(1) On March 23, 2021, the underwriters partially exercised the over-allotment
option; thus, 150,000 shares of Class B common stock remain subject to forfeiture as of March 31, 2021.
(2) On May 12, 2021, as a result of the expiration of the remaining
portion of the underwriters’ over-allotment option, 150,000 shares of Class B common stock were forfeited.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS
OPERATIONS
AF Acquisition Corp. (the “Company”
or “AF”) is a blank check company incorporated in Delaware on January 12, 2021. The Company was formed for the purpose
of entering into a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with
one or more businesses (a “Business Combination”).
The Company is not limited to a particular industry
or geographic region for purposes of consummating a Business Combination. The Company is an early stage and emerging growth company and,
as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of June 30, 2021, the Company had not
commenced any operations. All activity for the period from January 12, 2021 (inception) through June 30, 2021 relates to the Company’s
formation, the initial public offering (“Initial Public Offering”) as described below, and since the closing of the Initial
Public Offering, the search for a prospective initial Business Combination. The Company will not generate any operating revenues until
after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form
of interest income or gains on investments on the cash and investments held in a trust account from the proceeds derived from the Initial
Public Offering.
The registration statement for the Company’s Initial
Public Offering was declared effective on March 18, 2021. On March 23, 2021, the Company consummated the Initial Public Offering
of 20,000,000 units (the “Units” and, with respect to the shares of Class A common stock included in the Units sold, the “Public
Shares”), at $10.00 per Unit, generating gross proceeds of $200,000,000, which is discussed in Note 3. Simultaneously with the closing
of the Initial Public Offering, the underwriters partially exercised their over-allotment option. As such, on March 23, 2021, the
Company consummated the sale of an additional 2,400,000 Units, at $10.00 per Unit, generating total gross proceeds of $24,000,000.
Simultaneously with the closing of the Initial
Public Offering, the Company consummated the sale of 4,486,667 warrants (the “Private Placement Warrants”) at a price of $1.50
per Private Placement Warrant in a private placement to AF Sponsor LLC (the “Sponsor”) generating gross proceeds of $6,730,000,
which is described in Note 4.
Following the closing of the Initial Public Offering,
an amount of $224,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale
of the Private Placement Warrants (as defined in Note 4) was placed in a trust account (the “Trust Account”), and will be
invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with maturities
of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act of
1940, as amended (the “Investment Company Act”), which invest only in direct U.S. government treasury obligations, as determined
by the Company, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the funds held in the
Trust Account, as described below.
Transaction costs related to the issuances described
above amounted to $12,946,821, consisting of $4,480,000 of cash underwriting fees, $7,840,000 of deferred underwriting fees and $626,821
of other costs. In addition, at June 30, 2021, $1,065,040 of cash was held outside of the Trust Account and is available for working
capital purposes.
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 Warrants,
although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. The Company
must complete a Business Combination with one or more target businesses that together have an aggregate fair market value of at least
80% of the value of the Trust Account (excluding the deferred underwriting commissions and taxes payable on income earned on the Trust
Account) at the time of the agreement to enter into an initial Business Combination. The Company will only complete a Business Combination
if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires
a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company
Act. There is no assurance that the Company will be able to successfully effect a Business Combination.
AF ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
The Company will provide its holders of the outstanding
Public Shares (the “public stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the
completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or
(ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct
a tender offer will be made by the Company, solely in its discretion. The public stockholders will be entitled to redeem their Public
Shares for a pro rata portion of the amount then in the Trust Account (initially anticipated to be $10.00 per Public Share, plus any pro
rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations). There
will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants.
The Company will proceed with a Business Combination
only if the Company has net tangible assets of at least $5,000,001 either prior to or upon such consummation of a Business Combination
and, if the Company seeks stockholder approval, a majority of the shares voted are voted in favor of the Business Combination. If a stockholder
vote is not required by law and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company
will, pursuant to its second amended and restated Certificate of Incorporation (the “Certificate of Incorporation”), conduct
the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”) and file tender
offer documents with the SEC prior to completing a Business Combination. If, however, stockholder approval of the transaction is required
by law, or the Company decides to obtain stockholder approval for business or other legal reasons, the Company will offer to redeem shares
in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks
stockholder approval in connection with a Business Combination, the Sponsor has agreed to vote its Founder Shares (as defined in Note
5) and any Public Shares purchased during or after the Initial Public Offering in favor of approving a Business Combination. Additionally,
each public stockholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction
or don’t vote at all.
Notwithstanding the above, if the Company seeks
stockholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Certificate
of Incorporation provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such
stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate of 15% or more
of the Public Shares, without the prior consent of the Company.
The Sponsor has agreed to waive (i) redemption
rights with respect to any Founder Shares and Public Shares held in connection with the completion of an initial Business Combination,
(ii) redemption rights with respect to any Founder Shares and Public Shares held in connection with a stockholder vote to approve an amendment
to an amended and restated certificate of incorporation to modify the substance or timing of our obligation to allow redemption in connection
with an initial Business Combination or to redeem 100% of Public Shares if the Company has not consummated an initial Business Combination
within 24 months from the closing of the Initial Public Offering or with respect to any other provisions relating to stockholders’
rights or pre-initial Business Combination activity and (iii) rights to liquidating distributions from the Trust Account with respect
to any Founder Shares held if the Company fails to complete an initial Business Combination within 24 months from the closing of the Initial
Public Offering or any extended period of time that the Company may have to consummate an initial Business Combination.
The Company will have until March 23, 2023
to complete a Business Combination (the “Combination Period”). If the Company is unable to complete a Business Combination
within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably
possible but not 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 liquidating distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval
of remaining stockholders and board of directors, liquidate and dissolve, subject, in each case, to our obligations under Delaware law
to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions
with respect to the Company’s warrants, which will expire worthless if the Company fails to complete a Business Combination within
the Combination Period.
AF ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
The underwriters have agreed to waive their rights
to their deferred underwriting commission (see Note 6) held in the Trust Account in the event the Company does not complete a Business
Combination within in the Combination Period and, in such event, such amounts will be included with the other 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 ($10.00).
In order to protect the amounts held in the Trust
Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a third party for services rendered or
products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement,
reduce the amount of funds in the Trust Account to below (1) $10.00 per Public Share or (2) the actual amount per Public Share held in
the Trust Account as of the date of the liquidation of the Trust Account due to reductions in the value of the trust assets, in each case
net of the interest which may be withdrawn to pay the Company’s taxes. This liability will not apply with respect to any claims
by a third party who executed a waiver of any and all rights to seek access to the Trust Account and except as to any claims under the
Company’s indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the “Securities Act”). Moreover, in the event that an executed waiver is deemed to
be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims.
The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by
endeavoring to have all vendors, service providers (except the Company’s independent registered public accounting firm), prospective
target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title,
interest or claim of any kind in or to monies held in the Trust Account.
Liquidity
As of June 30, 2021, the Company had $1,065,040
in cash held outside of the Trust Account and working capital of $1,427,050.
The Company’s liquidity needs prior to the
consummation of the Initial Public Offering were satisfied through the proceeds of $25,000 from the sale of the Founder Shares, and a
loan of $300,000 under an unsecured and non-interest bearing promissory note (see Note 5). Subsequent to the consummation of the Initial
Public Offering, the Company’s liquidity will be satisfied through the net proceeds from the private placement held outside of the
Trust Account.
Based on the foregoing, management believes that
the Company will have sufficient working capital and borrowing capacity to meet its needs through the earlier of the consummation of a
Business Combination or one year from this filing. Over this time period, the Company will be using the funds held outside of the Trust
Account for paying existing accounts payable and accrued liabilities, identifying and evaluating prospective initial Business Combination
candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to
merge with or acquire, and structuring, negotiating and consummating the Business Combination.
Risks and Uncertainties
Management continues to evaluate the impact of
the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect
on the Company’s financial position, results of its operations, and/or search for a target company, the specific impact is not readily
determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
AF ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements of the Company
are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant
to the rules and regulations of the SEC.
Emerging Growth Company
The Company is an “emerging growth company,”
as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”),
and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that
are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting
firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation
in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive
compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts
emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that
is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered
under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company
can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but
any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that
when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging
growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison
of the Company’s financial statements with another public company, which is neither an emerging growth company nor an emerging growth
company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting
standards used.
Use of Estimates
The preparation of financial statements 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. One of the more significant accounting estimates included in these financial statements is the determination of
the fair value of warrant liabilities as further described below.
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 short-term investments
with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents
as of June 30, 2021.
AF ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
Investments Held in Trust Account
At June 30, 2021, the assets held in the
Trust Account were held in money market funds, which are invested in U.S. Treasury securities.
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 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 uncertain events not solely within the
Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity.
The Company’s common stock features certain redemption rights that are considered to be outside of the Company’s control and
subject to occurrence of uncertain future events. As of June 30, 2021, the Company had 20,193,667 shares of Class A common
stock subject to possible redemption are presented at redemption value as temporary equity, outside
of the stockholders’ equity section of the Company’s balance sheet.
Offering Costs associated with the Initial
Public Offering
The Company complies with the requirements of
ASC 340-10-S99-1 and SEC Staff Accounting Bulletin Topic 5A - Expenses of Offering. Offering costs consist principally of professional
and registration fees incurred through the balance sheet date that are related to the Initial Public Offering. Offering costs directly
attributable to the issuance of an equity contract to be classified in equity are recorded as a reduction in equity. Offering costs for
equity contracts that are classified as assets and liabilities are expensed immediately. The Company incurred offering costs amounting
to $12,946,821 as a result of the Initial Public Offering (consisting of $4,480,000 of cash underwriting discounts, $7,840,000 of deferred
underwriting discounts, and $626,821 of other offering costs). As such, the Company recorded $12,260,003 of offering costs as a reduction
of equity in connection with the shares of Class A common stock included in the Units. The Company immediately expensed $686,818 of offering
costs in connection with the Public Warrants and Private Placement Warrants included in the Units that were classified as liabilities.
Warrant Liabilities
The Company accounts for warrants as either equity-classified
or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance
in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC
815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition
of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including
whether the warrants are indexed to the Company’s own common stock, among other conditions for equity classification. This assessment,
which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period
end date while the warrants are outstanding.
For issued or modified warrants that meet all
of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the
time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required
to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair
value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The initial fair value of the Public
Warrants was estimated using a Monte Carlo simulation approach and the fair value of the Private Warrants was estimated using a Modified
Black Scholes model (see Note 9).
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.
AF ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
ASC Topic 740 prescribes a recognition threshold
and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in
a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing
authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense.
There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of June 30, 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. The
Company is subject to income tax examinations by major taxing authorities since inception.
Net Earnings Per Share of Common Stock
Net earnings per common share is computed by dividing
net earnings by the weighted-average number of shares of common stock outstanding during the period. The Company has not considered the
effect of the warrants sold in the Public Offering and Private Placement to purchase an aggregate of 11,953,334 shares in the calculation
of diluted earnings per share, since the warrants are contingently exercisable, and the contingencies have not yet been met.
The Company’s statement of operations includes
a presentation of net earnings per share for common shares subject to possible redemption and applies the two-class method in calculating
net earnings per share. Net earnings per common share, basic and diluted, for Class A redeemable common stock is calculated by dividing
the allocable interest income earned on the Trust Account, net of applicable franchise and income taxes, by the weighted average number
of Class A common stock subject to possible redemption outstanding for the period. Net income per share, basic and diluted, for Class
A and Class B non-redeemable common stock is calculated by dividing the net income, adjusted for income attributable to Class A redeemable
common stock, by the weighted average number of Class A and Class B non-redeemable common stock outstanding for the period. Class B non-redeemable
common stock includes the Founder Shares as these shares do not have any redemption features and do not participate in the income earned
on the Trust Account.
AF ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
The following table reflects the calculation of
basic and diluted net income per common share (in dollars, except share and per share amounts):
|
|
Three Months Ended
June 30,
2021
|
|
|
Six Months Ended
June 30,
2021
|
|
Redeemable Class A Common Stock
|
|
|
|
|
|
|
Numerator: Earnings allocable to Redeemable Class A Common Stock
|
|
|
|
|
|
|
Unrealized gain on investments held in Trust Account
|
|
|
2,254
|
|
|
|
2,254
|
|
Franchise tax expense
|
|
|
(2,254
|
)
|
|
|
(2,254
|
)
|
Net earnings
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Denominator: Weighted average Redeemable Class A Common Stock
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average shares outstanding, Redeemable Class A Common Stock
|
|
|
20,193,667
|
|
|
|
20,193,667
|
|
Basic and diluted net earnings per share, Redeemable Class A Common Stock
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Non-Redeemable Class A and Class B Common Stock
|
|
|
|
|
|
|
|
|
Numerator: –Non-redeemable net income
|
|
|
|
|
|
|
|
|
Net income
|
|
|
9,271,370
|
|
|
|
6,745,017
|
|
Net earnings
|
|
|
—
|
|
|
|
—
|
|
Net income attributable to non-redeemable Class A & B common stock
|
|
$
|
9,271,370
|
|
|
$
|
6,745,017
|
|
|
|
|
|
|
|
|
|
|
Denominator: Weighted average Non-Redeemable Class A and Class B Common Stock
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average shares outstanding, Non-Redeemable
Class A and Class B Common Stock
|
|
|
7,806,333
|
|
|
|
7,557,812
|
|
Basic and diluted net income per share, Non-Redeemable Class A and
Class B Common Stock
|
|
$
|
1.19
|
|
|
$
|
0.89
|
|
AF ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
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 coverage of $250,000. The Company has not experienced losses on this account and management believes the Company
is not exposed to significant risks on such account.
Fair Value of Financial Instruments
The Company applies ASC Topic 820, Fair Value
Measurement (“ASC 820”), which establishes a framework for measuring fair value and clarifies the definition of fair value
within that framework. ASC 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to
transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants
on the measurement date. The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants
would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting
entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the
assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information
available in the circumstances.
The carrying amounts reflected in the balance
sheet for cash, prepaid expenses and accrued offering costs approximate fair value due to their short-term nature.
Level 1 — Assets and liabilities with unadjusted,
quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in
active markets for identical assets or liabilities.
Level 2 — Inputs to the fair value measurement
are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable
inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 — Inputs to the fair value measurement
are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets
or liabilities.
Recent Accounting Standards
In August 2020, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other
Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU
2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation
of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance
pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures
for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends
the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. 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 standards, if currently adopted, would have a material effect on the Company’s financial statements.
AF ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
NOTE 3. INITIAL PUBLIC OFFERING
Pursuant to the Initial Public Offering, the Company
sold 22,400,000 Units, which includes the partial exercise by the underwriters of their over-allotment option in the amount of 2,400,000,
at $10.00 per Unit, generating gross proceeds of $224,000,000. Each Unit consisted of one share of the Company’s Class A common stock,
$0.0001 par value, and one-third of one redeemable warrant (“Public Warrant”) (“Public Warrant”). Each Public Warrant
entitles the holder to purchase one share of Class A common stock at an exercise price of $11.50 per whole share (see Note 7).
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the Initial
Public Offering, the Sponsor purchased an aggregate of 4,486,667 warrants at a price of $1.50 per warrant in a private placement (the
“Private Placement Warrants”) generating gross proceeds of $6,730,000. Each Private Placement Warrant is exercisable to purchase
one share of Class A common stock at a price of $11.50 per share. The proceeds from the sale of the Private Placement Warrants were added
to the net proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination
within the Combination Period, the proceeds from the sale of the Private Placement Warrants will be used to fund the redemption of the
Public Shares (subject to the requirements of applicable law) and the Private Placement Warrants will expire worthless. There will be
no redemption rights or liquidating distributions from the Trust Account with respect to the Private Placement Warrants.
NOTE 5. RELATED PARTY TRANSACTIONS
Founder
Shares
In January 2021, the Sponsor paid $25,000 in consideration
for 5,750,000 shares of Class B common stock (the “Founder Shares”). The Founder Shares include an aggregate of up to 750,000
shares subject to forfeiture, on a pro rata basis, to the extent that the underwriter’s over-allotment is not exercised in full
or in part, so that the Sponsor would collectively own, on an as-converted basis, 20% of the Company’s issued and outstanding shares
after the Initial Public Offering. On March 23, 2021, the underwriters partially exercised the over-allotment option; thus, only 150,000
shares of Class B common stock remain subject to forfeiture at March 31, 2021. On May 12, 2021, as a result of the expiration of
the remaining portion of the underwriters’ over-allotment option, 150,000 shares of Class B common stock were forfeited.
The Sponsor has agreed that, subject to certain
limited exceptions, the Founder Shares will not be transferred, assigned, sold or released from escrow until the earlier of (a) one year
after the completion of a Business Combination or (b) the date on which the Company completes a liquidation, merger, capital stock exchange
or other similar transaction after a Business Combination that results in all of the Company’s stockholders having the right to
exchange their Class A common stock for cash, securities or other property. Notwithstanding the foregoing, if (i) the closing price of
the Company’s Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations,
recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 after the Business Combination
or (ii) if the Company consummates a transaction after the Business Combination which results in the Company’s stockholders having
the right to exchange their shares for cash, securities or other property, the founder shares will be released from the lock-up.
Promissory Note - Related Party
On January 12, 2021, the Company issued an
unsecured promissory note to the Sponsor (the “Promissory Note”), pursuant to which the Company received proceeds of $300,000
to cover expenses related to the Initial Public Offering. The Promissory Note was non-interest bearing and was payable on the earlier
of June 30, 2021 or the completion of the Initial Public Offering. The outstanding balance under the Promissory Note of $125,000 was repaid
on March 23, 2021.
AF ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
Related Party Loans
In order to finance transaction costs in connection
with a Business Combination, the Sponsor or an affiliate of the Sponsor or certain of the Company’s directors and officers may,
but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a
Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company.
Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination
does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds
held in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital
Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either
be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such
Working Capital Loans may be convertible into warrants of the post-Business Combination entity at a price of $1.50 per warrant. The warrants
would be identical to the Private Placement Warrants.
Administrative Support Agreement
The Company entered into an agreement, commencing
on the effective date of the Initial Public Offering, to pay the Sponsor a total of $25,000 per month for secretarial and administrative
support. Upon completion of the Business Combination or the Company’s liquidation, the Company will cease paying these monthly fees.
During the three months ended June 30, 2021, and the period from January 12, 2021 (Inception) through June 30, 2021, the Company incurred
expenses of $75,000 and $81,667, respectively.
Accrued Expenses - Related Party
As of June 30, 2021, the Company had $14,167
in accrued administrative support agreement payments, which are payable on demand to AF Ventures, LP and Mistral Capital Management, LLC,
whose terms are stated in the Company’s Administrative Support Agreement.
NOTE 6. COMMITMENTS
Registration Rights
The holders of the Founder Shares, Private Placement
Warrants and warrants that may be issued upon conversion of Working Capital Loans (and any Class A common stock issuable upon the exercise
of the Private Placement Warrants) will have registration rights to require the Company to register a sale of any of its securities held
by them pursuant to a registration rights agreement. The holders 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. The Company will bear the
expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The Company granted the underwriters a 45-day option to purchase up
to 3,000,000 additional Units to cover over-allotments at the Initial Public Offering price, less the underwriting discounts and commissions.
On March 23, 2021 the underwriters purchased an additional 2,400,000 Units at an offering price of $10.00 per Unit, generating additional
gross proceeds of $24,000,000 to the Company. On May 12, 2021, as a result of the expiration of the remaining portion of the underwriters’
over-allotment option, 150,000 shares of Class B common stock were forfeited.
The underwriters were paid a cash underwriting
fee of $0.20 per Unit, or $4,480,000 in the aggregate. In addition, $0.35 per Unit, or $7,840,000 in the aggregate will be payable to
the underwriters for deferred underwriting commissions. The deferred fee will become payable to the underwriters from the amounts held
in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
AF ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
NOTE
7. WARRANTS
Each whole Public Warrant is exercisable to purchase
one share of Class A common stock and only whole warrants are exercisable. The Public Warrants will become exercisable on the later of
30 days after the completion of the Initial Business Combination or 12 months from the closing of the Initial Public Offering. Each whole
Public Warrant entitles the holder to purchase one share of Class A common stock at an exercise price of $11.50.
Pursuant to the warrant agreement, a warrant holder
may exercise its warrants only for a whole number of shares of Class A common stock. This means that only a whole warrant may be exercised
at any given time by a warrant holder. No fractional warrants will be issued upon separation of the units and only whole warrants will
trade requiring a purchase at least three units to receive or trade a whole warrant. The warrants will expire five years after the completion
of the Initial Business Combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.
If the shares issuable upon exercise of the warrants
are not registered under the Securities Act within 60 business days following the Initial Business Combination, the Company will be required
to permit holders to exercise their warrants on a cashless basis. However, 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, unless an exemption is
available. In the event that the conditions in the immediately preceding sentence are not satisfied with respect to a warrant, the holder
of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In no event will
the Company be required to net cash settle any warrant. In the event that a registration statement is not effective for the exercised
warrants, the purchaser of a unit containing such warrant will have paid the full purchase price for the unit solely for the share of
Class A common stock underlying such unit.
The Company has agreed that as soon as practicable,
but in no event later than 15 business days after the closing of a Business Combination, it will use its best efforts to file with the
SEC a registration statement for the registration, under the Securities Act, of the Class A common stock issuable upon exercise of the
warrants. The Company will use its best efforts to cause the same to become effective and to maintain the effectiveness of such registration
statement, and a current prospectus relating thereto, until the expiration of the warrants in accordance with the provisions of 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 sixtieth (60th) business day after the closing of a Business Combination, warrant holders may, until such time as there
is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement,
exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding
the above, if the 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, the Company may, at
its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with
Section 3(a)(9) of the Securities Act and, in the event the Company so elect, the Company will not be required to file or maintain in
effect a registration statement, and in the event the Company does not so elect, the Company will use its best efforts to register or
qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Once the Public Warrants become exercisable, the Company may call the
Public Warrants for redemption:
|
●
|
in whole and not in part;
|
|
●
|
at a price of $0.01 per Public Warrant;
|
|
●
|
upon not less than 30 days’ prior written notice of redemption to each warrant holder; and
|
|
●
|
if, and only if, the closing price of the common stock equals or exceeds $18.00 per share (as adjusted
for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period
commencing after the warrants become exercisable and ending three business days before the Company sends the notice of redemption to the
warrant holders.
|
AF ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
In addition, if (x) the Company issues additional
shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of its initial
Business Combination at an issue price or effective issue price of less than $9.20 per share of Class A common stock (with such issue
price or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance
to the Sponsor or its affiliates, without taking into account any Founder Shares held by the Sponsor or such affiliates, as applicable,
prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than
60% of the total equity proceeds, and interest thereon, available for the funding of the Company’s initial Business Combination
on the date of the consummation of such initial Business Combination (net of redemptions), and (z) the volume weighted average trading
price of the Company’s common stock during the 20 trading day period starting on the trading day prior to the day on which the Company
consummates its initial Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price
of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price
and the $18.00 per share redemption trigger price described above will be adjusted (to the nearest cent) to be equal to 180% of the higher
of the Market Value and the Newly Issued Price.
The Private Placement Warrants (including the
Class A common stock issuable upon exercise of the Private Placement Warrants) will not be transferable, assignable or saleable until
30 days after the completion of the Initial Business Combination and they will not be redeemable so long as they are held by the Company’s
Sponsor or its permitted transferees. Otherwise, the Private Placement Warrants have terms and provisions that are identical to those
of the Public Warrants, including as to exercise price, exercisability and exercise period. If the Private Placement Warrants are held
by holders other than the Sponsor or its permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable
by the holders on the same basis the Public Warrants.
If holders of the Private Placement Warrants elect
to exercise them on a cashless basis, they would pay the exercise price by surrendering their warrants for that number of shares of Class
A common stock equal to the quotient obtained by dividing (x) the product of the number of shares of Class A common stock underlying the
warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined below)
by (y) the fair market value. The “fair market value” shall mean the average reported last sale price of the Class A common
stock for the 10 trading days ending on the third trading day prior to the date on which the notice of warrant exercise is sent to the
warrant agent. The reason that the Company has agreed that these warrants will be exercisable on a cashless basis so long as they are
held by the Sponsor, or its permitted transferees is because it is not known at this time whether they will be affiliated with us following
the Initial Business Combination. If they remain affiliated with the Company, their ability to sell the Company’s securities in
the open market will be significantly limited. The Company expects to have policies in place that prohibit insiders from selling the Company’s
securities except during specific periods of time. Even during such periods of time when insiders will be permitted to sell the Company’s
securities, an insider cannot trade in the Company’s securities if he or she is in possession of material non-public information.
Accordingly, unlike public stockholders who could sell the shares of Class A common stock issuable upon exercise of the warrants freely
in the open market, the insiders could be significantly restricted from doing so. As a result, the Company believes that allowing the
holders to exercise such warrants on a cashless basis is appropriate.
The Company’s Sponsor has agreed not to transfer, assign or sell
any of the Private Placement Warrants (including the Class A common stock issuable upon exercise of any of these warrants) until the date
that is 30 days after the date the Company completes its Initial Business Combination.
At June 30, 2021, there were 7,466,667 Public
Warrants and 4,486,667 Private Placement Warrants outstanding. The Company accounts for the Public Warrants and Private Placement Warrants
in accordance with the guidance contained in ASC 815-40. Such guidance provides that because the warrants do not meet the criteria for
equity treatment thereunder, each warrant must be recorded as a liability.
The accounting treatment of derivative financial
instruments required that the Company record the warrants as derivative liabilities at fair value upon the closing of the Initial Public
Offering. The Public Warrants were allocated a portion of the proceeds from the issuance of the Units equal to its fair value. The warrant
liabilities are subject to re-measurement at each balance sheet date. With each such re-measurement, the warrant liabilities are adjusted
to current 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.
AF ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
NOTE 8. STOCKHOLDERS’
EQUITY
Preferred stock — The Company
is authorized to issue 1,000,000 shares of $0.0001 par value preferred stock. At June 30, 2021, there were no shares of preferred
stock issued or outstanding.
Class A common stock — The
Company is authorized to issue up to 100,000,000 shares of Class A common stock with a par value of $0.0001 per share. Holders of the
Class A common stock are entitled to one vote for each share. At June 30, 2021, there were 2,206,333 shares of Class A common stock
issued or outstanding, excluding 20,193,667 shares of Class A common stock subject to possible redemption.
Class B common stock — The
Company is authorized to issue up to 10,000,000 shares of Class B common stock with a par value of $0.0001 per share. Holders of Class
B common stock are entitled to one vote for each share. On May 12, 2021, as a result of the expiration of the remaining portion of
the underwriters' over-allotment option, 150,000 shares of Class B common stock were forfeited. At June 30, 2021, there were 5,600,000
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. Prior to
an initial Business Combination, holders of Class B common stock will have the right to elect all of the Company’s directors and
may remove members of the board of directors for any reason.
The Class B common stock will automatically convert
into shares of Class A common stock concurrently with or immediately following the consummation of an initial Business Combination, or
earlier at the option of the holder, on a one-for-one basis, subject to adjustment for stock splits, stock dividends, reorganizations,
recapitalizations and the like, and subject to further adjustment. In the case that additional shares of Class A common stock or equity-linked
securities are issued or deemed issued in connection with an initial Business Combination, the number of shares of Class A common stock
issuable upon conversion of all Founder Shares will equal, in the aggregate, on an as-converted basis, 20% of the total number of shares
of Class A common stock outstanding after such conversion (after giving effect to any redemptions of shares of Class A common stock by
public stockholders), including the total number of shares of Class A common stock issued, or deemed issued or issuable upon conversion
or exercise of any equity-linked securities or rights issued or deemed issued, by the company in connection with or in relation to the
consummation of the initial Business Combination, excluding any shares of Class A common stock or equity-linked securities or rights exercisable
for or convertible into shares of Class A common stock issued, or to be issued, to any seller in the initial Business Combination and
any Private Placement Warrants issued to the Sponsor, officers or directors upon conversion of working capital loans, provided that such
conversion of Founder Shares will never occur on a less than one-for-one basis.
NOTE 9. FAIR VALUE MEASUREMENTS
The following table presents information about
the Company’s financial assets that are measured at fair value on a recurring basis at June 30, 2021, and indicates the fair
value hierarchy of the valuation inputs the Company utilized to determine such fair value:
Description
|
|
Amount at Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held in Trust Account:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market investments
|
|
$
|
224,002,500
|
|
|
$
|
224,002,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability – Public Warrants
|
|
$
|
6,570,667
|
|
|
$
|
6,570,667
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Warrant liability – Private Placement Warrants
|
|
$
|
3,993,133
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,993,133
|
|
The Company utilized a Monte Carlo simulation
model for the initial valuation the Public Warrants. The subsequent measurement of the Public Warrants as of June 30, 2021 is classified
as Level 1 due to the use of an observable market quote in an active market under the ticker AFAQW. The quoted price of the Public Warrants
was $0.88 per warrant as of June 30, 2021.
The Company utilizes a Modified Black-Scholes
model to value the Private Placement Warrants at each reporting period, with changes in fair value recognized in the statement of operations.
The estimated fair value of the Private Placement warrant liability is determined using Level 3 inputs. Inherent in a binomial options
pricing model are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield. The
Company estimates the volatility of its common stock based on historical volatility 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 to remain at zero.
AF ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(UNAUDITED)
The aforementioned warrant liabilities are not subject to qualified
hedge accounting.
Transfers to/from Levels 1, 2 and 3 are recognized
at the end of the reporting period. The estimated fair value of the Public Warrants transferred from a Level 3 measurement to a Level
1 fair value measurement in June 2021 after the Public Warrants were separately listed and traded.
The following table provides the significant inputs
to the Monte Carlo Simulation for the initial fair value of the Public Warrants:
|
|
As of
March 23,
2021
|
|
|
As of
June 30,
2021
|
|
Stock Price on Valuation Date
|
|
$
|
9.77
|
|
|
$
|
9.76
|
|
Strike price (Exercise Price Share)
|
|
$
|
11.50
|
|
|
$
|
11.50
|
|
Probability of completing a Business Combination
|
|
|
85.0
|
%
|
|
|
100.0
|
%
|
Term (in years)
|
|
|
6.59
|
|
|
|
6.32
|
|
Volatility
|
|
|
4% pre-merger / 26% post-merger
|
|
|
|
12.9% implied by Public Warrant Market Price
|
|
Risk-free rate
|
|
|
1.19
|
%
|
|
|
1.09
|
%
|
Fair value of warrants
|
|
$
|
1.55
|
|
|
$
|
0.88
|
|
The following table provides the significant inputs to the Modified
Black Scholes model for the fair value of the Private Placement Warrants:
|
|
As of
March 23,
2021
|
|
|
As of
June 30,
2021
|
|
Stock price
|
|
$
|
9.77
|
|
|
$
|
9.76
|
|
Strike price
|
|
$
|
11.50
|
|
|
$
|
11.50
|
|
Probability of completing a Business Combination
|
|
|
85.0
|
%
|
|
|
100.0
|
%
|
Dividend yield
|
|
|
—
|
%
|
|
|
—
|
%
|
Term (in years)
|
|
|
6.59
|
|
|
|
6.32
|
|
Volatility
|
|
|
21.6
|
%
|
|
|
12.9
|
%
|
Risk-free rate
|
|
|
1.2
|
%
|
|
|
1.1
|
%
|
Fair value of warrants
|
|
$
|
1.55
|
|
|
$
|
0.89
|
|
The following table presents the changes in the fair value of warrant
liabilities:
|
|
Private Placement
|
|
|
Public
|
|
|
Warrant Liabilities
|
|
Fair value as of January 12, 2021 (inception)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Initial measurement at March 23, 2021
|
|
|
6,954,333
|
|
|
|
11,573,334
|
|
|
|
18,527,667
|
|
Change in valuation inputs or other assumptions
|
|
|
(2,961,200
|
)
|
|
|
(5,002,667
|
)
|
|
|
(7,963,867
|
)
|
Fair value as of June 30, 2021
|
|
$
|
3,993,133
|
|
|
$
|
6,570,667
|
|
|
$
|
10,563,800
|
|
The Company recognized a gain in connection with
changes in the fair value of warrant liabilities of $9,517,801 within change in fair value of warrant liabilities in the condensed statements
of operations during the three months ended June 30, 2021. The company recognized a gain in connection with changes in the fair value
of warrant liabilities of $7,963,867 within change in fair value of warrant liabilities in the condensed statements of operations during
the period from January 12, 2021 (Inception) through June 30, 2021.
NOTE 10. SUBSEQUENT
EVENTS
The Company evaluated subsequent events and transactions
that occurred after the balance sheet date up to the date that the condensed financial statements were issued. Based upon this review,
the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed financial statements.