References to the "Company," "us," "our" or "we" refer to Northern Lights
Acquisition Corp. The following discussion and analysis of our financial
condition and results of operations should be read in conjunction with our
audited financial statements and related notes included herein.
Cautionary Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Report
including, without limitation, statements under 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. When used in
this Report, words such as "anticipate," "believe," "estimate," "expect,"
"intend" and similar expressions, as they relate to us or the Company's
management, identify forward-looking statements. Such forward-looking statements
are based on the beliefs of management, as well as assumptions made by, and
information currently available to, the Company's management. Actual results
could differ materially from those contemplated by the forward- looking
statements as a result of certain factors detailed in our filings with the SEC.
All subsequent written or oral forward-looking statements attributable to us or
persons acting on the Company's behalf are qualified in their entirety by this
paragraph.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the financial statements and the
notes thereto contained elsewhere in this Report. Certain information contained
in the discussion and analysis set forth below includes forward-looking
statements that involve risks and uncertainties.
Overview
We are a blank check company formed under the laws of the State of Delaware on
February 26, 2021. We were formed for the purpose of entering into a merger,
share exchange, asset acquisition, share purchase, recapitalization,
reorganization or other similar business combination with one or more target
businesses. While our efforts to identify a target business may span many
industries and regions worldwide, we focus our search for prospects within the
cannabis industry. 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 Units, the proceeds of the sale of our shares in
connection with our initial Business Combination, 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.
We expect to continue to incur significant costs in the pursuit of our initial
Business Combination. We cannot assure you that our plans to complete our
initial Business Combination will be successful.
The Unit Purchase Agreement
On February 11, 2022, we and our sponsor entered into the Unit Purchase
Agreement with SHF, the Seller, and PCCU. Pursuant to the Unit Purchase
Agreement, upon the Closing of the Business Combination, we will purchase all of
the issued and outstanding membership interests of SHF in exchange for an
aggregate of $185,000,000, consisting of (i) 11,386,139 shares of Class A Common
Stock with an aggregate value equal to $115,000,000 and (b) $70,000,000 in cash.
The obligations of the parties to consummate the Business Combination are
subject to the satisfaction or waiver of certain customary closing conditions of
the respective parties, including, without limitation: (a) the representations
and warranties of the respective parties being true and correct subject to the
materiality standards contained in the Unit Purchase Agreement; (b) material
compliance by the parties of their respective pre-closing covenants and
agreements, subject to the standards contained in the Unit Purchase Agreement;
(c) the approval by our stockholders of the Business Combination; (d) the
approval by the Seller's manager of the Business Combination; (e) the approval
by SHF's managers of the Business Combination; (f) the absence of any Material
Adverse Effect (as defined in the Unit Purchase Agreement) with respect to us or
with respect to SHF since the effective date of the Unit Purchase Agreement that
is continuing and uncured; (g) us having at least $5,000,001 in tangible net
assets upon the Closing; (h) the election of the members of the post-Closing
board of directors consistent with the provisions of the Unit Purchase
Agreement, a majority of which are to be independent in accordance with the
Nasdaq rules; (i) the entry into certain ancillary agreements as of the Closing;
(j) the lack of any notice or communication from, or position of, the SEC
requiring us to amend or supplement the proxy statement on Schedule 14A to be
delivered to our stockholders in connection with the approval of the Business
Combination and related matters; and (k) the receipt of certain closing
deliverables.
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Concurrently with entering into the Unit Purchase Agreement, we entered into a
Securities Purchase Agreement with the PIPE Investors, pursuant to which, among
other things, the PIPE Investors agreed to subscribe for and purchase, and we
agreed to issue and sell to the PIPE Investors, an aggregate of 60,000 shares of
our Series A Convertible Preferred Stock and warrants to purchase up to a number
of shares of Class A Common Stock equal to 50% of shares of the Class A Common
Stock issuable upon conversion of the PIPE Shares for gross proceeds of $60.0
million (the "PIPE Financing"). The closing of the PIPE Financing is contingent
upon, among other things, the substantially concurrent consummation of the
Business Combination. The Securities Purchase Agreement provides that it will
terminate upon the earlier to occur of (i) termination of the Unit Purchase
Agreement and (ii) the mutual written agreement of each of the parties.
The Unit Purchase Agreement, the PIPE Financing, and related agreements thereto
are further described in the Form 8-K/A, filed by us on February 16, 2022.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from inception through December 31, 2021 were organizational
activities, those necessary to prepare for our Initial Public Offering,
described below, and, after our Initial Public Offering, identifying a target
company for an initial Business Combination. We do not expect to generate any
operating revenues until after the completion of our initial Business
Combination. We generate non-operating income in the form of interest income on
marketable securities held in the Trust Accounts. 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 period from February 26, 2021 (inception) through December 31, 2021, we
had a net income of $1,245,158, which consists of change in fair value of
warrant liability of $2,204,598, realized gain from marketable securities held
in Trust Account of $21,508, offset with offering costs allocated to warrants of
$261,838, other operation costs of $550,343 and franchise tax expense of
$168,767.
Liquidity and Capital Resources
On June 28, 2021, we consummated our Initial Public Offering of 11,500,000 Units
at a price of $10.00 per Unit, generating gross proceeds of $115,000,000.
Simultaneously with the consummation of the initial public offering, we
completed the private placement of an aggregate of 528,175 units to our sponsor
at a purchase price of $10.00 per private placement unit, generating total gross
proceeds of $5,281,750.
For the period from February 26, 2021 (inception) through December 31, 2021,
cash used in operating activities was $548,550.
As of December 31, 2021, we had investments of $117,321,508 held in the Trust
Accounts. We intend to use substantially all of the funds held in the Trust
Accounts, including any amounts representing interest earned on the Trust
Accounts (less taxes paid and deferred underwriting commissions) to complete our
initial Business Combination. We may withdraw interest to pay taxes. During the
period ended December 31, 2021, we did not withdraw any interest earned on the
Trust Accounts. To the extent that our capital stock or debt is used, in whole
or in part, as consideration to complete our initial Business Combination, the
remaining proceeds held in the Trust Accounts will be used as working capital to
finance the operations of the target business or businesses, make other
acquisitions and pursue our growth strategies.
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As of December 31, 2021, we had cash of $254,523 outside of the Trust Accounts
and a working capital deficit of $38,537. We intend to use the funds held
outside the Trust Accounts primarily to complete our initial Business
Combination.
We have up to 12 months from the closing of our IPO, or until June 28, 2022, to
consummate an initial business combination. However, if we anticipate that we
may not be able to consummate our initial business combination within 12 months,
we may, by resolution of our board if requested by our sponsor, extend the
period of time to consummate a business combination up to two times, each by an
additional three months (for a total of up to 18 months, or until December 28,
2023, to complete a business combination), subject to the sponsor depositing
additional $1,150,000 into the trust account for each three month extensions at
a total payment of $2,300,000, providing a total Business Combination period of
18 months. If our initial business combination is not consummated by June 28,
2022 (or until December 28, 2023 if we extend the period of time to consummate a
business combination), then our existence will terminate, and we will distribute
all amounts in the trust account.
In order to fund working capital deficiencies or finance transaction costs in
connection with our 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. 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 Accounts to repay such loaned amounts but no proceeds
from our Trust Accounts would be used for such repayment. Up to $1,500,000 of
such loans may be convertible into units identical to the Placement Units, at a
price of $10.00 per unit at the option of the lender.
Moreover, we will 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 consummation of our initial
Business Combination, in which case we have entered into the Securities Purchase
Agreements for the additional financing in connection with such Business
Combination. Subject to compliance with applicable securities laws, we expect to
complete such financing simultaneously with the completion of our initial
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 Accounts. 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.
If the Company is unable to raise additional capital, the Company 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. The Company cannot
provide any assurance that new financing will be available to it on commercially
acceptable terms, if at all. .
The Company intends to complete the proposed Business Combination before June
28, 2022 and we believe we have sufficient arrangements with our vendors to
continue to operate until we complete our initial Business Combination. However,
there can be no assurance that the Company will be able to consummate the
Business Combination by then. In the event that we are unable to consummate the
Business Combination before June 28, 2022 we anticipate identifying and
accessing additional capital resources in order to extend the Business
Combination period up to 18 months. However, there can be no assurance that the
Company will have access to sufficient capital to extend the deadline to
consummate the Business Combination. As a result, in connection with the
Company's assessment of going concern considerations in accordance with
Financial Accounting Standard Board's Accounting Standards Update ("ASU")
2014-15, "Disclosures of Uncertainties about an Entity's Ability to Continue as
a Going Concern," it is uncertain that the Company will have sufficient
liquidity to fund the working capital needs of the Company beyond June 28, 2022.
Management has determined that given the liquidity condition of the Company,
should a Business Combination not occur by June 28, 2022, there is substantial
doubt about the Company's ability to continue as a going concern. No adjustments
have been made to the carrying amounts of assets or liabilities should the
Company be required to liquidate.
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Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of December 31, 2021. 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 an
affiliate of the Sponsor a monthly fee up to $10,000 for office space, utilities
and secretarial and administrative support services. We began incurring these
fees on June 24, 2021 and will continue to incur these fees monthly until the
earlier of the completion of the Business Combination and our liquidation. From
inception to December 31, 2021, we have incurred $60,000 in fees under this
agreement.
The underwriters are entitled to a deferred fee of $4,025,000 in the aggregate.
The deferred fee will become payable to the underwriters from the amounts held
in the Trust Accounts 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 financial statements and related disclosures in conformity
with GAAP requires the Company's 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:
Use of Estimates
The preparation of condensed financial statements in conformity with GAAP
requires the Company's management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods.
Making estimates requires management to exercise significant judgment. It is at
least reasonably possible that the estimate of the effect of a condition,
situation or set of circumstances that existed at the date of the financial
statements, which management considered in formulating its estimate, could
change in the near term due to one or more future confirming events.
Accordingly, the actual results could differ significantly from those estimates.
Financial Instruments
The Company determines fair value based on assumptions that market participants
would use in pricing an asset or liability in the principal or most advantageous
market. When considering market participant assumptions in fair value
measurements, the following fair value hierarchy distinguishes between
observable and unobservable inputs, which are categorized in one of the
following levels:
Level 1 Inputs: Unadjusted quoted prices for identical assets or instruments in
active markets.
Level 2 Inputs: Quoted prices for similar instruments in active markets and
quoted prices for identical or similar instruments in markets that are not
active and model derived valuations whose inputs are observable or whose
significant value drivers are observable.
Level 3 Inputs: Significant inputs into the valuation model are unobservable.
The Company does not have any recurring Level 2 or Level 3 assets or
liabilities. The carrying value of the Company's financial instruments including
its cash and accrued liabilities approximate their fair values principally
because of their short-term nature.
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Net Income Per Share of Common Stock
Net income per share is computed by dividing net income by the weighted average
number of common stock shares outstanding for the period. The calculation of
diluted income per share does not consider the effect of the warrants issued in
connection with the Initial Public Offering and warrants issued as components of
the Private Placement Units (the "Placement Warrants") since the exercise of the
warrants are contingent upon the occurrence of future events and the inclusion
of such warrants would be anti-dilutive.
The Company applies the two-class method in calculating earnings per share. The
contractual formula utilized to calculate the redemption amount approximates
fair value. The Class feature to redeem at fair value means that there is
effectively only one class of stock. Changes in fair value are not considered a
dividend of the purposes of the numerator in the earnings per share calculation.
Net income per common share is computed by dividing the pro rata net loss
between the redeemable shares and the non-redeemable shares by the weighted
average number of common shares outstanding for each of the periods. The
calculation of diluted income per 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. The warrants are exercisable for
6,014,088 shares of common stock in the aggregate.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments
are derivatives or contain features that qualify as embedded derivatives in
accordance with ASC Topic 815, "Derivatives and Hedging". For derivative
financial instruments that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair value on the grant date and is then
re-valued at each reporting date, with changes in the fair value reported in the
statements of operations. The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as
equity, is evaluated at the end of each reporting period. Derivative liabilities
are classified in the balance sheet as current or non-current based on whether
net-cash settlement or conversion of the instrument could be required within 12
months of the balance sheet date.
Common stock subject to possible redemption
The Company accounts for its common stock subject to possible redemption in
accordance with the guidance in Accounting Standards Codification ("ASC") Topic
480 "Distinguishing Liabilities from Equity." Common stock subject to mandatory
redemption (if any) is classified as a liability instrument and is measured at
fair value. Conditionally redeemable common stock (including common stock that
features redemption rights that are either within the control of the holder or
subject to redemption upon the occurrence of events not solely within the
Company's control) is classified as temporary equity. At all other times, common
stock is classified as stockholders' equity. The Company's common stock features
certain redemption rights that are outside of the Company's control and subject
to occurrence of uncertain future events. Accordingly, as of December 31, 2021,
there were 12,085,175 shares of Class A Common Stock outstanding and 11,500,000
shares of Class A Common Stock were subject to possible redemption.
Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update ("ASU") No. 2020-06,
"Debt-Debt with Conversion and Other Options(Subtopic 470- 0) and Derivatives
and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for
Convertible Instruments and Contracts in an Entity's Own Equity" ("ASU
2020-06"), which simplifies accounting for convertible instruments by removing
major separation models required under current U.S. GAAP. The ASU also removes
certain settlement conditions that are required for equity-linked contracts to
qualify for the derivative scope exception, and it simplifies the diluted
earnings per share calculation in certain areas. ASU 2020-06 is effective
January 1, 2022 and should be applied on a full or modified retrospective basis,
with early adoption permitted beginning on January 1, 2021. The Company is
currently assessing the impact, if any, that ASU 2020-06 would have on its
financial position, results of operations or cash flows.
Management does not believe that any other recently issued, but not yet
effective, accounting pronouncements, if currently adopted, would have a
material effect on the Company's financial statements.
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