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:
(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 August 22, 2022, there were shares of the Company’s Class A Common Stock, $0.0001 par value per share (the “Class A Common Stock”) and shares 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 SHEETS
(Unaudited)
June 30, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expense | ||||||||
| Prepaid insurance | ||||||||
| Total current assets | ||||||||
| Noncurrent assets | ||||||||
| Prepaid insurance – noncurrent portion | ||||||||
| Deferred offering costs | ||||||||
| Investments held in Trust Account | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Income tax payable | ||||||||
| Franchise tax payable | ||||||||
| Total current liabilities | ||||||||
| Warrant liabilities | ||||||||
| Advance from sponsor | ||||||||
| Forward purchase option derivative liability | ||||||||
| Deferred underwriter fee payable | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 6) | ||||||||
| Class A Common Stock subject to possible redemption; shares as of June 30, 2022 and as of December 2021 at redemption value | ||||||||
| 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 as of June 30, 2022. issued and outstanding – excluding subject to redemption as of December 31, 2021 | ||||||||
| Class B common stock, $ par value; shares authorized; issued and outstanding as of June 30, 2022 and December 31, 2021 | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (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 | ||||||||||||||||
| Three | Three | Six | February 26, 2021 (Inception) | |||||||||||||
| Months Ended | Months Ended | Months Ended | Through | |||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
| Forward purchase option expense | $ | $ | $ | $ | ||||||||||||
| Formation and operating costs | ||||||||||||||||
| Franchise tax expense | ||||||||||||||||
| Loss from operation costs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest earned on marketable securities held in trust account | ||||||||||||||||
| Unrealized loss from marketable securities held in trust account | ( | ) | ( | ) | ||||||||||||
| Change in fair value of warrant derivative liabilities | ( | ) | ( | ) | ( | ) | ||||||||||
| Change in fair value of forward purchase option derivative liability | ( | ) | ( | ) | ||||||||||||
| Offering costs allocated to warrants | ( | ) | ( | ) | ||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ||||||||||||
| Loss before taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted weighted average shares outstanding Class A subject to redemption | ||||||||||||||||
| Basic and diluted net loss per common stock subject to redemption. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted weighted average shares outstanding Class A, Class A non-redemption and Class B non-redemption | ||||||||||||||||
| Basic and diluted net loss 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 (DEFICIT)
(Unaudited)
| Class A | Class B | Additional | Total Stockholders | |||||||||||||||||||||||||
| Common Stock | Common Stock | Paid in | Accumulated | Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance - April 1, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Reclassification of temporary equity to permanent equity | - | |||||||||||||||||||||||||||
| Extension payment | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance - June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Class A | Class B | Additional | Total Stockholders | |||||||||||||||||||||||||
| Common Stock | Common Stock | Paid in | Accumulated | Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance - April 1, 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 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Class A | Class B | Additional | Total Stockholders | |||||||||||||||||||||||||
| Common Stock | Common Stock | Paid in | Accumulated | Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance – January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Reclassification of temporary equity to permanent equity | - | |||||||||||||||||||||||||||
| Extension payment | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance – June 30, 2022 | $ | $ | $ | $ | ( | ) | ||||||||||||||||||||||
| Class A | Class B | Additional | Total Stockholders | |||||||||||||||||||||||||
| Common Stock | Common Stock | Paid in | Accumulated | Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance - February 26, 2021 | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Issuance of Class B Common Stock to Sponsor | - | |||||||||||||||||||||||||||
| 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 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
The accompanying notes are an integral part of these condensed unaudited financial statements
| 3 |
NORTHERN LIGHTS ACQUISITION CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six
Months Ended June 30, 2022 | For
the Period from February 26, 2021 (Inception) through June 30, 2021 | |||||||
| Cash flow from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Unrealized gain from securities held in Trust Account | ||||||||
| Interest earned on securities held in trust account | ( | ) | ( | ) | ||||
| Initial fair value of forward purchase option reported as operating expense | ||||||||
| Change in fair value of warrant and forward purchase option derivative liabilities | ( | ) | ||||||
| Offering costs allocated to warrants | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid insurance | ( | ) | ||||||
| Deferred operating cost | ( | ) | ||||||
| Prepaid expense | ( | ) | ||||||
| Income tax payable | ||||||||
| Franchise tax payable | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flow from investing activities: | ||||||||
| Investment of cash in Trust Account | ( | ) | ( | ) | ||||
| Cash transferred from Trust Account | ||||||||
| Net cash used in financing 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 units | ||||||||
| Proceeds from sponsor advance | ||||||||
| 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: | ||||||||
| Accrued deferred offering costs | $ | $ | ||||||
| Initial classification of warrant liabilities | $ | $ | ||||||
| Offering costs charged to additional paid in capital included in accrued expenses | $ | $ | ||||||
| Offering costs charged to additional paid in capital paid by promissory note-related party | $ | |||||||
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 June 30, 2022, the Company had not yet commenced any operations. All activity for the period February 26, 2021 (inception) through June 30, 2022, relates to the Company’s formation and the initial public offering (the “Initial Public Offering”), and, since the closing of the initial public offering, the Company has entered into a unit purchase agreement and a securities purchase agreement (as described below). 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 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)
On
February 11, 2022, the Company and 5AK, LLC (our “Sponsor”) entered into a definitive unit purchase agreement (the “Unit
Purchase Agreement”) with SHF, LLC d/b/a Safe Harbor Financial, a Colorado limited liability company (“SHF”), SHF Holding
Co., LLC, the sole member of SHF (the “Seller”), and Partner Colorado Credit Union, the sole member of the Seller (“PCCU”).
Pursuant to the Unit Purchase Agreement, upon the closing (the “Closing”) of the Business Combination, we will purchase all
of the issued and outstanding membership interests of SHF in exchange for an aggregate of $
Concurrently
with entering into the Unit Purchase Agreement, we entered into a securities purchase agreement (a “Securities Purchase
Agreement”) with certain investors (collectively, the “PIPE Investors”), pursuant to which, among other things,
the PIPE Investors agreed to subscribe for and purchase, and we agreed to issue and sell to the PIPE Investors, an aggregate of
shares (the “PIPE Shares”) of our Series A Convertible Preferred Stock, par value $
per share (the “Series A Convertible Preferred Stock”), and warrants to purchase up to a number of shares of Class A
Common Stock equal to
The Company’s stockholders approved the Business Combination at the special meeting of stockholders held on June 28, 2022. In connection with the proposed Business Combination with SHF, the Company provided its public stockholders with the opportunity to redeem all or a portion of their Class A Common Stock upon the completion of such Business Combination. Stockholders holding shares of Class A Common Stock submitted redemption requests in connection with the anticipated closing of the Business Combination. Following the extension of the Outside Date, these stockholders who previously submitted redemption requests in connection with the closing of the Business Combination may request that such redemption requests be reversed by contacting the Company’s transfer agent, Continental Stock Transfer & Trust Company. It is currently anticipated that all shareholders, with the exception of those parties described in the below Forward Purchase Agreement section, will have an additional opportunity to redeem shares prior to the closing of the proposed Business Combination.
In
the event the proposed Business Combination with SHF is not consummated, in connection with an alternative proposed initial business
combination, the Company will provide its 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.
The underwriter has agreed to waive its rights to the deferred underwriting commission held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period and, in such event, such amounts will be included with the funds held in the Trust Account that will be available to fund the redemption of the Public Shares. 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 Initial Public Offering price per Unit ($). There will be no redemption rights or liquidating distributions with respect to the Founder Shares (as defined below) or the shares of Class A Common Stock and the warrants that are included as components of the Private Placement Units. Such warrants will expire worthless if the Company fails to complete a Business Combination within the 12-month time period (or up to 18-month time period).
| 6 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1 — Description of Organization and Business Operations (Continued)
Liquidity
As
of June 30, 2022, the Company had $
The
Company’s liquidity needs prior to the consummation of its IPO were satisfied through the proceeds of $
The Company intends to complete its initial Business Combination before September 28, 2022, however, there can be no assurance that the Company will be able to consummate the Business Combination by then. In the event that we are unable to consummate the Business Combination before September 28, 2022, we anticipate identifying and accessing additional capital resources in order to extend the Business Combination period to December 28, 2022. However, there can be no assurance that the Company will have access to sufficient capital to extend the deadline to consummate the Business Combination. As a result, in connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” it is uncertain that the Company will have sufficient liquidity to fund the working capital needs of the Company beyond September 28, 2022. Should a Business Combination not occur by September 28, 2022, Management has determined that given the liquidity condition of the Company as well as the uncertainty regarding the Company’s ability to extend the deadline to consummate the Business Combination, there is 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. The Company may 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, the Company 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 September 28, 2022.
| 7 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1 — Description of Organization and Business Operations (Continued)
Deferred offering costs
Deferred
offering costs consist of costs incurred in connection with preparation for the PIPE Financing to be executed in conjunction with the
Business Combination. These costs, together with the underwriting discounts and commissions, will be allocated among the freestanding
financial instruments that are included in the PIPE Financing. As of June 30, 2022, the Company had deferred offering costs of $
Forward purchase agreement
On
June 16, 2022, the Company, SHF, and Midtown East Management NL LLC, a Delaware limited liability company (“Midtown East”),
entered into an agreement (the “Forward Purchase Agreement”) for an OTC Equity Prepaid Forward Transaction (the “Forward
Purchase Transaction”). Pursuant to the terms of the Forward Purchase Agreement (a) Midtown East intends, but is not obligated,
to purchase shares of the Company’s Class A Common Stock, par value $ per share (“Class A Common Stock”),
after the date of the Forward Purchase Agreement from holders of Class A Common Stock, other than the Company or affiliates of the Company,
who have requested that their shares of Class A Common Stock be redeemed or indicated an interest in having their shares of Class A Common
Stock redeemed pursuant to the redemption rights set forth in the Company’s Amended and Restated Certificate of Incorporation in
connection with the Business Combination (such holders, “Redeeming Holders”) and (b) Midtown East has agreed to waive
any redemption rights in connection with the Business Combination with respect to any shares of Class A Common Stock it purchases in
accordance with the Forward Purchase Agreement (the “Subject Shares”). The number of Subject Shares shall be no more
than the lesser of (i) and (ii) the maximum number of shares of Class A Common Stock such that Midtown East does not beneficially
own greater than
Subsequent to entering into the Forward Purchase Agreement, the Company, the Target, and Midtown East entered into assignment and novation agreements with Verdun Investments LLC (“Verdun”) and Vellar Opportunity Fund SPV LLC – Series 1 (“Vellar”), pursuant to which Midtown East assigned its obligations as to shares of the shares of Class A Stock to be purchased under the Forward Purchase Agreement to each of Verdun and Vellar. As of June 27, 2022, Midtown East had purchased an aggregate of shares of Class A Stock, Verdun had purchased an aggregate of shares of Class A Stock, and Vellar had purchased an aggregate of shares of Class A Stock (the “Purchased Shares”) in the Forward Purchase Transaction at an average purchase price per share of $. of the Purchased Shares were purchased from a holder of % or more of the Class A Stock. Pursuant to the Forward Purchase Agreement, Midtown East, Verdun, and Vellar have waived all redemption rights under the Certificate of Incorporation that would require redemption by the Company of the Purchased Shares.
At
June 30, 2022, Midtown East and its assignees had purchased in shares pursuant to this agreement. The related amount of $
The primary purpose of entering into the Forward Purchase Agreement is to help ensure the maximum redemption threshold condition in the Unit Purchase Agreement will be met, increasing the likelihood that the transaction will close.
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.
Additionally, as a result of the military action commenced in February 2022 by the Russian Federation and Belarus in the country of Ukraine and related economic sanctions, the Company’s ability to consummate a Business Combination, including the proposed Business Combination with SHF, or the operations of a target business with which the Company ultimately consummates a Business Combination, including SHF, may be materially and adversely affected. Further, the Company’s ability to consummate a transaction may be dependent on the ability to raise equity and debt financing which may be impacted by these events, including as a result of increased market volatility, or decreased market liquidity in third-party financing being unavailable on terms acceptable to the Company or at all. The impact of this action and related sanctions on the world economy and the specific impact on the Company’s financial position, results of operations and/or ability to consummate a Business Combination are not yet determinable. The condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The accompanying 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.
| 8 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 2 — Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of the balance sheets 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, $
On
June 27, 2022, the Company, with proceeds advanced from an affiliate of the Sponsor, deposited $
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. As of June 30, 2022 and December 31, 2021, the Company’s deferred tax asset had a full valuation allowance recorded against it.
ASC
740-270-25-2 requires that an annual effective tax rate be determined and such annual effective rate applied to year to date income in
interim periods. If management is unable to estimate a portion of its ordinary income, but is otherwise able to reliably estimate the
remainder, ASC 740-270-25-3 provides that the tax applicable to that item be reported in the interim period in which the item occurs.
The tax (or benefit) related to ordinary income (or loss) shall be computed at an estimated annual effective tax rate and the tax (or
benefit) related to all other items shall be individually computed and recognized when the items occur. Management is unable to estimate
a portion of its ordinary income and as a result had computed the company’s tax provision in accordance with ASC 740-270-25-3 The
Company’s effective tax rate was (
ASC Topic 740 also 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 no unrecognized tax benefits and no amounts accrued for interest and penalties as of June 30, 2022 and December 31, 2021. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
| 9 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 2 — Summary of Significant Accounting Policies (Continued)
Offering Costs Associated with the Initial Public Offering and PIPE 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.
Deferred offering costs as of June 30, 2022 consisted of legal, accounting, underwriting fees and other costs incurred that were directly related to the PIPE 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 June 30, 2022 and December 31, 2021, there were and shares, respectively, of Class A Common Stock issued and outstanding that were issued as component securities of the Private Placement Units (Note 4). At December 31, 2021, shares of Class A Common Stock were subject to possible redemption. At June 30, 2022, shares of Class A Common Stock were subject to possible redemption with shares held by purchasers subject to the forward purchase agreement who have waived their redemption rights.
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 December 31, 2021, the Class A Common Stock reflected on the balance sheets is reconciled in the following table:
| 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 | $ |
As of June 30, 2022, the Class A Common Stock reflected on the balance sheets are reconciled in the following table:
| Class A Common Stock subject to possible redemption at December 31, 2021 | $ | |||
| Less: | ||||
| Proceeds allocated to shares not redeemed - Class A Common Stock par value (1) | ( |
) | ||
| Proceeds allocated to shares not redeemed – additional paid in capital (1) | ( |
) | ||
| Extension payment classified as temporary equity | ||||
| Class A Common Stock subject to possible redemption | $ |
| (1) |
| 10 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 2 — Summary of Significant Accounting Policies (Continued)
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 loss per share is computed by dividing net loss by the weighted average number of common stock shares outstanding for the period. The calculation of diluted 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 loss 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 loss 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 shares of common stock in the aggregate.
For the Three Months | For the Three Months | |||||||
Ended June 30, 2022 | Ended June 30, 2021 | |||||||
| Redeemable Class A Common Stock subject to possible redemption | ||||||||
| Numerator: net loss 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 loss per redeemable Class A Common Stock | $ | ( | ) | $ | ( | ) | ||
| Non-redeemable Class A and Class B common stock | ||||||||
| Numerator: net loss 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 | ||||||||
| Basic and diluted net income per non-redeemable Class A and Class B common stock | $ | ( | ) | $ | ( | ) | ||
For the Six Months | For the Period from February 26, 2021 (inception) | |||||||
Ended June 30, 2022 | Through June 30, 2021 | |||||||
| Redeemable Class A Common Stock subject to possible redemption | ||||||||
| Numerator: net loss 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 loss per redeemable Class A Common Stock | $ | ( | ) | $ | ( | ) | ||
| Non-redeemable Class A and Class B common stock | ||||||||
| Numerator: net loss 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 | ||||||||
| Basic and diluted net loss per non-redeemable Class A and Class B common stock | $ | ( | ) | $ | ( | ) | ||
| 11 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 2 — 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.
| 12 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
2 — Summary of Significant Accounting Policies (Continued)
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 3 —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 $
Note 4 — 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 5 — 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 $
The
option to purchase the Founders Shares provided to the Company’s CFO is in the scope of FASB ASC Topic 718, “Compensation-Stock
Compensation” (“ASC 718”). Under ASC 718, stock-based compensation associated with equity-classified awards is measured
at fair value upon the grant date. The fair value of the options to purchase shares granted to the Company’s CFO was $
The
Founder Shares which the Sponsor and its permitted transferees will collectively own, on an as-converted basis, represent
| 13 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 5— Related Party Transactions (Continued)
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 $
On
June 27, 2022, the Company, with proceeds advanced from an affiliate of the Sponsor through a non-interest bearing advance (the “Advance”), deposited $
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 $
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 $ per unit, which units will be identical to the Private Placement Units. The Sponsor and its affiliate have waived this conversion right and the Advance will be repaid at the closing of the initial Business Combination utilizing cash. 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.
During
the three months ending June 30, 2022, Luminous Capital Inc., an affiliate of the Sponsor, paid $
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 $
| 14 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 6 — 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.
Forward Purchase Agreement
The
Company and Safe Harbor have agreed to pay (jointly and severally) to Midtown East a break-up fee equal to the sum of (i) all quarterly
structuring fees and attorney fees and other reasonable expenses related thereto incurred by Midtown East or its affiliates in connection
with the Forward Purchase Transaction, plus (ii) $
Note 7 – Warrant Liability
As
of June 30, 2022 and December 31, 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.
| 15 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 7 – Warrant Liability (Continued)
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 $. 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 $ 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.
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.
| 16 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 7 – Warrant Liability (Continued)
The Placement Warrants are identical to the Public Warrants underlying the Units 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 are not transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Placement Warrants are exercisable on a cashless basis and 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.
Note 8 – 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. As of June 30, 2022 and December 31, 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. As of June 30, 2022 and December 31, 2021, there were and shares, respectively, of Class A Common Stock issued or outstanding, excluding shares subject to possible redemption. As of June 30, 2022, of the original shares of Class A Common Stock subject to possible redemption had elected not to redeem pursuant to the forward purchase agreement.
| 17 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 8 – Stockholders’ Equity (Continued)
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. As of June 30, 2022 and December 31, 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 9 – 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 June 30, 2022 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) | |||||||||
| Liabilities: | ||||||||||||
| Public Warrants | $ | $ | $ | |||||||||
| Private Placement Warrants | $ | $ | $ | |||||||||
| Forward purchase option derivative | $ | $ | $ | |||||||||
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 December 31, 2021 and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value:
| 18 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 9 – Fair Value Measurements (Continued)
| 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 | $ | $ | $ | |||||||||
| 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. In 2021, the Public Warrants transferred from a Level 3 measurement to a Level 1 fair value measurement, after they split from the units and started trading.
The Warrants are measured at fair value on a recurring basis. The Public Warrants were initially valued using a Modified Monte Carlo Simulation. As of June 30, 2022 and December 31, 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.
As of June 30, 2022 and December 31, 2021, assets held in the Trust Account were entirely held in a mutual fund invested in U.S. Treasury Securities.
The
Company recognized $781,070 in expense and liabilities for the forward purchase option derivative upon the agreement execution of June
16, 2022 with a change in fair value of $
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 it relates to the warrants as of their measurement dates:
| December 31, 2021 | June 30, 2022 | |||||||
| (Private Warrant) | (Private Warrant) | |||||||
| Exercise price | $ | $ | ||||||
| Share price | $ | $ | ||||||
| Expected term (years) | ||||||||
| Probability of Acquisition | % | % | ||||||
| Volatility | % | % | ||||||
| Risk-free rate | % | % | ||||||
| Dividend yield (per share) | % | % | ||||||
The following table provides quantitative information regarding Level 3 fair value measurements inputs as it relates to the forward purchase agreement option at the measurement dates:
| June 16, 2022 | June 30, 2022 | |||||||
| Share price | $ | $ | ||||||
| Expected term (years) | ||||||||
| Probability of Acquisition | % | % | ||||||
| Volatility | % | % | ||||||
| Risk-free rate | % | % | ||||||
| BB bonds rate | % | % | ||||||
| C bonds rate | % | % | ||||||
| 19 |
NORTHERN LIGHTS ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 9 – Fair Value Measurements (Continued)
The change in the fair value of the derivative warrant liabilities for the period from December 31, 2021 (inception) through June 30, 2022 is summarized as follows:
| Private Placement | Public Warrant | Warrant Liability | ||||||||||
| Fair value as of December 31, 2021 | $ | $ | $ | |||||||||
| Change in valuation inputs or other assumptions (1)(2) | ( | ) | ( | ) | ( | ) | ||||||
| Fair value as of June 30, 2022 | $ | $ | $ | |||||||||
| (1) | |
| (2) |
Note 10 – Forward Purchase Agreement
As discussed in Note 1 on June 16, 2022, NLIT entered into a Forward Purchase Agreement with Midtown and its assignees for a Forward Purchase Transaction. Pursuant to the terms of the Forward Purchase Agreement, Midtown and its assignees, as of June 30, 2022, had purchased approximately shares of NLIT’s Class A common stock in exchange for an amount to be paid of $ (the Prepayment Amount). At close of the Business Combination, the amount will be paid out of the trust account and will be held in a deposit account for the benefit of Midtown and its assignees until the Valuation Date. There are a few scenarios in which the Forward Purchase Agreement can be settled either before or on the Valuation Date:
| i) | At any time prior to the Valuation Date, Midtown may elect an optional early termination to sell some or all of the Forward Purchase shares in the open market. If Midtown sells any shares prior to the Valuation Date, a pro-rata portion of the Prepayment Amount will be released from the deposit account and paid to the Company. Midtown shall retain any proceeds from the sale of such shares in excess of such pro-rata portion paid to the Company. The Business Combination Target will be entitled to the product of the number of shares sold times the redemption price or the Reset Price. The Reset Price is adjusted on the first scheduled trading day of each month following the Business Combination and is the lower of: i) the then current reset price, ii) $ and iii) the VWAP price of the last 10 scheduled trading days of the prior month but not lower than $. |
| ii) | On the Valuation Date, if any shares subject to the Forward Purchase Agreement remain unsold, Midtown is entitled to the product of the unsold shares multiplied by the Forward Price (which is equal to the redemption price as outlined in our Amended and Restated Certificate of Incorporation dated June 21, 2021) and an incremental $ per share for any unsold shares. The incremental $ per share maybe settled in cash or shares at the discretion of the Company. |
| iii) |
A
break-up fee equal to (i) all (a) structuring fees and (b) attorney fees and other reasonable expenses related thereto incurred by Midtown
or its assignees in connection with the forward purchase agreement, plus (ii) $
In accordance with ASC 815, Derivatives and Hedging, the Company has determined that the forward option within the Forward Purchase Agreement is (i) a freestanding financial instrument and (ii) a derivative. This derivative, referred to throughout as the “forward purchase option derivative” is recorded as a liability on the Company’s Consolidated Balance Sheets. The Company has performed fair value measurements for this derivative as of closing and as of June 30, 2022, which is described in Note 9. The Company remeasures the fair value of the forward purchase option derivative each reporting period.
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.
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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 may differ materially due to various factors, including, but not limited to:
| ● | our ability to complete our initial business combination with SHF or an alternative business combination; | |
| ● | our success in retaining or recruiting, or changes required in, our officers, key employees or directors following our initial business combination; | |
| ● | our officers and directors allocating their time to other businesses and potentially having conflicts of interest with our business or in approving our initial business combination, as a result of which they would then receive expense reimbursements; | |
| ● | our ability to close the PIPE Financing (as defined below) which is intended to provide the financing to complete our initial business combination; | |
| ● | in the event the Business Combination (as defined below) is consummated, our ability to implement business plans, forecasts, and other expectations regarding SHF after the completion of the proposed transactions and optimize SHF’s business; |
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| ● | in the event the Business Combination is not consummated, the ability of our officers and directors to generate a number of potential alternative acquisition opportunities; | |
| ● | our pool of prospective target businesses; | |
| ● | the ability of our officers and directors to generate a number of potential acquisition opportunities; | |
| ● | our public securities’ potential liquidity and trading; | |
| ● | the lack of a market for our securities; | |
| ● | our continued liquidity and our ability to continue as a going concern; | |
| ● | the use of proceeds not held in the trust account or available to us from interest income on the trust account balance; or | |
| ● | our financial performance. |
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.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Form 10-Q. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
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 our Initial Public Offering and the Private Placement, the proceeds of the sale of our securities in connection with our initial Business Combination, our shares issued to the owners of the target, debt issued to the bank or other lenders or the owners of the target, or a combination of the foregoing.
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 Common Stock 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. |
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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. We cannot assure you that our plans to complete our initial Business Combination will be successful.
The Unit Purchase Agreement
On February 11, 2022, we and our sponsor entered into the Unit Purchase Agreement with SHF, Seller, and PCCU. Pursuant to the Unit Purchase Agreement, upon the Closing of the Business Combination, we will purchase all of the issued and outstanding membership interests of SHF in exchange for an aggregate of $185,000,000, consisting of (i) 11,386,139 shares of Class A Common Stock with an aggregate value equal to $115,000,000 and (b) $70,000,000 in cash. The obligations of the parties to consummate the Business Combination are subject to the satisfaction or waiver of certain customary closing conditions of the respective parties, including, without limitation: (a) the representations and warranties of the respective parties being true and correct subject to the materiality standards contained in the Unit Purchase Agreement; (b) material compliance by the parties of their respective pre-closing covenants and agreements, subject to the standards contained in the Unit Purchase Agreement; (c) the approval by our stockholders of the Business Combination; (d) the approval by the Seller’s manager of the Business Combination; (e) the approval by SHF’s managers of the Business Combination; (f) the absence of any Material Adverse Effect (as defined in the Unit Purchase Agreement) with respect to us or with respect to SHF since the effective date of the Unit Purchase Agreement that is continuing and uncured; (g) us having at least $5,000,001 in tangible net assets upon the Closing; (h) the election of the members of the post-Closing board of directors consistent with the provisions of the Unit Purchase Agreement, a majority of which are to be independent in accordance with the Nasdaq rules; (i) the entry into certain ancillary agreements as of the Closing; (j) the lack of any notice or communication from, or position of, the SEC requiring us to amend or supplement the proxy statement on Schedule 14A to be delivered to our stockholders in connection with the approval of the Business Combination and related matters; and (k) the receipt of certain closing deliverables. On June 30, 2022, the Company, the Sponsor, SHF, the Seller, and PCCU agreed to amend the Unit Purchase Agreement to extend the Outside Date until July 29, 2022, with the ability for the deadline to be extended through September 28, 2022, to provide the Company with additional time to complete the Business Combination as it awaits regulatory approval.
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Concurrently with entering into the Unit Purchase Agreement, we entered into a Securities Purchase Agreement with the PIPE Investors, pursuant to which, among other things, the PIPE Investors agreed to subscribe for and purchase, and we agreed to issue and sell to the PIPE Investors, an aggregate of 60,000 shares of our Series A Convertible Preferred Stock and warrants to purchase up to a number of shares of Class A Common Stock equal to 50% of shares of the Class A Common Stock issuable upon conversion of the PIPE Shares for gross proceeds of $60.0 million the PIPE Financing. The closing of the PIPE Financing is contingent upon, among other things, the substantially concurrent consummation of the Business Combination. The Securities Purchase Agreement provides that it will terminate upon the earlier to occur of (i) termination of the Unit Purchase Agreement and (ii) the mutual written agreement of each of the parties. The Securities Purchase Agreement could also be terminated under certain customary and limited circumstances at any time prior to the closing of the PIPE Financing, including, among others, if the closing had not occurred by June 30, 2022. The Company is currently completing satisfaction of its remaining closing conditions, including regulatory approvals, and is discussing with the PIPE Investors their continuing interest in the investment contemplated by the Securities Purchase Agreement.
The Unit Purchase Agreement, the PIPE Financing, and related agreements thereto are further described in the Form 8 K/A, filed by us on February 16, 2022.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities from inception to June 30, 2022, were organizational activities, those necessary to prepare for the 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 initial Business Combination. We generate non-operating income in the form of interest income on marketable securities held in the Trust Accounts. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
For the three months ended June 30, 2021, we had a net loss of $1,743,727, which consisted of $10,105 in operating and formation costs, $9,495 in unrealized loss from marketable securities held on the Trust Account, change in fair value of warrant derivative liabilities of $1,462,306 and offering costs allocated to warrants of $261,838.
For the three months ended June 30, 2022, we had a net loss of $1,827,245 which consisted of $1,874,043 in operating costs including $781,070 in costs associated with the initial fair value of the forward purchase option at contract inception, $60,969 in franchise tax expense, a change in fair value of warrant derivative liabilities of $70,796, a change in fair value of the forward purchase option derivative liability of $14,872 and income tax expense of $13,526 offset by $145,992 in interest earned on marketable securities held in the Trust Account.
For the period from February 26, 2021 (inception) through June 30, 2021, we had a net loss of $1,744,522, which consisted of $10,900 in operating and formation costs, $9,495 in unrealized loss from marketable securities held on the Trust Account, change in fair value of warrant liabilities of $1,462,306 and offering costs allocated to warrants of $261,838.
For the six months ended June 30, 2022, we had a net loss of $1,042,697 which consisted of $2,593,830 in operating and formation costs including $781,070 in costs associated with the initial fair value of the forward purchase option at contract inception, $110,969 in franchise tax expense, a $14,872 change in fair value of the forward purchase option derivative liability and $13,526 in income tax expense offset by a change in fair value of warrant derivative liabilities of $1,432,423 and $147,108 in interest earned on marketable securities held in the Trust Account.
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, generating gross proceeds of $5,281,750.
For the six months ended June 30, 2022, cash used in operating activities was $250,699.
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 6) and $513,677 of other costs.
As of June 30, 2022, we had available to us $172,441 of cash on our balance sheet and a working capital deficit of $1,810,112. 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.
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The Company initially had until June 28, 2022 to consummate a Business Combination. If the Company was unable to complete a Business Combination within 12 months from the closing of the Initial Public Offering, such period could (i) be extended by the Company’s stockholders in accordance with the Company’s amended and restated certificate of incorporation or (ii) at the election of the Company subject to satisfaction of certain conditions, including the deposit of up to $2,300,000 into the Trust Account, be extended up to six additional months to December 28, 2022. On June 27, 2022, the Company, with proceeds advanced from an affiliate of the Sponsor, deposited $1,150,000 in the Trust Account extending operations for three months from June 28, 2022 to September 28, 2022. If the Company is unable to complete a Business Combination by September 28, 2022, such period could (i) be extended by the Company’s stockholders in accordance with the Company’s amended and restated certificate of incorporation or (ii) at the election of the Company subject to satisfaction of certain conditions, including the deposit of up to $1,150,000 into the Trust Account, be extended an additional three months to December 28, 2022. If the Company is unable to complete a Business Combination by December 28, 2022 and such period is not extended by the Company’s stockholders in accordance with the Company’s amended and restated certificate of incorporation, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to the Company to pay taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining stockholders and the Company’s board of directors, proceed to commence a voluntary liquidation and thereby a formal dissolution of the Company, subject in each case to its obligations under Delaware law to provide for claims of creditors and the requirements of applicable law.
In order to fund working capital deficiencies or finance transaction costs in connection with our initial Business Combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete our initial Business Combination, we would repay such loaned amounts. In the event that our initial Business Combination does not close, we may use a portion of the working capital held outside the Trust Accounts to repay such loaned amounts but no proceeds from our Trust Accounts would be used for such repayment. Up to $1,500,000 of such loans may be convertible into units identical to the Placement Units, at a price of $10.00 per unit at the option of the lender.
Moreover, we will need to obtain additional financing either to complete our initial Business Combination or because we become obligated to redeem a significant number of our Public Shares upon consummation of our initial Business Combination, in which case we have entered into the Securities Purchase Agreements for the additional financing in connection with such Business Combination. Subject to compliance with applicable securities laws, we expect to complete such financing simultaneously with the completion of our initial Business Combination. If we are unable to complete our initial Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Accounts. In addition, following our initial Business Combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
If the Company is unable to raise additional capital, the Company 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.
The Company intends to complete the proposed Business Combination before September 28, 2022, and we believe we have sufficient arrangements with our vendors to continue to operate until we complete our initial Business Combination. However, there can be no assurance that the Company will be able to consummate the Business Combination by then. In the event that we are unable to consummate the Business Combination before September 28, 2022 we anticipate identifying and accessing additional capital resources in order to extend the Business Combination period to December 28, 2022. As a result, in connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” it is uncertain that the Company will have sufficient liquidity to fund the working capital needs of the Company beyond September 28, 2022. Should a Business Combination not occur by September 28, 2022, Management has determined that given the liquidity condition of the Company as well as the uncertainty regarding the Company’s ability to obtain capital to extend the deadline to consummate the Business Combination, there is 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.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements as of June 30, 2022. 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.
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We have not entered 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
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay an affiliate of the Sponsor a monthly fee up to $10,000 for office space, utilities and secretarial and administrative support services. We began incurring these fees on June 24, 2021 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation. For the three and six months ending June 30, 2022, $30,000 and $60,000 in support fees was incurred, respectively. $10,000 in support fees was incurred for both the period from February 26, 2021 (inception) through June 30, 2021 and the three months ending June 30, 2021. $10,000 and $0 in support fees was due to Luminous Capital Inc., an affiliate of our Sponsor, at June 30, 2022 and December 31, 2021, respectively.
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.
In order to finance a portion of the Purchase Agreement consideration and the costs and expenses incurred in connection therewith, we entered into the PIPE Securities Purchase Agreements with the PIPE Investors concurrently with the execution of the Purchase Agreement (the “PIPE Financing”), pursuant to which such PIPE Investors committed to purchase the aggregate 60,000 PIPE Shares and PIPE Warrants to purchase up to a number of shares of the Class A Stock equal to 50% of shares of the Class A Stock issuable upon conversion of the PIPE Shares. The PIPE Shares were to be purchased at a purchase price of $1,000.00 per share for an aggregate purchase price of $60,000,000. The PIPE Shares will convert into shares of Class A Stock at a price of $10.00 per share of Class A Stock, which conversion price is subject to downward adjustment pursuant to the PIPE Certificate of Designation. The PIPE Warrants will have an exercise price of $11.50 per share of Class A Stock to be paid in cash (except if the shares underlying the warrants are not covered by an effective registration statement after the six-month anniversary of the closing date, in which case cashless exercise is permitted), subject to adjustment pursuant to the terms thereof. Pursuant to the PIPE Securities Purchase Agreements, the PIPE Investors have the right to terminate their commitments to purchase the PIPE Shares and PIPE Warrants because the closing of the Business Combination did not occur by June 30, 2022. The placement agent for the PIPE Financing is currently contacting the investors to confirm their continued interest in investing in the PIPE Financing. The closing of the transactions contemplated by the PIPE Securities Purchase Agreements will occur immediately prior to the closing of the Business Combination, subject to the satisfaction or the waiver of the closing conditions therein. The placement agent’s fee for the PIPE Financing is currently being negotiated.
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.
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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. | |
| 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. |
The Company does not have any recurring Level 2 or Level 3 assets or liabilities. The carrying value of the Company’s financial instruments including its cash and accrued liabilities approximate their fair values principally because of their short-term nature.
Net Loss Per Share of Common Stock
Net loss per share is computed by dividing net loss by the weighted average number of common stock shares outstanding for the period. The calculation of diluted 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 loss 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 loss 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. As of December 31, 2021, there were 12,028,175 shares of Class A Common Stock outstanding, for which 11,500,000 shares of Class A Common Stock were subject to possible redemption. As of June 30, 2022, there were 12,028,175 shares of Class A Common Stock outstanding with 7,695,128 shares of Class A Common Stock subject to possible redemption with 3,804,872 shares held by purchasers subject to the forward purchase agreement who have waived their redemption rights.
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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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of June 30, 2022, we were not subject to any market or interest rate risk. Following the consummation of our Initial Public Offering, the net proceeds received into the Trust Accounts, have been invested in U.S. government treasury bills, notes or bonds with a maturity of 185 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 believe there will be no associated material exposure to interest rate risk.
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Item 4. 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 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.
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 our disclosure controls and procedures were not effective as of June 30, 2022 due to a material weakness in accounting for complex financial instruments. In light of this material weakness, we performed additional analysis as deemed necessary to ensure that our unaudited interim financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Quarterly Report on Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the periods presented.
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 June 30, 2022.
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 prior financials. The restatement is detailed in the quarterly report for the quarter ending September 30, 2021 as filed on November 15, 2021.
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 June 30, 2022 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 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.
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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, the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, the Company’s Form 8-K/A filed with the SEC on April 15, 2022, and the Company’s definitive proxy statement filed with the SEC on June 10, 2022, 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
None.
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. |
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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: August 22, 2022 | /s/ John Darwin | |
| Name: | John Darwin | |
| Title: | Co-Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: August 22, 2022 | /s/ Joshua Mann | |
| Name: | Joshua Mann | |
| Title: | Co-Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: August 22, 2022 | /s/ Chris Fameree | |
| Name: | Chris Fameree | |
| Title: | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
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