References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Atlantic Coastal Acquisition Corp. References to our
"management" or our "management team" refer to our officers and directors, and
references to the "Sponsor" refer to Atlantic Coastal Acquisition Management
LLC. The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our condensed financial
statements and the related 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 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 Form 10-Q
including, without limitation, statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
completion of the Proposed Business Combination (as defined below), 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, including that the conditions of
the Proposed Business Combination are not satisfied. 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 Annual Report on Form 10-K filed with the U.S.
Securities and Exchange Commission (the "SEC") and those factors described under
the heading "Item 1A. Risk Factors" of this Quarterly Report. 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 in Delaware on December 7, 2020 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 intend to effectuate our Business Combination using cash from the
proceeds of the Initial Public Offering and the sale of the Private Placement
Warrants, our capital stock, debt or a combination of cash, stock and debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete a Business
Combination will be successful.
Proposed Business Combination and Termination
As previously disclosed, on November 30, 2021, we entered into a Business
Combination Agreement (the "Business Combination Agreement") with Alpha Merger
Sub 1, Inc., a Delaware corporation and our direct wholly-owned subsidiary
("Merger Sub"), and Essentium, Inc., a Delaware corporation ("Essentium"). On
February 9, 2022, we, Merger Sub, and Essentium entered into a Termination and
Fee Agreement (the "Termination Agreement"). Pursuant to the Termination
Agreement, the parties agreed to mutually terminate the Business Combination
Agreement, subject to the conditions set forth in the Termination Agreement.
The Termination Agreement provides that we will be entitled to receive cash
payments or a warrant to acquire Essentium shares (the "Termination Proceeds"),
subject to the occurrence of certain events, as follows: (i) the lesser of (a)
an amount in cash equal to five percent (5)% of the aggregate gross proceeds to
Essentium of all Financing Transactions (as defined in the Termination
Agreement) consummated on or prior to March 8, 2023 and (b) $7,500,000, (ii) if
Essentium consummates a Sale of the Company (as defined in the Termination
Agreement) on or before March 8, 2023, the greater of (a) $2,000,000 and (b) an
amount in cash equal to five percent (5)% of the net proceeds received by
Essentium upon the consummation of such Sale of the Company, (iii) if Essentium
has not consummated a Sale of the Company on or prior to March 8, 2023, a
warrant to acquire a number of Essentium shares in an amount equal to five
percent (5)% of the Fully Diluted Shares Outstanding (as defined in the Business
Combination Agreement) as of February 9, 2022, as adjusted to take into account
any stock split, stock dividend or similar event effected with respect to
Essentium's shares on or after the
21
Table of Contents
February 9, 2022 and on or prior to the date of the warrant, with an exercise
price reflective of an implied equity value for Essentium of $500,000,000 as of
the date of the warrant and (iv) if Essentium has not consummated a Sale of the
Company on or prior to March 8, 2023, and we determine to redeem our public
shares and liquidate or dissolve on or after March 8, 2023 (and do not withdraw
such determination), an amount equal to $2,000,000.
For the nine months ended September 30, 2022, we received cash payments under
the Termination Agreement totaling $3,150,799.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from December 7, 2020 (inception) through September 30, 2022
were organizational activities, those necessary to consummate the Initial Public
Offering, described below, and identifying a target company for a Business
Combination. We do not expect to generate any operating revenues until after the
completion of our Business Combination. We generate non-operating income in the
form of interest and gains on marketable securities held in the Trust Account.
We incur expenses as a result of being a public company (for legal, financial
reporting, accounting and auditing compliance), as well as changes in the fair
value of the warrant liabilities and for due diligence and transaction expenses.
For the three months ended September 30, 2022, we had net income of $2,904,047,
which consists of a change in fair value of warrant liabilities of $382,953,
unrealized gain on marketable securities held in Trust Account of $49,512,
interest earned on marketable securities held in Trust Account of $1,610,430 and
termination fee of $3,150,799, offset by operational costs of $1,332,467 and
provision for income taxes of $957,180.
For the nine months ended September 30, 2022, we had net income of $14,042,265,
which consists of a change in fair value of warrant liabilities of $14,393,225,
interest earned on marketable securities held in Trust Account of $1,744,350 and
termination fee of $3,150,799, offset by operational costs of $4,288,929 and
provision for income taxes of $957,180.
For the three months ended September 30, 2021, we had net income of $4,376,794,
which consists of a change in fair value of warrant liabilities of $5,857,667
and interest and gains earned on marketable securities held in Trust Account of
$4,440, offset by operational costs of $1,485,313.
For the nine months ended September 30, 2021, we had net income of $124,384,
which consists of operational costs of $3,214,693, offset by a change in fair
value of warrant liabilities of $3,322,667, and interest earned on marketable
securities held in Trust Account of $16,410.
Liquidity and Capital Resources
For the nine months ended September 30, 2022, cash provided by operating
activities was $1,133,779. Net income of $14,042,265 was affected by change in
fair value of warrant liabilities of $14,393,225 and interest earned on
marketable securities held in Trust Account of $1,744,350. Net changes in
operating assets and liabilities provided $3,229,089 of cash for operating
activities.
For the nine months ended September 30, 2021, cash used in operating activities
was $1,436,304. Net income of $124,384 was affected by interest earned on
marketable securities held in Trust Account of $16,410, a change in fair value
of the warrant liabilities of $3,322,667, and transaction costs associated with
the Initial Public Offering of $428,394. Net changes in operating assets and
liabilities provided $1,349,995 of cash for operating activities.
As of September 30, 2022, we had marketable securities held in the Trust Account
of $346,408,540 (including $1,744,350 of interest income) consisting of mutual
funds which invest primarily in U.S. Treasury Bills with a maturity of 185 days
or less. Interest income on the balance in the Trust Account may be used by us
to pay taxes. Through September 30, 2022, we have withdrawn $359,509 of interest
earned from the Trust Account.
We intend to use substantially all of the funds held in the Trust Account,
including any amounts representing interest earned on the Trust Account (less
income taxes payable), 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.
22
Table of Contents
As of September 30, 2022, we had cash of $1,620,396. 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 certain of our officers
and directors or their affiliates may, but are not obligated to, loan us funds
as may be required. If we complete a Business Combination, we would repay such
loaned amounts. 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 $1,500,000 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.
Through the target identification process, we will be using these funds for
paying existing accounts payable, 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.
On August 9, 2021, our Sponsor signed a Commitment Letter to provide up to
$1,315,000 in working capital loans if required. On November 11, 2021, our
Sponsor amended the August 9, 2021, Commitment Letter to provide $1,055,000 in
working capital loans in addition to the previously provided $1,315,000.
On December 14, 2021, our Sponsor paid for certain operating costs on behalf of
the Company amounting to $62,500. The advances were non-interest bearing and due
on demand. As as September 30, 2022, we repaid the advances in full.
On April 18, 2022, pursuant to a promissory note, we were advanced $250,000 from
Shahraab Ahmad, Chief Executive Officer of the Company (the "April Promissory
Note"). On May 27, 2022, pursuant to a promissory note, we were advanced
$150,000 from Shahraab Ahmad, Chief Executive Officer of the Company (the "May
Promissory Note", together with the April Promissory Note, the "Notes"). These
Notes are non-interest bearing and payable upon the earlier of (i) completion of
an initial Business Combination or (ii) liquidation if there is no initial
Business Combination. As of September 30, 2022, there were no amounts
outstanding under the Notes.
On December 23, 2021, our Sponsor entered into an Independent Contractor
Consulting Agreement (the "Agreement") with Kingswood LLC (the "Consultan")
pursuant to which the Consultant provided services in connection with the
negotiation and execution of a proposed business combination with Essentium Inc.
(which proposed business combination has since been terminated) in exchange for
a fee of $385,000. The Agreement was entered into prior to the time the
principal of the Consultant, Jason Chryssicas, became our Chief Financial
Officer. We have agreed to reimburse the our Sponsor for any out-of-pocket
expenses incurred in connection with activities on behalf of the Company such as
identifying potential target businesses and performing due diligence on suitable
business combinations. As of September 30, 2022, we accrued $385,000 in expenses
in connection with the Agreement.
Going Concern
As of September 30, 2022, the Company had cash of $1,620,396 not held in the
Trust Account and available for working capital purposes, a working capital
deficit of $6,781,180, and total current liabilities of $8,671,393.
We will need to raise additional capital through loans or additional investments
from our Sponsor, stockholders, officers, directors, or third parties. Our
officers, directors and Sponsor may, but are not obligated to, loan us funds,
from time to time or at any time, in whatever amount they deem reasonable in
their sole discretion, to meet our working capital needs. Accordingly, we may
not be able to obtain additional financing. If we are unable to raise additional
capital, we may be required to take additional measures to conserve liquidity,
which could include, but not necessarily be limited to, curtailing operations,
suspending the pursuit of a potential transaction, and reducing overhead
expenses. We cannot provide any assurance that new financing will be available
to us on commercially acceptable terms, if at all. These conditions raise
substantial doubt about our ability to continue as a going concern through March
8, 2023, the date that we will be required to cease all operations, except for
the purpose of winding up, if a Business Combination is not consummated. These
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 we be unable to continue as a going concern.
In connection with the Company's assessment of going concern considerations in
accordance with Accounting Standards Codification ("ASC") Topic 205-40,
"Presentation of Financial Statements - Going Concern," the Company has until
March 8, 2023, to consummate
23
Table of Contents
a Business Combination. If a Business Combination is not consummated by this
date and an extension not requested by the Sponsor, there will be a mandatory
liquidation and subsequent dissolution of the Company. Although the Company
intends to consummate a Business Combination on or before March 8, 2023, it is
uncertain that the Company will be able to consummate a Business Combination by
this time. Management has determined that the liquidity condition, coupled with
the mandatory liquidation, should a Business Combination not occur, and an
extension is not requested by the Sponsor, and potential subsequent dissolution
raises substantial doubt about the Company's ability to continue as a going
concern. The Company's plan is to complete a business combination or obtain an
extension on or prior to March 8, 2023, however it is uncertain that the Company
will be able to consummate a Business Combination or obtain an extension by this
time. No adjustments have been made to the carrying amounts of assets or
liabilities should the Company be required to liquidate after March 8, 2023.
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 an agreement to pay Atlantic
Coastal Acquisition Management LLC a monthly fee of $10,000 for office space,
utilities and secretarial and administrative support. We began incurring these
fees on March 1, 2021 and will continue to incur these fees monthly until the
earlier of the completion of the Business Combination and our liquidation. For
the three and nine months ended September 30, 2022 and 2021, the Company
incurred $30,000 and $90,000. Of these amounts, as of September 30, 2022 and
2021, $30,000 and $70,000 are included in accrued expenses in the accompanying
condensed balance sheet, respectively.
The underwriters are entitled to a deferred fee of $0.35 per Unit, or
$12,075,000 in the aggregate. 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 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
We account for the Warrants in accordance with the guidance contained in ASC
815-40-15-7D and 7F under which the Warrants do not meet the criteria for equity
treatment and must be recorded as liabilities. Accordingly, we classify the
Warrants as liabilities at their fair value and adjust the Warrants to fair
value at each reporting period. This liability is subject to re-measurement at
each balance sheet date until exercised, and any change in fair value is
recognized in our condensed statements of operations. The Private Warrants and
the Public Warrants for periods where no observable traded price was available
are valued using a lattice model, specifically a binomial lattice model
incorporating the Cox-Ross-Rubenstein methodology. For periods subsequent to the
detachment of the Public Warrants from the Units, the Public Warrant quoted
market price was used as the fair value as of each relevant date.
24
Table of Contents
Common Stock Subject to Possible Redemption
We account for our common stock subject to possible conversion in accordance
with the guidance in ASC Topic 480, "Distinguishing Liabilities from Equity."
Common stock subject to mandatory redemption is classified as a liability
instrument and measured at fair value. Conditionally redeemable common stock
(including common stock that features redemption rights that are either within
the control of the holder or subject to redemption upon the occurrence of
uncertain events not solely within our control) is classified as temporary
equity. At all other times, common stock is classified as a component of
stockholders' equity. Our Class A common stock features certain redemption
rights that are considered to be outside of our control and subject to
occurrence of uncertain future events. Accordingly, Class A common stock subject
to possible redemption is presented at redemption value as temporary equity,
outside of the stockholders' deficit section of our condensed balance sheets.
Net (Loss) Income Per Common Share
Net income (loss) per common share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding during the period.
Remeasurement associated with the redeemable shares of Class A common stock is
excluded from income (loss) per common share as the redemption value
approximates fair value.
Recent Accounting Standards
In August 2020, the FASB issued 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 must be adopted by January 1, 2024 and should be applied on a full
or modified retrospective basis, with early adoption permitted beginning on
January 1, 2021. The Company is currently assessing the impact, if any, that ASU
2020-06 would have on its financial position, results of operations, or cash
flows.
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on our condensed financial statements.
© Edgar Online, source Glimpses
ATLANTIC COASTAL ACQUISITION CORP. 
