemable Class A and Class B common stock | ||||||||
| Non-redeemable Class A private placement and Class B common shares, basic and diluted | ||||||||
| Basic and diluted net income per non-redeemable Class and Class B common stock | $ | $ | 0.2 | |||||
| 11 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 3 — Summary of Significant Accounting Policies (Continued)
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying condensed balance sheet, primarily due to their short-term nature.
Fair Value Measurements
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. U.S. 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 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. |
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
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.
Recently Issued Accounting Standards
In August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, “Debt—Debt with Conversion and Other Options(Subtopic 470- 0) 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 U.S. GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. 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 financial statements.
Note 4 —Public Offering
Pursuant
to the Initial Public Offering, the Company sold Units at a purchase price of $ per Unit. Each Unit consists of one share
of the Company’s Class A common stock, $ par value, and one-half of one redeemable warrant (“Public Warrant”).
Each whole Public Warrant entitles the holder to purchase one share of Class A common stock at an exercise price of $
| 12 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 5 — Private Placement
Simultaneously
with the Initial Public Offering, the Sponsor purchased an aggregate of Private Placement Units at a price of $ per Private
Placement Unit for an aggregate purchase price of $
The Private Placement Units are identical to the Units, except that (a) the Private Placement Units and their component securities will not be transferable, assignable or saleable until the consummation of the Company’s initial business combination except to permitted transferees and (b) the Placement Warrants, so long as they are held by the Sponsor or its permitted transferees, (i) may be exercised by the holders on a cashless basis and (ii) will be entitled to registration rights.
Note 6 — Related Party Transactions
Founder Shares
On
March 19, 2021, the Company issued an aggregate of shares of Class B common stock (the “Founder Shares”) to the
Sponsor for an aggregate purchase price of $
| 13 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 6 — Related Party Transactions (Continued)
The Sponsor has agreed not to transfer, assign or sell any of its Founder Shares until the earlier to occur of: (A) six months after the completion of a Business Combination or (B) the date on which the Company completes a liquidation, merger, capital stock exchange or similar transaction that results in the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property. Notwithstanding the foregoing, if the last reported sale price of the Company’s Class A common stock equals or exceeds $ per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Business Combination, the Founder Shares will be released from the lock-up.
Promissory Note — Related Party
On
February 26, 2021, the Sponsor committed to loan the Company an aggregate of up to $
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”). Such Working Capital Loans would be evidenced by promissory notes. The notes would either be repaid upon consummation
of a Business Combination, without interest, or, at the lender’s discretion, up to $
| 14 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 6 — Related Party Transactions (Continued)
Administrative Support Agreement
Commencing
on the date of the Initial Public Offering and until completion of the Company’s Business Combination or liquidation, the Company
may reimburse Luminous Capital Inc., an affiliate of the Sponsor, up to an amount of $
Note 7 — Commitments and Contingencies
Registration Rights
Pursuant to a registration rights agreement entered into on June 23, 2021, the holders of the Founder Shares, Private Placement Units (including the securities contained therein), the units (including the securities contained therein) that may be issued upon conversion of the Working Capital Loans, and any shares of Class A common stock issuable upon the exercise of the Placement Warrants and any shares of Class A common stock, warrants (and underlying Class A common stock) that may be issued upon conversion of the units issued as part of the working capital loans and Class A common stock issuable upon conversion of the founder shares are entitled to registration rights. The holders of a majority of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of a Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. However, the registration 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.
Underwriters Agreement
The Company granted the underwriter a 45-day option to purchase up to additional Units to cover over-allotments at the Initial Public Offering price, less the underwriting discounts and commissions. The underwriter’s over-allotment option was exercised in full on June 28, 2021.
The
underwriter was paid a cash underwriting discount of
Right of First Refusal
For a period beginning on June 28, 2021 and ending 12 months from the closing of a business combination, we have granted the underwriters a right of first refusal to act as lead-left book running manager and lead left manager for any and all future private or public equity, convertible and debt offerings during such period. In accordance with FINRA Rule 5110(f)(2)(E)(i), such right of first refusal shall not have a duration of more than three years from the effective date of our Registration Statement.
| 15 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 8 – Warrant Liability
At
September 30, 2021 the Company has
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 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 covering the issuance of the shares of Class A common issuable upon exercise of the warrants is then effective and a current prospectus relating to those shares of Class A common stock is available, subject to the Company satisfying its obligations with respect to registration. No warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption from registration is available.
The Company has agreed that as soon as practicable, but in no event later than 20 business days after the closing of its initial Business Combination, it will use its commercially reasonable efforts to file with the SEC a post-effective amendment to the registration statement or a new registration statement covering the shares of Class A common stock issuable upon exercise of the warrants, to cause such registration statement to become effective and to maintain 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. 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 the Company’s initial 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.. Notwithstanding the above, if the Company’s shares of Class A common stock are 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, it 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, it will not be required to file or maintain in effect a registration statement, and in the event it does not so elect, it will use its commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. If that exemption, or another exemption, is not available, holders will not be able to exercise their warrants on a cashless basis.
Redemption of warrants when the price per Class A common stock equals or exceeds $18.00. Once the warrants become exercisable, the Company may redeem the Public Warrants:
| ● | in whole and not in part; | |
| ● | at
a price of $ | |
| ● | upon not less than 30 days’ prior written notice of redemption to each warrant holder; and | |
| ● | if, and only if, the reported last sale price of the Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like and certain issuances of Class A common stock and equity-linked securities) for any 20 trading days within a 30-trading day period commencing no earlier than the date the warrants become exercisable and ending on the third business day before the date on which the Company sends the notice of redemption to the warrant holders. |
If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
| 16 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 8 – Warrant Liability (Continued)
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Class A common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of Class A common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants. If the Company is unable to complete a Business Combination within the Combination Window and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
The Placement Warrants will be identical to the Public Warrants underlying the Units being sold in the Initial Public Offering, except that the Placement Warrants and the Class A common stock issuable upon the exercise of the Placement Warrants will not be transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Placement Warrants will be exercisable on a cashless basis and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
The
Company accounted for the aggregate
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 classified 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 determined by the Monte Carlo simulation. This liability is subject to remeasurement 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
| 17 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 9 – Stockholders’ Equity
Preferred Stock — The Company is authorized to issue preferred shares with a par value of $ per share with such designation, rights and preferences as may be determined from time to time by the Company’s Board of Directors. At September 30, 2021, there were preferred shares issued or outstanding.
Class A Common Stock — The Company is authorized to issue up to shares of Class A common stock with a par value of $ per share. Holders of the Company’s Class A common stock are entitled to one vote for each share. At September 30, 2021, there were shares of Class A common stock issued or outstanding, excluding shares of Class A common stock subject to possible redemption.
Class B Common Stock — The Company is authorized to issue up to shares of Class B common stock with a par value of $ per share. Holders of the Company’s Class B common stock are entitled to one vote for each share. On March 24, 2021, the Sponsor transferred shares to the Company’s Chief Financial Officer and shares to each of the Company’s three independent directors. At September 30, 2021, there were shares of Class B common stock issued and outstanding.
Holders of Class A common stock and Class B common stock will vote together as a single class on all other matters submitted to a vote of stockholders, except as required by law.
The Company may issue additional common stock or preferred stock to complete its Business Combination or under an employee incentive plan after completion of its Business Combination.
Note 10 – Fair Value Measurements
The following table presents information about the Company’s assets and derivative warrant liabilities that are measured at fair value on a recurring basis as of September 30, 2021 and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value:
| Quoted Prices in Active Markets | Significant Other Observable Inputs | Significant Other Unobservable Inputs | ||||||||||
| Description | (Level 1) | (Level 2) | (Level 3) | |||||||||
| Asset: | ||||||||||||
| Marketable securities held in Trust Account | $ | $ | $ | |||||||||
| Warrant Liabilities: | ||||||||||||
| Public Warrants | $ | $ | $ | |||||||||
| Private Placement Warrants | $ | $ | $ | |||||||||
Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period in which a change in valuation technique or methodology occurs. The estimated fair value of the Public Warrants transferred from a Level 3 measurement to a Level 1 fair value measurements during the three months ended September 30, 2021 .
The Warrants are measured at fair value on a recuring basis. The Public Warrants were initially valued using a Modified Monte Carlo Simulation. As of September 30, 2021, the Public warrants were valued using the instrument’s publicly listed trading price as of the balance sheet date, which is considered to be a Level 1 measurement due to the use of an observable market quote in an active market.
At
September 30, 2021, assets held in the Trust Account were comprised of $
| 18 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 10 – Fair Value Measurements (Continued)
The
Company recognized $
The Company utilizes a binomial Monte-Carlo simulation to estimate the fair value of the warrants at each reporting period for warrants that are not actively traded. The estimated fair value of the derivative warrant liabilities is determined using Level 3 inputs. Inherent in a binomial Monte Carlo simulation are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock based on historical volatility of select peer companies that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero.
The following table provides quantitative information regarding Level 3 fair value measurements inputs as their measurement dates:
| June 30, 2021 | September 30, 2021 | |||||||
| (Public and Private Warrant) | (Private Warrant) | |||||||
| Exercise price | $ | $ | ||||||
| Share price | $ | $ | ||||||
| Expected term (years) | ||||||||
| Probability of Acquisition | % | % | ||||||
| Volatility | % | % | ||||||
| Risk-free rate | % | % | ||||||
| Dividend yield (per share) | % | % | ||||||
The change in the fair value of the derivative warrant liabilities for the period from February 26, 2021 (inception) through September 30, 2021 is summarized as follows:
| Private Placement | Public Warrant | Warrant Liability | ||||||||||
| Fair value as of June 28, 2021 (Initial Public Offering) | $ | $ | $ | |||||||||
| Change in valuation inputs or other assumptions (1) | ||||||||||||
| Fair value as of June 30, 2021 | $ | $ | $ | |||||||||
| Change in valuation inputs or other assumptions (1)(2) | ( | ) | ( | ) | ( | ) | ||||||
| Fair value as of September 30, 2021 | $ | |||||||||||
| (1) | |
| (2) |
Note 11 – Subsequent Events
Management has evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statement was issued. Based upon this review, other than the events included in the above notes, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statement.
| 19 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References to the “Company,” “us,” “our” or “we” refer Northern Lights Acquisition Corp. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited Condensed financial statements and related notes included herein.
Cautionary Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Form 10-Q including, without limitation, statements under “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. When used in this Form 10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or the Company’s management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s management. Actual results could differ materially from those contemplated by the forward- looking statements as a result of certain factors detailed in our filings with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons acting on the Company’s behalf are qualified in their entirety by this paragraph.
Overview
The Company is a blank check company formed under the laws of the State of Delaware on February 26, 2021 for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. The Company intends to effectuate its initial Business Combination using cash from the proceeds of Public Offering and the Private Placement, the proceeds of the sale of our securities in connection with our initial Business Combination, our shares, debt or a combination of cash, stock and debt.
The issuance of additional shares in connection with an initial Business Combination to the owners of the target or other investors:
| ● | may significantly dilute the equity interest of investors, which dilution would increase if the anti-dilution provisions in the Class B common stock resulted in the issuance of Class A shares on a greater than one -to-one basis upon conversion of the Class B common stock; | |
| ● | may subordinate the rights of holders of our common stock if preferred stock is issued with rights senior to those afforded our common stock; | |
| ● | could cause a change in control if a substantial number of shares of our common stock is 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 stock ownership or voting rights of a person seeking to obtain control of us; and | |
| ● | may adversely affect prevailing market prices for our Class A common stock and/or warrants. |
| 20 |
Similarly, if we issue debt securities or otherwise incur significant debt to bank or other lenders or the owners of a target, it could result in:
| ● | default and foreclosure on our assets if our operating revenues after an 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 security is payable on demand; | |
| ● | our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding; | |
| ● | our inability to pay dividends on our 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, our ability to pay expenses, make capital expenditures and acquisitions, and fund 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; | |
| ● | limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, and execution of our strategy; and | |
| ● | other purposes and other disadvantages compared to our competitors who have less debt. |
We expect to continue to incur significant costs in the pursuit of our initial Business Combination plans. We cannot assure you that our plans to raise capital or to complete our initial Business Combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities from inception to September 30, 2021 were organizational activities, those necessary to prepare for the Initial Public Offering (“Initial Public Offering”) and identifying a target company for a business combination. We do not expect to generate any operating revenues until after the completion of our business combination. We expect to generate non-operating income in the form of interest income on cash and marketable securities held after the Initial Public Offering. We expect that we will 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 in connection with completing a business combination.
For the period from February 26, 2021 (inception) through September 30, 2021, we had a net income of $1,816,276, which consists of unrealized gain from marketable securities held in the Trust Account of $11,591, change in fair value of warrant liabilities of $2,321,752 offset by operating costs of $255,229 and offering costs allocated to warrants of $261,838.
For the three months ended September 30, 2021, we had a net income of $3,560,797, which consists of unrealized gain from marketable securities held in the Trust Account of $21,068, change in fair value of warrant liabilities of $3,784,058 offset by operating costs of $244,329.
| 21 |
Liquidity and Capital Resources
On June 28, 2021, we consummated the Initial Public Offering of 11,500,000 Units, which includes the full exercise by the underwriter of the over-allotment option to purchase 1,500,000 Units at $10.00 per Unit, generation gross proceeds of $115,000,000. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 528,175 Private Placement Units at $10.00 per Private Placement Unit to our Sponsor, generation gross proceeds of $5,281,750.
Transaction costs of the Initial Public Offering amounted to $6,263,677 consisting of $1,725,000 of underwriting fees, $4,025,000 of deferred underwriting fees (see Note 5) and $513,677 of other costs.
As of September 30, 2021, we had available to us $330,240 of cash on our balance sheet and a working capital of $512,844. We intend to use the funds held outside of the Trust Account for identifying and evaluating prospective acquisition candidates, performing business due diligence on prospective target businesses, traveling to and from the offices, plants or similar locations of prospective target businesses, reviewing corporate documents and material agreements of prospective target businesses, selecting the target business to acquire and structuring, negotiating and consummating the Business Combination. The interest income earned on the investments in the Trust Account are unavailable to fund operating expenses.
In order to finance transaction costs in connection with the Business Combination, the Sponsor or an affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes the Business Combination, the Company would repay such loaned amounts. In the event that the Business Combination does not close, the Company may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from the trust account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into units at a price of $10.00 per unit at the option of the lender. The units would be identical to the Private Placement Units issued to the Sponsor. The terms of such loans by the Company’s officers and directors, if any, have not been determined and no written agreements exist with respect to such loans. The Company does not expect to seek loans from parties other than the Sponsor or its directors or officers or their respective affiliates as it does not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in the trust account.
If the Company anticipates that it may not be able to consummate a Business Combination within 12 months, the Company may, by resolution of the Company’s board if requested by the Sponsor, extend the period of time to consummate a Business Combination up to two times, each by an additional three months (for a total of up to 18 months to complete a Business Combination), subject to the Sponsor depositing additional funds into the Trust Account as set out below. Pursuant to the terms of the Company’s amended and restated certificate of incorporation and the trust agreement entered into between the Company and Continental Stock Transfer & Trust Company, in order for the time available for the Company to consummate the initial Business Combination to be extended, the Sponsor or its affiliates or designees, upon five business days advance notice prior to the applicable deadline, must deposit into the Trust Account $1,150,000 since the underwriters’ over-allotment option is exercised in full ($0.10 per unit), on or prior to the date of the applicable deadline, for each of the available three month extensions, providing a total possible Business Combination period of 18 months at a total payment value of $2,300,000 since the underwriters’ over-allotment option is exercised in full ($0.10 per unit ) (the “Extension Loans”). Any such payments would be made in the form of non-interest bearing loans. If the Company completes its initial Business Combination, the Company will, at the option of the Sponsor, repay the Extension Loans out of the proceeds of the Trust Account released to the Company or convert a portion or all of the total loan amount into units at a price of $10.00 per unit, which units will be identical to the Private Placement Units. If the Company does not complete a Business Combination, the Company will repay such loans only from funds held outside of the Trust Account. Furthermore, the letter agreement among the Company and the Company’s officers, directors, and the Sponsor contains a provision pursuant to which the Sponsor will agree to waive its right to be repaid for such loans to the extent there is insufficient funds held outside of the Trust Account in the event that the Company does not complete a Business Combination. The Sponsor and its affiliates or designees are not obligated to fund the Trust Account to extend the time for the Company to complete the initial Business Combination. The public stockholders will not be afforded an opportunity to vote on the extension of time to consummate an initial Business Combination from 12 months to 18 months described above or redeem their shares in connection with such extensions.
| 22 |
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.
We have not entered any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or entered any non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities. Commencing on the date of the prospectus and until completion of the Company’s Business Combination or liquidation, the Company may reimburse Luminous Capital Inc., an affiliate of the Sponsor, up to an amount of $10,000 per month for office space, secretarial and administrative support.
The Underwriter was paid a cash underwriting fee of 1.5% of gross proceeds of the Public Offering, or $1,725,000. In addition, the Underwriter is entitled to aggregate deferred underwriting commissions of $4,025,000 consisting of 3.5% of the gross proceeds of the Public Offering. The deferred underwriting commissions will become payable to the Underwriter from the amounts held in the Trust Account solely in the event that the Company completes an initial Business Combination, subject to the terms of the underwriting agreement.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. The Company has identified the following as its critical accounting policies:
Use of Estimates
The preparation of condensed financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
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.
Financial Instruments
The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
Level 1 Inputs: Unadjusted quoted prices for identical assets or instruments in active markets.
| 23 |
Level 2 Inputs: Quoted prices for similar instruments in active markets and quoted prices for identical or similar instruments in markets that are not active and model derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 Inputs: Significant inputs into the valuation model are unobservable.
Net Income (Loss) Per Share of Common Stock
Net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common stock shares outstanding for the period. The calculation of diluted income (loss) per share does not consider the effect of the warrants issued in connection with the Initial Public Offering and warrants issued as components of the Private Placement Units (the “Placement Warrants”) since the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive.
The Company applies the two-class method in calculating earnings per share. The contractual formula utilized to calculate the redemption amount approximates fair value. The Class feature to redeem at fair value means that there is effectively only one class of stock. Changes in fair value are not considered a dividend of the purposes of the numerator in the earnings per share calculation. Net income per common share is computed by dividing the pro rata net loss between the redeemable shares and the non-redeemable shares by the weighted average number of common shares outstanding for each of the periods. The calculation of diluted income per common stock does not consider the effect of the warrants issued in connection with the IPO since the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive. The warrants are exercisable for 6,014,088 shares of common stock in the aggregate.
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 net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
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 features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of 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 features certain redemption rights that are outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, at September 30, 2021, as there are 528,175 shares of Class A Common Stock outstanding, 11,500,000 shares of Class A Common Stock are subject to possible redemption.
Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, “Debt—Debt with Conversion and Other Options(Subtopic 470- 0) 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 U.S. GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. 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 financial statements.
| 24 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Following the consummation of our Initial Public Offering, the net proceeds of our Initial Public Offering, including amounts in the Trust Account, have been invested in U.S. government treasury bills, notes or bonds with a maturity of 180 days or less or in certain money market funds that invest solely in US treasuries. Due to the short-term nature of these investments, we do not believe that there will be an associated material exposure to interest rate risk
Item 4. Controls and Procedures
In accordance with the SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within the control of the Company require common stock subject to redemption to be classified outside of permanent equity. The Company had previously classified 10,197,129 shares and 10,513,519 shares of Class A common stock in temporary equity on June 28, 2021 and June 30, 2021. Although the Company did not specify a maximum redemption threshold, its charter provides that currently, the Company will not redeem its public shares in an amount that would cause its net tangible assets to be less than $5,000,001.
Management reviewed the Company’s initial application of ASC 480-10-S99-3A to its accounting classification of public shares and determined that the public shares include certain redemption provisions outside of the Company’s control that require the public shares to be presented as temporary equity regardless of the minimum net tangible asset required by the Company to complete its initial business combination.
In accordance with SEC Staff Accounting Bulletin No. 99, “Materiality,” and SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements;” the Company evaluated the changes and has determined that the related impact was material to any previously presented financial statements. Therefore, the Company, in consultation with its Audit Committee, concluded that its previously issued financial statements should be restated to report all public shares as temporary equity. As such, the Company is reporting upon restatements to those periods in this Quarterly Report.
In connection with the preparation of this Form 10-Q, and in light of the SEC Statement (as defined herein), we revised our prior position on accounting for our equity position. We have restated our June 28, 2021 audited balance sheet included in the Company’s Current Report on Form 8-K filed on July 2, 2021 and June 30, 2021 Financial Statements on Form 10-Q filed on August 13, 2021 (the “Prior Financials”) to reclassify 11,500,000 shares of Class A common stock in temporary equity.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, solely due to the Company’s restatement of temporary equity of its Prior Financials, the Company’s disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were not effective as of September 30, 2021.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the evaluation of the SEC Statement and management’s subsequent re-evaluation of its Prior Financials, the Company determined that there were errors in its accounting for its complex financial instruments. Management concluded that a deficiency in internal control over financial reporting existed relating to the accounting treatment for complex financial instruments and that the failure to properly account for such instruments constituted a material weakness. This material weakness resulted in the need to restate the Prior Financials.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2021 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, with the exception of the below.
The Chief Executive Officer and Chief Financial Officer performed additional accounting and financial analyses and other post-closing procedures including consulting with subject matter experts related to the accounting for temporary and permanent equity and the restatement of the Prior Financials. The Company’s management has expended, and will continue to expend, a substantial amount of effort and resources for the remediation of the material weakness and improvement of our internal control over financial reporting. While we have processes to properly identify and evaluate the appropriate accounting technical pronouncements and other literature for all significant or unusual transactions, we have expanded and will continue to improve these processes to ensure that the nuances of such transactions are effectively evaluated in the context of the increasingly complex accounting standards.
| 25 |
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors disclosed in our final prospectus dated June 23, 2021 filed with the SEC, except we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds.
(a) Unregistered Sales of Equity Securities
None.
(b) Use of Proceeds from the Public Offering
The securities sold in our initial public offering were registered under the Securities Act on a registration statement on Form S-1 (No. 333-256701). The SEC declared the registration statement effective on June 23, 2021. There have been no material changes in the planned use of proceeds from our initial public offering as described in our final prospectus dated June 23, 2021 filed with the SEC and other periodic reports previously filed with the SEC.
(c) Purchase of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable
Item 5. Other Information
On November 10, 2021, John Burdiga, an independent member of the Company’s board of directors (the “Board”), submitted his resignation from the Board effective immediately. Mr. Burdiga has resigned for personal reasons, and such resignation is not related to any disagreement with the Company, the Board, the Company’s management, or the Company’s operations, policies, or practices. The Company is in the process of identifying an independent director candidate to replace Mr. Burdiga.
| 26 |
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| * | Filed herewith. |
| ** | Furnished. |
| 27 |
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| NORTHERN LIGHTS ACQUISITION CORP. | ||
| Date: November [15], 2021 | /s/ John Darwin | |
| Name: | John Darwin | |
| Title: | Co-Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: November [15], 2021 | /s/ Joshua Mann | |
| Name: | Joshua Mann | |
| Title: | Co-Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: November [15], 2021 | /s/ Chris Fameree | |
| Name: | Chris Fameree | |
| Title: | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
| 28 |