UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
For the transition period from to
Commission File No.
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N/A |
(Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
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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 every Interactive Data 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 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 |
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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): Yes
As of November 10, 2022 there were
GLOSSARY OF TERMS
Unless otherwise stated in this Report (as defined below), or the context otherwise requires, references to:
● | “Amended and Restated Certificate of Incorporation” are to the Amended and Restated Certificate of Incorporation of the Company (as defined below); |
● | “ASC” are to the Accounting Standards Codification; |
● | “ASU” are to the Accounting Standards Update; |
● | “board of directors,” “board” or “directors” are to the board of directors of the Company (as defined below); |
● | “Public Warrants” refer to the redeemable warrants sold as part of the Units in our initial public offering; |
● | the “Report” are to this Quarterly Report on Form 10-Q for the quarter ended September 30, 2022; |
● | “Representative Shares” are to the shares of common stock issued to the underwriters and their designees at the closing of our initial public offering. |
● | “SEC” are to the U.S. Securities and Exchange Commission; |
● | “Securities Act” are to the Securities Act of 1933, as amended; |
● | “SPAC” or “SPACs” are to special purpose acquisition companies; |
● | “Sponsor” are to Newbury Street Acquisition Sponsor LLC; |
● | “Trust Account” are to the U.S.-based trust account in which the net proceeds of the sale of the units in the initial public offering and the private placement units was placed following the closing of the initial public offering; and |
● | “Units” are to the units sold in the Public Offering. |
NEWBURY STREET ACQUISITION CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
| Page | ||
Condensed Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021 | 1 | ||
2 | |||
3 | |||
4 | |||
5 | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 | ||
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29 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NEWBURY STREET ACQUISITION CORPORATION
CONDENSED BALANCE SHEETS
| September 30, | December 31, | ||||
| 2022 |
| 2021 | |||
(Unaudited) | ||||||
ASSETS | ||||||
Cash | $ | | $ | | ||
Prepaid expenses - current |
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Total Current Assets | | | ||||
Cash held in Trust Account | | | ||||
Prepaid expenses - non-current | — | | ||||
Total Assets | $ | | $ | | ||
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY |
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Current Liabilities | ||||||
Accrued expenses | $ | | $ | | ||
Related party payable | | — | ||||
Income tax payable | | — | ||||
Promissory note - related party | | — | ||||
Franchise tax payable | | | ||||
Derivative warrant liabilities | | — | ||||
Total Current Liabilities | | | ||||
Derivative warrant liabilities | — | | ||||
Total Liabilities |
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Commitments and Contingencies (Note 6) |
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Common stock subject to possible redemption; | | | ||||
STOCKHOLDERS' (DEFICIT) EQUITY |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total Stockholders' (Deficit) Equity |
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Total Liabilities and Stockholders' (Deficit) Equity | $ | | $ | |
The accompanying notes are an integral part of the unaudited condensed financial statements.
1
NEWBURY STREET ACQUISITION CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Period from January | ||||||||||||
| For the Three Months | For the Three Months | For the Nine Months | 15, 2021 (Commencement of | ||||||||
Ended | Ended | Ended | Operations) through | |||||||||
| September 30, 2022 |
| September 30, 2021 |
| September 30, 2022 |
| September 30, 2021 | |||||
Formation and operating costs | $ | | $ | | $ | | $ | | ||||
Franchise tax expense | | — | | — | ||||||||
Loss from operations | ( | ( | ( | ( | ||||||||
Change in fair value of derivative warrant liabilities | | | | | ||||||||
Warrants transaction costs | — | — | — | ( | ||||||||
Dividend income | | | | | ||||||||
Other income | — | — | | — | ||||||||
Loss before provision for income taxes | ( | ( | ( | ( | ||||||||
Income tax expense | ( | — | ( | — | ||||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Weighted average shares outstanding, basic and diluted, redeemable common stock |
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Basic and diluted net loss per share, redeemable common stock | ( | ( | ( | ( | ||||||||
Weighted average shares outstanding, basic and diluted, non-redeemable common stock |
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Basic and diluted net loss per share, non-redeemable common stock | ( | ( | ( | ( |
The accompanying notes are an integral part of the unaudited condensed financial statements.
2
NEWBURY STREET ACQUISITION CORPORATION
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY
(UNAUDITED)
For the Three and Nine Months Ended September 30, 2022 | ||||||||||||||
Additional | Total | |||||||||||||
Common Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||
| Shares |
| Amount |
| Capital |
| Deficit |
| (Deficit) Equity | |||||
Balance – December 31, 2021 | | $ | | $ | | $ | ( | $ | | |||||
Accretion for common stock to redemption amount | — | — | ( | — | ( | |||||||||
Net loss |
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Balance — June 30, 2022 (unaudited) |
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Accretion for common stock to redemption amount | — | — | ( | — | ( | |||||||||
Net loss |
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Balance – September 30, 2022 (unaudited) |
| | $ | | $ | | $ | ( | $ | ( |
For the Period from January 15, 2021 (Commencement of Operations) through September 30, 2021 | ||||||||||||||
Total | ||||||||||||||
Common Stock | Additional | Accumulated | Stockholders’ | |||||||||||
| Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Equity | |||||
Balance — January 15, 2021 (commencement of operations) | | $ | | $ | | $ | | $ | | |||||
Issuance of common stock to Sponsor | | | | — | | |||||||||
Proceeds from the sale of | | | | — | | |||||||||
Issuance of common stock to Representative | | | ( | — | — | |||||||||
Forfeiture of common stock by Sponsor | ( | ( | | — | — | |||||||||
Proceeds from Public Offering allocated to the Public Warrants, net of offering costs | — | — | | — | | |||||||||
Accretion for common stock to redemption amount | — | — | ( | — | ( | |||||||||
Net loss |
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Balance - June 30, 2021 (unaudited) | | | | ( | | |||||||||
Net loss |
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Balance - September 30, 2021 (unaudited) |
| | $ | | $ | | $ | ( | $ | |
The accompanying notes are an integral part of the unaudited condensed financial statements.
3
NEWBURY STREET ACQUISITION CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Period from | ||||||
January 15, 2021 | ||||||
For the Nine | (Commencement of | |||||
Months Ended | Operations) through | |||||
September 30, 2022 | September 30, 2021 | |||||
Cash Flows from Operating Activities: |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Change in fair value of derivative warrant liabilities | ( | ( | ||||
Warrants transaction costs | — | | ||||
Dividend earned from Trust Account |
| ( |
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Changes in operating assets and liabilities: | ||||||
Prepaid expenses - current | | ( | ||||
Prepaid expenses - non-current | | ( | ||||
Accrued expenses | | — | ||||
Income tax payable | | — | ||||
Related party payable | | — | ||||
Franchise tax payable | ( | — | ||||
Net cash used in operating activities | ( | ( | ||||
Cash Flows from Investing Activities: | ||||||
Investment of cash held in Trust Account | — | ( | ||||
Transfer from Trust Account | | — | ||||
Net cash provided by (used in) investing activities | | ( | ||||
Cash Flows from Financing Activities: |
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Proceeds from issuance of common stock to Sponsor |
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Proceeds from sale of Units, net of underwriting discounts paid | — | | ||||
Proceeds from sale of Private Units | — | | ||||
Proceeds from promissory note – related party |
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Repayment of promissory note – related party | — | ( | ||||
Payments of offering costs |
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Net cash provided by financing activities |
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Net Change in Cash |
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Cash - Beginning of period |
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Cash - End of period | $ | | $ | | ||
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Non-cash investing and financing activities: |
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Issuance of Representative Shares | $ | — | $ | | ||
Offering costs paid through promissory note – related party | $ | — | $ | | ||
Initial classification of warrant liability | $ | — | $ | | ||
Initial classification of common stock subject to possible redemption | $ | — | $ | | ||
Accretion for common stock to redemption amount | $ | | $ | — |
The accompanying notes are an integral part of the unaudited condensed financial statements.
4
NEWBURY STREET ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS OPERATIONS
Newbury Street Acquisition Corporation (the “Company”) was incorporated in Delaware on November 6, 2020. The Company is a blank check 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”).
While the Company may pursue an acquisition or business combination target in any business or industry, the Company intends to focus its search on a technology business in the consumer internet or media space, including sports and entertainment verticals. In particular, the Company shall focus on disruptive, high growth companies with a global ambition that take advantage of: (a) the rise of new consumer behaviors driven by the internet or new technologies, or (b) paradigm shifts in media, sports and entertainment that give rise to disruptive new entrants here to stay for the coming decades. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of September 30, 2022, the Company had no operating activity. All activity for the period from January 15, 2021 (commencement of operations) through September 30, 2022 relates to the Company’s formation, its Public Offering and its search for targets for an initial Business Combination. The Company will not generate any operating revenues until after the completion of a Business Combination, at the earliest. The Company generates non-operating income in the form of interest income or dividend income from the funds deposited in a trust account (the “Trust Account”). The Company has selected December 31 as its fiscal year end.
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Public Offering and the sale of the Private Units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There is no assurance that the Company will be able to complete a Business Combination successfully. The Company must complete a Business Combination with one or more operating businesses or assets that together have an aggregate fair market value equal to at least
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. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company. The public stockholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially anticipated to be $
5
NEWBURY STREET ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS OPERATIONS (Continued)
The Company will proceed with a Business Combination if the Company has net tangible assets of at least $
Notwithstanding the above, if the Company seeks stockholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Amended and Restated Certificate of Incorporation provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate of
The Company will have up to
The Sponsor has agreed to waive its liquidation rights with respect to the Founder Shares if the Company fails to complete a Business Combination within the Combination Period. However, if the Sponsor acquires Public Shares in or after the Public Offering, such Public Shares will be entitled to liquidating distributions from the Trust Account if the Company fails to complete a Business Combination within the Combination Period. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution will be less than the Public Offering price per Unit ($
6
NEWBURY STREET ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS OPERATIONS (Continued)
In order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account to below the lesser of (1) $
Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers (except the Company’s independent registered public accounting firm), prospective target businesses and other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
Liquidity and Going Concern
As of September 30, 2022, the Company had approximately $
Until the consummation of a Business Combination, the Company will be using the funds not held in the Trust Account for identifying and evaluating prospective acquisition candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to acquire, and structuring, negotiating and consummating the Business Combination.
The Company will need to raise additional capital through loans or additional investments from its Sponsor, stockholders, officers, directors, or third parties. The Company’s officers, directors and Sponsor may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about the Company’s ability to continue as a going concern through March 25, 2023, the date that the Company will be required to cease all operations, except for the purpose of winding up, if a Business Combination is not consummated. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
7
NEWBURY STREET ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 – 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 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 presentation 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 for the period from January 15, 2021 (commencement of operations) through December 31, 2021, 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.
Use of Estimates
The preparation of financial statement in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ from those estimates.
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. As of September 30, 2022 and December 31, 2021, the Company did
Cash Held in Trust Account
At September 30, 2022, the Company had approximately $
Common Stock Subject to Possible Redemption
All of the
8
NEWBURY STREET ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
Common Stock Subject to Possible Redemption (Continued)
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable shares of common stock to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable shares of common stock are affected by charges against additional paid-in capital and accumulated deficit.
As of September 30, 2022 and December 31, 2021, the shares of common stock subject to possible redemption and included as temporary equity were as follows:
| September 30, 2022 |
| December 31, 2021 | |||
Gross proceeds |
| $ | |
| $ | |
Less: | ||||||
Proceeds allocated to public warrants | ( |
| ( | |||
Common stock issuance costs | ( |
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Plus: |
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Accretion of carrying value to redemption value | |
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Contingently redeemable common stock | $ | | $ | |
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist of cash accounts in a financial institution which, at times, may exceed the federal depository insurance coverage of $
Fair Value of Financial Instruments
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. 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 - Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
● | Level 2 - Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. |
● | Level 3 - Unobservable inputs based on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability. |
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.
9
NEWBURY STREET ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments (Continued)
As of September 30, 2022 and December 31, 2021, the carrying values of cash, prepaid expenses, accrued expenses, franchise tax payable approximated their fair values due to the short-term nature of the instruments. The Company’s marketable securities held in Trust Account are comprised of investments in U.S. Treasury securities with an original maturity of 185 days. The fair value of marketable securities held in Trust Account is determined using quoted prices in active markets.
Derivative Warrant Liabilities
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC Topic 480 and ASC Subtopic 815-15. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
The
10
NEWBURY STREET ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
Net Loss Per Share of Common Stock
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 loss per share of common stock is computed by dividing the pro rata net loss between the shares of common stock subject to redemption and the shares of common stock not subject to redemption by the weighted average number of shares of common stock outstanding for each of the periods. The calculation of diluted loss per share of common stock does not consider the effect of the warrants issued in connection with the Public Offering 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
For the Period from | ||||||||||||
January 15, 2021 | ||||||||||||
For the Three | For the Three | For the Nine | (Commencement of | |||||||||
Months Ended | Months Ended | Months Ended | Operations) through | |||||||||
| September 30, 2022 |
| September 30, 2021 |
| September 30, 2022 |
| September 30, 2021 | |||||
Common stock subject to possible redemption |
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Numerator: |
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Net loss allocable to common stock subject to possible redemption | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Denominator: |
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Weighted average shares outstanding, redeemable common stock | | |
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Basic and diluted net loss per share, redeemable common stock | ( | ( | ( | ( | ||||||||
Non-redeemable common stock |
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Numerator: |
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Net loss allocable to common stock not subject to redemption | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Denominator: |
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Weighted average shares outstanding, non-redeemable common stock | | |
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Basic and diluted net loss per share, non-redeemable common stock | ( | ( | ( | ( |
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company recorded income tax expense of $
11
NEWBURY STREET ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes (Continued)
The Company recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The Company records uncertain tax positions in accordance with ASC Topic 740 on the basis of a two-step process whereby (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
The Company recognizes interest and penalties related to
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was enacted into law. Among other changes to the tax code, the act imposes a 1% excise tax on certain repurchases of corporate stock by certain publicly traded corporations. The 1% stock buyback tax applies to redemptions by domestic corporations occurring in taxable years beginning after December 31, 2022. The stock buyback tax is applicable to certain SPAC redemptions, including in connection with a SPAC’s business combination. For purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, a number of exceptions to the stock buyback tax are available including exceptions to certain reorganizations; however, while these exceptions may be helpful in limiting the application of the stock buyback tax in situations in which it was not intended to apply, more guidance will be necessary for taxpayers to analyse the potential application of these exceptions and whether they will be able to rely upon them.
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension a vote by stockholders to extend the period of time to complete the Business Combination (the “extension vote”) or otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax in connection with a Business Combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business Combination but issued within the same taxable year of a Business Combination) and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business Combination and in the Company’s ability to complete a Business Combination.
At this time, it has been determined that none of the IR Act tax provisions have an impact onto the Company’s fiscal 2022 tax provision. The Company will continue to monitor for updates to the Company’s business along with guidance issued with respect to the IR Act to determine whether any adjustments are needed to the Company’s tax provision in future periods.
The effective tax rate was (
12
NEWBURY STREET ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
In August 2020, FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments.
The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2023, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 on its financial statements.
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.
NOTE 3 – RELATED PARTY TRANSACTIONS
Promissory Note — Related Party
On November 23, 2020, the Sponsor issued an unsecured promissory note to the Company (the “Promissory Note”), pursuant to which the Company may borrow up to an aggregate principal amount of $
The total outstanding balance of approximately $
Related Party Loans
In order to finance transaction costs in connection with a Business Combination, the Sponsor or certain of the Company’s officers and directors or their affiliates may, but are not obligated to, loan the Company funds as may be required (the “Working Capital Loans”). Each loan would be evidenced by promissory note.
The notes may be repaid upon completion of a Business Combination, without interest, or, at the lender’s discretion, up to $
In addition, on May 3, 2022, the Company issued a promissory note for up to approximately $
13
NEWBURY STREET ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 – RELATED PARTY TRANSACTIONS (Continued)
Related Party Loans (Continued)
The Company, pursuant to the Note, may at any time prior to payment in full of the principal balance of the Note elect to convert all or any portion of the unpaid principal balance of the Note into units (the "Conversion Units") at a conversion price of $
Additionally, the Note entitles the Sponsor to two demand registrations and unlimited piggyback registration rights for the Conversion Units (including underlying securities), which rights are the same as the registration rights provided under the registration rights agreement.
Related Party Payable
At the closing of the Public Offering, the Trust Account held an excess of approximately $
As of September 30, 2022, an amount of $
Administrative Support Agreement
The Company has agreed to pay the Sponsor a total of up to $
For the period from January 15, 2021 (commencement of operations) through September 30, 2021, the Company paid $
NOTE 4 – COMMITMENTS AND CONTINGENCIES
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic on the industry 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 these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
14
NEWBURY STREET ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 – DERIVATIVE WARRANTS LIABILITIES
The Private Warrants will be identical to the Public Warrants underlying the Units being sold in the Public Offering, except that the Private Warrants and the shares of common stock issuable upon the exercise of the Private Warrants will not be transferable, assignable or saleable until after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Warrants will be exercisable for cash or on a cashless basis, at the holder’s option, and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
NOTE 6 – FAIR VALUE MEASUREMENTS
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). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
● | Level 1 - Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
● | Level 2 - Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. |
● | Level 3 - Unobservable inputs based on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability. |
The fair value of the Private Warrants was initially measured at fair value using a Monte Carlo simulation model and subsequently, the fair value of the Private Warrants have been estimated using a Monte Carlo simulation model each measurement date.
For the three months ended September 30, 2022, the Company recognized a gain resulting from a decrease in the fair value of liabilities of $
For the nine months ended September 30, 2022, the Company recognized a gain resulting from a decrease in the fair value of liabilities of $
15
NEWBURY STREET ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 – FAIR VALUE MEASUREMENTS (Continued)
The following table presents information about the Company’s financial assets that were measured at fair value on a recurring basis at September 30, 2022, by level within the fair value hierarchy:
|
| Quoted Prices in |
| Significant Other |
| Significant Other | |||
Active Markets | Observable Inputs | Unobservable Inputs | |||||||
Description | (Level 1) | (Level 2) | (Level 3) | ||||||
Assets: | |||||||||
Treasury Bills | $ | | $ | — | $ | — | |||
$ | | $ | — | $ | — | ||||
Liabilities: | |||||||||
Derivative warrant liabilities - Private | $ | — | $ | — | $ | | |||
$ | — | $ | — | $ | |
The following table presents information about the Company’s financial assets that were measured at fair value on a recurring basis as of December 31, 2021, by level within the fair value hierarchy:
|
| Significant |
| Significant | |||||
Quoted Prices | Other | Other | |||||||
in Active | Observable | Unobservable | |||||||
Markets | Inputs | Inputs | |||||||
Description | (Level 1) | (Level 2) | (Level 3) | ||||||
Assets: | |||||||||
Treasury Bills | $ | | $ | — | $ | — | |||
$ | | $ | — | $ | — | ||||
Liabilities: |
|
|
|
|
|
| |||
Derivative warrant liabilities - Private | $ | — | $ | — | $ | | |||
$ | — | $ | — | $ | |
As of December 31, 2021, there was $
Transfers to/from Levels 1, 2 and 3 were recognized at the end of the reporting period.
The estimated fair value of the Private Warrants prior to being separately listed and traded, is determined using Level 3 inputs. Inherent in a 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 warrants based on implied volatility from the Company’s traded warrants and from historical volatility of select peer company’s common stock 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
16
NEWBURY STREET ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 – FAIR VALUE MEASUREMENTS (Continued)
The following table provides quantitative information regarding Level 3 fair value measurements inputs as their measurement dates:
| September 30, 2022 |
| December 31, 2021 | ||||
Exercise price | $ | | $ | | |||
Stock price |
| | | ||||
Volatility | | % |
| | % | ||
Probability of completing a Business Combination | | % |
| | % | ||
Term (in years) |
| |
| | |||
Risk-free rate |
| | % |
| | % |
The change in the fair value of the derivative warrant liabilities for the three and nine months ended September 30, 2022, is summarized as follows:
Derivative warrant liabilities at December 31, 2021 |
| $ | |
Change in fair value of derivative warrant liabilities | ( | ||
Derivative warrant liabilities at June 30, 2022 | | ||
| ( | ||
Derivative warrant liabilities at September 30, 2022 | $ | |
NOTE 7 – SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed financial statements were issued. Other than as described herein, the Company did not identify any other subsequent events that would have required adjustment or disclosure in the condensed financial statements.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this Report to “we,” “us” or the “Company” refer to Newbury Street Acquisition Corporation. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Newbury Street Acquisition Sponsor LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Certain capitalized terms used but not defined in the below discussion and elsewhere in this Report have the meanings ascribed to them in the footnotes to the accompanying financial statements included as part of this Report.
Cautionary Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Report including, without limitation, statements under this “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward- looking statements. When used in this Report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our 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 our behalf are qualified in their entirety by this paragraph.
Overview
We are a blank check company formed under the laws of the State of Delaware on November 6, 2020 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses. We intend to effectuate the Company’s business combination using cash from the proceeds of the Public Offering and the sale of the Private Units, the Company’s capital stock, debt or a combination of cash, stock and debt.
All activity through September 30, 2022 relates to the Company’s formation, Public Offering, and search for a prospective initial business combination target.
Factors That May Adversely Affect the Company’s Results of Operations
The Company’s results of operations and the Company’s ability to complete an initial business combination may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond the Company’s control. The Company’s business could be impacted by, among other things, downturns in the financial markets or in economic conditions, increases in oil prices, inflation, increases in interest rates, supply chain disruptions, declines in consumer confidence and spending, the ongoing effects of the COVID-19 pandemic, including resurgences and the emergence of new variants, and geopolitical instability, such as the military conflict in the Ukraine. We cannot at this time fully predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact the Company’s business and the Company’s ability to complete an initial business combination.
Results of Operations
The Company has neither engaged in any operations nor generated any revenues to date. The Company’s only activities from commencement of operations through September 30, 2022 were organizational activities, the Public Offering, and search for a prospective initial business combination target. The Company does not expect to generate any operating revenues until after the completion of its business combination. The Company generates non-operating income in the form of interest income or dividend income on marketable securities held in the Trust Account. The Company incurs expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as expenses for due diligence related to the search for potential target companies.
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For the three months ended September 30, 2022, the Company had a net loss of approximately $0.16 million, which consisted of dividend income of approximately $0.58 million and change in fair value of warrant liabilities of approximately $0.01 million, offset by franchise tax expense of approximately $0.05 million, income tax expense of $0.09 million and operating costs of approximately $0.61 million.
For the three months ended September 30, 2021, the Company had a net loss of approximately $0.06 million, which consisted of dividend income of $1,653, offset by change in fair value of warrant liabilities of approximately $0.05 million and formation and operating costs of approximately $0.11 million.
For the nine months ended September 30, 2022, the Company had a net loss of approximately $0.47 million, which consisted of dividend income of approximately $0.77 million, change in fair value of warrant liabilities of approximately $0.11 million and other income of $5,000, offset by franchise tax expense of approximately $0.15 million, income tax expense of $0.09 million and operating costs of approximately $1.11 million.
For the period from January 15, 2021 (commencement of operations) through September 30, 2021, the Company had a net loss of approximately $0.26 million, which consisted of dividend income of $6,745, offset by change in fair value of warrant liabilities of approximately $0.03 million, warrant transaction costs of $2,965 and formation and operating costs of approximately $0.29 million.
Liquidity and Capital Resources
As of September 30, 2022, the Company had approximately $0.37 million in cash and no cash equivalents.
Until the consummation of the Public Offering, the Company’s only source of liquidity was an initial purchase of common stock by the Sponsor and loans from its Sponsor.
On March 25, 2021, the Company’s consummated the Public Offering of 12,000,000 units, at a price of $10.00 per unit, generating gross proceeds of $120.00 million. Simultaneously with the closing of the Public Offering, the Company consummated the sale of 390,000 Private Units at a price of $10.00 per Private Unit in a private placement to Sponsor and EarlyBirdCapital, Inc., generating gross proceeds of $3.90 million. On March 30, 2021, the underwriters exercised the over-allotment option in part and purchased an additional 843,937 units, generating gross proceeds of approximately $8.44 million. In connection with the underwriters’ partial exercise of the over-allotment option, the Company sold an additional 16,879 private units at a price of $10.00 per private unit in a private placement to Sponsor and EarlyBirdCapital, Inc., generating gross proceeds of approximately $0.17 million.
Following the Public Offering and the private placement, a total of approximately $128.44 million was placed in the Trust Account. The Company incurred approximately $3.00 million in transaction costs, including approximately $2.57 million of underwriting fees and approximately $0.43 million of other offering costs.
As of September 30, 2022, the Company had assets held in the Trust Account of approximately $128.91 million. The Company intends to use substantially all of the funds held in the Trust Account, including any amounts representing income earned on the Trust Account, to complete its business combination. To the extent that the Company’s capital stock or debt is used, in whole or in part, as consideration to complete its business combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue the Company’s growth strategies.
As of September 30, 2022, the Company had cash of approximately $0.37 million outside of the Trust Account. The Company intends to use the funds held outside the Trust Account and any proceeds from borrowings primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a business combination.
In order to fund working capital deficiencies or finance transaction costs in connection with a business combination, the Company’s Sponsor or an affiliate of the Company’s Sponsor or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required. If the Company completes a business combination, the Company may repay such loaned amounts out of the proceeds of the Trust Account released to the Company. In the event that a business combination does
19
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 Company’s Trust Account would be used for such repayment. Up to $1.50 million 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 Units.
In addition, on May 3, 2022, the Company issued a promissory note for up to approximately $0.4 million (the “Note”) to the Sponsor. The first drawdown was on May 24, 2022 of approximately $0.23 million. On August 30, 2022, September 6, 2022 and September 21, 2022 there were additional drawdowns of approximately $0.04 million, $0.11 million and $0.02 million, respectively. As of September 30, 2022, $0.4 million was outstanding under the Note. The Note is non-interest bearing and the Company must make drawdown requests in amounts no less than $10,000 unless otherwise agreed upon by the parties. The principal balance of the Note is payable on the earlier of (i) the date on which the Company consummates its initial business combination and (ii) the date that the winding up of the Company is effective (such date, the “Maturity Date”).
The Company, pursuant to the Note, may at any time prior to payment in full of the principal balance of the Note elect to convert all or any portion of the unpaid principal balance of the Note into units (the “Conversion Units”') at a conversion price of $10 per unit. Each Conversion Unit consists of one share of common stock of the Company and one-half of one warrant, each whole warrant exercisable for one share of common stock of the Company at a price of $11.50 per share. The Conversion Units shall be identical to the Private Units.
Additionally, the Note entitles the Sponsor to two demand registrations and unlimited piggyback registration rights for the Conversion Units (including underlying securities), which rights are the same as the registration rights provided under the registration rights agreement.
In connection with the Company’s assessment of going concern considerations in accordance with ASC Subtopic 205-40, “Presentation of Financial Statements — Going Concern”, the Company has until March 25, 2023 to consummate a business combination. If a business combination is not consummated by this date and an extension not obtained, there will be a mandatory liquidation and subsequent dissolution of the Company. Although the Company intends to consummate a business combination on or before March 25, 2023, it is uncertain whether the Company will be able to consummate a business combination by this time. Management has determined that the mandatory liquidation, should a business combination not occur and an extension is not obtained, and potential subsequent dissolution, as well as the potential for the Company to have insufficient funds available to operate its business prior to a business combination, raise substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after March 25, 2023.
Off-Balance Sheet Arrangements
The Company had no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of September 30, 2022. The Company does 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. The Company has not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Contractual Obligations
The Company does not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than described below.
Business Combination Marketing Agreement
The Company has engaged EarlyBirdCapital, Inc. as an advisor in connection with its business combination to assist it in holding meetings with its stockholders to discuss the potential business combination and the target business’ attributes, introduce the Company to potential investors that are interested in purchasing its securities in connection with its initial business combination, assist the Company in obtaining stockholder approval for the business combination and assist it with its press releases and public filings in connection with the business combination. The Company will pay EarlyBirdCapital, Inc. a cash fee of up to $4.2 million for such services upon the consummation of its initial business combination (exclusive of any applicable finders’ fees which might become
20
payable); provided that up to 30% of the fee may be allocated at its sole discretion to other Financial Industry Regulatory Authority members that assist us in identifying or consummating an initial business combination. The Company will also pay EarlyBirdCapital, Inc. a cash fee of up to 1% of the gross proceeds from the Public Offering as a fee for introducing the Company to target companies for an initial business combination.
Registration Rights
Pursuant to a registration rights agreement entered into on March 22, 2021, the holders of the Founder Shares and Representative Shares, as well as the holders of the Private Units (and underlying securities) and any units issued in payment of working capital loans made to us (and underlying securities) are entitled to registration rights. The holders of a majority of these securities are entitled to make up to two demands that the Company register such securities.
The holders of a majority of the Representative Shares, Private Units and units issued in payment of working capital loans made to us (or underlying securities) can elect to exercise these registration rights at any time after the Company consummates a business combination. Notwithstanding anything to the contrary, EarlyBirdCapital, Inc. may only make a demand on one occasion and only during the five-year period beginning on the effective date of the Registration Statement. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to consummation of a business combination; provided, however, that EarlyBirdCapital, Inc. may participate in a “piggy-back” registration only during the seven-year period beginning on the effective date of the Registration Statement.
The registration rights agreement does not contain liquidating damages or other cash settlement provisions resulting from delays in registering the Company’s securities. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The Company granted the underwriters a 45-day option from the date of the Public Offering to purchase up to 1,800,000 additional units to cover over-allotments, if any, at the public offering price less the underwriting discounts and commissions.
The underwriters were entitled to an underwriting discount of $0.20 per unit, or $2.40 million in the aggregate, paid at the closing of the Public Offering. On March 30, 2021, the underwriters partially exercised their over-allotment option to purchase an additional 843,937 units at $10.00 per unit. In connection with the underwriters’ partial exercise of the over-allotment option on March 30, 2021, the underwriters were paid an additional cash underwriting fee of approximately $0.17 million.
Administrative Support Agreement
The Company has agreed to pay the Sponsor a total of up to $0.01 million per month in the aggregate for up to 24 months, from the effective date of the registration statement for the Public Offering (the “Registration Statement”), for office space, utilities and secretarial and administrative support. Services will terminate upon the earlier of the consummation by the Company of a business combination or the liquidation of the Company. For the nine months ended September 30, 2022, the Company paid $0.09 million for these services, of which such amount is included in the operating costs on the accompanying condensed statements of operations.
For the period from January 15, 2021 (commencement of operations) through September 30, 2021, the Company incurred $0.06 million for these services, of which such amount is included in the formation and operating costs on the accompanying condensed statements of operations.
Critical Accounting Estimates
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s condensed financial statements.
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
21
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:
Net Loss Per Share of Common Stock
The Company complies with accounting and disclosure requirements of FASB ASC, Topic 260, “Earnings Per Share.” Net loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period, excluding common stock subject to forfeiture. The Company applies the two-class method in calculating earnings per share. The calculation of diluted loss per share of common stock does not consider the effect of the warrants issued in connection with the Public Offering since the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive.
Warrants
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC Topic 480 and ASC Subtopic 815-15.
The Company accounts for the Public Warrants and Private Warrants (collectively, the “Warrants”), as either equity or liability-classified instruments based on an assessment of the specific terms of the Warrants and the applicable authoritative guidance in FASB ASC Topic 815, Derivatives and Hedging. The assessment considers whether the Warrants meet all of the requirements for equity classification under ASC 815, including whether the Warrants are indexed to its own common stock and whether the Warrant holders could potentially require “net cash settlement” in a circumstance outside of its control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of issuance of the Warrants and as of each subsequent quarterly period end date while the Warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, such warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, such warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of liability-classified warrants are recognized as a non-cash gain or loss on the statements of operations.
The Private Warrants are recognized as derivative liabilities in accordance with ASC Subtopic 815-40. Accordingly, the Company recognizes the warrant instruments as liabilities at fair value and adjust the instruments to fair value at each reporting period. The liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s statement of operations. The fair value of the Private Warrants was initially measured at fair value using a Monte Carlo simulation model and subsequently, the fair value of the Private Warrants have been estimated using a Monte Carlo simulation model each measurement date.
Common Stock Subject to Possible Redemption
The Company accounts for the common stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Shares of common stock subject to mandatory redemption (if any) are classified as a liability instrument and are 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) are classified as temporary equity. At all other times, shares of common stock are classified as stockholders’ equity. The Company’s shares of common stock that were sold as part of units in the Public Offering feature certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, as of September 30, 2022, 12,843,937 shares of common stock subject to possible redemption are presented at redemption value as temporary equity, outside of the stockholders’ equity section of the Company’s balance sheet.
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Recent Accounting Pronouncements
In August 2020, FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments.
The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2023, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. 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 recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
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 Securities Exchange Act of 1934, as amended (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 its principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
As required by Rules 13a-15f and 15d-15 under the Exchange Act, our principal executive officer and principal financial officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2022. Based upon their evaluation, our principal executive officer and principal financial officer concluded that our 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, 2022.
Our internal control over financial reporting did not result in the proper accounting classification of common stock subject to possible redemption issued in March 2021 which, due to its impact on our financial statements, we determined to be a material weakness.
The Company restated its financial statements included in its Quarterly Reports on Form 10-Q for the quarters ended June 30, 2021, and March 31, 2021, and Current Report on Form 8-K as of March 25, 2021, to reclassify all the Company’s common stock subject to possible redemption in temporary equity.
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Changes in Internal Control over Financial Reporting
Other than as described herein, there was no change in our internal control over financial reporting that occurred during the quarterly period ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management identified a material weakness in internal controls related to accounting of complex financial instruments, as described above. To respond to this material weakness, we have devoted, and plan to continue to devote, significant effort and resources to the remediation and improvement of our internal control over financial reporting. While we have processes to identify and appropriately apply applicable accounting requirements, we plan to enhance our system of evaluating and implementing the accounting standards that apply to our financial statements, including through enhanced analyses by our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
Not required for a smaller reporting company. However, as of the date of this Report, except as set forth below, there have been no material changes with respect to those risk factors previously disclosed in the Company’s Annual Report on Form 10-K as filed with the SEC on March 31, 2022, the Company’s final prospectus as filed with the SEC on March 25, 2021, and the Company’s Quarterly Reports on Form 10-Q for the quarter ended March 31, 2021 as filed with the SEC on May 24, 2021, the quarter ended September 30, 2021 as filed with the SEC on November 16, 2021, the quarter ended March 31, 2022 as filed with the SEC on May 16, 2022, and the quarter ended June 30, 2022 as filed with the SEC on August 8, 2022.
A new 1% U.S. federal excise tax could be imposed on us in connection with redemptions by us of our shares in connection with a business combination or other stockholder vote pursuant to which stockholders would have a right to submit their shares for redemption (a “Redemption Event”).
On August 16, 2022, the IR Act was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases (including redemptions) of stock by publicly traded domestic (i.e., U.S.) corporations and certain domestic subsidiaries of publicly traded foreign corporations. The excise tax is imposed on the repurchasing corporation itself, not its stockholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury Department”) has been given authority to provide regulations and other guidance to carry out, and prevent the abuse or avoidance of the excise tax. The IR Act applies only to repurchases that occur after December 31, 2022.
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Redemption Event may be subject to the excise tax. Whether and to what extent we would be subject to the excise tax in connection with a Redemption Event would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Redemption Event, (ii) the structure of the business combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with the business combination (or otherwise issued not in connection with the Redemption Event but issued within the same taxable year of the business combination) and (iv) the content of regulations and other guidance from the Treasury Department. In addition, because the excise tax would be payable by us, and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a business combination and in our ability to complete a business combination.
To mitigate the risk that we might be deemed to be an investment company for purposes of the Investment Company Act, we may, at any time, instruct the trustee to liquidate the securities held in the Trust Account and instead to hold the funds in the Trust Account in cash items until the earlier of the consummation of our initial Business Combination or our liquidation. As a result, following the liquidation of securities in the Trust Account , we would likely receive minimal interest, if any, on the funds held in the Trust Account , which would reduce the dollar amount our public stockholders would receive upon any redemption or liquidation of the Company.
The funds in the Trust Account have, since our Public Offering, been held only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds investing solely in U.S. government treasury obligations and meeting certain conditions under Rule 2a-7 under the Investment Company Act. However, to mitigate the risk of us being deemed to be an unregistered investment company (including under the subjective test of Section 3(a)(1)(A) of the Investment Company Act) and thus subject to regulation under the Investment Company Act, we may, at any time, instruct Continental Stock Transfer & Trust Company, the trustee with respect to the Trust Account, to liquidate the U.S. government treasury obligations or money market funds held in the Trust Account and thereafter to hold all funds in the Trust Account as cash items until the earlier of the consummation of our initial Business Combination or the liquidation of the Company. Following such liquidation, we would likely receive minimal interest, if any, on the
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funds held in the Trust Account. However, interest previously earned on the funds held in the Trust Account still may be released to us to pay our taxes, if any, and certain other expenses as permitted. As a result, any decision to liquidate the securities held in the Trust Account and thereafter to hold all funds in the Trust Account in cash items would reduce the dollar amount our public stockholders would receive upon any redemption or liquidation of the Company.
In the event that we may be deemed to be an investment company, we may be required to liquidate the Company.
We may not be able to complete an initial Business Combination with certain potential target companies if a proposed transaction with the target company may be subject to review or approval by regulatory authorities pursuant to certain U.S. or foreign laws or regulations.
Certain acquisitions or business combinations may be subject to review or approval by regulatory authorities pursuant to certain U.S. or foreign laws or regulations. In the event that such regulatory approval or clearance is not obtained, or the review process is extended beyond the period of time that would permit an initial Business Combination to be consummated with us, we may not be able to consummate a Business Combination with such target.
Among other things, the U.S. Federal Communications Act prohibits foreign individuals, governments, and corporations from owning more than a specified percentage of the capital stock of a broadcast, common carrier, or aeronautical radio station licensee. In addition, U.S. law currently restricts foreign ownership of U.S. airlines. In the United States, certain mergers that may affect competition may require certain filings and review by the Department of Justice and the Federal Trade Commission, and investments or acquisitions that may affect national security are subject to review by the Committee on Foreign Investment in the United States (“CFIUS”). CFIUS is an interagency committee authorized to review certain transactions involving foreign investment in the United States by foreign persons in order to determine the effect of such transactions on the national security of the United States.
Outside the United States, laws or regulations may affect our ability to consummate a business combination with potential target companies incorporated or having business operations in jurisdiction where national security considerations, involvement in regulated industries (including telecommunications), or in businesses relating to a country’s culture or heritage may be implicated. Our Sponsor is a U.S. entity but one of the managing members of our Sponsor is a U.K. citizen. He is also the general partner of one of the members of our Sponsor, which holds approximately 46% of interest in our Sponsor.
U.S. and foreign regulators generally have the power to deny the ability of the parties to consummate a transaction or to condition approval of a transaction on specified terms and conditions, which may not be acceptable to us or a target. In such event, we may not be able to consummate a transaction with that potential target.
As a result of these various restrictions, the pool of potential targets with which we could complete an initial Business Combination may be limited and we may be adversely affected in terms of competing with other SPACs that do not have similar ownership issues. Moreover, the process of government review could be lengthy. Because we have only a limited time to complete our initial Business Combination, our failure to obtain any required approvals within the requisite time period may require us to liquidate. If we liquidate, our public stockholders may only receive $10.00 per share, and our warrants will expire worthless. This will also cause you to lose any potential investment opportunity in a target company and the chance of realizing future gains on your investment through any price appreciation in the combined company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
For a description of the use of the proceeds generated in our Public Offering, see Part II, Item 2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021. There has been no material change in the planned use of the proceeds from the Company’s Public Offering and private placement as is described in the Company’s final prospectus, dated March 25, 2021.
Item 3. Defaults Upon Senior Securities.
None.
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Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Report.
No. |
| Description of Exhibit |
|
31.1* | |||
31.2* | |||
32.1** | |||
32.2** | |||
101.INS* | Inline XBRL Instance Document | ||
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||
101.SCH* | Inline XBRL Taxonomy Extension Schema Document | ||
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||
101.LAB* | Inline XBRL Taxonomy Extension Labels Linkbase Document | ||
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||
104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
*Filed herewith.
**Furnished.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| NEWBURY STREET ACQUISITION CORPORATION | |
|
|
|
Date: November 10, 2022 | By: | /s/ Thomas Bushey |
| Name: | Thomas Bushey |
| Title: | Chief Executive Officer |
|
| (Principal Executive Officer) |
|
|
|
Date: November 10, 2022 | By: | /s/ Kenneth King |
| Name: | Kenneth King |
| Title: | Chief Financial Officer |
|
| (Principal Accounting and Financial Officer) |
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