RELATIVITY ACQUISITION CORP Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-K) – Marketscreener.com

Cautionary Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Report including, without limitation, statements in this section regarding our 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 our management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our 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 our 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.
On February 13, 2023, we entered into the Business Combination Agreement with (i) Pubco, (ii) the Merger Sub, (iii) SVES, (iv) the Sellers, (v) the SVES Founders, (vi) our sponsor as the purchaser representative, and (vii) Timothy J. Fullum as the seller representative, as was amended on March 20, 2023, and as may be further amended from time to time. SVES is a key intermediary connecting full-price fashion brands with off-price retailers that are able to sell inventory that would otherwise be sold or disposed of by full-price brands at a significant loss. At the closing of the SVES Business Combination, in accordance with the DGCL, (a) the Merger Sub will merge with and into the Company, with the Company surviving the business combination as a wholly-owned subsidiary of Pubco, and (b) each Seller will contribute all of its ownership interest in each Operating Company to Pubco in exchange for aggregate consideration in the amount of $632,000,000, to be paid in the common stock of Pubco valued at $10.00 per share of common stock and (c) each of our public warrants will be converted into one Pubco public warrant and each of our private placement warrants will be converted into one Pubco private warrant, in each case with such Pubco warrant having substantially the same terms and conditions as set forth in our respective warrants, except that in each case they will represent the right to acquire shares of Pubco common stock in lieu of shares of our Class A common stock.
On January 12, 2023, we received a determination letter (the “Determination Letter”) from the Nasdaq Listing Qualifications staff (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company was not in compliance with the continued listing requirements of the Nasdaq Listing Rules set forth in (i) Listing Rule 5450(b)(2)(A), requiring a minimum of $50 million Market Value of Listed Securities, (ii) Listing Rule 5450(b)(2)(B), requiring a minimum 1,100,000 Publicly Held Shares, and (iii) Listing Rule 5450(b)(2)(C), requiring a minimum of $15 million in Market Value of Publicly Held Shares. In addition, the Determination Letter stated that the Company does not comply with either of the alternative requirements for continued listing on The Nasdaq Global Market under Listing Rules 5450(b)(1) or 5450(b)(3), or the requirements for continued listing on The Nasdaq Capital Market under Listing Rule 5550. The Determination Letter also indicated that the Staff had concerns that the Company may no longer comply with the minimum 400 Total Holders requirement of Listing Rule 5450(a)(2) due to the substantial number of shareholder redemptions and low number of shares remaining outstanding.
The Company had a hearing before the Nasdaq Hearings Panel on March 2, 2023, to appeal the Staff’s delisting determination. That hearing stays any suspension or delisting of the Company’s securities, and the Company’s securities will continue to be listed on the Nasdaq Global Market until the hearing process concludes and the Panel issues a written decision following the hearing.
For a full description of the Business Combination Agreement and the proposed SVES Business Combination, please see “Item 1. Business.”
On February 27, 2023, we issued an aggregate of 3,593,749 shares of Class A common stock to our sponsor, A.G.P., George Syllantavos and Anastasios Chrysostomidis, the holders of our Class B common stock, upon the conversion of an equal number of shares of Class B common stock. These shares of class A common stock are subject to the same restrictions as applied to the Class B common stock before the conversion, including, among other things, certain transfer restrictions, waiver of redemption rights and the obligation to vote in favor of an initial business combination as described in the prospectus for our initial public offering. Following the conversion, our sponsor was the beneficial owner of 3,033,905 shares of our Class A common stock and one share of our Class B common stock. The sponsor then transferred 533,525 shares of Class A common stock to certain members of the sponsor. Subsequent to those transfers, the sponsor holds 2,500,380 shares of Class A common stock and one share of Class B common stock, as well as 653,750 shares of Class A common stock underlying private placement units, which units were acquired by the sponsor in connection with the Company’s initial public offering.
On March 20, 2023, the Company, the Purchaser Representative and the Seller Representative entered into the First Amendment to the Business Combination Agreement to extend the date to conduct additional due diligence on the Target Companies from 5:00 p.m. on March 15, 2023 to 5:00 p.m. on April 7, 2023.
As of December 31, 2022, we had not commenced any operations. All activity for the period from April 13, 2021 (inception) through December 31, 2022 relates to our formation and initial public offering and identifying a target company for an initial business combination. We will not generate any operating revenues until after the completion of a business combination, at the earliest. We will generate non-operating income in the form of interest income from the proceeds derived from the initial public offering and placed in the trust account.
For the year ended December 31, 2022, we had net income of $4,752,895, which consists of interest income from investments held in trust account of $2,049,399 and change in fair value of warrant liability of $4,356,766, offset by formation and operating costs of $1,104,757, warrant issuance cost of $125,175 and provision for income taxes of $423,338.
For the period from April 13, 2021 (inception) through December 31, 2021, we had a net loss of $7,102, which consisted solely of the formation and operating costs.
Liquidity and Capital Resources
As of December 31, 2022, we had $1,429,804 in our operating bank account and working capital, excluding franchise and income tax payable net of interest income from the trust account, of $1,147,521.
On February 15, 2022, we consummated the initial public offering of 14,375,000 units, including 1,875,000 units pursuant to the exercise of the underwriters’ over-allotment option in full, at $10.00 per unit, generating gross proceeds of $143,750,000.
Simultaneously with the closing of the initial public offering, we consummated the sale of 653,750 private placement units at a price of $10.00 per private placement units in the private placement to our sponsor, generating total gross proceeds of $6,537,500.
Transaction costs amounted to $3,890,326, consisting of $1,437,500 of underwriting commissions, $1,972,398 of the excess of the fair value of Class B common stock issued to underwriter over the share subscription receivable and $480,428 of other offering costs.
Following the closing of our initial public offering, $146,625,000.00 from the net proceeds of the sale of the units in our initial public offering and the sale of the private placement units was placed in the trust account maintained by Continental, as trustee. In connection with our Special Meeting held on December 21, 2022, stockholders holding 14,221,705 public shares exercised their right to redeem such shares for a pro rata portion of the funds in our trust account. As a result, approximately $146 million (approximately $10.29 per public share) was removed from the trust account to pay such holders. As of December 31, 2022, approximately $1,671,810 remained in the trust account.
In connection with the redemptions of public shares, a total of $133,689 was deducted from our trust account in order to pay taxes prior to the Special Meeting, which amount had later been determined to be withheld in excess and should be returned to the public stockholders. As such, a portion of this rebate was sent to the financial institutions that had tendered share redemptions on behalf of their investor clients ahead of the Special Meeting and the balance to the trust account. The redemption rebate payments total $132,263 ($0.00930008 per redeemed share), with $1,426 returned in 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, to complete our initial business combination. We may withdraw interest to pay our taxes and liquidation expenses if we are unsuccessful in completing a business combination. We may pay our franchise taxes from funds from the initial public offering held outside of the trust account or from interest earned on the funds held in the trust account and released to us for this purpose. Our annual income tax obligations will depend on the amount of interest and other income earned on the amounts held in the trust account reduced by our operating expense and franchise taxes. We expect the interest earned on the amount in the trust account will be sufficient to pay our income taxes. To the extent that our equity or debt is used, in whole or in part, as consideration to complete our initial 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.
Further, our sponsor or an affiliate of the sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required for Working Capital Loans. If we complete a business combination, we would repay the Working Capital Loans out of the proceeds of the trust account released to us. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the trust account. In the event that a business combination does not close, we may use a portion of the working capital held outside the trust account to repay the Working Capital Loans, but no proceeds from the trust account would be used to repay the Working Capital Loans. Up to $1,500,000 of such Working Capital Loans may be convertible into units at a price of $10.00 per unit at the option of the lender. The units would be identical to the private placement units. At December 31, 2022 and 2021, no Working Capital Loans were outstanding.
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.
Further, we have determined that if we are unable to complete a business combination within the Combination Period, then 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 and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate. The date for mandatory liquidation and subsequent dissolution as well as our working capital deficit raise substantial doubt about our ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should we be required to liquidate after the applicable extension date.
Critical Accounting Policies and Estimates
Emerging Growth Company Status
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2021 (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we as an emerging growth company can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
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 accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of our financial statements in conformity with U.S. GAAP requires 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 expenses during the reporting period. Actual results could differ from those estimates.
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. We determined the more significant accounting estimates included in our financial statements is the determination of the fair value of Derivative Financial Instruments.
We have identified the following as our critical accounting estimates:
Derivative Financial Instruments
We evaluate our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with Accounting Standards Codification (“ASC”) Topic 815, “Derivatives and Hedging”. For derivative financial instruments that are accounted for as liabilities, such as the Company’s public warrants and private placement warrants, 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 sheets as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
The valuation of our public warrants are based on a traded market. Our private placement warrants are valued using a Monte Carlo options pricing model which utilizes assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock based on projected volatility of comparable public companies that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is based on management assumptions regarding the timing and likelihood of completing a Business Combination. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero.
The estimates used to calculate the fair value of our derivative assets and liabilities change at each balance sheet date based on our stock price and other assumptions described above. If our assumptions change or we experience significant volatility in our stock price or interest rates, the fair value calculated from one balance sheet period to the next could be materially different.
Common Stock Subject to Possible Redemption
Our Class A common stock that was sold as part of the units in the initial public offering contains a redemption feature which allows for the redemption of such public shares in connection with our liquidation, or if there is a stockholder vote or tender offer in connection with our initial business combination. In accordance with ASC Topic 480-10-S99, we classify such public shares subject to redemption outside of permanent equity as the redemption provisions are not solely within our control. The public shares sold as part of the units in the initial public offering were issued with other freestanding instruments (i.e., warrants) and as such, the initial carrying value of public shares classified as temporary equity was the allocated proceeds determined in accordance with ASC Topic 470-20 (“Debt-Debt with Conversion and Other Options”). The public shares are subject to ASC 480-10-S99 and are currently not redeemable as the redemption is contingent upon the occurrence of events mentioned above. According to ASC 480-10-S99-15, no subsequent adjustment is needed if it is not probable that the instrument will become redeemable.
Accordingly, as of December 31, 2022, 153,295 shares of Class A common stock subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’ equity section of our balance sheet. The change in the carrying value of redeemable shares of Class A common stock resulted in charges against accumulated deficit.
In connection with the Special Meeting on December 21, 2022, stockholders holding 14,221,705 shares of Class A common stock exercised their right to redeem such shares for a pro rata portion of the funds in the trust account (approximately $10.29 per public share). Following the redemptions, as of December 31, 2022, there were 153,295 public shares outstanding and a total of 807,045 shares of Class A common stock were outstanding, including the 653,750 shares of Class A common stock that were beneficially owned by our sponsor. Following the conversion of Class B common stock into shares of Class A common stock on February 27, 2023, and subsequent transactions, there are currently 153,295 public shares outstanding and a total of 4,400,794 shares of Class A common stock are outstanding, including the 2,500,380 shares of Class A common stock and the one share of Class B common stock that are beneficially owned by our sponsor.
In August 2020, Financial Accounting Standards Board (“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 for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. We adopted ASU 2020-06 effective as of April 13, 2021. That adoption of ASU 2020-06 did not have an impact on our 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.
Factors That May Adversely Affect Our Results of Operations
Our results of operations and our ability to complete an initial business combination may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond our control. Our business could be impacted by, among other things, downturns in the financial markets or in economic conditions, the risk of a bank failure or failures, increases in oil prices, inflation, increases in interest rates, supply chain disruptions, declines in consumer confidence and spending, the ongoing effects of the COVID-19 pandemic, including resurgences and the emergence of new variants, and geopolitical instability, such as the military conflict in Ukraine. We cannot at this time fully predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact our business and our ability to complete an initial business combination.
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