References to the "Company," "our," "us" or "we" refer to Graf Acquisition Corp.
IV. 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
Form 10-K. Certain information contained in the discussion and analysis set
forth below includes forward-looking statements that involve risks and
uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K includes forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. We have based these forward- looking statements on our current expectations
and projections about future events. These forward-looking statements are
subject to known and unknown risks, uncertainties and assumptions about us that
may cause our actual results, levels of activity, performance or achievements to
be materially different from any future results, levels of activity, performance
or achievements expressed or implied by such forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"should," "could," "would," "expect," "plan," "anticipate," "believe,"
"estimate," "continue," or the negative of such terms or other similar
expressions. Such statements include, but are not limited to, possible business
combinations and the financing thereof, and related matters, as well as all
other statements other than statements of historical fact included in this
Form 10-K. Factors that might cause or contribute to such a discrepancy include,
but are not limited to, those described in our other SEC filings.
Overview
We are a blank check company incorporated on January 28, 2021 as a Delaware
corporation and formed for the purpose of effecting a business combination. We
are an emerging growth company and, as such, we are subject to all of the risks
associated with emerging growth companies.
Our sponsor is Graf Acquisition Partners IV LLC. On May 25, 2021, we consummated
our IPO of 15,000,000 units, at $10.00 per unit, generating gross proceeds of
$150.0 million, and incurring offering costs of approximately $8.8 million, of
which approximately $5.3 million was for deferred underwriting commissions. On
June 2, 2021, the underwriters partially exercised the over-allotment option and
purchased the 2,161,500 additional units, generating gross proceeds of
approximately $21.6 million. We incurred additional offering costs of
approximately $1.2 million in connection with the over-allotment (of which
approximately $0.8 million was for deferred underwriting fees).
Simultaneously with the closing of the IPO, we consummated the private placement
of 4,433,333 private placement warrants at a price of $1.50 per private
placement warrant to our sponsor, generating proceeds of approximately $6.7
million. We consummated the second closing of the private placement on June 2,
2021, simultaneously with the closing of the over-allotment, resulting in the
sale of an additional 288,200 private placement warrants, generating additional
gross proceeds of approximately $432,000.
Upon the closing of the IPO, the over-allotment, and the private placement,
$171.6 million ($10.00 per unit) of the net proceeds of the sale of the units in
the IPO and of the private placement warrants in the private placement were
placed in the trust account maintained by Continental Stock Transfer & Trust
Company, as trustee, and will be invested only in U.S. "government securities"
within the meaning of Section 2(a)(16) of the Investment Company Act having a
maturity of 185 days or less or in money market funds meeting certain conditions
under Rule 2a-7 promulgated under the Investment Company Act which invest only
in direct U.S. government treasury obligations, until the earlier of: (i) the
completion of a business combination and (ii) the distribution of the trust
account as described below. We may instruct Continental Stock Transfer & Trust
Company, the trustee with respect to the trust account, to liquidate the U.S.
government securities or money market funds held in the trust account and,
thereafter, to hold all funds in the trust account in a bank deposit account
until the earlier of the consummation of our initial business combination or our
liquidation. Interest on bank deposit accounts is variable and such accounts
currently yield interest of approximately 3.0% per annum.
Our management has broad discretion with respect to the specific application of
the net proceeds of the IPO, the over-allotment, 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.
54
Table of Contents
If we have not consummated an initial business combination within 24 months from
the closing of the IPO, or by May 25, 2023 or any extended period of time that
we may have to consummate an initial business combination as a result of an
amendment to our amended and restated certificate of incorporation, we 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 (which interest
shall be net of taxes payable and 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), subject to applicable law, and (iii) as promptly as reasonably possible
following such redemption, subject to the approval of the remaining stockholders
and the board of directors, dissolve and liquidate, 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.
Liquidity and Going Concern
As of December 31, 2022, we had approximately $0.6 million in our operating bank
account and working capital deficit of approximately $2.0 million.
Our liquidity needs through December 31, 2022 were satisfied through a payment
of $25,000 from our sponsor to purchase the founder shares, the loan of
approximately $67,000 from the sponsor under a promissory note, and the proceeds
from the consummation of the private placement not held in the trust account. We
repaid the promissory note in full on May 26, 2021. In addition, in order to
finance transaction costs in connection with a business combination, the sponsor
or an affiliate of the sponsor, or certain of our officers and directors may,
but are not obligated to, loan us funds, from time to time or at any time, in
whatever amount they deem necessary in their sole discretion (the "working
capital loans"). As of December 31, 2022 and 2021, there were no amounts
outstanding under any working capital loans.
In connection with the Company's assessment of going concern considerations in
accordance with 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 liquidity condition, the mandatory
liquidation and subsequent dissolution that will be required if the Company does
not complete a business combination before May 25, 2023 or any extended period
of time that we may have to consummate an initial business combination as a
result of an amendment to our amended and restated certificate of incorporation
raises substantial doubt about the Company's ability to continue as a going
concern. Although Management expects that it will be able to raise additional
capital to support its planned activities and complete a business combination on
or prior to May 25, 2023 or any extended period of time that we may have to
consummate an initial business combination as a result of an amendment to our
amended and restated certificate of incorporation, it is uncertain whether it
will be able to do so. No adjustments have been made to the carrying amounts of
assets or liabilities should we be required to liquidate after May 25, 2023 or
any extended period of time that we may have to consummate an initial business
combination as a result of an amendment to our amended and restated certificate
of incorporation. The financial statements do not include any adjustment that
might be necessary if the Company is unable to continue as a going concern. We
intend to complete a Business Combination before the mandatory liquidation date
or any shareholder-approved extension deadline.
Management continues to evaluate the impact of the COVID-19 pandemic on the
industry and has concluded that while it is reasonably possible that the virus
could have a negative effect on the Company's financial position, results of its
operations and/or search for a target company, the specific impact is not
readily determinable as of the date of these financial statements. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
In February 2022, the Russian Federation and Belarus commenced a military action
with the country of Ukraine. As a result of this action, various nations,
including the United States, have instituted economic sanctions against the
Russian Federation and Belarus. Further, the impact of this action and related
sanctions on the world economy are not determinable as of the date of these
financial statements. The specific impact on the Company's financial condition,
results of operations, and cash flows is also not determinable as of the date of
these financial statements.
Restatement of Second Quarter 10-Q and Third Quarter 10-Q
As previously disclosed in the Current Report on Form 8-K filed by Company on
March 31, 2023, in connection with the preparation of its financial statements
as of and for the year ended December 31, 2022, the Company reevaluated the
accounting for the waiver of the deferred underwriting fee by the underwriters
of its initial public offering. The Company had recognized this waiver of fees
as an extinguishment of the contingent liability, with a resulting non-operating
gain recognized in its statement of operations, in the Second Quarter 10-Q and
Third Quarter 10-Q. Upon further review and analysis, the Company's management
concluded that the Company should have recognized the extinguishment of the
contingent liability as a credit to stockholder's deficit.
55
Table of Contents
On March 28, 2023, the Company's management and the audit committee concluded
that the Company's previously issued unaudited interim financial statements
included in the Second Quarter 10-Q and Third Quarter 10-Q should no longer be
relied upon and that it is appropriate to restate the Second Quarter 10-Q and
Third Quarter 10-Q. This Form 10-K contains (i) the Company's audited financial
statements as of and for the years ended December 31, 2022 and 2021 and (ii)
restated statement of operations, statement of changes in stockholder's deficit,
and statement of cash flows for each of the three and six months ended June 30,
2022 and the nine months ended September 30, 2022. See Part II, Item 8, Note 2
"Restatement of Previously Issued Financial Statements" in the notes to the
consolidated financial statements included in this Form 10-K for a detailed
discussion of the effect of the restatement on the previously issued financial
statements as of and for the periods ended June 30, 2022 and September 30, 2022.
Further, the Company's management has considered the effect of the foregoing on
the Company's prior conclusions of the adequacy of its internal control over
financial reporting and disclosure controls and procedures as of June 30, 2022
and September 30, 2022. As a result of the error, management has determined that
a material weakness existed in the Company's internal control over financial
reporting as of the December 31, 2022. See Part II Item 9A - Controls and
Procedures within this Form 10-K for a description of these matters.
Results of Operations
Our entire activity from January 28, 2021 (inception) through December 31, 2022,
was in preparation for our IPO, and since our IPO, our activity has been limited
to the search for a prospective initial business combination. We will not
generate any operating revenues until the closing and completion of our initial
business combination. We will generate non-operating income in the form of
investment income from our investments held in the trust account. We expect to
incur increased 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 year ended December 31, 2022, we had a net income of approximately $4.5
million, which consisted of approximately $5.1 million in non-operating gain
from the change in fair value of warrant liability, approximately $2.4 million
in income from investments held in the trust account, approximately $0.2 million
in gain on settlement of deferred underwriting commissions, offset by
approximately $2.4 million in general and administrative expenses, approximately
$169,000 of franchise tax expenses, income tax expense of approximately
$438,000, and related party administrative expenses of approximately $180,000.
For period from January 28, 2021 (inception) through December 31, 2021, we had a
net loss of approximately $991,000 which consisted of a non-operating loss upon
issuance of private placement warrants of approximately $4.2 million,
approximately $2.2 million in general and administrative expenses, approximately
$185,000 of franchise tax expenses, and related party administrative expenses of
approximately $108,000, approximately $34,000 in offering cost allocated to
derivative warrant liability, offset by approximately $5.7 million in change in
fair value of warrant liability, and approximately $41,000 in income from
investments held in trust account.
Contractual Obligations
We do not have any long-term debt obligations, capital lease obligations,
operating lease obligations, purchase obligations or long-term liabilities as of
December 31, 2022 and 2021.
Registration and Stockholder Rights
The holders of our founder shares, private placement warrants and warrants that
may be issued upon conversion of working capital loans (and any shares of common
stock issuable upon the exercise of the private placement warrants and warrants
that may be issued upon conversion of working capital loans) were entitled to
registration rights pursuant to a registration rights agreement signed upon the
effective date of the IPO. These holders are entitled to make up to three
demands, excluding short form registration demands, that the Company registered
such securities for sale under the Securities Act. In addition, these holders
will have "piggy-back" registration rights to include their securities in other
registration statements filed by the Company. We will bear the expenses incurred
in connection with the filing of any such registration statements.
Underwriting Agreement
We granted the underwriters a 45-day option from the date of the final
prospectus relating to the IPO to purchase up to 2,250,000 additional units less
the underwriting discounts and commissions. On June 2, 2021, the underwriters
partially exercised the over-allotment option.
56
Table of Contents
The underwriters were entitled to an underwriting discount of $0.20 per unit, or
$3.4 million in the aggregate, paid upon the closing of the IPO ($3.0 million)
and Over-Allotment (approximately $0.4 million). In addition, $0.35 per unit, or
approximately $6.0 million in the aggregate was payable to the underwriters for
deferred underwriting commissions (approximately $5.25 million related to the
IPO and $0.8 million related to the Over-Allotment). 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 May 16, 2022, J.P. Morgan
Securities LLC ("JPM"), one of the representatives of the underwriters of the
Company's Initial Public Offering, waived their deferred underwriting fee that
accrued from JPM's participation in the Initial Public Offering of approximately
$3.9 million. The Company derecognized approximately $3.7 million of the
commissions waiver allocated to Public Shares to the carrying value of the
common stock subject to possible redemption and the remaining balance of
approximately $180,000 as a gain from extinguishment of deferred underwriting
commissions allocated to derivative warrant liability.
Administrative Services Agreement
On May 20, 2021, we entered into an agreement that provided that, commencing on
the date that the Company's securities were first listed on the NYSE through the
earlier of consummation of the initial business combination and the liquidation,
the Company agreed to pay G-SPAC Management LLC, an affiliate of the sponsor,
$15,000 per month for office space, utilities, secretarial, administrative and
support services provided to the Company and members of the management team. For
the year ended December 31, 2022 and for the period from January 28, 2021
(inception) through December 31, 2021, the Company incurred expenses of
approximately $180,000 and $108,000, respectively, under this agreement. As of
December 31, 2022 and 2021, the Company had no outstanding balance for services
in connection with such agreement on the accompanying balance sheets.
Chief Financial Officer Compensation
On December 21, 2022, we held the Special Meeting, at which our stockholders
approved the payment by the Company, directly or indirectly, of $16,667.00 per
month base cash compensation to the Company's full-time Chief Financial Officer,
Mr. Cross, who is not a member of our Sponsor, plus any related taxes
(including, without limitation, Medicare and social security), governmental
payments and health care benefits, for services rendered to the Company as an
employee, contractor or otherwise from May 6, 2022 (retroactive) through the
Company's closing of a initial business combination.
Health Care Benefits
At the Special Meeting, our stockholders also approved the payment by the
Company, directly or indirectly, of up to $6,000.00 per month in aggregate for
health care benefits to be provided to three of the Company's full-time
executive officers, Mr. Graf, the Chief Executive Officer, Mr. Kuznik, the
Executive Vice President, General Counsel and Secretary and Ms. McKee, the
Executive Vice President, Strategy, who are not otherwise receiving compensation
from the Company, from December 21, 2022 through the Company's closing of a
business combination.
Critical Accounting Policies and Estimates
This management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
accordance with GAAP. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and the disclosure of contingent assets and
liabilities in our financial statements. On an ongoing basis, we evaluate our
estimates and judgments, including those related to fair value of financial
instruments and accrued expenses. We base our estimates on historical
experience, known trends and events and various other factors that we believe to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Derivative Warrant Liability
We do not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. The Company will evaluate its financial instruments to
determine if such instruments are derivatives or contain features that qualify
as embedded derivatives in accordance with FASB ASC Topic 815, "Derivatives and
Hedging" ("ASC 815"). The classification of derivative instruments, including
whether such instruments should be recorded as liabilities or as equity, is
re-assessed at the end of each reporting period.
57
Table of Contents
The private placement warrants are recognized as derivative liabilities in
accordance with ASC 815. Accordingly, the Company recognizes the warrant
instruments as liabilities at fair value and adjusts the carrying value of the
instruments to fair value at each reporting period until they are exercised. The
fair value of the private placement warrants as of December 31, 2022 and 2021 is
determined using Black-Scholes option pricing model. The determination of the
fair value of the warrant liability may be subject to change as more current
information becomes available and accordingly the actual results could differ
significantly. Derivative warrant liabilities are classified as non-current
liabilities as their liquidation is not reasonably expected to require the use
of current assets or require the creation of current liabilities.
Common Stock Subject to Possible Redemption
The Company accounts for its common stock subject to possible redemption in
accordance with the guidance in ASC 480. Common stock subject to mandatory
redemption (if any) are classified as liability instruments and are measured at
fair value. Conditionally redeemable common stock (including shares of common
stock that feature redemption rights that are either within the control of the
holder or subject to redemption upon the occurrence of uncertain events not
solely within the Company's control) are classified as temporary equity. At all
other times, common stock is classified as stockholders' equity. The Company's
common stock features certain redemption rights that are considered to be
outside of the Company's control and subject to occurrence of uncertain future
events. Accordingly, as of IPO (including exercise of the over-allotment
option), 17,161,500 shares of common stock subject to possible redemption at the
redemption amount were presented at redemption value as temporary equity,
outside of the stockholders' deficit section of the Company's balance sheets.
We recognize changes in redemption value immediately as they occur and adjust
the carrying value of the common stock shares subject to possible redemption to
equal the redemption value at the end of each reporting period. This method
would view the end of the reporting period as if it were also the redemption
date for the security. Effective with the closing of the IPO (including exercise
of the over-allotment option), the Company recognized the accretion from initial
book value to redemption amount, which resulted in charges against additional
paid-in capital (to the extent available) and accumulated deficit.
Net Income (Loss) Per Share of Common Stock
The Company complies with accounting and disclosure requirements of FASB ASC
Topic 260, "Earnings Per Share." Net income (loss) per common stock is computed
by dividing net loss by the weighted average number of shares of common stock
outstanding during the period.
The calculation of diluted net income (loss) per common stock does not consider
the effect of the warrants issued in connection with the IPO (including exercise
of the over-allotment option) and the private placement to purchase an aggregate
of 8,153,833 shares of common stock in the calculation of diluted income (loss)
per share, because their exercise is contingent upon future events. As a result,
diluted net income (loss) per share is the same as basic net income (loss) per
share for the year ended December 31, 2022 and for the period from January 28,
2021 (inception) through December 31, 2021. Accretion associated with the
redeemable common stock is excluded from earnings per share as the redemption
value approximates fair value.
Recent Accounting Standards
In June 2022, the FASB issued ASU 2022-03, ASC Subtopic 820 "Fair Value
Measurement of Equity Securities Subject to Contractual Sale Restrictions". The
ASU amends ASC 820 to clarify that a contractual sales restriction is not
considered in measuring an equity security at fair value and to introduce new
disclosure requirements for equity securities subject to contractual sale
restrictions that are measured at fair value. The ASU applies to both holders
and issuers of equity and equity-linked securities measured at fair value. The
amendments in this ASU are effective for the Company in fiscal years beginning
after December 15, 2023, and interim periods within those fiscal years. Early
adoption is permitted for both interim and annual financial statements that have
not yet been issued or made available for issuance. The Company is still
evaluating the impact of this pronouncement on the financial statements.
Management does not believe that any other recently issued, but not yet
effective, accounting pronouncements, if currently adopted, would have a
material effect on our financial statements.
Off-Balance Sheet Arrangements
As of December 31, 2022 and 2021, we did not have any off-balance sheet
arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
58
Table of Contents
Recent Developments
On March 23, 2023, the Company and NKGen Biotech, a biotechnology company
focused on harnessing the power of the body's immune system through the
development of natural killer cell therapies, issued a press release to announce
that they had entered into a non-binding letter of intent for a potential
business combination.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") contains
provisions that, among other things, relax certain reporting requirements for
qualifying public companies. We qualify as an "emerging growth company" and
under the JOBS Act are allowed to comply with new or revised accounting
pronouncements based on the effective date for private (not publicly traded)
companies. We are electing to delay the adoption of new or revised accounting
standards, and as a result, we may not comply with new or revised accounting
standards on the relevant dates on which adoption of such standards is required
for non-emerging growth companies. As a result, the financial statements may not
be comparable to companies that comply with new or revised accounting
pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the
other reduced reporting requirements provided by the JOBS Act. Subject to
certain conditions set forth in the JOBS Act, if, as an "emerging growth
company," we choose to rely on such exemptions we may not be required to, among
other things, (i) provide an auditor's attestation report on our system of
internal controls over financial reporting pursuant to Section 404, (ii) provide
all of the compensation disclosure that may be required of non-emerging growth
public companies under the Dodd-Frank Wall Street Reform and Consumer Protection
Act, (iii) comply with any requirement that may be adopted by the PCAOB
regarding mandatory audit firm rotation or a supplement to the auditor's report
providing additional information about the audit and the financial statements
(auditor discussion and analysis) and (iv) disclose certain executive
compensation related items such as the correlation between executive
compensation and performance and comparisons of the CEO's compensation to median
employee compensation. These exemptions will apply for a period of five years
following the completion of our IPO or until we are no longer an "emerging
growth company," whichever is earlier.
© Edgar Online, source Glimpses
NKGEN BIOTECH, INC. 
