References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Accretion Acquisition Corp. References to our "management" or
our "management team" refer to our officers and directors, and references to the
"Sponsor" refer to Accretion Acquisition Sponsor, LLC. The following discussion
and analysis of the Company's financial condition and results of operations
should be read in conjunction with the 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" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Exchange Act 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 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 formed under the laws of the State of Delaware on
February 26, 2021 for the purpose of effecting a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or other similar business
combination with one or more businesses. We intend to effectuate our business
combination using cash from the proceeds of the IPO and the sale of the private
warrants, our capital stock, debt or a combination of cash, stock and debt.
All activity through September 30, 2022 relates to our formation, the IPO, and
search for a prospective business combination target.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from inception through September 30, 2022, were
organizational activities and those necessary to prepare for the IPO, described
below. We do not expect to generate any operating revenues until after the
completion of our business combination. We expect to generate non-operating
income in the form of interest income or dividend income on cash held in the
trust account after the IPO. We incur expenses as a result of being a public
company (for legal, financial reporting, accounting and auditing compliance), as
well as for due diligence expenses.
For the three months ended September 30, 2022, we had a net profit of $0.48
million, which consisted of dividend income of $0.95 million, offset by
franchise tax expense of $0.05 million, income tax expense of $0.19 million and
operating costs of $0.23 million.
For the three months ended September 30, 2021, we had a net loss of $1.70
million, which consisted of stock-based compensation.
For the nine months ended September 30, 2022, we had a net loss of $0.17
million, which consisted of dividend income of $1.26 million, offset by
franchise tax expense of $0.15 million, income tax expense of $0.21 million and
operating costs of $1.07 million.
24
Table of Contents
For the period from February 26, 2021 (inception) through September 30, 2021, we
had a net loss of $1.70 million which consisted of formation costs and
stock-based compensation.
Liquidity and Capital Resources
As of September 30, 2022, we had $0.26 million in cash and no cash equivalents.
Until the consummation of the IPO, our only source of liquidity was an initial
purchase of common stock by the Sponsor and loans from the Sponsor.
On October 25, 2021, the Company consummated the IPO of 18,000,000 units, at a
price of $10.00 per unit, generating gross proceeds of $180.00 million.
Simultaneously with the closing of the IPO, we consummated the sale of 7,300,000
private warrants at a price of $1.00 per warrant in a private placement to
Sponsor, generating gross proceeds of $7.30 million. On October 27, 2021, the
underwriters exercised the over-allotment option in full and on October 28,
2021, purchased an additional 2,700,000 units, generating gross proceeds of
approximately $27.00 million. In connection with the underwriters' full exercise
of the over-allotment option, the Company issued an additional 810,000 private
warrants at a price of $1.00 per warrant in a private placement to Sponsor
generating gross proceeds of $0.81 million.
Following the IPO and the private placement, a total of $209.07 million was
placed in the trust account (at $10.10 per Unit). We incurred $11.94 million in
transaction costs, including $4.14 million of underwriting fees, $7.25 million
of deferred underwriting fees and $0.55 million of other offering costs.
As of September 30, 2022, we had cash held in the trust account of $210.31
million. We intend to use substantially all of the funds held in the trust
account, including any amounts representing income earned on the trust account,
to complete our business combination. To the extent that our capital stock or
debt is used, in whole or in part, as consideration to complete our business
combination, the remaining proceeds held in the trust account will be used as
working capital to finance the operations of the target business or businesses,
make other acquisitions and pursue our growth strategies.
As of September 30, 2022, we had cash of $0.26 million outside of 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 a business combination, our Sponsor or an affiliate of our
Sponsor or certain of our officers and directors may, but are not obligated to,
loan us funds as may be required. If we complete a business combination, we may
repay such loaned amounts out of the proceeds of the trust account released to
us. In the event that a 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 $1.50 million of such loans may be convertible into warrants at
the option of the lender. The warrants would be identical to the private
warrants.
We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business. However, if our estimate of
the costs of identifying a target business, undertaking in-depth due diligence
and negotiating a business combination are less than the actual amount necessary
to do so, we may have insufficient funds available to operate our business prior
to our business combination. Moreover, we may need to obtain additional
financing either to complete our business combination or because we become
obligated to redeem a significant number of our public shares upon consummation
of our business combination, in which case we may issue additional securities or
incur debt in connection with such business combination. 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 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 business combination, if cash on hand is
insufficient, we may need to obtain additional financing in order to meet our
obligations.
25
Table of Contents
Going Concern
In connection with our assessment of going concern considerations in accordance
with the authoritative guidance in Financial Accounting Standard Board ("FASB")
Accounting Standards Update ("ASU") 2014-15, "Disclosures of Uncertainties about
an Entity's Ability to Continue as a Going Concern," management has determined
that the mandatory liquidation and subsequent dissolution, should the we be
unable to complete a business combination, raises substantial doubt about the
our ability to continue as a going concern.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 2022. We do not participate
in transactions that create relationships with unconsolidated entities or
financial partnerships, often referred to as variable interest entities, which
would have been established for the purpose of facilitating off-balance sheet
arrangements. We have not entered into any off-balance sheet financing
arrangements, established any special purpose entities, guaranteed any debt or
commitments of other entities, or purchased any non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than as described below.
Registration Rights
The holders of the founders' shares, EBC founder shares, the private warrants,
and any warrants that may be issued upon conversion of working capital loans
will be entitled to registration rights pursuant to a registration rights
agreement. These holders will be entitled to certain demand and "piggyback"
registration rights. We will bear the expenses incurred in connection with the
filing of any such registration statements.
Underwriting Agreement
The underwriters were entitled to an underwriting discount of $0.20 per unit, or
$3.60 million in the aggregate payable upon the closing of the IPO and the
over-allotment option. $0.35 per unit, or $6.30 million in the aggregate will be
payable to the underwriters for deferred underwriting commissions. The deferred
fee will become payable to the underwriters from the amounts held in the trust
account solely in the event that the Company completes a business combination,
subject to the terms of the underwriting agreement.
On October 27, 2021, the underwriters fully exercised the over-allotment option.
As a result, they were entitled to an additional underwriting discount of $0.54
million in cash, and a further deferred underwriting discount of $0.95 million.
Administrative Support Agreement
Commencing on the effective date of the IPO, we have agreed to pay the Sponsor a
total of up to $10,000 per month in the aggregate for up to 18 months for office
space, utilities and secretarial and administrative support. Upon completion of
the initial business combination or the Company's liquidation, we will cease
paying these monthly fees. For the three months ended September 30, 2022, the
Company accrued $0.03 million for these services, and for the nine months ended
September 30, 2022, the Company accrued $0.09 million. These amounts are
included in the operating costs on accompanying condensed statements of
operations.
Advisory Agreement
Through September 30, 2022, the Company entered into an agreement with the M&A
advisors (who also served as the Company's underwriters during the Initial
Public Offering) in connection with the evaluation, pursuit and conduct of one
or more proposed transactions for a potential Business Combination (the
"Advisory Agreement"). At balance sheet date, fees for the services performed
were contingent upon the closing of a Business Combination and therefore not
included as liabilities on the accompanying condensed balance sheets.
26
Table of Contents
Engagement for Legal Services
The Company has a contingent fee arrangement with their legal counsel pursuant
to which a flat fee of $3.00 million is payable to the Company's legal counsel
in the event that the Company completes a Business Combination. In the event the
Company does not complete a Business Combination, the Company's legal counsel
will bill the Company the lesser of the actual time incurred or $100,000.
As of September 30, 2022, the Company has accrued an amount of $0.47 million.
Critical Accounting Policies
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
condensed financial statements.
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and income and expenses during the periods
reported. Actual results could materially differ from those estimates. The
Company has identified the following as its critical accounting policies:
Warrants
We do not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. We evaluate all of our financial instruments, including
issued stock purchase warrants, to determine if such instruments are derivatives
or contain features that qualify as embedded derivatives, pursuant to ASC 480
and ASC 815-15.
We account for the public warrants and private warrants collectively
("Warrants"), as either equity or liability-classified instruments based on an
assessment of the specific terms of the Warrants and the applicable
authoritative guidance in Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") 815, Derivatives and Hedging ("ASC
815"). The assessment considers whether the Warrants meet all of the
requirements for equity classification under ASC 815, including whether the
Warrants are indexed to our own common stocks and whether the warrant holders
could potentially require "net cash settlement" in a circumstance outside of our
control, among other conditions for equity classification. This assessment,
which requires the use of professional judgment, is conducted at the time of
issuance of the Warrants and as of each subsequent quarterly period end date
while the Warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity
classification, such warrants are required to be recorded as a component of
additional paid-in capital at the time of issuance. For issued or modified
warrants that do not meet all the criteria for equity classification, such
warrants are required to be recorded at their initial fair value on the date of
issuance, and each balance sheet date thereafter. Changes in the estimated fair
value of liability-classified warrants are recognized as a non-cash gain or loss
on the statements of operations.
We evaluated the public warrants and private warrants in accordance with ASC
815-40, "Derivatives and Hedging - Contracts in Entity's Own Equity," and
concluded that they met the criteria for equity classification and are required
to be recorded as part a component of additional paid-in capital at the time of
issuance.
Common Stock Subject to Possible Redemption
We account for the common stock subject to possible redemption in accordance
with the guidance in ASC 480, Distinguishing Liabilities from Equity. Common
stock subject to mandatory redemption are classified as a liability instrument
and are measured at fair value. Conditionally redeemable common stock (including
common stock that feature redemption rights that are either within the control
of the holder or subject to redemption upon the occurrence of uncertain events
not solely within our control) are classified as temporary equity. At all other
times, common stock are classified as stockholders' equity. The Company's common
stock features certain redemption rights that are considered to be outside of
our control and subject to occurrence of uncertain future events.
27
Table of Contents
Net Profit (Loss) Per Share of Common Stock
We comply with accounting and disclosure requirements of Financial Accounting
Standards Board Accounting Standard Codification, or FASB ASC, Topic 260,
"Earnings Per Share." Net Profit (loss) per share of common stock is computed by
dividing net loss attributable to common stockholders by the weighted average
number of shares of common stock outstanding during the period, excluding common
stock subject to forfeiture. The Company applies the two-class method in
calculating earnings per share. The calculation of diluted profit (loss) per
share of common stock does not consider the effect of the warrants issued in
connection with the IPO since the exercise of the warrants are contingent upon
the occurrence of future events and the inclusion of such warrants would be
anti-dilutive.
Recent Accounting Pronouncements
In August 2020, FASB issued Accounting Standards Update ("ASU") 2020-06,
Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40) ("ASU 2020-06")
to simplify accounting for certain financial instruments. ASU 2020-06 eliminates
the current models that require separation of beneficial conversion and cash
conversion features from convertible instruments and simplifies the derivative
scope exception guidance pertaining to equity classification of contracts in an
entity's own equity. The new standard also introduces additional disclosures for
convertible debt and freestanding instruments that are indexed to and settled in
an entity's own equity. ASU 2020-06 amends the diluted earnings per share
guidance, including the requirement to use the if-converted method for all
convertible instruments. ASU 2020-06 is effective December 15, 2021 and should
be applied on a full or modified retrospective basis. On February 26, 2021, the
date of the Company's inception, the Company adopted the new standard.
Management does not believe that any recently issued, but not yet effective,
accounting pronouncements, if currently adopted, would have a material effect on
the Company's condensed financial statements.
© Edgar Online, source Glimpses