UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(MARK ONE)
For the quarter ended
For the transition period from to
Commission file number:
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Securities registered pursuant to Section 12(g) of the Act:
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Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☐ Yes
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 10, 2022, there were
GROUP NINE ACQUISITION CORP.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
Item 1. Interim Financial Statements.
GROUP NINE ACQUISITION CORP.
CONDENSED BALANCE SHEETS
| September 30, | December 31, | ||||
2022 | 2021 | |||||
(Unaudited) |
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ASSETS | ||||||
Current assets | ||||||
Cash | $ | | $ | | ||
Prepaid expenses |
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Total current assets | | | ||||
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Cash and marketable securities held in Trust Account | | | ||||
TOTAL ASSETS | $ | | $ | | ||
LIABILITIES, REDEEMABLE CLASS A COMMON STOCK AND STOCKHOLDERS' DEFICIT |
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Current liabilities | ||||||
Accrued expenses | $ | | $ | | ||
Due to Sponsor | | | ||||
Income taxes payable | | — | ||||
Convertible Promissory note – related party | | | ||||
Total current liabilities | | | ||||
Warrant liabilities |
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Deferred underwriting fee payable | | | ||||
TOTAL LIABILITIES |
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Commitments and Contingencies (Note 6) |
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Redeemable Class A Common Stock | ||||||
Class A common stock subject to possible redemption, | | | ||||
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Stockholders’ Deficit |
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Preference shares, $ |
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Class A common stock, $ |
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Class B common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total Stockholders’ Deficit |
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TOTAL LIABILITIES, REDEEMABLE CLASS A COMMON STOCK AND STOCKHOLDERS’ DEFICIT | $ | | $ | |
The accompanying notes are an integral part of the unaudited condensed financial statements.
1
GROUP NINE ACQUISITION CORP.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2022 |
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Formation and operating costs | $ | | $ | | $ | | $ | | ||||
Loss from operations | ( | ( | ( | ( | ||||||||
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Other income (expense): |
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Change in fair value of warrant liabilities | | | | | ||||||||
Transaction costs related to warrant liabilities | — | — | — | ( | ||||||||
Change in fair value of convertible promissory note | | | | | ||||||||
Interest earned on marketable securities held in Trust Account | | | | | ||||||||
Total other income, net | | | | | ||||||||
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Income before provision for income taxes | | | | | ||||||||
Provision for income taxes | ( | — | ( | — | ||||||||
Net income | $ | | $ | | $ | | $ | | ||||
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Basic and diluted weighted average shares outstanding, Class A common stock subject to possible redemption | | | | | ||||||||
Basic and diluted net income per share, Class A common stock subject to possible redemption | | | | ( | ||||||||
Basic and diluted weighted average shares outstanding, Class B Non-redeemable common stock | | |
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Basic and diluted net income per share, Class B Non-redeemable common stock | | | | ( |
The accompanying notes are an integral part of the unaudited condensed financial statements.
2
GROUP NINE ACQUISITION CORP.
CONDENSED STATEMENTS OF CHANGES IN REDEEMABLE CLASS A COMMON STOCK AND STOCKHOLDERS’ DEFICIT
(UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
Class A Common Stock | Class B | Additional | Total | |||||||||||||||||
Subject to Possible Redemption | Common Stock | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||
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Balance — December 31, 2021 | | $ | | | $ | | $ | — | $ | ( | $ | ( | ||||||||
Net income |
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Balance — March 31, 2022 | | | | | — | ( | ( | |||||||||||||
Net income | — | — | — | — | — | | | |||||||||||||
Balance — June 30, 2022 |
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Accretion of Class A Common Stock Subject to Possible Redemption | — | | — | — | — | ( | ( | |||||||||||||
Net income | — | — | — | — | — | | | |||||||||||||
Balance – September 30, 2022 | | $ | | | $ | | — | $ | ( | $ | ( |
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
Class A Common Stock | Class B | Additional | Total | |||||||||||||||||
Subject to Possible Redemption | Common Stock | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||
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Balance — December 31, 2020 | — | $ | — | | $ | | $ | | $ | ( | $ | | ||||||||
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Sale of | | | — | — | — | — | — | |||||||||||||
Cash proceeds received in excess of fair value for Placement Warrants | — | — | — | — | | — | | |||||||||||||
Deemed Dividend | — | | — | — | ( | ( | ( | |||||||||||||
Net income |
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Balance — March 31, 2021 | | $ | | | | — | ( | ( | ||||||||||||
Net loss | — | — | — | — | — | ( | ( | |||||||||||||
Balance — June 30, 2021 | | | | | — | ( | ( | |||||||||||||
Proceeds from Founder Shares | | | ||||||||||||||||||
Net income | — | — | — | — | — | | | |||||||||||||
Balance — September 30, 2021 |
| | $ | | | $ | | $ | — | $ | ( | $ | ( |
The accompanying notes are an integral part of the unaudited condensed financial statements.
3
GROUP NINE ACQUISITION CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended | ||||||
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Cash Flows from Operating Activities: |
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Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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Interest earned on marketable securities held in Trust Account | ( | ( | ||||
Change in fair value of warrant liabilities | ( | ( | ||||
Change in fair value of convertible promissory note | ( | ( | ||||
Transaction costs related to warrant liabilities | — | | ||||
Changes in operating assets and liabilities: |
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Prepaid expenses | | ( | ||||
Income tax payable | | — | ||||
Accrued expenses |
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Net cash used in operating activities |
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Cash Flows from Investing Activities: | ||||||
Investment of cash deposited in Trust Account | — | ( | ||||
Net cash used in investing activities | — | ( | ||||
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Cash Flows from Financing Activities: |
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Proceeds from sale of Units, net of underwriting discounts paid | — | | ||||
Proceeds from Transfer of Founder Shares | — | | ||||
Proceeds from sale of Private Placement Warrants | — | | ||||
Proceeds from promissory note - related party | — | | ||||
Repayment of promissory note - related party |
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Due to Sponsor |
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Payment of offering costs | — | ( | ||||
Net cash provided by financing activities |
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Net Change in Cash |
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Cash – Beginning |
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Cash – Ending | $ | | $ | | ||
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Non-Cash Investing and Financing Activities: |
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Accretion of carrying value to redemption value | $ | | $ | — | ||
Initial classification of common stock subject to possible redemption | $ | — | $ | | ||
Deferred underwriting fee payable | $ | — | $ | |
The accompanying notes are an integral part of the unaudited condensed financial statements.
4
GROUP NINE ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Group Nine Acquisition Corp. (the “Company”) was incorporated in Delaware on November 9, 2020. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”).
Although the Company is not limited to a particular industry or sector for purposes of consummating a Business Combination, the Company intends to focus its search on companies in the digital media and adjacent industries, including the social media, e-commerce, events, and digital publishing and marketing sectors. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of September 30, 2022, the Company had not commenced any operations. All activity for the period from November 9, 2020 (inception) through September 30, 2022 relates to the Company’s formation and the initial public offering (“Public Offering”), which is described below. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company generates non-operating income in the form of interest income from the marketable securities held in the Trust Account and includes transaction costs related to warrant liabilities and changes in fair value of warrant liabilities and convertible debt (as defined below).
The registration statement for the Company’s Public Offering was declared effective on January 14, 2021. On January 20, 2021 the Company consummated the Public Offering of
Simultaneously with the closing of the Public Offering, the Company consummated the sale of
Transaction costs amounted to $
Following the closing of the Public Offering on January 20, 2021, an amount of $
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Public Offering and the sale of Private Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There is no assurance that the Company will be able to complete a Business Combination successfully. The Company must complete a Business Combination with
5
GROUP NINE ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
The Company will provide its holders of the outstanding Public Shares (the “public stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The public stockholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially anticipated to be $
The Company will proceed with a Business Combination if the Company has net tangible assets of at least $
If the Company seeks stockholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Amended and Restated Certificate of Incorporation provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate of
The initial stockholders have agreed (a) to waive their redemption rights with respect to any Founder Shares and Public Shares held by them in connection with the completion of a Business Combination and (b) not to propose an amendment to the Amended and Restated Certificate of Incorporation that would affect the substance or timing of the Company’s obligation to redeem
The Company will have until January 20, 2023 to complete a Business Combination (the “Combination Period”). If the Company has not completed a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than
6
GROUP NINE ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
The Company’s Sponsor, officers and directors have agreed to waive their liquidation rights with respect to the Founder Shares if the Company fails to complete a Business Combination within the Combination Period. However, if the Company’s Sponsor, officers, directors or any of their respective affiliates acquire Public Shares after the Public Offering, such Public Shares will be entitled to liquidating distributions from the Trust Account if the Company fails to complete a Business Combination within the Combination Period. The underwriters have agreed to waive their rights to their deferred underwriting commission (see Note 6) held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period and, in such event, such amounts will be included with the other funds held in the Trust Account that will be available to fund the redemption of the Public Shares. Given that the Sponsor’s only assets are securities of the Company, the Sponsor may not be able to satisfy those indemnification obligations. The Company has not asked the Sponsor to reserve for such obligations. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution will be less than the Public Offering price per Unit ($
In order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account to below (i) $
Liquidity and Going Concern
As of September 30, 2022, the Company had approximately $
In connection with the Company’s assessment of going concern considerations in accordance with FASB ASC Topic 205-40, “Presentation of Financial Statements-Going Concern,” management has evaluated the Company’s liquidity and financial condition and determined that it may not be sufficient to meet the Company’s obligation over the period of twelve months from the issuance date of the financial statements. The Company’s sponsor has agreed to provide support to enable the Company to continue its operations and meet its potential obligations over a period of one year from the issuance date of these financial statements.
Management believes current working capital, and the support from its Sponsor, provides sufficient capital to sustain operations for a reasonable period of time, which is considered to be one year from the issuance date of those financial statements and therefore substantial doubt has been alleviated.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic 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 the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Inflation Reduction Act of 2022
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and
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GROUP NINE ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension vote or otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax in connection with a Business Combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business Combination but issued within the same taxable year of a Business Combination) and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business Combination and in the Company’s ability to complete a Business Combination.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it 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 independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of 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. The Company has 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, the Company, 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 the Company’s 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.
Use of Estimates
The preparation of 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 expenses during the reporting periods.
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GROUP NINE ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
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. One of the more significant accounting estimates included in these financial statements is the determination of the fair value of the warrant liabilities and the convertible promissory note. Such estimates may be subject to change as more current information becomes available and, accordingly, the actual results could differ significantly from those estimates.
Reclassification
Certain prior period amounts have been reclassified to conform to the current period financial statement presentation, including transaction costs related to warrant liabilities of $
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did
Class A Common Stock Subject to Possible Redemption
As discussed in Note 3, all of the
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock are affected by charges against additional paid in capital and accumulated deficit.
Convertible Promissory Note
The Company accounts for their convertible promissory note under ASC 815, Derivatives and Hedging (“ASC 815”). Under 815-15-25, the election can be at the inception of a financial instrument to account for the instrument under the fair value option under ASC 825. The Company has made such election for their convertible promissory note. Using the fair value option, the convertible promissory note is required to be recorded at its initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the notes are recognized as a non-cash gain or loss on the statements of operations.
Warrant Liabilities
The Company accounts for the Warrants in accordance with the guidance contained in ASC 815-40 under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the Warrants as liabilities at their fair value and adjusts 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 statements of operations. The Private Warrants are valued using a Modified Black Scholes Option Pricing Model. The Public Warrants for periods where no observable traded price was available are valued using a Monte Carlo simulation. 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.
9
GROUP NINE ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Income Taxes
The Company accounts for income taxes under ASC 740, “Income Taxes.” ASC 740, Income Taxes, requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the unaudited condensed financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. As of September 30, 2022 and December 31, 2021, the Company’s deferred tax asset had a full valuation allowance recorded against it. The effective tax rate differs from the statutory tax rate of
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were
The Company has identified the United States as its only “major” tax jurisdiction. The Company is subject to income taxation by major taxing authorities since inception. These examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
Net Income Per Common Share
The Company has two classes of shares, which are referred to as Class A common stock and Class B common stock (the “Common Stock”). Earnings and losses are shared pro rata between the two classes of shares. Private and public warrants to purchase
Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | |||||||||||||||||||||
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Basic and diluted net income per share | ||||||||||||||||||||||||
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Allocation of net income | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Deemed Dividend | — | — | — | — | — | — | ( | ( | ||||||||||||||||
Allocable net income | $ | | $ | | $ | | $ | | $ | | $ | | $ | ( | $ | ( | ||||||||
Denominator: | ||||||||||||||||||||||||
Weighted-average shares outstanding | | | | |
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Basic and diluted net income per share | | | | | | | ( | ( |
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times may exceed the Federal Depository Insurance Corporation coverage limit of $
10
GROUP NINE ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximate the carrying amounts represented in the Company’s balance sheets, primarily due to their short-term nature.
Recent Accounting Standards
In August 2020, the 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 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 recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.
NOTE 3. INITIAL PUBLIC OFFERING
Pursuant to the Public Offering, the Company sold
All of the
Our Class A Common Stock are subject to SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99. If it is probable that the equity instrument will become redeemable, the Company has the option to either accrete changes in the redemption value over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of the instrument or to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The Company has elected to recognize the changes immediately. The accretion or remeasurement is treated as a deemed dividend (i.e., a reduction to retained earnings, or in absence of retained earnings, additional paid-in capital).
11
GROUP NINE ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
As of September 30, 2022 and December 31, 2021, the Class A Common Stock reflected on the balance sheets are reconciled in the following table:
Gross proceeds |
| $ | |
Less: | |||
Proceeds allocated to public warrants | $ | ( | |
Class A shares issuance costs | $ | ( | |
Plus: |
|
| |
Accretion of carrying value to redemption value | $ | | |
Contingently redeemable Class A Common Stock at December 31, 2021 | $ | | |
Plus: | |||
Accretion of carrying value to redemption value | $ | | |
Contingently redeemable Class A Common Stock at September 30, 2022 | $ | |
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the Public Offering, the Sponsor purchased an aggregate of
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
In November 2020, the Sponsor purchased
The Founder Shares include an aggregate of up
The initial stockholders have agreed, subject to limited exceptions, not to transfer, assign or sell any of their Founder Shares until the earlier to occur of: (A)
12
GROUP NINE ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
The sale or allocation of the Founders Shares to the Company’s director nominees and affiliates of its sponsor group, as described above, is within the scope of FASB ASC Topic 718, “Compensation-Stock Compensation” (“ASC 718”). Under ASC 718, stock-based compensation associated with equity-classified awards is measured at fair value upon the grant date. The fair value of the
The Sponsor, directors and consultants have agreed, subject to limited exceptions, not to transfer, assign or sell any of their Founder Shares until
On May 27, 2022, the Sponsor, Group Nine Media LLC, a Delaware limited liability company (the “Seller”) and 890 5th Avenue Partners, LLC (the “Buyer”) entered into a Membership Interest Purchase Agreement pursuant to which the Buyer agreed to assist in the completion of an initial business combination of the Company and the Seller delivered to the Buyer equity interests in the Sponsor (the “Subject Interests”) equivalent to
Solely with respect to the transfer of the Subject Interest, the Board of Directors of the Company has agreed to waive Section 7(a) of that certain Letter Agreement, dated January 14, 2021, among the Company and its officers, directors and Sponsor (the “Letter Agreement”), pursuant to which each insider agreed that it would not, transfer any Founder Shares (or shares of common stock issuable upon conversion thereof) (as defined in the Letter Agreement) until the earlier of (A)
Advances from Related Party and Due to Sponsor
As of September 30, 2022 and December 31, 2021, the Sponsor paid for certain offering and other operating costs on behalf of the Company amounting to $
13
GROUP NINE ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Promissory Note — Related Party
On November 9, 2020, the Sponsor agreed to loan the Company an aggregate of up to $
Convertible Promissory Note — Related Party
On March 29, 2021, the Sponsor agreed to loan the Company an aggregate of up to $
Related Party Loans
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 the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. 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, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $
NOTE 6. COMMITMENTS AND CONTINGENCIES
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 global pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, its results of 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.
Registration Rights
Pursuant to a registration rights agreement entered into on January 20, 2021, the Founder Shares, Private Warrants (and their underlying shares), and warrants (and their underlying shares) that may be issued upon conversion of Working Capital Loans and the shares of Class A common stock issuable upon exercise of the foregoing and upon conversion of the Founder Shares. The holders of the Founder Shares, Private Warrants, and warrants that may be issued upon conversion of Working Capital Loans (and in each case holders of their underlying shares, as applicable) will have registration rights to require the Company to register the sale of any of the securities held by them pursuant to a registration rights agreement. The holders of the majority of these securities will be entitled to certain demand rights that the Company register such securities for sale under the Securities Act. In addition, these holders will have certain “piggy-back” registration rights to include their securities in other registration statements filed subsequent to the completion of a Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
14
GROUP NINE ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Underwriting Agreement
The underwriters are entitled to a deferred fee of $
Attorney’s Fees
Pursuant to an agreement between the Company and its attorneys, certain fees have been deferred and will become payable only if the Company consummates a Business Combination. If a Business Combination does not occur, the Company will not be required to pay these contingent fees. As of the closing of the Public Offering, the amount of these contingent fees was approximately $
Agreement and Plan of Merger
On December 13, 2021, Group Nine Media, Inc. (“Group Nine Media”), the sole member of our Sponsor, entered into an Agreement and Plan of Merger by and between Vox Media Holdings, Inc. (“Vox Media”), Voyager Merger Sub, Inc., a subsidiary of Vox Media (“Merger Sub”), and Group Nine Media (the “Merger Agreement”). Pursuant to the Merger Agreement, Group Nine Media merged with the Merger Sub and became a wholly owned subsidiary of Vox Media (the “Merger”). The transaction closed on February 22, 2022.
As a result of the acquisition, Vox Media controls our Sponsor. Our Sponsor holds
Transaction Services Agreement
On May 27, 2022, Group Nine SPAC LLC entered into a Transaction Services Agreement with 890 5th Avenue Partners, LLC (the “Service Provider”) to provide business advisory services in relation to the pursuit of consummating a Business Combination. In consideration of these services the Company will pay $
NOTE 7. STOCKHOLDER’S DEFICIT
Preferred Stock—The Company is authorized to issue
Class A Common Stock—The Company is authorized to issue
15
GROUP NINE ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Class B Common Stock—The Company is authorized to issue
Only holders of Class B common stock will have the right to elect directors or remove directors prior to the completion of the initial Business Combination. These provisions in the Amended and Restated Certificate of Incorporation may only be amended by a resolution passed by the holders of a majority of the Class B common stock. Holders of the Class A common stock and holders of the Class B common stock of record are entitled to one vote for each share held on all other matters to be voted on by stockholders, including any vote in connection with the initial Business Combination, and vote together as a single class, except as required by law or the applicable rules of the stock exchange.
The shares of Class B common stock will automatically convert into shares of Class A common stock at the time of a Business Combination on a one-for-one basis, subject to adjustment. In the case that additional shares of Class A common stock, or equity-linked securities, are issued or deemed issued in excess of the amounts offered in the Public Offering and related to the closing of a Business Combination, the ratio at which shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate, on an as-converted basis,
NOTE 8. WARRANT LIABILITIES
Public Warrants may only be exercised for a whole number of shares. No fractional warrants will be issued upon separation of the Units and only whole warrants will trade. The Public Warrants will become exercisable on the later of (a)
The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the shares of Class A common stock underlying the warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration. No warrant will be exercisable and the Company will not be obligated to issue any shares of Class A common stock upon exercise of a warrant unless Class A common stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants.
The Company has agreed that as soon as practicable, but in no event later than
Redemptions of Warrants for Cash — Once the warrants become exercisable, the Company may redeem the Public Warrants:
● | in whole and not in part; |
16
GROUP NINE ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
● | at a price of $ |
● | upon not less than |
● | if, and only if, the reported last sale price of the Company’s Class A common stock equals or exceeds $ |
If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
Redemption of Warrants for Shares of Class A Common Stock — Once the warrants become exercisable, the Company may redeem the outstanding warrants:
● | in whole and not in part; |
● | at $ |
● | if, and only if, the last reported sale price of the Company’s Class A common stock equals or exceeds $ |
● | if the Reference Value is less than $ |
● | if, and only if, there is an effective registration statement covering the shares of Class A common stock issuable upon exercise of the warrants and a current prospectus relating thereto is available throughout the |
If the Company calls the Public Warrants for redemption for cash, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Class A common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of Class A common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
In addition, if (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of a Business Combination at an issue price or effective issue price of less than $
17
GROUP NINE ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
to
The Private Warrants are identical to the Public Warrants underlying the Units sold in the Public Offering, except that the Private Warrants and the Class A common stock issuable upon the exercise of the Private Warrants will not be transferable, assignable or salable until
NOTE 9. FAIR VALUE MEASUREMENTS
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1: | Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
Level 2: | Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. |
Level 3: | Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability. |
At September 30, 2022, assets held in the Trust Account were comprised of $
At December 31, 2021, assets held in the Trust Account were comprised of $
18
GROUP NINE ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at September 30, 2022 and December 31, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.
| September 30, |
| December 31, | ||||
| Level |
| 2022 |
| 2021 | ||
Assets: |
|
|
|
| |||
Cash and marketable securities held in Trust Account |
| 1 | $ | | |||
Derivative Liabilities: |
|
|
|
| |||
Warrant Liability – Public Warrants | 1 | $ | | ||||
Warrant Liability – Private Placement Warrants |
| 3 | $ | | |||
Convertible Promissory Note | 3 | $ | |
The Warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on our accompanying September 30, 2022 and December 31, 2021 condensed balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liabilities in the condensed statements of operations.
The Private Warrants were initially valued using a Modified Black Scholes Option Pricing Model, which is considered to be a Level 3 fair value measurement. The Modified Black Scholes model’s primary unobservable input utilized in determining the fair value of the Private Warrants is the expected volatility of the common stock. The expected volatility as of the Public Offering date was derived from observable Public warrant pricing on comparable ‘blank-check’ companies without an identified target. The expected volatility as of subsequent valuation dates was implied from the Company’s own Public Warrant pricing. A Monte Carlo simulation methodology was used in estimating the fair value of the Public Warrants for periods where no observable traded price was available, using the same expected volatility as was used in measuring the fair value of the Private Warrants. For periods subsequent to the detachment of the warrants from the Units, the close price of the Public Warrant price was used as the fair value as of each relevant date.
The following table presents the changes in the fair value of warrant liabilities:
| Private Placement |
| Public |
| Warrant Liabilities | ||||
Fair value as of December 31, 2021 | $ | | $ | | $ | | |||
Change in valuation inputs or other assumptions |
| ( |
| ( |
| ( | |||
Fair value as of September 30, 2022 | $ | | $ | | $ | |
Transfers to/from Levels
19
GROUP NINE ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
The estimated fair value of the Level 3 Private Placement and Public Warrants was based on the following significant inputs:
Private Placement | Private Placement | ||||||
Warrants | Warrants | ||||||
| September 30, 2022 |
| December 31, 2021 |
| |||
Risk-free interest rate |
| | % | | % | ||
Years |
| |
| |
| ||
Expected volatility |
| > | % | | % | ||
Exercise price |
| $ | |
| $ | |
|
Stock Price |
| $ | |
| $ | |
|
The estimated fair value of the Convertible Promissory Note was based on the following significant inputs:
| September 30, 2022 |
| December 31, 2021 |
| |||
Risk-free interest rate | $ | | % | $ | | % | |
Trading days per year | | | |||||
Expected volatility | | % |
| | % | ||
Exercise price | $ | | $ | | |||
Stock Price | $ | | $ | | |||
Probability of transaction | | % |
| | % |
The following table presents the changes in the fair value of the Level 3 Convertible Promissory Note:
| Convertible | ||
Promissory | |||
| Note | ||
Fair value as of December 31, 2021 | $ | | |
Change in valuation inputs or other assumptions |
| ( | |
Fair value as of September 30, 2022 | $ | |
There were
NOTE 10. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheets date up to the date that the condensed financial statements were issued. The Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed financial statements.
20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this report (the “Quarterly Report”) to “we,” “our,” “us” or the “Company” refer to Group Nine Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Group Nine SPAC LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Exchange Act that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) and our other filings with the SEC. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a blank check company formed under the laws of the State of Delaware on November 9, 2020, for the purpose of effecting a Business Combination. We intend to effectuate our Business Combination using cash from the proceeds of our Public Offering and the sale of the Private Placement Warrants, our capital stock, debt or a combination of cash, stock and debt.
On November 9, 2020, our Sponsor purchased an aggregate of 7,187,500 Founder Shares of our Class B common stock for an aggregate purchase price of $25,000 or approximately $0.003 per share. On November 19, 2020, we effectuated a 0.8-for-1 reverse split of the Founder Shares, resulting in an aggregate outstanding amount of 5,750,000 Founder Shares. Our Sponsor transferred an aggregate of 125,000 of its Founder Shares to the Initial Stockholders and a Consultant.
On January 20, 2021 (the “IPO Closing Date”), we consummated our Public Offering of 23,000,000 Units of the Company, including 3,000,000 Units issued pursuant to the exercise of the underwriter’s over-allotment option. Each Unit consists of one share of Class A common stock and one-third of one public Warrant, each whole Warrant entitling the holder thereof to purchase one share of Class A common stock at an exercise price of $11.50 per share of Class A common stock. The Units were sold at a price of $10.00 per share, generating gross proceeds to us of $230,000,000. Simultaneously with the IPO Closing Date, we completed the private sale of an aggregate of 2,840,000 warrants to our Sponsor at a price of $1.50 per Private Placement Warrant, each exercisable to purchase one share of Class A common stock at $11.50 per share, generating gross proceeds to us of $4,260,000. The Private Placement Warrants have terms and provisions that are identical to those of the public Warrants sold as part of the Units in the Public Offering, except that the Private Placement Warrants may be physical (cash) or net share (cashless) settled and are not redeemable so long as they are held by the Sponsor or its permitted transferees. The sale of the Private Placement Warrants was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
21
On the IPO Closing Date, $230,000,000 of the gross proceeds from the Public Offering and the sale of the Private Placement Warrants were deposited in the Trust Account with the Trustee. Of the $4,260,000 held outside of the Trust Account, $2,760,000 was used to pay underwriting discounts and commissions, $458,681 was used to repay notes payable to our Sponsor and advances from our Sponsor and the balance was available to pay accrued offering and formation costs, business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. Funds held in the Trust Account have been invested only in U.S. government treasury bills with a maturity of one hundred and eighty-five (185) days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended, that invest only in direct U.S. government obligations. Funds will remain in the Trust Account until the earliest of (i) the completion of the Business Combination; (ii) the redemption of any shares of Class A common stock properly tendered in connection with a stockholder vote to amend our amended and restated certificate of incorporation to modify the substance or timing of our obligation to redeem 100% of such shares of Class A common stock if we do not complete a Business Combination within 24 months from the IPO Closing Date and (iii) the redemption of 100% of the shares of Class A common stock if we are unable to complete a Business Combination within 24 months from the IPO Closing Date (subject to applicable law).
On March 8, 2021, we announced that the holders of our Units may elect to separately trade the Class A common stock and Warrants included in the Units on the NASDAQ under the symbols “GNAC” and “GNACW,” respectively. Those Units not separated will continue to trade on the NASDAQ under the symbol “GNACU.”
We may pursue a target business in any stage of its corporate evolution or in any industry, sector or geographic region.
We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to raise capital or to complete our initial Business Combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues to date. Our only activities from inception through September 30, 2022 were organizational activities and those necessary to prepare for our Public Offering, described below. 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 income on marketable securities held in the Trust Account. We expect that we will 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 in connection with searching for, and completing, a business combination.
For the three months ended September 30, 2022, we had net income of approximately $2.3 million, which consists of approximately $1 million derived from changes in fair value of warrant liabilities, interest earned on marketable securities held in Trust Account of approximately $1 million and approximately $0.8 million derived from the change in fair value of the convertible note, offset by operating costs of approximately $0.4 million and approximately $0.2 million derived from provision for income taxes.
For the nine months ended September 30, 2022, we had net income of approximately $5.2 million, which consists of approximately $4.9 million derived from the changes in fair value of the warrant liabilities, interest earned on marketable securities held in Trust Account of approximately $1.3 million and approximately $0.6 million derived from the change in fair value of the convertible note, offset by operating costs of approximately $1.4 million and approximately $0.2 million derived from provision for income taxes.
For the three months ended September 30, 2021, we had net income of approximately $5 million, which consists of approximately $5.2 million derived from changes in fair value of warrant liabilities, $0.14 million derived from the change in fair value of the convertible note, and interest earned on marketable securities held in Trust Account approximately $6 thousand, offset by operating costs of approximately $0.34 million.
For the nine months ended September 30, 2021, we had net income of approximately $5.2 million, which consists of approximately $7.2 million derived from changes in fair value of warrant liabilities, $0.13 million derived from the change in fair value of the convertible note and interest earned on marketable securities held in Trust Account approximately $16 thousand, offset by operating costs of approximately $1.5 million.
22
Liquidity, Capital Resources and Going Concern
On January 20, 2021, the Company consummated the Public Offering of 23,000,000 Units, which includes the full exercise by underwriter of its over-allotment option in the amount of 3,000,000 Units, at $10.00 per Unit, generating gross proceeds of $230,000,000. Simultaneously with the closing of the Public Offering, the Company consummated the sale of 2,840,000 Private Placement Warrants at a price of $1.50 per Private Placement Warrant in a private placement to the Sponsor, generating gross proceeds of $4,260,000.
Following the Public Offering, the full exercise of the over-allotment option, and the sale of the Private Placement Warrants, a total of $230,000,000 was placed in the Trust Account. We incurred $13,156,274 in transaction costs, including $2,760,000 of underwriting fees, net of reimbursement, $9,890,000 of deferred underwriting fees and $506,274 of other offering costs.
For the nine months ended September 30, 2022, net cash used by operating activities was approximately $0.66 million. Net income of approximately $5.2 million was affected by noncash items such as the change in fair value of the warrant liabilities of approximately $4.9 million, change in fair value of convertible promissory notes of approximately $0.6 million, and interest earned on marketable securities held in trust account of approximately $1.3 million. Changes in operating assets and liabilities provided approximately $0.98 million of cash from operating activities.
For the nine months ended September 30, 2021, net cash provided by operating activities was approximately $2.2 million. Net income of $5.2 million was affected by noncash items such as the change in fair value of the warrant liability of $7.2 million, change in fair value of convertible promissory notes of $0.13 million, interest earned on marketable securities held in trust account of $16 thousand and transaction costs associated with the Initial Public Offering of $0.6 million. Changes in operating assets and liabilities used $0.7 million of cash from operating activities.
At September 30, 2022, we had cash held in the Trust Account of $231,349,593. We are using substantially all of the funds held in the trust account, including any amounts representing interest earned on the trust account (less deferred underwriting commissions and income taxes payable), to complete our business combination. To the extent that our share capital 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.
At September 30, 2022, we had cash of $69,053 held outside of the Trust Account. We are using the funds held outside the trust account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a business combination.
In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete a Business Combination, we may repay such loaned amounts out of the proceeds of the Trust Account released to us. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts, but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such 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.
As of September 30, 2022, the Company had approximately $69,000 in cash and working capital deficit of approximately $3,628,450 (not taking into account franchise and income tax obligations of $583,085 that may be paid using investment income earned in the Trust Account).
In connection with the Company’s assessment of going concern considerations in accordance with FASB ASC Topic 205-40, “Presentation of Financial Statements-Going Concern,” management has evaluated the Company’s liquidity and financial condition and determined that it may not be sufficient to meet the Company’s obligation over the period of twelve months from the issuance date of the financial statements. The Company’s sponsor has agreed to provide support to enable the Company to continue its operations and meet its potential obligations over a period of one year from the issuance date of these financial statements.
23
Management believes current working capital, and the support from its Sponsor, provides sufficient capital to sustain operations for a reasonable period of time, which is considered to be one year from the issuance date of those financial statements and therefore substantial doubt has been alleviated.
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 described below.
The underwriters are entitled to a deferred fee of $0.35 per Unit, or $9,890,000. 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. Additionally, the deferred fee includes an additional $0.08 per unit, or $1,840,000 in the aggregate that was due in December 2021. In December 2021, the Company paid $1,825,600 to the underwriters. The fees were paid by the Sponsor and are included as a liability, due to the Sponsor on the balance sheets.
Pursuant to an agreement between the Company and its attorneys, certain fees have been deferred and will become payable only if the Company consummates a Business Combination. If a Business Combination does not occur, the Company will not be required to pay these contingent fees. As of the closing of the Public Offering, the amount of these contingent fees was approximately $342,690. There can be no assurances that the Company will complete a Business Combination.
Critical Accounting Policies
The preparation of 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.
Class A Common Stock Subject to Possible Redemption
We account for our Class A common stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Shares of Class A common stock subject to mandatory redemption, if any, are classified as a liability instrument and are measured at fair value. Conditionally redeemable common stock (including common stock that feature redemption rights that is 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 stockholders’ deficit. 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, shares of Class A common stock subject to possible redemption are presented as temporary equity, outside of the stockholders’ deficit section of our balance sheets.
Warrant Liabilities
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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 statements of operations. The Private Placement Warrants and the public Warrants for periods where no observable traded price was available are valued using a Monte Carlo simulation. 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.
Net Income Per Common Share
The Company has two classes of shares, which are referred to as Class A common stock and Class B common stock (the “Common Stock”). Earnings and losses are shared pro rata between the two classes of shares. Private and public warrants to purchase 10,506,667 shares of Common Stock at $11.50 per share were issued on January 20, 2021. No warrants were exercised during the three months ended September 30, 2022. The 10,506,667 potential common shares for outstanding warrants to purchase the Company’s stock were excluded from diluted earnings per share for the three and nine months ended September 30, 2022 and 2021, as the exercise price of the warrants was less than the average market price for the period. For the nine months ended September 30, 2021, the deemed dividend associated with the redeemable shares of Class A common stock is included in income per common share in the Public Offering quarter and year to date calculation in which the Public Offering occurred. As a result, diluted net income per common share is the same as basic net income per common share for the period.
Recent Accounting Standards
In August 2020, the 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 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 recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of September 30, 2022, we were not subject to any market or interest rate risk. Following the consummation of the Public Offering, the net proceeds of the Public Offering, including amounts in the Trust Account, have been invested in U.S. government treasury bills, notes or bonds with a maturity of 185 days or less or in certain money market funds that invest solely in U.S. treasuries. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2022. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective.
Remediation of a Material Weakness in Internal Control over Financial Reporting
We recognize the importance of the control environment as it sets the overall tone for the Company and is the foundation for all other components of internal control. Consequently, we designed and implemented remediation measures to address the previously identified material weakness related to the Company’s financial reporting of complex financial instruments and enhance our internal control over financial reporting. In light of the material weakness, we enhanced our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our financial statements, including providing additional resources and enhanced access to accounting literature, research materials and documents. The foregoing actions were completed as of September 30, 2022, and we believe we have remediated the prior material weakness in internal control over financial reporting.
Changes in Internal Control over Financial Reporting
Except as described above, there was no change in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2022 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
Certain factors may have a material adverse effect on our business, financial condition and results of operation. An investment in our securities involves a high degree of risk. You should carefully consider the risk factors and other cautionary statements described below and under the heading “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 31, 2022 (“Form 10-K”), our Quarterly Report on Form 10-Q for the three months ended March 31, 2022 (“Q1 Form 10-Q”), filed with the SEC on May 11, 2022), and our Quarterly Report on Form 10-Q for the six months ended June 30, 2022 (“Q2 Form 10-Q”) filed with the SEC on August 15, 2022, which could materially affect our businesses, financial condition, or future results.
We may be subject to a new 1% U.S. federal excise tax in connection with redemptions of our stock.
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into law. The IR Act provides for, among other measures, a new 1% U.S. federal excise tax on certain repurchases (including redemptions) of stock by publicly traded domestic (i.e., U.S.) corporations. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from whom the shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased. For purposes of calculating the excise tax, however, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury Department”) has been given authority to provide regulations and other guidance to carry out, and prevent the abuse or avoidance of, the excise tax. The IR Act applies only to repurchases that occur after December 31, 2022.
Any redemption or other repurchase effected by us that occurs after December 31, 2022, in connection with a business combination or otherwise, may be subject to this excise tax. Whether and to what extent we would be subject to the excise tax in connection with a business combination will depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the business combination, (ii) the nature and amount of any PIPE financing or other equity issuances in connection with the business combination (or any other equity issuances within the same taxable year of the business combination) and (iii) the content of any regulations and other guidance issued by the Treasury Department and/or the Internal Revenue Service. In addition, because the excise tax would be payable by us and not by the redeeming holder, it could cause a reduction in the value of our stock. Further, the application of the excise tax in the event of a liquidation is uncertain, and it is possible that the proceeds held in the Trust Account (in the event we are unable to complete a business combination in the required time and redeem 100% of our public shares in accordance with our amended and restated certificate of incorporation) could be subject to the excise tax, in which case the amount that would otherwise be received by our stockholders in connection with our liquidation may be reduced.
If we are deemed to be an investment company for purposes of the Investment Company Act, we would be required to institute burdensome compliance requirements and our activities would be severely restricted. As a result, in such circumstances, we would expect to abandon our efforts to complete an initial Business Combination and instead to liquidate the Company.
Certain recent SEC rule proposals (the “SPAC Rule Proposals”) relate, among other matters, to the circumstances in which SPACs such as the Company could potentially be subject to the Investment Company Act and the regulations thereunder. The SPAC Rule Proposals would provide a safe harbor for such companies from the definition of “investment company” under Section 3(a)(1)(A) of the Investment Company Act, provided that a SPAC satisfies certain criteria, including a limited time period to announce and complete a de-SPAC transaction. Specifically, to comply with the safe harbor, the SPAC Proposed Rule would require a company to file a report on Form 8-K announcing that it has entered into an agreement with a target company for a Business Combination no later than 18 months after the effective date of its registration statement for its initial public offering (the “IPO Registration Statement”). The company would then be required to complete its initial Business Combination no later than 24 months after the effective date of the IPO Registration Statement.
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Because the SPAC Rule Proposals have not yet been adopted, there is currently uncertainty concerning the applicability of the Investment Company Act to a SPAC, including a company like ours that does not complete its Business Combination within 24 months after the effective date of the IPO Registration Statement
If we are deemed to be an investment company under the Investment Company Act, our activities would be severely restricted, including:
● | restrictions on the nature of our investments; and |
● | restrictions on the issuance of securities. |
In addition, we would be subject to burdensome compliance requirements, including:
● | registration as an investment company with the SEC; |
● | adoption of a specific form of corporate structure; and |
● | reporting, record keeping, voting, proxy and disclosure requirements and other rules and regulations that we are currently not subject to. |
We do not believe that our principal activities will subject us to regulation as an investment company under the Investment Company Act. However, if we are deemed to be an investment company and subject to compliance with and regulation under the Investment Company Act, we would be subject to additional regulatory burdens and expenses for which we have not allotted funds. As a result, if we are deemed to be an investment company under the Investment Company Act, we would expect to abandon our efforts to complete an initial business combination and instead to liquidate the Company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On November 9, 2020, our Sponsor purchased 7,187,500 Founder Shares for an aggregate purchase price of $25,000, or approximately $0.003 per share. On November 19, 2020, we effectuated a 0.8-for-1 reverse split of the Founder Shares, resulting in an aggregate outstanding amount of 5,750,000 Founder Shares. Subsequently, our Sponsor transferred an aggregate of 125,000 Founder Shares to our independent directors and consultants.
In connection with the closing of our Public Offering and the underwriters exercise of the over-allotment, we completed the private sale of an aggregate of 2,840,000 Private Placement Warrants to our Sponsor at a price of $1.50 per Private Placement Warrant, generating total proceeds, before expenses, of $4,260,000. The Private Placement Warrants have terms and provisions that are identical to those of the public Warrants sold as part of the Units in the Public Offering, except that the Private Placement Warrants may be physical (cash) or net share (cashless) settled and are not redeemable so long as they are held by the Sponsor or its permitted transferees. If the Private Placement Warrants are held by holders other than our Sponsor or its permitted transferees, the Private Placement Warrants will be redeemable by us and exercisable by the holders on the same basis as the Warrants.
The sales of the above securities by the Company were exempt from registration under the Securities Act, in reliance on Section 4(a)(2) of the Securities Act as transactions by an issuer not involving a public offering.
Use of Proceeds
On January 14, 2021, our registration statement on Form S-1 (File No. 333-251560) was declared effective by the SEC for the Public Offering pursuant to which we sold an aggregate of 23,000,000 Units at an offering price to the public of $10.00 per Unit, including 3,000,000 Units as a result of the underwriter’s full exercise of its over-allotment option, generating gross proceeds of $230,000,000.
After deducting the underwriting discounts and commissions (excluding the deferred underwriting commissions, which amount will be payable upon the consummation of our Business Combination, if consummated) and the estimated offering expenses, the total
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net proceeds from our Public Offering and the sale of the Private Placement Warrants were $234,260,000, of which $230,000,000 (or $10.00 per share sold in the Public Offering) was placed in the Trust Account in the United States maintained by the Trustee.
Through September 30, 2022, we incurred $506,274 for costs and expenses related to the Public Offering. At the IPO Closing Date, we paid a total of $2,760,000 in underwriting discounts and commissions. In addition, the underwriters agreed to defer approximately $8,064,000 in underwriting commissions, which amount will be payable upon consummation of our Business Combination, if consummated. There has been no material change in the planned use of proceeds from our Public Offering as described in our final prospectus dated January 14, 2021 which was filed with the SEC.
Our Sponsor, executive officers and directors have agreed, and our amended and restated certificate of incorporation provides, that we will have only 24 months from the IPO Closing Date to complete our Business Combination. If we are unable to complete our Business Combination within such 24-month period, 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 our Trust Account, including interest (which interest shall be net of taxes payable, and less 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 stockholder’s rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our Board, dissolve and liquidate, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
As of September 30, 2022, $231,349,593 was held in the Trust Account, and we had approximately $69,053 of unrestricted cash available to us for our activities in connection with identifying and conducting due diligence of a suitable Business Combination, and for general corporate matters.
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Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
No. |
| Description of Exhibit |
31.1* | ||
31.2* | ||
32.1** | ||
32.2** | ||
101.INS* | Inline XBRL Instance Document | |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | Inline XBRL Taxonomy Extension Labels Linkbase Document | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104* | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* | Filed herewith. |
** | Furnished. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GROUP NINE ACQUISITION CORP. | ||
Date: November 10, 2022 | By: | /s/ Sean Macnew |
Name: | Sean Macnew | |
Title: | Chief Financial Officer | |
(Principal Financial Officer) | ||
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