UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2022

 

or

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______________ to ______________

 

Commission File Number 001-40248

 

AF ACQUISITION CORP.

(Exact name of registrant as specified in its charter)

 

Delaware   86-1456857

(State or other jurisdiction of
incorporation or organization)

  

(IRS Employer
Identification No.)

 

241 Bradley Place - Suite C

Palm Beach, Florida 33480

(Address of principal executive offices and zip code)

 

(561) 838-9494

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Units, each consisting of one share of Class A Common Stock  and one-third of one Redeemable Warrant   AFAQU   The Nasdaq Stock Market LLC
Class A Common Stock, par value $0.0001 per share   AFAQ   The Nasdaq Stock Market LLC
Warrants, each exercisable for one share of Class A Common Stock for $11.50 per share   AFAQW   The Nasdaq Stock Market LLC

  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

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 ☐
Non-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). Yes ☒ No ☐

 

As of August 12, 2022 there were 22,400,000 shares of the registrant’s Class A common stock, par value $0.0001 per share, issued and outstanding, and 5,600,000 shares of the registrant’s Class B common stock, par value $0.0001 per share, issued and outstanding.

 

 

 

 

 

 

AF ACQUISITION CORP.

 

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2022

 

TABLE OF CONTENTS

 

    Page
PART I - FINANCIAL INFORMATION  
     
Item 1. CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1
     
 

Condensed Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2021 (Audited)

 1
     
  Unaudited Condensed Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021 2
     
  Unaudited Condensed Statements of Changes in Stockholders’ Deficit for the Three and Six Months Ended June 30, 2022 and 2021 3
     
  Unaudited Condensed Statements of Cash Flows for the Three and Six Months Ended June 30, 2022 and 2021 4
     
  Notes to Unaudited Condensed Financial Statements 5
     
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 22
     
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 27
     
Item 4. CONTROLS AND PROCEDURES 27
     
PART II - OTHER INFORMATION  
     
Item 1. LEGAL PROCEEDINGS 28
     
Item 1A. RISK FACTORS 28
     
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 31
     
Item 3. DEFAULTS UPON SENIOR SECURITIES 31
     
Item 4. MINE SAFETY DISCLOSURES 31
     
Item 5. OTHER INFORMATION 31
     
Item 6. EXHIBITS 31
     
SIGNATURES 32

 

i

 

 

GLOSSARY OF TERMS

 

Unless otherwise stated in this Report (as defined below), or the context otherwise requires, references to:

 

  ● “ASC” are to the FASB (as defined below) Accounting Standards Codification;
     
  ● “ASC 480” are to ASC Topic 480, “Distinguishing Liabilities from Equity”;
     
  ● “ASC 740” are to ASC Topic 740, “Income Taxes”;
     
  ● “ASC 815” are to ASC Topic 815, “Derivatives and Hedging”;
     
  ● “ASC 820” are to ASC Topic 820, “Fair Value Measurement”;

 

  ● “board of directors,” “board” or “directors” are to the board of directors of the Company (as defined below);

 

  ● “business combination” are to a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses;

 

  ● “Class A common stock” are to the shares of Class A common stock of the Company, par value $0.0001 per share;

 

  ● “Class B common stock” are to the shares of Class B common stock of the Company, par value $0.0001 per share;
     
  ●

“Combination Period” are to the 24-month period, from the closing of the initial public offering (as defined below) to March 23, 2023, that the Company has to consummate an initial business combination;

 

  ● “common stock” are to the Class A common stock and the Class B common stock;

 

  ● “Company,” “our Company,” “we” or “us” are to AF Acquisition Corp., a Delaware corporation;

 

  ● “Continental” are to Continental Stock Transfer & Trust Company, trustee of our Trust Account (as defined below) and warrant agent of our public warrants (as defined below);

 

  ● “Exchange Act” are to the Securities Exchange Act of 1934, as amended;

 

  ● “founder shares” are to the shares of Class B common stock initially purchased by our Sponsor (as defined below) in the private placement (as defined below) and the shares of Class A common stock that will be issued upon the automatic conversion of the shares of Class B common stock at the time of our business combination as described herein (for the avoidance of doubt, such Class A common stock will not be “public shares” (as defined below);

 

  ● “GAAP” are to the accounting principles generally accepted in the United States of America;

 

  ● “initial public offering” or “IPO” are to the initial public offering that was consummated by the Company on March 18, 2022;

 

  ● “initial stockholders” are to holders of our founder shares prior to our initial public offering;

 

  ● “Investment Company Act” are to the Investment Company Act of 1940, as amended;

 

ii

 

 

  ● “JOBS Act” are to the Jumpstart Our Business Startups Act of 2012;

 

  ● “private placement” are to the private placement of warrants that occurred simultaneously with the closing of our initial public offering;

 

  ● “private placement warrants” are to the warrants issued to our Sponsor in the private placement;

 

  ● “public shares” are to the shares of Class A common stock sold as part of the units in our initial public offering (whether they were purchased in our initial public offering or thereafter in the open market);

 

  ● “public stockholders” are to the holders of our public shares, including our initial stockholders and management team to the extent our initial stockholders and/or members of our management team purchase public shares, provided that each initial stockholder’s and member of our management team’s status as a “public stockholder” will only exist with respect to such public shares;

 

  ● “public warrants” refer to the redeemable warrants sold as part of the units in our initial public offering (whether they were subscribed for in our initial public offering or purchased in the open market);

 

  ● “Registration Statement” are to the Registration Statement on Form S-1 initially filed with the SEC (as defined below) on February 25, 2021, as amended, and declared effective on March 18, 2021 (File No. 333-253544);

 

  ● “Report” are to this Quarterly Report on Form 10-Q for the quarter ended June 30, 2022;

 

  ● “Sarbanes-Oxley Act” are to the Sarbanes-Oxley Act of 2002;

 

  ● “SEC” are to the U.S. Securities and Exchange Commission;

 

  ● “Securities Act” are to the Securities Act of 1933, as amended;

 

  ● “Sponsor” are to AF Sponsor LLC, a Delaware limited liability company;

 

  ● “Trust Account” are to the U.S.-based trust account in which an amount of $224,000,000 from the net proceeds of the sale of the units in the initial public offering and the private placement warrants was placed following the closing of the initial public offering;

 

  ● “units” are to the units sold in our initial public offering, which consist of one public share of Class A Common Stock and one-third of one public warrant; and
     
  ●

“Working Capital Loans” are to funds that, in order to finance transaction costs in connection with a business combination, the initial stockholders or an affiliate of the initial stockholders or certain of the Company’s directors and officers may, but are not obligated to, loan the Company.

 

iii

 

 

PART 1 – FINANCIAL INFORMATION

 

Item 1. CONDENSED FINANCIAL STATEMENTS

 

AF ACQUISITION CORP.

CONDENSED BALANCE SHEETS

 

    June 30,
2022		     December 31,
2021		  
Assets:   (Unaudited)     (Audited)   
Current assets:            
Cash   $ 12,267     $ 781,302  
Prepaid expenses, current     149,333       210,000  
Total current assets     161,600       991,302  
Investments held in Trust Account     224,360,162       224,039,393  
Prepaid expenses, non-current     —       44,333  
Total Assets   $ 224,521,762     $ 225,075,028  
                 
Liabilities and Stockholders’ Deficit:                
Current liabilities:                
Accrued expenses - related party   $ 6,667       6,667  
Accounts payable and accrued expenses     60,000       25,875  
Franchise tax payable     20,772       193,425  
Total current liabilities     87,439       225,967  
Warrant liabilities     1,718,334       7,052,467  
Deferred underwriting fee payable     7,840,000       7,840,000  
Total Liabilities     9,645,773       15,118,434  
                 
Commitments (Note 6)    
 
      
 
  
Class A common stock, $0.0001 par value, subject to possible redemption; 100,000,000 shares authorized and 22,400,000 shares issued and outstanding at redemption value of $10.01 and $10.00, respectively     224,239,392       224,000,000  
                 
Stockholders’ Deficit:                
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding     —       —  
Class A common stock, $0.0001 par value; 100,000,000 shares authorized; no shares issued and outstanding (excluding 22,400,000 shares subject to possible redemption)     —       —  
Class B common stock, $0.0001 par value; 10,000,000 shares authorized; 5,600,000 shares issued and outstanding     560       560  
Additional paid-in capital     —       —  
Accumulated deficit     (9,363,963 )     (14,043,966 )
Total Stockholders’ Deficit     (9,363,403 )     (14,043,406 )
Total Liabilities and Stockholders’ Deficit   $ 224,521,762     $ 225,075,028  

 

The accompanying notes are an integral part of these financial statements.

 

1

 

 

AF ACQUISITION CORP.

CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

   Three Months
Ended
June 30,
2022		   Three Months
Ended
June 30,
2021		   Six Months
Ended
June 30,
2022		   For the Period
from
January 12,
2021
(Inception)
Through
June 30,
2021		 
Operating and formation costs  $324,204   $202,513   $675,894   $221,158 
Franchise tax expense   49,785    46,448    99,017    89,071 
Loss from operations   (373,989)   (248,961)   (774,911)   (310,229)
Expensed offering costs   
—
    
—
    
—
    (686,818)
Unrealized gain on investments held in Trust Account   319,683    2,500    360,163    2,500 
Loss on sale of private placement warrants   
—
    
—
    
—
    (224,333)
Gain on change in fair value of warrant liabilities   1,389,533    9,517,801    5,334,133    7,963,867 
Interest income   3    30    10    30 
Net income  $1,335,230   $9,271,370   $4,919,395   $6,745,017 
                     
Basic and diluted weighted average shares outstanding, Class A common stock
   22,400,000    22,400,000    22,400,000    13,121,893 
Basic and diluted net income per share, Class A common stock
  $0.05   $0.33   $0.18   $0.37 
Basic and diluted weighted average shares outstanding, Class B common stock
   5,600,000    5,600,000    5,600,000    5,351,479 
Basic and diluted net income per share, Class B common stock
  $0.05   $0.33   $0.18   $0.37 

 

The accompanying notes are an integral part of these financial statements.

 

2

 

 

AF ACQUISITION CORP.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(UNAUDITED)

 

SIX MONTHS ENDED JUNE 30, 2022

 

   Common Stock   Additional       Total 
   Class A   Class B   Paid-in   Accumulated   Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
Balance – December 31, 2021   
        —
   $
         —
    5,600,000   $       560   $
         —
   $(14,043,966)  $(14,043,406)
Net income   —    
—
    —    
—
    
—
    3,584,165    3,584,165 
Balance - March 31, 2022   
—
    
—
    5,600,000    560    
—
    (10,459,801)   (10,459,241)
Remeasurement of Class A common stock subject to possible redemption   —    
—
    —    
—
    
—
    (239,392)   (239,392)
Net income   —    
—
    —    
—
    
—
    1,335,230    1,335,230 
Balance - June 30, 2022   
—
   $
—
    5,600,000   $560   $
—
   $(9,363,963)  $(9,363,403)

 

FOR THE PERIOD FROM JANUARY 12, 2021 (INCEPTION) THROUGH JUNE 30, 2021

 

   Common Stock   Additional       Total 
   Class A   Class B   Paid-in   Accumulated   Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
Balance - January 12, 2021 (inception)   
      —
   $
         —
    
       —
   $
         —
   $
      —
   $
      —
   $
      —
 
Issuance of Class B common stock to Sponsor (1)   
—
    
—
    5,750,000    575    24,425    
—
    25,000 
Accretion of Class A common stock subject to possible redemption   —    
—
    —    
—
    (24,425)   (23,808,913)   (23,833,338)
Net loss   —    
—
    —    
—
    
—
    (2,526,353)   (2,526,353)
Balance - March 31, 2021   
—
    
—
    5,750,000    575    
—
    (26,335,266)   (26,334,691)
Forfeiture of Class B common stock (2)   
—
    
—
    (150,000)   (15)   
—
    15    
—
 
Net income   —    
—
    —    
—
    
—
    9,271,370    9,271,370 
Balance - June 30, 2021   
—
   $
—
    5,600,000   $560   $
—
   $(17,063,881)  $(17,063,321)

 

(1)On March 23, 2021, the underwriters partially exercised the over-allotment option; thus, 150,000 shares of Class B common stock were subject to forfeiture.
(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.

 

The accompanying notes are an integral part of these financial statements.

 

3

 

 

AF ACQUISITION CORP.

CONDENSED STATEMENT OF CASH FLOWS

(UNAUDITED)

 

   Six Months
Ended
June 30,
2022		   For the
Period from
January 12,
2021
(Inception)
Through
June 30,
2021		 
Cash Flows from Operating Activities:        
Net income  $4,919,395   $6,745,017 
Adjustments to reconcile net income to net cash used in operations:          
Expensed offering costs   
—
    686,818 
Unrealized gain on investments held in Trust Account   (360,163)   (2,500)
Gain on change in fair value of warrant liabilities   (5,334,133)   (7,963,867)
Loss on sale of private placement warrants   
—
    224,333 
Changes in operating assets and liabilities:          
Prepaid expenses, current and non-current   105,000    (376,179)
Accounts payable and accrued expenses   34,125    14,167 
Franchise tax payable   (172,653)   89,071 
Net cash used in operating activities   (808,429)   (583,140)
           
Cash Flows from Investing Activities:          
Cash deposited in Trust Account   
—
    (224,000,000)
Proceeds from Trust Account to pay tax   39,394    — 
Net cash provided by (used in) investing activities   39,394    (224,000,000)
           
Cash Flows from Financing Activities:          
Proceeds from issuance of Class B common stock to Sponsor   
—
    25,000 
Proceeds from issuance of promissory note to Sponsor   
—
    125,000 
Repayment of promissory note to Sponsor   
—
    (125,000)
Payment of offering costs   
—
    (626,820)
Proceeds from initial public offering, net of underwriter’s discount paid   
—
    219,520,000 
Proceeds from sale of private placement warrants   
—
    6,730,000 
Net cash provided by financing activities   
—
    225,648,180 
           
Net change in cash   (769,035)   1,065,040 
Cash – beginning of period   781,302    
—
 
Cash – end of period  $12,267   $1,065,040 
           
Supplemental disclosure of noncash investing and financing activities:          
Initial classification of warrant liabilities  $
—
   $18,527,667 
Deferred underwriting fee payable  $
—
   $7,840,000 
Accretion of Class A common stock subject to redemption to redemption value  $
—
   $23,833,338 
Reclassification of deferred offering costs to equity upon completion of the initial public offering  $
—
   $626,821 
Forfeiture of Class B common stock  $
—
   $15 
Remeasurement of Class A common stock subject to possible redemption amount  $239,392   $
—
 

 

The accompanying notes are an integral part of these financial statements.

 

4

 

 

AF ACQUISITION CORP. 

NOTES TO CONDENSED FINANCIAL STATEMENTS 

JUNE 30, 2022 

(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, 2022, the Company had not commenced any operations. All activity for the period from January 12, 2021 (inception) through June 30, 2022 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 generates non-operating income in the form of interest and dividend income or gains on investments on the cash and investments held in a trust account (the “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 22,400,000 units (the “Units” and, with respect to the shares of Class A common stock included in the Units sold, the “Public Shares”), including 2,400,000 Units issued pursuant to the partial exercise of the underwriter’s over-allotment option, generating gross proceeds of $224,000,000, which is discussed in Note 3.

 

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.

 

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.

 

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 was placed in the Trust Account, and invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with 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.

 

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.

 

5

 

 

AF ACQUISITION CORP. 

NOTES TO CONDENSED FINANCIAL STATEMENTS 

JUNE 30, 2022 

(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 Public Shares subject to redemption are recorded at redemption value and classified as temporary equity upon the completion of the Initial Public Offering in accordance with the Financial Accounting Standards Board’s ASC 480.

 

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 the Certificate of Incorporation to modify the substance or timing of the Company’s 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.

 

6

 

 

AF ACQUISITION CORP. 

NOTES TO CONDENSED FINANCIAL STATEMENTS 

JUNE 30, 2022 

(UNAUDITED)

 

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 the Company’s 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.

 

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 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.

 

Going Concern Consideration

 

As of June 30, 2022, the Company had $12,267 in cash held outside of the Trust Account and working capital surplus of $94,933.

 

7

 

 

AF ACQUISITION CORP. 

NOTES TO CONDENSED FINANCIAL STATEMENTS 

JUNE 30, 2022 

(UNAUDITED)

 

The Company anticipates that the cash held outside of the Trust Account as of June 30, 2022 will not be sufficient to allow the Company to operate for the period from the issuance of the condensed financial statements through the Combination Period, assuming that a Business Combination is not consummated during that time. If a Business Combination is not consummated by March 23, 2023, there will be a mandatory liquidation and subsequent dissolution of the Company. 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. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of time within one year after the date that the condensed financial statements are issued. Management plans to address this uncertainty through a Business Combination. In addition, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required under the Working Capital Loans (as defined in Note 5). There is no assurance that the Company’s plans to consummate the Business Combination will be successful or successful within the Combination Period or that the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors will loan the Company funds as may be required under the Working Capital Loans.

 

As a result of the above, in connection with the Company’s assessment of going concern, management has determined that the conditions described above raise substantial doubt about the Company’s ability to continue as a going concern through approximately one year from the date the condensed financial statements are issued. The condensed financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

 

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 condensed financial statements. The condensed 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 in the country of Ukraine and related economic sanctions, the Company’s ability to consummate a Business Combination, or the operations of a target business with which the Company ultimately consummates a Business Combination, 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 unaudited 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 unaudited condensed 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. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Form 10-K as filed with the SEC on March 31, 2022. The interim results for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any future periods.

 

8

 

 

AF ACQUISITION CORP. 

NOTES TO CONDENSED FINANCIAL STATEMENTS 

JUNE 30, 2022 

(UNAUDITED)

 

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 condensed 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 condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed financial statements and the reported amounts of revenues and expenses during the reporting period. One of the more significant accounting estimates included in the condensed 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 condensed 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. The initial valuation of the Public Warrants (as defined in Note 3) and the recurring valuation of the Private Placement Warrants required management to exercise significant judgement in its estimates.

 

9

 

 

AF ACQUISITION CORP. 

NOTES TO CONDENSED FINANCIAL STATEMENTS 

JUNE 30, 2022 

(UNAUDITED)

 

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, 2022 or December 31, 2021.

 

Investments Held in Trust Account

 

At June 30, 2022 and December 31, 2021, the assets held in the Trust Account were held in money market funds, which are invested in U.S. Treasury securities.

 

Class A Common Stock Subject to Possible Redemption

 

All of the 22,400,000 shares of Class A common stock sold as part of the Units in the Initial Public Offering contain a redemption feature which allows for the redemption of such Public Shares in connection with the Company’s liquidation, if there is a stockholder vote or tender offer in connection with the Business Combination and in connection with certain amendments to the Company’s Certificate of Incorporation. In accordance with SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within the control of the Company require common stock subject to redemption to be classified outside of permanent equity. Therefore, all Class A common stock has been classified outside of permanent equity.

 

The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock are affected by charges against additional paid in capital and accumulated deficit. The redemption value of the redeemable common stock as of June 30, 2022 increased as the income earned on the Trust Account exceeds the Company’s expected tax obligations plus up to $100,000 to pay dissolution expenses) (see Note 1). As such, the Company recorded an increase in the carrying amount of the redeemable common stock $239,392 of as of June 30, 2022.

 

As of June 30, 2022 and December 31, 2021, the Class A common stock subject to possible redemption reflected in the condensed balance sheet are reconciled in the following table:

 

Gross proceeds  $224,000,000 
Less:     
Proceeds allocated to Public Warrants   (11,573,335)
Issuance costs allocated to common stock   (12,260,003)
Plus:     
Accretion of carrying value to redemption value   23,833,338 
Common stock subject to possible redemption at December 31, 2021  $224,000,000 
Plus:     
Remeasurement of carrying value to redemption value   239,392 
Common stock subject to possible redemption at June 30, 2022  $224,239,392 

 

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 temporary equity in connection with the shares of Class A common stock included in the Units. The Company expensed $686,818 of offering costs in connection with the Public Warrants and Private Placement Warrants that were classified as liabilities.

 

10

 

 

AF ACQUISITION CORP. 

NOTES TO CONDENSED FINANCIAL STATEMENTS 

JUNE 30, 2022 

(UNAUDITED)

 

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 and 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 statement of operations. In accordance with guidance contained in ASC 815, the Public Warrants (as defined in Note 3) and the Private Placement Warrants do not qualify as equity and are recorded as liabilities at fair value. 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 recurring fair value of the Private Placement Warrants was estimated using a Modified Black-Scholes model (see Note 10).

 

Income Taxes

 

The Company complies with the accounting and reporting requirements of ASC 740, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

ASC 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, 2022 or 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. The Company is subject to income tax examinations by major taxing authorities since inception.

 

11

 

 

AF ACQUISITION CORP. 

NOTES TO CONDENSED FINANCIAL STATEMENTS 

JUNE 30, 2022 

(UNAUDITED)

 

Net Income Per Share of Common Stock

 

The Company complies with accounting and disclosure requirements of ASC 260, Earnings Per Share. Net income per common share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Accretion associated with the redeemable shares of Class A common stock is excluded from net income per share as the redemption value approximates fair value. Therefore, the earnings per share calculation allocates income shared pro rata between Class A and Class B common stock. As a result, the calculated net income per share is the same for Class A and Class B shares of common stock. The Company has not considered the effect of the Public Warrants and Private Placement Warrants to purchase an aggregate of 11,953,334 shares in the calculation of diluted net income per share, since the exercise of the warrants are contingent upon the occurrence of future events.

 

The following table reflects the calculation of basic and diluted net income per common share (in dollars, except per share amounts):

 

   Three Months Ended
June 30, 2022		   Three Months Ended
June 30, 2021		   Six Months Ended
June 30, 2022		   For the
Period from
January 12, 2021
(Inception) Through
June 30,
2021		 
   Class A   Class B   Class A   Class B   Class A   Class B   Class A   Class B 
Basic and diluted net income per share:                                
Numerator:                                
Net income   1,068,184    267,046    7,417,096    1,854,274    3,935,516    983,879    4,791,079    1,953,938 
Denominator:                                        
Basic and diluted weighted average shares outstanding   22,400,000    5,600,000    22,400,000    5,600,000    22,400,000    5,600,000    13,121,893    5,351,479 
Basic and diluted net income per share  $0.05   $0.05   $0.33   $0.33   $0.18   $0.18   $0.37   $0.37 

 

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 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.

 

12

 

 

AF ACQUISITION CORP. 

NOTES TO CONDENSED FINANCIAL STATEMENTS 

JUNE 30, 2022 

(UNAUDITED)

 

The carrying amounts reflected in the balance sheet for current assets and current liabilities 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.

 

See Note 10 for additional information on assets and liabilities measured at fair value.

 

Recent Accounting Pronouncements

 

Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed financial statements.

 

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”). 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 Private Placement Warrants at a price of $1.50 per warrant in a private placement 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.

 

13

 

 

AF ACQUISITION CORP. 

NOTES TO CONDENSED FINANCIAL STATEMENTS 

JUNE 30, 2022 

(UNAUDITED)

 

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 initially included 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 remained subject to forfeiture at March 23, 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, pursuant to which the Company could borrow up to $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 September 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. The promissory note is no longer available to the Company.

 

Working Capital 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. As of June 30, 2022 and December 31, 2021, the Company had no borrowings outstanding under the Working Capital Loans. On July 12, 2022, the Company issued a promissory note in the principal amount of up to $200,000 to the Sponsor (see Note 11).

 

14

 

 

AF ACQUISITION CORP. 

NOTES TO CONDENSED FINANCIAL STATEMENTS 

JUNE 30, 2022 

(UNAUDITED)

 

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 and six months ended June 30, 2022, the Company incurred expenses of $67,500 and $135,000, respectively, under the administrative support agreement. 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, under the administrative support agreement. As of June 30, 2022 and December 31, 2021, the Company had $6,667 in accrued administrative support agreement expense, which is included in accrued expenses - related party on the accompanying condensed balance sheets.

 

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) 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, the remaining portion of the underwriters’ over-allotment option expired.

 

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 is 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.

 

NOTE 7. WARRANTS

 

At June 30, 2022 and December 31, 2021, there were 7,466,667 Public Warrants and 4,486,667 Private Placement Warrants outstanding.

 

15

 

 

AF ACQUISITION CORP. 

NOTES TO CONDENSED FINANCIAL STATEMENTS 

JUNE 30, 2022 

(UNAUDITED)

 

Each whole Redeemable Warrant is exercisable to purchase one share of Class A common stock and only whole warrants are exercisable. The Redeemable 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 Redeemable 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 Warrants become exercisable, the Company may redeem the 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

 

16

 

 

AF ACQUISITION CORP. 

NOTES TO CONDENSED FINANCIAL STATEMENTS 

JUNE 30, 2022 

(UNAUDITED)

 

●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.

 

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.

 

17

 

 

AF ACQUISITION CORP. 

NOTES TO CONDENSED FINANCIAL STATEMENTS 

JUNE 30, 2022 

(UNAUDITED)

 

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.

 

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.

 

NOTE 8. STOCKHOLDERS’ DEFICIT

 

Preferred stock — The Company is authorized to issue 1,000,000 shares of $0.0001 par value preferred stock. As of June 30, 2022 and December 31, 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. As of June 30, 2022 and December 31, 2021, there were 22,400,000 shares of Class A common stock issued and outstanding, of which 22,400,000 shares of Class A common stock subject to possible redemption are classified outside of permanent equity as temporary equity.

 

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. As of June 30, 2022 and December 31, 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, 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.

 

18

 

 

AF ACQUISITION CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2022

(UNAUDITED)

 

NOTE 9. INCOME TAXES

 

The Company’s effective tax rate for the three and six months ended June 30, 2022 was 0.0%. The effective tax rate for the three and six months ended June 30, 2021 was 0.0%. The Company’s effective tax rate differs from the statutory income tax rate of 21% primarily due to the recognition of gains or losses from the changes in the fair value of warrant liabilities and unrealized gains on the investments held in the Trust Account, which are not recognized for tax purposes. The Company has historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year to income or loss for the reporting period. The Company has used a discrete effective tax rate method to calculate taxes for the three and six months ended June 30, 2022. The Company believes that, at this time, the use of the discrete method for the three and six months ended June 30, 2022 is more appropriate than the estimated annual effective tax rate method as the estimated annual effective tax rate method is not reliable due to a high degree of uncertainty in estimating annual pretax earnings.

 

NOTE 10. FAIR VALUE MEASUREMENTS

 

The following table presents information about the Company’s financial assets that are measured at fair value on a recurring basis as of June 30, 2022 and December 31, 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 
June 30, 2022                
Assets                
Investments held in Trust Account:                
Money Market investments  $224,360,162   $224,360,162   $
—
   $
—
 
Liabilities                    
Warrant liability – Public Warrants  $1,045,334   $1,045,334   $
—
   $
—
 
Warrant liability – Private Placement Warrants  $673,000   $
—
   $
—
   $673,000 
December 31, 2021                    
Assets                    
Investments held in Trust Account:                    
Money Market investments  $224,039,393   $224,039,393   $
—
   $
—
 
Liabilities                    
Warrant liability – Public Warrants  $4,405,334   $4,405,334   $
—
   $
—
 
Warrant liability – Private Placement Warrants  $2,647,133   $
—
   $
—
   $2,647,133 

 

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, 2022 and December 31, 2021 are 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 $0.14 per warrant as of June 30, 2022 and $0.59 per warrant as of December 31, 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.

 

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.

 

19

 

 

AF ACQUISITION CORP. 

NOTES TO CONDENSED FINANCIAL STATEMENTS 

JUNE 30, 2022 

(UNAUDITED)

 

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
(Initial Measurement)		 
Stock Price on Valuation Date  $9.77 
Strike price (Exercise Price Share)  $11.50 
Probability of completing a Business Combination   85.0%
Term (in years)   6.59 
Volatility   4% pre-merger/26 post-merger%
Risk-free rate   1.19%
Fair value of warrants  $1.55 

 

The following table provides the significant inputs to the Modified Black-Scholes model for the fair value of the Private Placement Warrants:

 

   As of
June 30,
2022		   As of
December 31,
2021		 
Stock price  $9.75   $9.72 
Strike price  $11.50   $11.50 
Probability of completing a Business Combination   13.0%   * 
Dividend yield   
—
%   
—
%
Term (in years)   5.73    5.81 
Volatility   12.5%   10.1%
Risk-free rate   3.0%   1.3%
Fair value of warrants  $0.15   $0.59 

 

*The probability of completing a Business Combination is considered within the volatility implied by the traded price of the Public Warrants which is used to value the Private Placement Warrants.

 

20

 

 

AF ACQUISITION CORP. 

NOTES TO CONDENSED FINANCIAL STATEMENTS 

JUNE 30, 2022 

(UNAUDITED)

 

The following table presents the changes in the fair value of the Company’s Level 3 financial instruments that are measured at fair value:

 

Fair value as of January 12, 2021 (inception)  $
—
 
Initial measurement at March 23, 2021   18,527,667 
Transfer of Public Warrants to Level 1 measurement   (12,544,001)
Change in fair value   (3,336,533)
Fair value as of December 31, 2021   2,647,133 
Change in fair value   (1,480,600)
Fair value as of March 31, 2022   1,166,533 
Change in fair value   (493,533)
Fair value as of June 30, 2022  $673,000 

 

The Company recognized a gain in connection with changes in the fair value of warrant liabilities of $1,389,533 and $5,334,133 (including $896,000 and $3,360,000 related to the Public Warrants - Level 1 and $493,533 and $1,974,133 related to the Private Placement Warrants - Level 3) within change in fair value of warrant liabilities in the Condensed Statements of Operations during the three and six months ended June 30, 2022, respectively. The Company recognized a gain in connection with changes in the fair value of warrant liabilities of $9,517,801 and $7,963,867 within change in fair value of warrant liabilities in the Condensed Statements of Operations for the three months ended June 30, 2021 and for the period from January 12, 2021 (Inception) through June 30, 2021, respectively.

  

NOTE 11. SUBSEQUENT EVENTS

 

The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed 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.

 

On July 12, 2022, the Company issued a promissory note (the “Sponsor Working Capital Loan”) in the principal amount of up to $200,000 to the “Sponsor”. If the Company completes a Business Combination, the Company would repay the Sponsor Working Capital Loan out of the proceeds of the Trust Account released to the Company. Otherwise, the Sponsor Working Capital Loan 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 the working capital held outside the Trust Account to repay the Note but no proceeds from the Trust Account would be used to repay the Note. At the election of the Sponsor, all or a portion of the unpaid principal amount of the Sponsor Working Capital Loan may be converted into warrants of the Company at a price of $1.50 per warrant (the “Conversion Warrants”). The Conversion Warrants and their underlying securities are entitled to the registration rights set forth in the Sponsor Working Capital Loan. On July 20, 2022, the Company drew down $100,000 from the Working Capital Loan with the Sponsor.

 

21

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to AF Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to AF Sponsor LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

 

Special Note Regarding Forward-Looking Statements

 

This Quarterly Report includes “forward-looking statements” that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s final prospectus for its Initial Public Offering (as defined below) filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

 

Overview

 

We are a blank check company incorporated on January 12, 2021 as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We have not selected any specific business combination target and we have not, nor has anyone on our behalf, engaged in any substantive discussions, directly or indirectly, with any business combination target with respect to an initial business combination with us. We intend to effectuate our initial business combination using cash from the proceeds of our Initial Public Offering and the sale of the private placement warrants, our capital stock, debt or a combination of cash, stock and debt.

 

Results of Operations

 

We have neither engaged in any operations nor generated any operating revenues to date. Our only activities for the period from January 12, 2021 (inception) through June 30, 2022 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and, after our Initial Public Offering, identifying a target company for a business combination. We intend to effectuate our initial business combination using cash from the proceeds of our Initial Public Offering and the private placement of the private placement warrants, the proceeds of the sale of our shares in connection with our initial business combination (pursuant to forward purchase agreements or backstop agreements we may enter into following the consummation of our Initial Public Offering or otherwise), shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing.

 

22

 

 

For the three months ended June 30, 2022, we had net income of $1,335,230, which resulted from a gain on the change in fair value of warrant liabilities of $1,389,533, unrealized gain on investments held in Trust Account of $319,683, and interest income of $3, partially offset by operating and formation costs of $324,204 and franchise tax expense of $49,785.

 

For the three months ended June 30, 2021, we had net income of $9,271,370, which resulted from a gain on the change in fair value of warrant liabilities of $9,517,801, unrealized gain on investments held in Trust Account of $2,500, and interest income of $30, partially offset by operating and formation costs of $202,513 and franchise tax expense of $46,448.

 

For the six months ended June 30, 2022, we had net income of $4,919,395, which resulted from a gain on the change in fair value of warrant liabilities of $5,334,133, unrealized gain on investments held in Trust Account of $360,163, and interest income of $10, partially offset by operating and formation costs of $675,894 and franchise tax expense of $99,017.

 

For the period from January 12, 2021 (inception) through June 30, 2021, we had net income of $6,745,017, which resulted from a gain on the change in fair value of warrant liabilities of $7,963,867, unrealized gain on investments held in Trust Account of $2,500, and interest income of $30, partially offset by expensed offering costs of $686,818, loss on sale of private placement warrants of $224,333, operating and formation costs of $221,158, and franchise tax expense of $89,071.

 

Liquidity and Capital Resources

 

On March 23, 2021, we consummated an Initial Public Offering of 22,400,000 units generating gross proceeds of $224,000,000. Simultaneously with the consummation of the Initial Public Offering, we completed the private sale of 4,486,667 warrants to the Sponsor at a purchase price of $1.50 per warrant (the “Private Placement Warrants”), generating gross proceeds of $6,730,000.

 

For the six months ended June 30, 2022, net cash used in operating activities was $808,429, which was due to a gain on the change in fair value of warrant liabilities of $5,334,133, unrealized gains on investments held in Trust Account of $360,163, and changes in working capital of $33,528, partially offset by our net income of $4,919,395.

 

For the period from January 12, 2021 (inception) through June 30, 2021, net cash used in operating activities was $583,140, which was due to a gain on the change in fair value of warrant liabilities of $7,963,867, changes in working capital of $272,941, and unrealized gains on investments held in Trust Account of $2,500, partially offset by our net income of $6,745,017, expensed offering costs of $686,818, and the loss on sale of private placement warrants of $224,333.

 

For the six months ended June 30, 2022, net cash provided by investing activities was $39,394, which was due to proceeds from the Trust Account to pay taxes of $39,394.

 

For the period from January 12, 2021 (inception) through June 30, 2021, net cash used in investing activities was $224,000,000, which was due to cash deposited in the Trust Account.

 

For the six months ended June 30, 2022, there were no net cash flows from financing activities.

 

23

 

 

For the period from January 12, 2021 (inception) through June 30, 2021, net cash provided by financing activities was $225,648,180, which was due to proceeds from the Initial Public Offering, net of cash underwriter’s discount paid, of $219,520,000, proceeds from the sale of private placement warrants of $6,730,000, proceeds from the issuance of a promissory note to our Sponsor of $125,000, and proceeds from the issuance of Class B common stock to our Sponsor of $25,000, partially offset by payments of offering costs of $626,820 and the prepayment of the promissory note with our Sponsor of $125,000.

 

As of June 30, 2022, we had cash of $12,267 held outside the Trust Account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a business combination.

 

In order to fund working capital deficiencies or finance transaction costs in connection with an intended 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 on a non-interest basis. 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 Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants of the post business combination entity at a price of $1.50 per warrant at the option of the lender. The warrants would be identical to the private placement warrants. The terms of such loans, if any, have not been determined and no written agreements exist with respect to such loans. Prior to the completion of our initial business combination, we do not expect to seek loans from parties other than our Sponsor or an affiliate of our Sponsor as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our Trust Account. On July 12, 2022, the Company issued a promissory note (the “Sponsor Working Capital Loan”) in the principal amount of up to $200,000 to the “Sponsor”. On July 20, 2022, the Company drew $100,000 from the Working Capital Loan with the Sponsor.

 

We have incurred and expect to continue to incur significant costs in pursuit of our acquisition plans. We may have insufficient funds available to operate our business prior to our initial business combination. Moreover, we may 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 completion of our initial business combination, in which case we may issue additional securities or incur debt in connection with such business combination. In addition, we intend to target businesses with enterprise values that are greater than we could acquire with the net proceeds of this offering and the sale of the private placement warrants, if any, and, as a result, if the cash portion of the purchase price exceeds the amount available from the Trust Account, net of amounts needed to satisfy redemptions by public stockholders, we may be required to seek additional financing to complete such proposed initial business combination. We may also obtain financing prior to the closing of our initial business combination to fund our working capital needs and transaction costs in connection with our search for and completion of our initial business combination. There is no limitation on our ability to raise funds through the issuance of equity or equity-linked securities or through loans, advances or other indebtedness in connection with our initial business combination, including pursuant to forward purchase agreements or backstop arrangements we may enter into following the consummation of this offering. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our 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 Account. 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.

 

24

 

 

Off-Balance Sheet Arrangements

 

We did not have any off-balance sheet arrangements as of June 30, 2022 or December 31, 2021.

 

Contractual Obligations

 

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, the remaining portion of the underwriters’ over-allotment option expired.

 

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 is 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.

 

Critical Accounting Policies

 

The preparation of condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires 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 condensed financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:

 

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 and 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.

 

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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 statement of operations. The initial fair value of the public warrants was estimated using a Monte Carlo simulation approach and the recurring fair value of the private placement warrants was estimated using a Modified Black-Scholes model.

 

Class A Common stock subject to possible redemption

 

All of the 22,400,000 shares of Class A common stock sold as part of the units in the Initial Public Offering contain a redemption feature which allows for the redemption of such public shares in connection with the Company’s liquidation, if there is a stockholder vote or tender offer in connection with the business combination and in connection with certain amendments to the Company’s amended and restated certificate of incorporation. In accordance with SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within the control of the Company require common stock subject to redemption to be classified outside of permanent equity. Therefore, all Class A common stock has been classified outside of permanent equity.

 

The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock are affected by charges against additional paid in capital and accumulated deficit. As of June 30, 2022 and December 31, 2021, 22,400,000 shares of Class A common stock subject to possible redemption are presented at redemption value as temporary equity, outside of the stockholders’ deficit section of the Company’s balance sheet.

 

Net Income Per Common Share

 

Net income per common share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Accretion associated with the redeemable shares of Class A common stock is excluded from net income per share as the redemption value approximates fair value. Therefore, the earnings per share calculation allocates income shared pro rata between Class A and Class B common stock. As a result, the calculated net income per share is the same for Class A and Class B shares of common stock. The Company has not considered the effect of the Public Warrants and Private Placement Warrants to purchase an aggregate of 11,953,334 shares in the calculation of diluted net income per share, since the exercise of the warrants are contingent upon the occurrence of future events.

 

Recent Accounting Standards

 

Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed financial statements.

 

Factors That May Adversely Affect Our Results of Operations

 

Our results of operations and our ability to complete an initial business combination may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond our control. Our business could be impacted by, among other things, downturns in the financial markets or in economic conditions, increases in oil prices, inflation, increases in interest rates, supply chain disruptions, declines in consumer confidence and spending, the ongoing effects of the COVID-19 pandemic, including resurgences and the emergence of new variants, and geopolitical instability, such as the military conflict in the Ukraine. We cannot at this time fully predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact our business and our ability to complete an initial business combination.

 

Working Capital Loan

 

On July 12, 2022, the Company issued a promissory note in the principal amount of up to $200,000 to the “Sponsor”. If the Company completes a Business Combination, the Company would repay the Sponsor Working Capital Loan out of the proceeds of the Trust Account released to the Company. Otherwise, the Sponsor Working Capital Loan 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 the working capital held outside the Trust Account to repay the Note but no proceeds from the Trust Account would be used to repay the Note. At the election of the Sponsor, all or a portion of the unpaid principal amount of the Sponsor Working Capital Loan may be converted into warrants of the Company at a price of $1.50 per warrant. The Conversion Warrants and their underlying securities are entitled to the registration rights set forth in the Sponsor Working Capital Loan. On July 20, 2022, the Company drew $100,000 from the Working Capital Loan with the Sponsor.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

This item is not applicable as we are a smaller reporting company.

 

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 Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer (together, the “Certifying Officers”), we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officers concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Report, due to the Company’s restatement of its March 23, 2021, March 31, 2021, and June 30, 2021 financial statements to reclassify the Company’s redeemable common stock, 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.

 

Management concluded that a material weakness in internal control over financial reporting existed relating to the accounting treatment for complex financial instruments. 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. This material weakness resulted in the restatement of the Company’s audited balance sheet as of March 23, 2021 (the “March 2021 Balance Sheet” and the restatement of the Company’s audited financial statement as of March 23, 2021 and unaudited financial statements as of and for the periods ended March 31, 2021 and June 30, 2021 in the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2021 (the “September 30, 2021 Quarterly Report” and, together with the March 2021 Balance Sheet, the “Prior Financials”).

 

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. 

 

Restatement of Previously Issued Financial Statements

 

In connection with the evaluation of the SEC’s April 2021 statement regarding SPAC accounting matters and management’s subsequent re-evaluation of its previously issued financial statements, the Company determined that there were errors in its accounting for its warrants. 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 as defined in the SEC regulations. This material weakness resulted in the restatement of the Company’s March 2021 Balance Sheet.

 

We also revised our prior position on accounting for redeemable common stock and restated our audited financial statement as of March 23, 2021 and unaudited financial statements as of and for the periods ended March 31, 2021 and June 30, 2021 to reclassify our redeemable common stock as temporary equity as described in Note 2 of the accompanying financial statements to the September 30, 3021 Quarterly Report.

 

Changes in Internal Control Over Financial Reporting

 

During the most recently completed fiscal quarter, other than as discussed above, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. In light of the restatement of our financial statement included in this Quarterly Report, we plan to enhance our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our condensed financial statements. Our plans at this time include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.

 

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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

To the knowledge of our management team, there is no litigation currently pending or contemplated against us, any of our officers or directors in their capacity as such or against any of our property.

 

ITEM 1A. RISK FACTORS

 

As of the date of this Report, other than as set forth below, there have been no material changes with respect to those risk factors previously disclosed in our (i) Registration Statement, (ii) Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 31, 2021, (iii) Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, as filed with the SEC on May 25, 2021, (iv) Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, as filed with the SEC on August 16, 2021, and (v) Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, as filed with the SEC on November 16, 2021. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risks could arise that may also affect our business or ability to consummate an initial business combination. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.

 

Changes to laws or regulations or in how such laws or regulations are interpreted or applied, or a failure to comply with any laws, regulations, interpretations or applications, may adversely affect our business, including our ability to negotiate and complete our initial business combination.

 

We are subject to the laws and regulations, and interpretations and applications of such laws and regulations, of national, regional, state and local governments and, potentially, non-U.S. jurisdictions. In particular, we are required to comply with certain SEC and potentially other legal and regulatory requirements, and our consummation of an initial business combination may be contingent upon our ability to comply with certain laws, regulations, interpretations and applications and any post-business combination company may be subject to additional laws, regulations, interpretations and applications. Compliance with, and monitoring of, the foregoing may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time, and those changes could have a material adverse effect on our business, including our ability to negotiate and complete an initial business combination. A failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business, including our ability to negotiate and complete an initial business combination.

 

Recent increases in inflation and interest rates in the United States and elsewhere could make it more difficult for us to consummate an initial business combination.

 

Recent increases in inflation and interest rates in the United States and elsewhere may lead to increased price volatility for publicly traded securities, including ours, and may lead to other national, regional and international economic disruptions, any of which could make it more difficult for us to consummate an initial business combination.

 

Military conflict in Ukraine or elsewhere may lead to increased and price volatility for publicly traded securities, which could make it more difficult for us to consummate an initial business combination.

 

Military conflict in Ukraine or elsewhere may lead to increased and price volatility for publicly traded securities, including ours, and to other national, regional and international economic disruptions and economic uncertainty, any of which could make it more difficult for us to identify a business combination target and consummate an initial business combination on acceptable commercial terms or at all.

 

Resources could be wasted in researching acquisitions that are not completed, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business. If we have not completed our initial business combination within the Combination Period, our public stockholders may receive only approximately $10.00 per share, or less than such amount in certain circumstances, on the liquidation of our Trust Account and our warrants will expire worthless.

 

We anticipate that the investigation of each specific target business and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys, consultants and others. If we decide not to complete a specific initial business combination, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, if we reach an agreement relating to a specific target business, we may fail to complete our initial business combination for any number of reasons, including those beyond our control. Any such event will result in a loss to us of the related costs incurred, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business. If we have not completed our initial business combination within the Combination Period, our public stockholders may receive only approximately $10.00 per share, or less in certain circumstances, on the liquidation of our Trust Account and our warrants will expire worthless.

 

There may be significant competition for us to find an attractive target for an initial business combination. This could increase the costs associated with completing our initial business combination and may result in our inability to find a suitable target for our initial business combination.

 

In recent years, the number of SPACs that have been formed has increased substantially. Many companies have entered into business combinations with SPACs, and there are still many SPACs seeking targets for their initial business combination, as well as additional SPACs currently in registration. As a result, at times, fewer attractive targets may be available, and it may require more time, effort and resources to identify a suitable target for an initial business combination.

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In addition, because there are a large number of SPACs seeking to enter into an initial business combination with available targets, the competition for available targets with attractive fundamentals or business models may increase, which could cause target companies to demand improved financial terms. Attractive deals could also become scarcer for other reasons, such as economic or industry sector downturns, geopolitical tensions or increases in the cost of additional capital needed to close business combinations or operate targets post-business combination. This could increase the cost of, delay or otherwise complicate or frustrate our ability to find a suitable target for and/or complete our initial business combination and may result in our inability to consummate an initial business combination on terms favorable to our investors altogether.

 

The SEC has recently issued proposed rules relating to certain activities of special purpose acquisition companies (“SPACs”). Certain of the procedures that we, a potential business combination target, or others may determine to undertake in connection with such proposals may increase our costs and the time needed to complete our initial business combination and may constrain the circumstances under which we could complete an initial business combination. The need for compliance with the SPAC Rule Proposals may cause us to liquidate the funds in the Trust Account or liquidate the Company at an earlier time than we might otherwise choose.

 

On March 30, 2022, the SEC issued proposed rules (the “SPAC Rule Proposals”) relating, among other items, to disclosures in business combination transactions between SPACs such as us and private operating companies; the condensed financial statement requirements applicable to transactions involving shell companies; the use of projections by SPACs in SEC filings in connection with proposed business combination transactions; the potential liability of certain participants in proposed business combination transactions; and the extent to which SPACs could become subject to regulation under the Investment Company Act, including a proposed rule that would provide SPACs a safe harbor from treatment as an investment company if they satisfy certain conditions that limit a SPAC’s duration, asset composition, business purpose and activities. The SPAC Rule Proposals have not yet been adopted, and may be adopted in the proposed form or in a different form that could impose additional regulatory requirements on SPACs. Certain of the procedures that we, a potential business combination target, or others may determine to undertake in connection with the SPAC Rule Proposals, or pursuant to the SEC’s views expressed in the SPAC Rule Proposals, may increase the costs and time of negotiating and completing an initial business combination, and may constrain the circumstances under which we could complete an initial business combination. The need for compliance with the SPAC Rule Proposals may cause us to liquidate the funds in the Trust Account or liquidate the Company at an earlier time than we might otherwise choose.

 

If we are deemed to be an investment company for purposes of the Investment Company Act, we would be required to institute burdensome compliance requirements and our activities would be severely restricted. As a result, in such circumstances, unless we are able to modify our activities so that we would not be deemed an investment company, we would expect to abandon our efforts to complete an initial business combination and instead to liquidate the Company.

 

As described further above, the SPAC Rule Proposals relate, among other matters, to the circumstances in which SPACs such as the Company could potentially be subject to the Investment Company Act and the regulations thereunder. The SPAC Rule Proposals would provide a safe harbor for such companies from the definition of “investment company” under Section 3(a)(1)(A) of the Investment Company Act, provided that a SPAC satisfies certain criteria, including a limited time period to announce and complete a de-SPAC transaction. Specifically, to comply with the safe harbor, the SPAC Rule Proposals would require a company to file a report on Form 8-K announcing that it has entered into an agreement with a target company for a business combination no later than 18 months after the effective date of its registration statement for its initial public offering (the “IPO Registration Statement”). The company would then be required to complete its initial business combination no later than 24 months after the effective date of the IPO Registration Statement.

 

Because the SPAC Rule Proposals have not yet been adopted, there is currently uncertainty concerning the applicability of the Investment Company Act to a SPAC, including a company like ours, that may not have entered into a definitive agreement within 18 months after the effective date of the IPO Registration Statement or that may not have completed its business combination within 24 months after such date.

 

If we are deemed to be an investment company under the Investment Company Act, our activities would be severely restricted. In addition, we would be subject to burdensome compliance requirements. We do not believe that our principal activities will subject us to regulation as an investment company under the Investment Company Act. However, if we are deemed to be an investment company and subject to compliance with and regulation under the Investment Company Act, we would be subject to additional regulatory burdens and expenses for which we have not allotted funds. As a result, unless we are able to modify our activities so that we would not be deemed an investment company, we would expect to abandon our efforts to complete an initial business combination and instead to liquidate the Company.

 

To mitigate the risk that we might be deemed to be an investment company for purposes of the Investment Company Act, we may, at any time, instruct the trustee to liquidate the securities held in the Trust Account and instead to hold the funds in the Trust Account in cash until the earlier of the consummation of our initial business combination or our liquidation. As a result, following the liquidation of securities in the Trust Account, we would likely receive minimal interest, if any, on the funds held in the Trust Account, which would reduce the dollar amount our public stockholders would receive upon any redemption or liquidation of the Company.

 

The funds in the Trust Account have, since our initial public offering, been held only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds investing solely in U.S. government treasury obligations and meeting certain conditions under Rule 2a-7 under the Investment Company Act. However, to mitigate the risk of us being deemed to be an unregistered investment company (including under the subjective test of Section 3(a)(1)(A) of the Investment Company Act) and thus subject to regulation under the Investment Company Act, we may, at any time, and we expect that we will, on or prior to the 24-month anniversary of the effective date of the Registration Statement, instruct Continental, the trustee with respect to the Trust Account, to liquidate the U.S. government treasury obligations or money market funds held in the Trust Account and thereafter to hold all funds in the Trust Account in cash until the earlier of consummation of our initial business combination or liquidation of the Company. Following such liquidation, we would likely receive minimal interest, if any, on the funds held in the Trust Account. However, interest previously earned on the funds held in the Trust Account still may be released to us to pay our taxes, if any, and certain other expenses as permitted. As a result, any decision to liquidate the securities held in the Trust Account and thereafter to hold all funds in the Trust Account in cash would reduce the dollar amount our public stockholders would receive upon any redemption or liquidation of the Company.

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In addition, even prior to the 24-month anniversary of the effective date of the Registration Statement, we may be deemed to be an investment company. The longer that the funds in the Trust Account are held in short-term U.S. government treasury obligations or in money market funds invested exclusively in such securities, even prior to the 24-month anniversary, the greater the risk that we may be considered an unregistered investment company, in which case we may be required to liquidate the Company. Accordingly, we may determine, in our discretion, to liquidate the securities held in the Trust Account at any time, even prior to the 24-month anniversary, and instead hold all funds in the Trust Account in cash, which would further reduce the dollar amount our public stockholders would receive upon any redemption or liquidation of the Company.

 

There is substantial doubt about our ability to continue as a “going concern.”

 

In connection with the Company’s assessment of going concern considerations under applicable accounting standards, management has determined that our possible need for additional financing to enable us to negotiate and complete our initial business combination, as well as the deadline by which we may be required to liquidate our Trust Account, raise substantial doubt about the Company’s ability to continue as a going concern through approximately one year from the date the financial statements included elsewhere in this Report were issued.

 

Were we considered to be a “foreign person,” we might not be able to complete an initial business combination with a U.S. target company if such initial business combination is subject to U.S. foreign investment regulations and review by a U.S. government entity such as the Committee on Foreign Investment in the United States (“CFIUS”), or ultimately prohibited.

 

Certain federally licensed businesses in the United States, such as broadcasters and airlines, may be subject to rules or regulations that limit foreign ownership. In addition, CFIUS is an interagency committee authorized to review certain transactions involving foreign investment in the United States by foreign persons in order to determine the effect of such transactions on the national security of the United States. Were we considered to be a “foreign person” under such rules and regulations, any proposed business combination between us and a U.S. business engaged in a regulated industry or which may affect national security could be subject to such foreign ownership restrictions and/or CFIUS review. The scope of CFIUS was expanded by the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”) to include certain non-controlling investments in sensitive U.S. businesses and certain acquisitions of real estate even with no underlying U.S. business. FIRRMA, and subsequent implementing regulations that are now in force, also subject certain categories of investments to mandatory filings. If our potential initial business combination with a U.S. business falls within the scope of foreign ownership restrictions, we may be unable to consummate an initial business combination with such business. In addition, if our potential business combination falls within CFIUS’s jurisdiction, we may be required to make a mandatory filing or determine to submit a voluntary notice to CFIUS, or to proceed with the initial business combination without notifying CFIUS and risk CFIUS intervention, before or after closing the initial business combination. Our sponsor is a U.S. entity, and the managing member of our sponsor is a U.S. person. Our sponsor is not controlled by and does not have substantial ties with a non-U.S. person. However. if CFIUS has jurisdiction over our initial business combination, CFIUS may decide to block or delay our initial business combination, impose conditions to mitigate national security concerns with respect to such initial business combination or order us to divest all or a portion of a U.S. business of the combined company if we had proceeded without first obtaining CFIUS clearance. If we were considered to be a “foreign person,” foreign ownership limitations, and the potential impact of CFIUS, may limit the attractiveness of a transaction with us or prevent us from pursuing certain initial business combination opportunities that we believe would otherwise be beneficial to us and our stockholders. As a result, in such circumstances, the pool of potential targets with which we could complete an initial business combination could be limited and we may be adversely affected in terms of competing with other SPACs which do not have similar foreign ownership issues.

 

Moreover, the process of government review, whether by CFIUS or otherwise, could be lengthy. Because we have only a limited time to complete our initial business combination, our failure to obtain any required approvals within the requisite time period may require us to liquidate. If we liquidate, our public stockholders may only receive $10.00 per share, and our warrants will expire worthless. This will also cause you to lose any potential investment opportunity in a target company and the chance of realizing future gains on your investment through any price appreciation in the combined company.

 

We have identified a material weakness in our internal control over financial reporting as of June 30, 2022. If we are unable to develop and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our business and operating results.

 

We have identified a material weakness in our internal controls over financial reporting relating to our accounting for complex financial instruments. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented, or detected and corrected on a timely basis.

 

Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. Measures to remediate material weaknesses may be time-consuming and costly and there is no assurance that such initiatives will ultimately have the intended effects. If we are unable to develop and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our business and operating results. If we identify any new material weaknesses in the future, any such newly identified material weakness could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim financial statements. In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and adversely affect our business and operating results. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

For a description of the use of proceeds generated in our initial public offering and private placement, see Part II, Item 2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, as filed with the SEC on May 25, 2021. There has been no material change in the planned use of proceeds from the Company’s initial public offering and private placement as described in the Registration Statement.

 

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.

 

Exhibit No.

   Description
31.1*   Certification of Co-Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*  

Certification of Co-Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.3*   Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**   Certification of Co-Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**   Certification of Co-Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.3**   Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1  

Promissory Note of the Company, dated July 12, 2022.(1)

101.INS*   Inline XBRL Instance Document.
101.SCH*   Inline XBRL Taxonomy Extension Schema Document.
101.CAL*   Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*   Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*   Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*   Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

*Filed herewith.

**Furnished herewith.

 

(1)Incorporated herein by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on July 13, 2022.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  AF Acquisition Corp.
     
Date: August 12, 2022 By: /s/ Andrew Z. Scharf
    Name:   Andrew Z. Scharf
    Title: Chairman and President
     
Date: August 12, 2022 By: /s/ Jordan Gaspar
    Name: Jordan Gaspar
    Title:    Chief Executive Officer
     
Date: August 12, 2022 By: /s/ Christopher Bradley
    Name:   Christopher Bradley
    Title: Chief Financial Officer and Secretary

 

 

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