Item 2. Management’s Discussion and Analysis
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References
to the “Company,” “us,” “our” or “we” refer Northern Lights Acquisition Corp. The following
discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited Condensed
financial statements and related notes included herein.
Cautionary
Note Regarding Forward-Looking Statements
All
statements other than statements of historical fact included in this Form 10-Q including, without limitation, statements under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business
strategy and the plans and objectives of management for future operations, are forward- looking statements. When used in this Form 10-Q,
words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and
similar expressions, as they relate to us or the Company’s management, identify forward-looking statements. Such forward-looking
statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s
management. Actual results could differ materially from those contemplated by the forward- looking statements as a result of certain
factors detailed in our filings with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons
acting on the Company’s behalf are qualified in their entirety by this paragraph.
Overview
The
Company is a blank check company formed under the laws of the State of Delaware on February 26, 2021 for the purpose of effecting a merger,
share exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. The Company
intends to effectuate its initial Business Combination using cash from the proceeds of Public Offering and the Private Placement, the
proceeds of the sale of our securities in connection with our initial Business Combination, our shares, debt or a combination of cash,
stock and debt.
The
issuance of additional shares in connection with an initial Business Combination to the owners of the target or other investors:
●
may
significantly dilute the equity interest of investors, which dilution would increase if the anti-dilution provisions in the Class
B common stock resulted in the issuance of Class A shares on a greater than one -to-one basis upon conversion of the Class B common
stock;
●
may
subordinate the rights of holders of our common stock if preferred stock is issued with rights senior to those afforded our common
stock;
●
could
cause a change in control if a substantial number of shares of our common stock is issued, which may affect, among other things,
our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers
and directors;
●
may
have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person
seeking to obtain control of us; and
●
may
adversely affect prevailing market prices for our Class A common stock and/or warrants.
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Similarly,
if we issue debt securities or otherwise incur significant debt to bank or other lenders or the owners of a target, it could result in:
●
default
and foreclosure on our assets if our operating revenues after an initial Business Combination are insufficient to repay our debt
obligations;
●
acceleration
of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants
that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;
●
our
immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand;
●
our
inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such
financing while the debt security is outstanding;
●
our
inability to pay dividends on our common stock;
●
using
a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends
on our common stock if declared, our ability to pay expenses, make capital expenditures and acquisitions, and fund other general
corporate purposes;
●
limitations
on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
●
increased
vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;
●
limitations
on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, and execution
of our strategy; and
●
other
purposes and other disadvantages compared to our competitors who have less debt.
We
expect to continue to incur significant costs in the pursuit of our initial Business Combination 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 revenues to date. Our only activities from inception to September 30,
2021 were organizational activities, those necessary to prepare for the Initial Public Offering (“Initial Public Offering”)
and identifying a target company for a business combination. We do not expect to generate any operating revenues until after the completion
of our business combination. We expect to generate non-operating income in the form of interest income on cash and marketable securities
held after the Initial Public Offering. 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 completing a business
combination.
For
the period from February 26, 2021 (inception) through September 30, 2021, we had a net income of $1,816,276, which consists of unrealized
gain from marketable securities held in the Trust Account of $11,591, change in fair value of warrant liabilities of $2,321,752
offset by operating costs of $255,229 and offering costs allocated to warrants of $261,838.
For
the three months ended September 30, 2021, we had a net income of $3,560,797, which consists of unrealized gain from marketable
securities held in the Trust Account of $21,068, change in fair value of warrant liabilities of $3,784,058 offset by operating
costs of $244,329.
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Liquidity
and Capital Resources
On
June 28, 2021, we consummated the Initial Public Offering of 11,500,000 Units, which includes the full exercise by the underwriter of
the over-allotment option to purchase 1,500,000 Units at $10.00 per Unit, generation gross proceeds of $115,000,000. Simultaneously with
the closing of the Initial Public Offering, we consummated the sale of 528,175 Private Placement Units at $10.00 per Private Placement
Unit to our Sponsor, generation gross proceeds of $5,281,750.
Transaction
costs of the Initial Public Offering amounted to $6,263,677 consisting of $1,725,000 of underwriting fees, $4,025,000 of deferred underwriting
fees (see Note 5) and $513,677 of other costs.
As
of September 30, 2021, we had available to us $330,240 of cash on our balance sheet and a working capital of $512,844. We intend to use
the funds held outside of the Trust Account for identifying and evaluating prospective acquisition candidates, performing business due
diligence on prospective target businesses, traveling to and from the offices, plants or similar locations of prospective target businesses,
reviewing corporate documents and material agreements of prospective target businesses, selecting the target business to acquire and
structuring, negotiating and consummating the Business Combination. The interest income earned on the investments in the Trust Account
are unavailable to fund operating expenses.
In
order to finance transaction costs in connection with the 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 the Business Combination, the Company would repay such loaned amounts. In the event that
the Business Combination does not close, the Company may use a portion of the working capital held outside the trust account to repay
such loaned amounts but no proceeds from the trust account would be used for such repayment. Up to $1,500,000 of such 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 issued
to the Sponsor. The terms of such loans by the Company’s officers and directors, if any, have not been determined and no written
agreements exist with respect to such loans. The Company does not expect to seek loans from parties other than the Sponsor or its directors
or officers or their respective affiliates as it does not believe third parties will be willing to loan such funds and provide a waiver
against any and all rights to seek access to funds in the trust account.
If
the Company anticipates that it may not be able to consummate a Business Combination within 12 months, the Company may, by resolution
of the Company’s board if requested by the Sponsor, extend the period of time to consummate a Business Combination up to two times,
each by an additional three months (for a total of up to 18 months to complete a Business Combination), subject to the Sponsor depositing
additional funds into the Trust Account as set out below. Pursuant to the terms of the Company’s amended and restated certificate
of incorporation and the trust agreement entered into between the Company and Continental Stock Transfer & Trust Company, in order
for the time available for the Company to consummate the initial Business Combination to be extended, the Sponsor or its affiliates or
designees, upon five business days advance notice prior to the applicable deadline, must deposit into the Trust Account $1,150,000 since
the underwriters’ over-allotment option is exercised in full ($0.10 per unit), on or prior to the date of the applicable deadline,
for each of the available three month extensions, providing a total possible Business Combination period of 18 months at a total payment
value of $2,300,000 since the underwriters’ over-allotment option is exercised in full ($0.10 per unit ) (the “Extension
Loans”). Any such payments would be made in the form of non-interest bearing loans. If the Company completes its initial Business
Combination, the Company will, at the option of the Sponsor, repay the Extension Loans out of the proceeds of the Trust Account released
to the Company or convert a portion or all of the total loan amount into units at a price of $10.00 per unit, which units will be identical
to the Private Placement Units. If the Company does not complete a Business Combination, the Company will repay such loans only from
funds held outside of the Trust Account. Furthermore, the letter agreement among the Company and the Company’s officers, directors,
and the Sponsor contains a provision pursuant to which the Sponsor will agree to waive its right to be repaid for such loans to the extent
there is insufficient funds held outside of the Trust Account in the event that the Company does not complete a Business Combination.
The Sponsor and its affiliates or designees are not obligated to fund the Trust Account to extend the time for the Company to complete
the initial Business Combination. The public stockholders will not be afforded an opportunity to vote on the extension of time to consummate
an initial Business Combination from 12 months to 18 months described above or redeem their shares in connection with such extensions.
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Off-Balance
Sheet Financing Arrangements
We
have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. 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 any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments
of other entities, or entered any non-financial assets.
Contractual
Obligations
We
do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities. Commencing on the date
of the prospectus and until completion of the Company’s Business Combination or liquidation, the Company may reimburse Luminous
Capital Inc., an affiliate of the Sponsor, up to an amount of $10,000 per month for office space, secretarial and administrative support.
The
Underwriter was paid a cash underwriting fee of 1.5% of gross proceeds of the Public Offering, or $1,725,000. In addition, the Underwriter
is entitled to aggregate deferred underwriting commissions of $4,025,000 consisting of 3.5% of the gross proceeds of the Public Offering.
The deferred underwriting commissions will become payable to the Underwriter from the amounts held in the Trust Account solely in the
event that the Company completes an initial Business Combination, subject to the terms of the underwriting agreement.
Critical
Accounting Policies
The
preparation of financial statements and related disclosures in conformity with GAAP requires the Company’s management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date
of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates.
The Company has identified the following as its critical accounting policies:
Use
of Estimates
The
preparation of condensed financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting periods.
Making
estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of
a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating
its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ
significantly from those estimates.
Financial
Instruments
The
Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal
or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy
distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
Level
1 Inputs: Unadjusted quoted prices for identical assets or instruments in active markets.
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Level
2 Inputs: Quoted prices for similar instruments in active markets and quoted prices for identical or similar instruments in markets that
are not active and model derived valuations whose inputs are observable or whose significant value drivers are observable.
Level
3 Inputs: Significant inputs into the valuation model are unobservable.
Net
Income (Loss) Per Share of Common Stock
Net
income (loss) per share is computed by dividing net income (loss) by the weighted average number of common stock shares outstanding for
the period. The calculation of diluted income (loss) per share does not consider the effect of the warrants issued in connection with
the Initial Public Offering and warrants issued as components of the Private Placement Units (the “Placement Warrants”) since
the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive.
The
Company applies the two-class method in calculating earnings per share. The contractual formula utilized to calculate the redemption
amount approximates fair value. The Class feature to redeem at fair value means that there is effectively only one class of stock. Changes
in fair value are not considered a dividend of the purposes of the numerator in the earnings per share calculation. Net income per common
share is computed by dividing the pro rata net loss between the redeemable shares and the non-redeemable shares by the weighted average
number of common shares outstanding for each of the periods. The calculation of diluted income per common stock does not consider the
effect of the warrants issued in connection with the IPO since the exercise of the warrants are contingent upon the occurrence of future
events and the inclusion of such warrants would be anti-dilutive. The warrants are exercisable for 6,014,088 shares of common
stock in the aggregate.
Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. For derivative financial instruments that are accounted
for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each
reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.
Derivative liabilities are classified in the balance sheet as current or non-current based on whether net-cash settlement or conversion
of the instrument could be required within 12 months of the balance sheet date.
Class
A Common stock subject to possible redemption
The
Company accounts for its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification
(“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption (if
any) is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock
that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of events
not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’
equity. The Company’s common stock features certain redemption rights that are outside of the Company’s control and subject
to occurrence of uncertain future events. Accordingly, at September 30, 2021, as there are 528,175 shares of Class A Common Stock outstanding,
11,500,000 shares of Class A Common Stock are subject to possible redemption.
Recent
Accounting Pronouncements
In
August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, “Debt—Debt with Conversion and
Other Options(Subtopic 470- 0) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting
for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies accounting
for convertible instruments by removing major separation models required under current U.S. GAAP. The ASU also removes certain settlement
conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted
earnings per share calculation in certain areas. ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified
retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is currently assessing the impact, if any,
that ASU 2020-06 would have on its financial position, results of operations or cash flows.
Management
does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a
material effect on the Company’s financial statements.
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