UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period
from to
Commission File Number: 001-39903
AUTHENTIC EQUITY ACQUISITION CORP.
(Exact name of registrant as specified in its
charter)
Cayman Islands |
|
98-1562072 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification Number) |
32 Elm Place, 2nd Floor
Rye, NY 10580
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (646)
374-0919
Not Applicable
(Former name or former address, if changed since last
report)
Securities registered pursuant to Section 12(b) of the
Act:
Title of Each
Class: |
|
Trading Symbol: |
|
Name of Each Exchange on Which
Registered: |
Class A ordinary shares included as part of the
units |
|
AEAC |
|
The Nasdaq Stock Market LLC |
Warrants included as part of the Units, each
whole warrant exercisable for one Class A ordinary share at an
exercise price of $11.50 |
|
AEACW |
|
The Nasdaq Stock Market LLC |
Units, each consisting of one Class A ordinary
share, $0.0001 par value, and one-half of one redeemable
warrant |
|
AEACU |
|
The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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 ☒ No
☐
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). Yes ☒ No
☐
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 the
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
☐ |
|
Accelerated filer ☐ |
Non-accelerated filer
☒ |
|
Smaller reporting company
☒ |
|
|
Emerging growth company
☒ |
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 ☒ No
☐
As of August 10, 2022, there were 23,000,000 Class A ordinary
shares, par value $0.0001, and 7,000,000 Class B ordinary shares,
par value $0.0001, issued and outstanding.
AUTHENTIC EQUITY ACQUISITION CORP.
Quarterly Report on Form 10-Q
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
AUTHENTIC EQUITY ACQUISITION CORP.
CONDENSED BALANCE SHEETS
|
|
June 30,
2022 |
|
|
December 31,
2021 |
|
|
|
(Unaudited) |
|
|
|
|
Assets |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash |
|
$ |
50,175 |
|
|
$ |
442,162 |
|
Prepaid expenses |
|
|
156,805 |
|
|
|
233,630 |
|
Total current assets |
|
|
206,980 |
|
|
|
675,792 |
|
Investments held in Trust Account |
|
|
230,334,409 |
|
|
|
230,021,742 |
|
Total Assets |
|
$ |
230,541,389 |
|
|
$ |
230,697,534 |
|
|
|
|
|
|
|
|
|
|
Liabilities, Class A Ordinary Shares Subject to Possible
Redemption, and Shareholders’ Deficit |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
113,648 |
|
|
$ |
170,379 |
|
Accounts payable - related party |
|
|
10,000 |
|
|
|
10,000 |
|
Accrued expenses |
|
|
750,944 |
|
|
|
696,356 |
|
Total current liabilities |
|
|
874,592 |
|
|
|
876,735 |
|
Deferred underwriting commissions |
|
|
8,050,000 |
|
|
|
8,050,000 |
|
Derivative liabilities |
|
|
1,891,600 |
|
|
|
9,810,600 |
|
Total Liabilities |
|
|
10,816,192 |
|
|
|
18,737,335 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A ordinary shares subject to possible redemption, $0.0001 par
value; 23,000,000 shares issued and outstanding at $10.01 and
$10.00 per share redemption value as of June 30, 2022 and December
31, 2021, respectively |
|
|
230,234,409 |
|
|
|
230,000,000 |
|
|
|
|
|
|
|
|
|
|
Shareholders’ Deficit |
|
|
|
|
|
|
|
|
Preference
shares, $0.0001 par value; 1,000,000 shares authorized;
none
issued or outstanding as of June 30, 2022 and December 31,
2021 |
|
|
-
|
|
|
|
-
|
|
Class A
ordinary shares, $0.0001 par value; 300,000,000 shares authorized;
no
non-redeemable shares issued or outstanding as of June 30, 2022 and
December 31, 2021 |
|
|
-
|
|
|
|
- |
|
Class B
ordinary shares, $0.0001 par value; 30,000,000 shares authorized;
7,000,000 shares issued and outstanding as of June 30, 2022 and
December 31, 2021 (1) |
|
|
700 |
|
|
|
700 |
|
Accumulated deficit |
|
|
(10,509,912 |
) |
|
|
(18,040,501 |
) |
Total shareholders’ deficit |
|
|
(10,509,212 |
) |
|
|
(18,039,801 |
) |
Total Liabilities, Class A Ordinary Shares Subject to Possible
Redemption and Shareholders’ Deficit |
|
$ |
230,541,389 |
|
|
$ |
230,697,534 |
|
(1) |
Class B ordinary shares amount includes up to
1,250,000 Class B ordinary shares subject to forfeiture depending
on the number of units purchased under the Forward Purchase
Agreement. |
The accompanying notes are an integral part of these unaudited
condensed financial statements.
AUTHENTIC EQUITY ACQUISITION CORP.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
|
|
June 30,
2022 |
|
|
June 30,
2021 |
|
|
June 30,
2022 |
|
|
June 30,
2021 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses |
|
$ |
133,950 |
|
|
$ |
215,787 |
|
|
$ |
406,669 |
|
|
$ |
802,642 |
|
Administrative fee - related party |
|
|
30,000 |
|
|
|
30,000 |
|
|
|
60,000 |
|
|
|
53,871 |
|
Loss from operations |
|
|
(163,950 |
) |
|
|
(245,787 |
) |
|
|
(466,669 |
) |
|
|
(856,513 |
) |
Other income (expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative assets and liabilities |
|
|
3,459,800 |
|
|
|
(4,057,700 |
) |
|
|
7,919,000 |
|
|
|
4,822,100 |
|
Offering costs allocated to issuance of Public Warrants and Private
Placement Warrants |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(701,682 |
) |
Loss on excess of fair value over cash received for Private
Placement Warrants |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,352,500 |
) |
Net gain from investments held in Trust Account |
|
|
292,161 |
|
|
|
5,734 |
|
|
|
312,667 |
|
|
|
10,146 |
|
Net income (loss) |
|
$ |
3,588,011 |
|
|
$ |
(4,297,753 |
) |
|
$ |
7,764,998 |
|
|
$ |
1,921,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding of Class A ordinary shares,
basic and diluted
|
|
|
23,000,000 |
|
|
|
23,000,000 |
|
|
|
23,000,000 |
|
|
|
20,585,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) per share, Class A ordinary
shares
|
|
$ |
0.12 |
|
|
$ |
(0.15 |
) |
|
$ |
0.27 |
|
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding of Class B ordinary shares,
basic (1) |
|
|
5,750,000 |
|
|
|
5,750,000 |
|
|
|
5,750,000 |
|
|
|
5,671,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding of Class B ordinary shares,
diluted (1) |
|
|
5,750,000 |
|
|
|
5,750,000 |
|
|
|
5,750,000 |
|
|
|
5,750,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) per share, Class B ordinary
shares
|
|
$ |
0.12 |
|
|
$ |
(0.15 |
) |
|
$ |
0.27 |
|
|
$ |
0.07 |
|
(1) |
These numbers exclude up to 1,250,000 Class B
ordinary shares subject to forfeiture depending on the number of
units purchased under the Forward Purchase
Agreement. |
The accompanying notes are an integral part of these unaudited
condensed financial statements.
AUTHENTIC EQUITY ACQUISITION CORP.
UNAUDITED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’
DEFICIT
For the Three and Six Months Ended June 30, 2022
|
|
Ordinary Shares |
|
|
Additional |
|
|
|
|
|
Total |
|
|
|
Class A |
|
|
Class B |
|
|
Paid-in |
|
|
Accumulated |
|
|
Shareholders’ |
|
|
|
Shares |
|
|
Amount |
|
|
Shares
(1) |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Deficit |
|
Balance - December 31, 2021 |
|
|
- |
|
|
$ |
-
|
|
|
|
7,000,000 |
|
|
$ |
700 |
|
|
$ |
-
|
|
|
$ |
(18,040,501 |
) |
|
$ |
(18,039,801 |
) |
Net income |
|
|
- |
|
|
|
-
|
|
|
|
- |
|
|
|
-
|
|
|
|
-
|
|
|
|
4,176,987 |
|
|
|
4,176,987 |
|
Balance - March 31, 2022 (unaudited) |
|
|
- |
|
|
|
-
|
|
|
|
7,000,000 |
|
|
|
700 |
|
|
|
-
|
|
|
|
(13,863,514 |
) |
|
|
(13,862,814 |
) |
Accretion on Class A ordinary shares subject to possible redemption
amount |
|
|
- |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(234,409 |
) |
|
|
(234,409 |
) |
Net income |
|
|
- |
|
|
|
-
|
|
|
|
- |
|
|
|
-
|
|
|
|
-
|
|
|
|
3,588,011 |
|
|
|
3,588,011 |
|
Balance - June 30, 2022 (unaudited) |
|
|
- |
|
|
$ |
-
|
|
|
|
7,000,000 |
|
|
$ |
700 |
|
|
$ |
-
|
|
|
$ |
(10,509,912 |
) |
|
$ |
(10,509,212 |
) |
For the Three and Six Months Ended June 30, 2021
|
|
Ordinary Shares |
|
|
Additional |
|
|
|
|
|
Total |
|
|
|
Class A |
|
|
Class B |
|
|
Paid-in |
|
|
Accumulated |
|
|
Shareholders’ |
|
|
|
Shares |
|
|
Amount |
|
|
Shares
(1) |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Deficit |
|
Balance - December 31, 2020 |
|
|
- |
|
|
$ |
-
|
|
|
|
7,000,000 |
|
|
$ |
700 |
|
|
$ |
24,300 |
|
|
$ |
(34,249 |
) |
|
$ |
(9,249 |
) |
Accretion on Class A ordinary shares subject to possible redemption
amount |
|
|
- |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(24,300 |
) |
|
|
(24,968,640 |
) |
|
|
(24,992,940 |
) |
Net income |
|
|
- |
|
|
|
-
|
|
|
|
- |
|
|
|
-
|
|
|
|
-
|
|
|
|
6,219,304 |
|
|
|
6,219,304 |
|
Balance - March 31, 2021 (unaudited) |
|
|
- |
|
|
|
-
|
|
|
|
7,000,000 |
|
|
|
700 |
|
|
|
-
|
|
|
|
(18,783,585 |
) |
|
|
(18,782,885 |
) |
Net loss |
|
|
- |
|
|
|
-
|
|
|
|
- |
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,297,753 |
) |
|
|
(4,297,753 |
) |
Balance - June 30, 2021 (unaudited) |
|
|
- |
|
|
$ |
-
|
|
|
|
7,000,000 |
|
|
$ |
700 |
|
|
$ |
-
|
|
|
$ |
(23,081,338 |
) |
|
$ |
(23,080,638 |
) |
(1) |
Class B ordinary shares amount include up to
1,250,000 Class B ordinary shares subject to forfeiture depending
on the number of units purchased under the Forward Purchase
Agreement. |
The accompanying notes are an integral part of these unaudited
condensed financial statements.
AUTHENTIC EQUITY ACQUISITION CORP.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
|
|
For the Six Months Ended |
|
|
|
June 30,
2022 |
|
|
June 30,
2021 |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
Net income |
|
$ |
7,764,998 |
|
|
$ |
1,921,551 |
|
Adjustments to reconcile net income to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
Change in fair value of derivative assets and liabilities |
|
|
(7,919,000 |
) |
|
|
(4,822,100 |
) |
Loss on excess of fair value over cash received for Private
Placement Warrants |
|
|
-
|
|
|
|
1,352,500 |
|
Offering costs allocated to issuance of Public Warrants and Private
Placement Warrants |
|
|
-
|
|
|
|
701,682 |
|
Net
gain from investments held in Trust Account |
|
|
(312,667 |
) |
|
|
(10,146 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Prepaid expenses |
|
|
76,825 |
|
|
|
(388,291 |
) |
Accounts payable |
|
|
(66,731 |
) |
|
|
1,166 |
|
Accounts payable - related party |
|
|
10,000 |
|
|
|
10,000 |
|
Accrued expenses |
|
|
124,588 |
|
|
|
517,213 |
|
Net cash used in operating activities |
|
|
(321,987 |
) |
|
|
(716,425 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Cash deposited in Trust Account |
|
|
-
|
|
|
|
(230,000,000 |
) |
Net cash used in investing activities |
|
|
-
|
|
|
|
(230,000,000 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Repayment of note payable to related party |
|
|
-
|
|
|
|
(96,500 |
) |
Proceeds received from initial public offering, gross |
|
|
-
|
|
|
|
230,000,000 |
|
Proceeds received from private placement, gross |
|
|
-
|
|
|
|
5,775,500 |
|
Proceeds from sale of rights to purchase Forward Purchase
Agreement |
|
|
-
|
|
|
|
824,500 |
|
Offering costs paid |
|
|
(70,000 |
) |
|
|
(5,050,640 |
) |
Net cash (used in) provided by financing activities |
|
|
(70,000 |
) |
|
|
231,452,860 |
|
|
|
|
|
|
|
|
|
|
Net change in cash |
|
|
(391,987 |
) |
|
|
736,435 |
|
|
|
|
|
|
|
|
|
|
Cash - beginning of the period |
|
|
442,162 |
|
|
|
103 |
|
Cash - end of the period |
|
$ |
50,175 |
|
|
$ |
736,538 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash activities: |
|
|
|
|
|
|
|
|
Offering costs included in accrued expenses |
|
$ |
- |
|
|
$ |
70,000 |
|
Deferred underwriting commissions in connection with the initial
public offering |
|
$ |
- |
|
|
$ |
8,050,000 |
|
The accompanying notes are an integral part of these unaudited
condensed financial statements.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1-Description of Organization, Business Operations and
Going Concern
Organization and General
Authentic Equity Acquisition Corp. (the “Company”) was incorporated
as a Cayman Islands exempted company on September 29, 2020. The
Company was formed for the purpose of effecting a merger, share
exchange, asset acquisition, share purchase, reorganization or
similar business combination with one or more businesses or
entities (the “Business Combination”).
As of June 30, 2022, the Company had not commenced any operations.
All activity through June 30, 2022, relates to the Company’s
formation, the initial public offering (the “Initial Public
Offering”) described below and the search for a target business
with which to consummate an initial Business Combination. 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 on investments held in trust account from the proceeds
derived from the Initial Public Offering and the sale of the
Private Placement Warrants (as defined below).
Sponsor and Financing
The Company’s sponsor is Authentic Equity Sponsor LLC, a Delaware
limited liability company (the “Sponsor”). The registration
statement for the Company’s Initial Public Offering was declared
effective on January 14, 2021. On January 20, 2021, the Company
consummated its Initial Public Offering of 23,000,000 units (the
“Units” and, with respect to the Class A ordinary shares included
in the Units being offered, the “Public Shares”), including
3,000,000 additional Units sold pursuant to the underwriters’
over-allotment option (the “Over-Allotment Units”), at $10.00 per
Unit, generating gross proceeds of $230.0 million, and incurring
offering costs of approximately $13.3 million, of which
approximately $8.1 million was for deferred underwriting
commissions (Note 5).
Simultaneously with the closing of the Initial Public Offering, the
Company consummated the sale of 6,600,000 warrants (each, a
“Private Placement Warrant” and collectively, the “Private
Placement Warrants”) to the Sponsor for an aggregate purchase price
of approximately $5.8 million, and incurred offering costs of
approximately $18,000, in a private placement (the “Private
Placement”). In addition, the Company consummated the sale of
certain rights to General Electric Pension Trust (“GEPT” and such
rights, the “GEPT Rights”) for gross proceeds of $824,500, which
will allow GEPT to purchase up to $50.0 million of Forward Purchase
Units (as defined in Note 5) immediately prior to an initial
Business Combination, subject to certain terms and conditions set
forth in the Forward Purchase Agreement (as defined in Note 5).
Trust Account
Upon the closing of the Initial Public Offering and the Private
Placement, $230.0 million ($10.00 per Unit) of the net proceeds of
the Initial Public Offering and certain of the proceeds of the
Private Placement were placed in a trust account (“Trust Account”)
located in the United States with Continental Stock Transfer &
Trust Company acting as trustee, and the amount is invested only in
United States “government securities” within the meaning of Section
2(a)(16) of the Investment Company Act of 1940, as amended (the
“Investment Company Act”), having a maturity of 185 days or less or
in money market funds meeting certain conditions under Rule 2a-7
promulgated under the Investment Company Act, which invest only in
direct U.S. government treasury obligations, until the earlier of:
(i) the completion of a Business Combination and (ii) the
distribution of the Trust Account as described below.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Initial Business Combination
The Company’s management has broad discretion with respect to the
specific application of the net proceeds of the Initial Public
Offering, the Private Placement and the sale of the GEPT Rights,
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’s initial Business
Combination must be with one or more operating businesses or assets
with a fair market value equal to at least 80% of the net assets
held in the Trust Account (excluding the deferred underwriting
commissions and taxes payable on the interest earned on the trust
account) at the time of the signing of the agreement to enter into
the initial Business Combination. However, the Company will only
complete a Business Combination if the post-transaction company
owns or acquires 50% or more of the outstanding voting securities
of the target or otherwise acquires a controlling interest in the
target sufficient for it not to be required to register as an
investment company under the Investment Company Act.
The Company will provide the holders of the Public Shares (the
“Public Shareholders”), 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 shareholder meeting
called to approve the Business Combination or (ii) by means of a
tender offer. The decision as to whether the Company will seek
shareholder approval of a Business Combination or conduct a tender
offer will be made by the Company, solely in its discretion. The
Public Shareholders will be entitled to redeem their Public Shares
for a pro rata portion of the amount then in the Trust Account
(initially at $10.00 per Public Share). The per-share amount to be
distributed to Public Shareholders who redeem their Public Shares
will not be reduced by the deferred underwriting commissions the
Company will pay to the underwriters (as discussed in Note 5).
These Public Shares are classified as temporary equity upon the
completion of the Initial Public Offering in accordance with the
Financial Accounting Standards Board’s (“FASB”) Accounting
Standards Codification (“ASC”) Topic 480 “Distinguishing
Liabilities from Equity” (“ASC 480”). In such case, the Company
will proceed with a Business Combination if the Company has net
tangible assets of at least $5,000,001 upon such consummation of a
Business Combination and a majority of the shares voted are voted
in favor of the Business Combination. If a shareholder vote is not
required by law and the Company does not decide to hold a
shareholder vote for business or other legal reasons, the Company
will, pursuant to its amended and restated memorandum and articles
of association (the “Amended and Restated Memorandum and Articles
of Association”), conduct the redemptions pursuant to the tender
offer rules of the U.S. Securities and Exchange Commission (the
“SEC”) and file tender offer documents with the SEC prior to
completing a Business Combination. If, however, shareholder
approval of the transactions is required by law, or the Company
decides to obtain shareholder approval for business or legal
reasons, the Company will offer to redeem shares in conjunction
with a proxy solicitation pursuant to the proxy rules and not
pursuant to the tender offer rules. Additionally, each Public
Shareholder may elect to redeem their Public Shares irrespective of
whether they vote for or against the proposed transaction. If the
Company seeks shareholder approval in connection with a Business
Combination, the initial shareholders (as defined below) agreed to
vote their Founder Shares (as defined below in Note 4) and any
Public Shares purchased during or after the Initial Public Offering
in favor of a Business Combination. Pursuant to the Company’s
insider trading policy, insiders are required to: (i) refrain from
purchasing shares during certain blackout periods and when they are
in possession of any material non-public information and (ii) clear
all trades with the Company’s Chief Financial Officer prior to
execution. In addition, the initial shareholders agreed to waive
their redemption rights with respect to their Founder Shares and
Public Shares in connection with the completion of a Business
Combination.
Notwithstanding the foregoing, the Amended and Restated Memorandum
and Articles of Association provides that a Public Shareholder,
together with any affiliate of such shareholder or any other person
with whom such shareholder 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 15% or more of
the Class A ordinary shares sold in the Initial Public Offering,
without the prior consent of the Company.
The Company’s Sponsor, officers and directors (the “initial
shareholders”) agreed not to propose an amendment to the Amended
and Restated Memorandum and Articles of Association (a) that would
modify the substance or timing of the Company’s obligation to
redeem 100% of its Public Shares if the Company does not complete a
Business Combination within 24 months from the closing of the
Initial Public Offering, or January 20, 2023, (the “Combination
Period”) or (b) with respect to any other provision relating to
shareholders’ rights or pre-initial Business Combination activity,
unless the Company provides the Public Shareholders with the
opportunity to redeem their Class A ordinary shares in conjunction
with any such amendment.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
If the Company is unable to complete 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 ten business days thereafter,
redeem the Public Shares, at a per-share price, payable in cash,
equal to the aggregate amount then on deposit in the Trust Account,
including interest earned on the funds held in the Trust Account
and not previously released to the Company to pay its tax
obligations, if any (less up to $100,000 of interest to pay
dissolution expenses) divided by the number of the then-outstanding
Public Shares, which redemption will completely extinguish Public
Shareholders’ rights as shareholders (including the right to
receive further liquidation distributions, if any); and (iii) as
promptly as reasonably possible following such redemption, subject
to the approval of the remaining shareholders and the board of
directors, liquidate and dissolve, subject in the case of clauses
(ii) and (iii), to the Company’s obligations under Cayman Islands
law to provide for claims of creditors and the requirements of
other applicable law.
The initial shareholders 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 initial shareholders acquire Public Shares in or after the
Initial Public Offering, they will be entitled to liquidating
distributions from the Trust Account with respect to such Public
Shares if the Company fails to complete a Business Combination
within the Combination Period. The underwriters agreed to waive
their rights to their deferred underwriting commission (see Note 5)
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. In the event of such distribution,
it is possible that the per share value of the residual assets
remaining available for distribution (including Trust Account
assets) will be only $10.00 per share initially held in the Trust
Account. In order to protect the amounts held in the Trust Account,
the Sponsor 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. This liability will not
apply with respect to any claims by a third party who executed a
waiver of any right, title, interest or claim of any kind in or to
any monies held in the Trust Account or to any claims under the
Company’s indemnity of the underwriters of the Initial Public
Offering against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the “Securities Act”).
Moreover, in the event that an executed waiver is deemed to be
unenforceable against a third party, the Sponsor will not be
responsible to the extent of any liability for such third-party
claims. The Company will seek to reduce the possibility that the
Sponsor will have to indemnify the Trust Account due to claims of
creditors by endeavoring to have all vendors, service providers,
except our independent registered public accounting firm,
prospective target businesses or other entities with which the
Company does business, execute agreements with the Company waiving
any right, title, interest or claim of any kind in or to monies
held in the Trust Account.
Liquidity and Going Concern
As of June 30, 2022, the Company had approximately $50,000 of cash
in its operating account and a working capital deficit of
approximately $668,000.
The Company’s liquidity needs to date have been satisfied through a
contribution of $25,000 from the Sponsor to cover certain expenses
in exchange for the issuance of the Founder Shares, a loan of
$96,500 from the Sponsor pursuant to the Note (see Note 4), and a
portion of the proceeds from the consummation of the Private
Placement and sale of the GEPT Rights not held in the Trust
Account. The Company repaid the Note in full on January 20, 2021.
In addition, in order to finance transaction costs in connection
with a Business Combination, the Sponsor or an affiliate of the
Sponsor, or certain of the Company’s officers and directors may,
but are not obligated to, provide the Company Working Capital Loans
(see Note 4). As of June 30, 2022 and December 31, 2021, there were
no outstanding Working Capital Loans.
The Company may need to raise additional capital through loans or
additional investments from its Sponsor, an affiliate of the
Sponsor, or its officers or directors. The Company’s officers,
directors and Sponsor, or their affiliates, may, but are not
obligated to, loan the Company funds, from time to time or at any
time, in whatever amount they deem reasonable in their sole
discretion, to meet the Company’s working capital needs.
Accordingly, the Company may not be able to obtain additional
financing. If the Company is unable to raise additional capital, it
may be required to take additional measures to conserve liquidity,
which could include, but not necessarily be limited to, curtailing
operations, suspending the pursuit of a potential transaction,
reducing overhead expenses, and extending the terms and due dates
of certain accrued expenses and other liabilities. The Company
cannot provide any assurance that new financing will be available
to it on commercially acceptable terms, if at all.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
In connection with the Company’s assessment of going concern
considerations in accordance with FASB accounting Standards Update
(“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s
Ability to Continue as a Going Concern,” management has determined
that the working capital deficit, as well as the mandatory
liquidation and subsequent dissolution raises substantial doubt
about the Company’s ability to continue as a going concern.
Management intends to complete a business combination prior to the
mandatory liquidation date. No adjustments have been made to the
carrying amounts of assets or liabilities should the Company be
required to liquidate after January 20, 2023. The unaudited
condensed financial statements do not include any adjustment that
might be necessary if the Company is unable to continue as a going
concern.
Note 2-Basis of Presentation and Summary of Significant
Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements are
presented in U.S. dollars in conformity with accounting principles
generally accepted in the United States of America (“GAAP”) for
financial information and pursuant to the rules and regulations of
the SEC. Accordingly, they do not include all of the information
and footnotes required by GAAP. In the opinion of management, the
unaudited condensed financial statements reflect all adjustments,
which include only normal recurring adjustments necessary for the
fair statement of the balances and results for the periods
presented. Operating results for the three and six months ended
June 30, 2022, are not necessarily indicative of the results that
may be expected through December 31, 2022 or any future period.
The accompanying unaudited condensed financial statements should be
read in conjunction with the audited financial statements and notes
thereto included in the Annual Report on Form 10-K filed by the
Company with the SEC on March 25, 2022.
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 auditor 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
nonbinding advisory vote on executive compensation and shareholder
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
an emerging growth 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 an 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 that is
neither an emerging growth company nor an emerging growth company
that 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 unaudited 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 unaudited condensed financial
statements and the reported amounts of income and expenses during
the reporting period. 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 unaudited condensed
financial statements, which management considered in formulating
its estimate, could change in the near term due to one or more
future confirming events. Such estimates may be subject to change
as more current information becomes available. Accordingly, the
actual results could differ significantly from those estimates.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
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. As of June 30, 2022, and December 31, 2021, the
Company did not have any cash equivalents held outside the Trust
Account.
Investments Held in Trust Account
The Company’s portfolio of investments held in the Trust Account is
comprised of U.S. government securities, within the meaning set
forth in Section 2(a)(16) of the Investment Company Act, with a
maturity of 185 days or less, or investments in money market funds
that invest in U.S. government securities and generally have a
readily determinable fair value, or a combination thereof. When the
Company’s investments held in the Trust Account are comprised of
U.S. government securities, the investments are classified as
trading securities. When the Company’s investments held in the
Trust Account are comprised of money market funds, the investments
are recognized at fair value. Trading securities and investments in
money market funds are presented on the balance sheets at fair
value at the end of each reporting period. Gains and losses
resulting from the change in fair value of these securities are
included in net gain from investments held in Trust Account in the
accompanying unaudited condensed statements of operations. The
estimated fair values of investments held in the Trust Account are
determined using available market information.
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
Deposit Insurance Corporation limit of $250,000, and investments
held in Trust Account. The Company has not experienced losses on
these accounts and management believes the Company is not exposed
to significant risks on such accounts.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities which
qualify as financial instruments under the FASB ASC Topic 820,
“Fair Value Measurements” equal or approximate the carrying amounts
represented in the condensed balance sheets, primarily due to their
short-term nature (except for derivative assets and liabilities -
see Note 9).
Fair Value Measurements
Fair value is defined as the price that would be received for sale
of an asset or paid for transfer of a liability, in an orderly
transaction between market participants at the measurement date.
GAAP establishes a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value.
The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level
1 measurements) and the lowest priority to unobservable inputs
(Level 3 measurements). These tiers consist of:
|
● |
Level
1, defined as observable inputs such as quoted prices for identical
instruments in active markets; |
|
● |
Level
2, defined as inputs other than quoted prices in active markets
that are either directly or indirectly observable such as quoted
prices for similar instruments in active markets or quoted prices
for identical or similar instruments in markets that are not
active; and |
|
● |
Level
3, defined as unobservable inputs in which little or no market data
exists, therefore requiring an entity to develop its own
assumptions, such as valuations derived from valuation techniques
in which one or more significant inputs or significant value
drivers are unobservable. |
In some circumstances, the inputs used to measure fair value might
be categorized within different levels of the fair value hierarchy.
In those instances, the fair value measurement is categorized in
its entirety in the fair value hierarchy based on the lowest level
input that is significant to the fair value measurement.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Offering Costs Associated with the Initial Public
Offering
Offering costs consisted of legal, accounting, underwriting fees
and other costs incurred through the Initial Public Offering that
were directly related to the Initial Public Offering. Offering
costs are allocated to the separable financial instruments issued
in the Initial Public Offering based on a relative fair value
basis, compared to total proceeds received. Offering costs
associated with derivative warrant liabilities are expensed as
incurred and presented as non-operating expenses in the unaudited
condensed statements of operations. Offering costs associated with
the Class A ordinary shares were charged against the carrying value
of the Class A ordinary shares upon the completion of the Initial
Public Offering. The Company classifies deferred underwriting
commissions as non-current liabilities as their liquidation is not
reasonably expected to require the use of current assets or require
the creation of current liabilities.
Derivative Assets and Liabilities
The Company does not use derivative instruments to hedge exposures
to cash flow, market, or foreign currency risks. The Company
evaluates all of its financial instruments, including issued share
purchase warrants and forward purchase units, to determine if such
instruments are derivatives or contain features that qualify as
embedded derivatives, pursuant to ASC 480 and FASB ASC Topic 815,
“Derivatives and Hedging” (“ASC 815”). The classification of
derivative instruments, including whether such instruments should
be recorded as assets/liabilities or as equity, is re-assessed at
the end of each reporting period.
The 11,500,000 warrants issued in connection with the Initial
Public Offering (the “Public Warrants”), the 6,600,000 Private
Placement Warrants and units that may be issued in connection with
forward purchase agreement are recognized as derivative assets or
liabilities in accordance with ASC 815. Accordingly, the Company
recognizes the warrant instruments and forward purchase units as
derivative assets or liabilities at fair value and adjusts the
instruments to fair value at each reporting period. The derivative
assets or liabilities are subject to re-measurement at each balance
sheet date until exercised, and any change in fair value is
recognized in the Company’s unaudited condensed statements of
operations. The fair value of the warrants issued in connection
with the Initial Public Offering were initially measured using a
binomial lattice model and subsequently been measured at each
measurement date based on the market price of such warrants. The
fair value of warrants issued in connection with the Private
Placement was initially measured using Black-Scholes Option Pricing
model and subsequently using the market value of the public
warrants when they were separately listed and traded. The fair
value of the units that may be issued in connection with the
forward purchase agreement has been estimated using Black-Scholes
Option Pricing model at each measurement date. The determination of
the fair value of the warrant liability may be subject to change as
more current information becomes available and accordingly the
actual results could differ significantly. Derivative assets and
liabilities are classified as non-current as their liquidation is
not reasonably expected to require the use of current assets or
require the creation of current liabilities.
Class A Ordinary Shares Subject to Possible Redemption
The Company accounts for its Class A ordinary shares subject to
possible redemption in accordance with the guidance in ASC 480.
Class A ordinary shares subject to mandatory redemption (if any)
are classified as liability instruments and are measured at fair
value. Conditionally redeemable Class A ordinary shares (including
Class A ordinary shares that feature redemption rights that are
either within the control of the holder or subject to redemption
upon the occurrence of uncertain events not solely within the
Company’s control) are classified as temporary equity. At all other
times, Class A ordinary shares are classified as shareholders’
equity. The Company’s Class A ordinary shares feature certain
redemption rights that are considered to be outside of the
Company’s control and subject to the occurrence of uncertain future
events. Accordingly, as of June 30, 2022 and December 31, 2021,
23,000,000 Class A ordinary shares subject to possible redemption
are presented as temporary equity, outside of the shareholders’
equity section of the Company’s condensed balance sheets.
Under ASC 480-10-S99, the Company has elected to recognize changes
in the redemption value immediately as they occur and adjust the
carrying value of the security to equal the redemption value at the
end of each reporting period. This method would view the end of the
reporting period as if it were also the redemption date for the
security. Effective with the closing of the Initial Public
Offering, the Company recognized the accretion from initial book
value to redemption amount, which resulted in charges against
additional paid-in capital (to the extent available) and
accumulated deficit. Subsequently, the Company recognized changes
in the redemption value as additional accretion as reflected on the
accompanying unaudited condensed statements of changes in
shareholders’ deficit.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Income Taxes
FASB ASC 740 prescribes a recognition threshold and a measurement
attribute for the financial statement recognition and measurement
of tax positions 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.
The Company’s management determined that the Cayman Islands is the
Company’s only major tax jurisdiction. There were no unrecognized
tax benefits as of June 30, 2022 and December 31, 2021. Company
recognizes accrued interest and penalties related to unrecognized
tax benefits as income tax expense. The Company is currently not
aware of any issues under review that could result in significant
payments, accruals or material deviation from its position.
There is currently no taxation imposed on income by the Government
of the Cayman Islands. In accordance with Cayman income tax
regulations, income taxes are not levied on the Company.
Consequently, income taxes are not reflected in the Company’s
unaudited condensed financial statements. 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 (Loss) per Ordinary Share
The Company complies with accounting and disclosure requirements of
FASB ASC Topic 260, “Earnings Per Share.” The Company has two
classes of shares, which are referred to as Class A ordinary shares
and Class B ordinary shares. Income and losses are shared pro rata
between the two classes of shares. Net income (loss) per ordinary
share is calculated by dividing the net income (loss) by the
weighted average number of ordinary shares outstanding for the
respective period.
The calculation of diluted net income (loss) per ordinary share
does not consider the effect of the warrants underlying the Units
sold in the Initial Public Offering and the Private Placement
Warrants to purchase 18,100,000 Class A ordinary shares since their
exercise is contingent upon future events. Accretion associated
with the redeemable Class A ordinary shares is excluded from
earnings per share as the redemption value approximates fair value.
The diluted earnings per share calculation includes the Class B
ordinary shares subject to forfeiture in relation to the
over-allotment from the first day of the interim period in which
the contingency on such shares was resolved.
The table below presents a reconciliation of the numerator and
denominator used to compute basic and diluted net income per share
for each class of ordinary shares:
|
|
For the Three Months Ended |
|
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
|
Class A |
|
|
Class B |
|
|
Class A |
|
|
Class B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of net income (loss) |
|
$ |
2,870,409 |
|
|
$ |
717,602 |
|
|
$ |
(3,438,202 |
) |
|
$ |
(859,551 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average ordinary shares outstanding |
|
|
23,000,000 |
|
|
|
5,750,000 |
|
|
|
23,000,000 |
|
|
|
5,750,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted net income (loss) per ordinary share |
|
$ |
0.12 |
|
|
$ |
0.12 |
|
|
$ |
(0.15 |
) |
|
$ |
(0.15 |
) |
|
|
For the Six Months Ended |
|
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
|
Class A |
|
|
Class B |
|
|
Class A |
|
|
Class B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of net income - basic |
|
$ |
6,211,998 |
|
|
$ |
1,553,000 |
|
|
$ |
1,506,512 |
|
|
$ |
415,039 |
|
Allocation of
net income - diluted |
|
$ |
6,211,998 |
|
|
$ |
1,553,000 |
|
|
$ |
1,502,008 |
|
|
$ |
419,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted
average ordinary shares outstanding |
|
|
23,000,000 |
|
|
|
5,750,000 |
|
|
|
20,585,635 |
|
|
|
5,671,271 |
|
Effect of dilutive securities |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
78,729 |
|
Diluted weighted average ordinary shares outstanding |
|
|
23,000,000 |
|
|
|
5,750,000 |
|
|
|
20,585,635 |
|
|
|
5,750,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per ordinary
share |
|
$ |
0.27 |
|
|
$ |
0.27 |
|
|
$ |
0.07 |
|
|
$ |
0.07 |
|
Diluted net income per ordinary
share |
|
$ |
0.27 |
|
|
$ |
0.27 |
|
|
$ |
0.07 |
|
|
$ |
0.07 |
|
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
The Company’s management does not believe that any recently issued,
but not yet effective, accounting standards updates, if currently
adopted, would have a material effect on the accompanying unaudited
condensed financial statements.
Note 3-Initial Public Offering
On January 20, 2021, the Company consummated its Initial Public
Offering of 23,000,000 Units, including 3,000,000 Over-Allotment
Units, at $10.00 per Unit, generating gross proceeds of $230.0
million, and incurring offering costs of approximately $13.3
million, of which approximately $8.1 million was for deferred
underwriting commissions.
Each Unit consists of one Class A ordinary share, and one-half of
one redeemable warrant. Each whole Public Warrant entitles the
holder to purchase one Class A ordinary share at a price of $11.50
per share, subject to adjustment (see Note 8).
Note 4-Related Party Transactions
Founder Shares
On October 1, 2020, the Sponsor paid $25,000 to cover certain
expenses on behalf of the Company in exchange for issuance of
5,750,000 Class B ordinary shares, par value $0.0001, (the “Founder
Shares”). In December 2020, the Company effected a share
capitalization with respect to the Class B ordinary shares
resulting in an aggregate of 7,000,000 Founder Shares outstanding.
The Sponsor subsequently transferred 25,000 Class B ordinary shares
to each of Joe Baker, Kathleen Griffin Stack, Tim O’Connor and
Michael Weinstein, our independent directors at the time of our
Initial Public Offering. Upon Joe Baker’s resignation, the Sponsor
repurchased the 25,000 Class B ordinary shares previously
transferred to him by the Sponsor. The Sponsor agreed to forfeit
(a) up to 750,000 Founder Shares to the extent that the
over-allotment option was not exercised in full by the underwriters
and (b) up to 1,250,000 Founder Shares depending on the number of
units purchased under the Forward Purchase Agreement if such number
is below 5,000,000. The forfeiture in the preceding clause (a)
would be adjusted to the extent that the over-allotment option was
not exercised in full by the underwriters, so that the Founder
Shares would represent 20.0% of the Company’s issued and
outstanding shares after the Initial Public Offering plus the
number of Class A ordinary shares that may be sold pursuant to the
Forward Purchase Agreement. On January 20, 2021, the underwriter
fully exercised its over-allotment option; thus, 750,000 Founder
Shares were no longer subject to forfeiture.
The Sponsor, the Company’s directors and executive officers and
GEPT agreed, subject to limited exceptions, not to transfer, assign
or sell any of their Founder Shares or the Class B ordinary shares
that may be issued to GEPT under the Forward Purchase Agreement,
until the earlier to occur of: (a) one year after the completion of
the initial Business Combination and (b) subsequent to the initial
Business Combination, (x) if the closing price of Class A ordinary
shares equals or exceeds $12.00 per share (as adjusted for share
subdivisions, share capitalizations, reorganizations,
recapitalizations and the like) for any 20 trading days within any
30-trading day period commencing at least 150 days after the
initial Business Combination or (y) the date on which the Company
completes a liquidation, merger, share exchange or other similar
transaction that results in all of the Public Shareholders having
the right to exchange their Class A ordinary shares for cash,
securities or other property.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Private Placement Warrants
Simultaneously with the closing of the Initial Public Offering, the
Company consummated the Private Placement of 6,600,000 Private
Placement Warrants to the Sponsor for an aggregate purchase price
of approximately $5.8 million, and incurred offering costs of
approximately $18,000.
Each whole Private Placement Warrant is exercisable for one whole
Class A ordinary share at a price of $11.50 per share. A portion of
the proceeds from the Private Placement was added to the proceeds
from the Initial Public Offering held in the Trust Account. If the
Company does not complete a Business Combination within the
Combination Period, the Private Placement Warrants will expire
worthless. The Private Placement Warrants will be non-redeemable
and exercisable on a cashless basis so long as they are held by the
Sponsor, GEPT or their permitted transferees.
The Sponsor and the Company’s officers and directors agreed,
subject to limited exceptions, not to transfer, assign or sell any
of their Private Placement Warrants until 30 days after the
completion of the initial Business Combination.
Related Party Loans
On September 30, 2020, the Sponsor agreed to loan the Company an
aggregate of up to $300,000 to cover for expenses related to the
Initial Public Offering pursuant to a promissory note (the “Note”).
This loan was non-interest bearing and payable upon the completion
of the Initial Public Offering. The Company borrowed approximately
$97,000 under the Note and fully repaid the Note on January 20,
2021. Subsequent to the repayment, the facility was no longer
available to the Company.
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 the 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 $1.5 million of such Working Capital Loans may be
convertible into warrants of the post Business Combination entity
at a price of $1.00 per warrant. The warrants would be identical to
the Private Placement Warrants. As of June 30, 2022 and December
31, 2021, the Company had no outstanding Working Capital Loans.
Administrative Support Agreement
Commencing on the effective date of the prospectus relating to the
Initial Public Offering, the Company agreed to pay an affiliate of
the Sponsor a total of $10,000 per month for office space,
secretarial and administrative services provided to the Company.
Upon completion of the initial Business Combination or the
Company’s liquidation, the Company will cease paying these monthly
fees. For the three months ended June 30, 2022 and 2021, the
Company incurred $30,000 in expense for these services, reflected
as administrative fee - related party on the accompanying condensed
statements of operations. For the six months ended June 30, 2022
and 2021, the Company incurred $60,000 and approximately $54,000 in
expense for these services, respectively, reflected as
administrative fee - related party on the accompanying condensed
statements of operations. As of June 30, 2022 and December 31,
2021, there was $10,000 in accounts payable - related party
outstanding, as reflected in the accompanying condensed balance
sheets.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 5-Commitments and Contingencies
Forward Purchase Agreement
In connection with the consummation of the Initial Public Offering,
the Company entered into a forward purchase agreement (the “Forward
Purchase Agreement”) with GEPT, pursuant to which, in exchange for
$824,500 of proceeds paid to the Company simultaneously with the
closing of the Initial Public Offering, GEPT has the right, in its
discretion, to purchase up to the lesser of (i) $50.0 million of
units and (ii) a number of units equal to 19.99% of the pro forma
equity outstanding at the time of the closing of the Company’s
initial Business Combination, including but not limited to, any
ordinary shares issued in connection with the Initial Public
Offering, the Forward Purchase Agreement or any private placement
or other offering or to any seller in the initial Business
Combination (the “Forward Purchase Units”), with each unit
consisting of one Class A ordinary share (the “Forward Purchase
Shares”) and 0.425 of one warrant to purchase one Class A ordinary
share at $11.50 per share, subject to adjustment (the “Forward
Purchase Warrants”), for a purchase price of $10.00 per unit, in a
private placement to occur immediately prior to the closing of the
initial Business Combination.
If GEPT purchases the maximum number of Forward Purchase Units
available to it under the Forward Purchase Agreement, the Company
will issue to GEPT, at the closing of the Company’s initial
Business Combination and prior to the conversion of the Class B
ordinary shares into Class A ordinary shares in accordance with the
terms thereof (the “GEPT Issuance”):
|
● |
a
number of Class B ordinary shares (the “GEPT Class B ordinary
shares”) that is equal to 12.5% of the aggregate number of Class B
ordinary shares outstanding at the time of the initial Business
Combination prior to the conversion of such Class B ordinary shares
into Class A ordinary shares pursuant to the terms thereof and
after giving effect to the issuance of the GEPT Class B ordinary
shares and any other Class B ordinary shares as a result of
anti-dilution rights or other adjustments and the number of Class B
ordinary shares transferred, assigned, sold or forfeited in
connection with the initial Business Combination but excluding
115,000 Class B ordinary shares from such calculation (the
“Post-Business Combination Class B ordinary shares”) (provided,
however, that if the Founder Shares are converted into Class A
ordinary shares prior to the date of the Company’s initial Business
Combination, GEPT will receive a number of Class A ordinary shares
equal to the number of Class A ordinary shares that it would have
been entitled to pursuant to the GEPT Issuance); and |
|
● |
a
number of Private Placement Warrants equal to 12.5% of the
aggregate number of Private Placement Warrants outstanding at the
time of the Company’s initial business combination prior to the
conversion of such Class B ordinary shares into Class A ordinary
shares pursuant to the terms thereof and after giving effect to any
Private Placement Warrants transferred, assigned, sold or forfeited
in connection with the initial Business Combination (the
“Post-Business Combination Private Placement
Warrants”). |
In connection with such issuance, the Sponsor agreed to forfeit to
the Company for no consideration a number of Class B ordinary
shares and Private Placement Warrants (the “Sponsor Forfeiture”)
such that after the Sponsor Forfeiture and the GEPT Issuance, the
Sponsor will own (i) a number of Class B ordinary shares equal to
87.5% of the number of Post-Business Combination Class B ordinary
shares plus 15,000 Class B ordinary shares, and (ii) a number of
Private Placement Warrants equal to 87.5% of the number of
Post-Business Combination Private Placement Warrants.
The Company will determine the number of Forward Purchase Units to
be sold under the Forward Purchase Agreement and GEPT’s obligation
to purchase such units will be subject to the satisfaction of
certain conditions, including, among others, the delivery by GEPT
of a notice to the Company that it will purchase the Forward
Purchase Units in whole or in part. The rights of GEPT under the
Forward Purchase Agreement do not depend on whether any Class A
ordinary shares are redeemed by the Public Shareholders. If GEPT
does not purchase the maximum number of Forward Purchase Units
available to it under the Forward Purchase Agreement, GEPT will not
be entitled to receive any of the Founder Shares or Private
Placement Warrants described above, and the Company will be
entitled to retain the $824,500 paid to the Company by GEPT.
The Forward Purchase Warrants purchased by GEPT under the Forward
Purchase Agreement will have the same terms as the Public Warrants.
The Private Placement Warrants to be issued to GEPT as described
above will have the same terms and be subject to the same transfer
restrictions as the Private Placement Warrants held by the
Sponsor.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Registration and Shareholder Rights
The holders of Founder Shares, Private Placement Warrants and
warrants that may be issued upon conversion of Working Capital
Loans (and any Class A ordinary shares issuable upon the exercise
of the Private Placement Warrants and warrants that may be issued
upon conversion of Working Capital Loans) are entitled to
registration rights pursuant to a registration and shareholder
rights agreement signed upon consummation of the Initial Public
Offering. These holders are entitled to certain demand and
“piggyback” registration rights. However, the registration and
shareholder rights agreement provides that the Company will not
permit any registration statement filed under the Securities Act to
become effective until the termination of the applicable lock-up
period for the securities to be registered. The Company will bear
the expenses incurred in connection with the filing of any such
registration statements.
Pursuant to the Forward Purchase Agreement, the Company has agreed
to use reasonable best efforts to: (i) file within 30 days after
the closing of the initial Business Combination a registration
statement with the SEC for a secondary offering of the Forward
Purchase Shares and the Forward Purchase Warrants (and underlying
Class A ordinary shares); (ii) cause such registration statement to
be declared effective promptly thereafter but in no event later
than sixty (60) days after the initial filing; (iii) maintain the
effectiveness of such registration statement until the earliest of
(A) the date on which GEPT or its assignees cease to hold the
securities covered thereby, and (B) the date all of the securities
covered thereby can be sold publicly without restriction or
limitation under Rule 144 of the Securities Act; and (iv) after
such registration statement is declared effective, cause the
Company to conduct firm commitment underwritten offerings, subject
to certain limitations. In addition, the Forward Purchase Agreement
provides for certain “piggy-back” registration rights to the
holders of forward purchase securities to include their securities
in other registration statements filed by the Company. The Company
will bear the cost of registering these securities.
Underwriting Agreement
The Company granted the underwriters a 45-day option from the final
prospectus relating to the Initial Public Offering to purchase up
to 3,000,000 additional Units to cover over-allotments, if any, at
$10.00 per Unit, less the underwriting discounts and commissions.
On January 20, 2021, the underwriter fully exercised its
over-allotment option.
The underwriters were entitled to an underwriting discount of $0.20
per unit, or $4.6 million in the aggregate, paid upon the closing
of the Initial Public Offering. In addition, $0.35 per unit, or
approximately $8.1 million in the aggregate will be payable to the
underwriters for deferred underwriting commissions. The deferred
underwriting commissions 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.
Risks and Uncertainties
Various social and political circumstances in the United States and
around the world (including wars and other forms of conflict,
including rising trade tensions between the United States and
China, and other uncertainties regarding actual and potential
shifts in the United States and foreign, trade, economic and other
policies with other countries, terrorist acts, security operations
and catastrophic events such as fires, floods, earthquakes,
tornadoes, hurricanes and global health epidemics), may also
contribute to increased market volatility and economic
uncertainties or deterioration in the United States and worldwide.
Specifically, the rising conflict between Russia and Ukraine, and
resulting market volatility could adversely affect the Company’s
ability to complete a business combination. In response to the
conflict between Russia and Ukraine, the United States and other
countries have imposed sanctions or other restrictive actions
against Russia. Any of the above factors, including sanctions,
export controls, tariffs, trade wars and other governmental
actions, could have a material adverse effect on the Company’s
ability to complete a business combination and the value of the
Company’s securities.
Management continues to evaluate the impact of these types of risks
on the industry and has concluded that while it is reasonably
possible that these types of risks could have a negative effect on
the Company’s financial position, results of its operations and/or
search for a target company, the specific impact is not readily
determinable as of the date of these unaudited condensed financial
statements. The unaudited condensed financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 6-Warrants
As of June 30, 2022 and 2021, the Company had 11,500,000 Public
Warrants and the 6,600,000 Private Placement Warrants
outstanding.
Public Warrants may only be exercised for a whole number of shares.
The Public Warrants will become exercisable on the later of (a) 30
days after the completion of a Business Combination or (b) 12
months from the closing of the Initial Public Offering; provided in
each case that the Company has an effective registration statement
under the Securities Act covering the Class A ordinary shares
issuable upon exercise of the Public Warrants and a current
prospectus relating to them is available (or the Company permits
holders to exercise their Public Warrants on a cashless basis and
such cashless exercise is exempt from registration under the
Securities Act). The Company agreed that as soon as practicable,
but in no event later than twenty (20) business days after the
closing of the initial Business Combination, the Company will use
its commercially reasonable efforts to file with the SEC a
registration statement covering the Class A ordinary shares
issuable upon exercise of the warrants, and the Company will use
its commercially reasonable efforts to cause the same to become
effective within 60 business days after the closing of the initial
Business Combination, and to maintain the effectiveness of such
registration statement and a current prospectus relating to those
Class A ordinary shares until the warrants expire or are redeemed,
as specified in the warrant agreement provided that if the Class A
ordinary shares are at the time of any exercise of a warrant not
listed on a national securities exchange such that they satisfy the
definition of a “covered security” under Section 18(b)(1) of the
Securities Act, the Company may, at its option, require holders of
Public Warrants who exercise their warrants to do so on a “cashless
basis” in accordance with Section 3(a)(9) of the Securities Act
and, in the event the Company so elects, it will not be required to
file or maintain in effect a registration statement. If a
registration statement covering the Class A ordinary shares
issuable upon exercise of the warrants is not effective by the
60th day after the closing of the initial Business
Combination, warrant holders may, until such time as there is an
effective registration statement and during any period when the
Company will have failed to maintain an effective registration
statement, exercise warrants on a “cashless basis” in accordance
with Section 3(a)(9) of the Securities Act or another exemption,
but the Company will use its commercially reasonable efforts to
register or qualify the shares under applicable blue sky laws to
the extent an exemption is not available.
The warrants have an exercise price of $11.50 per whole share and
will expire five years after the completion of a Business
Combination or earlier upon redemption or liquidation.
In addition, if (x) the Company issues additional Class A ordinary
shares or equity-linked securities for capital raising purposes in
connection with the closing of the initial Business Combination
(excluding any forward purchase securities) at an issue price or
effective issue price of less than $9.20 per ordinary share (with
such issue price or effective issue price to be determined in good
faith by the board of directors and, in the case of any such
issuance to the Sponsor or its affiliates, without taking into
account any Founder Shares held by the Sponsor or such affiliates,
as applicable, prior to such issuance) (the “Newly Issued Price”),
(y) the aggregate gross proceeds from such issuances represent more
than 60% of the total equity proceeds, and interest thereon,
available for the funding of the initial Business Combination on
the date of the consummation of the initial Business Combination
(net of redemptions), and (z) the volume weighted average trading
price of Class A ordinary shares during the 20 trading day period
starting on the trading day prior to the day on which the Company
consummates the initial Business Combination (such price, the
“Market Value”) is below $9.20 per share, the exercise price of the
warrants will be adjusted (to the nearest cent) to be equal to 115%
of the higher of the Market Value and the Newly Issued Price, the
$18.00 per share redemption trigger price described under
“Redemption of warrants when the price per Class A ordinary share
equals or exceeds $18.00” and “Redemption of warrants when the
price per Class A ordinary share equals or exceeds $10.00” will be
adjusted (to the nearest cent) to be equal to 180% of the higher of
the Market Value and the Newly Issued Price, and the $10.00 per
share redemption trigger price described under “Redemption of
warrants when the price per Class A ordinary share equals or
exceeds $10.00” will be adjusted (to the nearest cent) to be equal
to the higher of the Market Value and the Newly Issued Price.
The Private Placement Warrants and the Forward Purchase Warrants
will be identical to the Public Warrants, except that the Private
Placement Warrants and the Class A ordinary shares issuable upon
the exercise of the Private Placement Warrants will not be
transferable, assignable or salable until 30 days after the
completion of a Business Combination, subject to certain limited
exceptions. Additionally, the Private Placement Warrants will be
exercisable on a cashless basis and be non-redeemable, except as
described above, so long as they are held by the initial purchasers
or their permitted transferees. If the Private Placement Warrants
are held by someone other than the initial purchasers, GEPT or
their permitted transferees, the Private Placement Warrants will be
redeemable by the Company and exercisable by such holders on the
same basis as the Public Warrants.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Redemption of warrants when the price per Class A ordinary share
equals or exceeds $18.00.
Once the warrants become exercisable, the Company may redeem the
outstanding warrants (except with respect to the Private Placement
Warrants):
|
● |
in whole and not in part; |
|
● |
at a price of $0.01 per
warrant; |
|
● |
upon a minimum of 30 days’ prior
written notice of redemption; and |
|
● |
if, and only if, the last reported
sale price (the “closing price”) of the Class A ordinary shares
equals or exceeds $18.00 per share (as adjusted for share splits,
share capitalizations, reorganizations, recapitalizations and the
like) for any 20 trading days within a 30-trading day period ending
on the third trading day prior to the date on which the Company
sends the notice of redemption to the warrant holders. |
The Company will not redeem the warrants as described above unless
a registration statement under the Securities Act covering the
Class A ordinary shares issuable upon exercise of the warrants is
effective and a current prospectus relating to those Class A
ordinary shares is available throughout the 30-day redemption
period. If and when the warrants become redeemable by the Company,
it 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 when the price per Class A ordinary share
equals or exceeds $10.00.
Commencing 90 days after the warrants become exercisable, the
Company may redeem the outstanding warrants:
|
● |
in whole and not in part; |
|
● |
at a price of $0.10 per warrant; |
|
● |
upon a minimum of 30 days’ prior written notice
of redemption; |
|
● |
if, and only if, the closing price of Class A
ordinary shares equals or exceeds $10.00 per Public Share (as
adjusted) for any 20 trading days within the 30-trading day period
ending three trading days before the Company sends the notice of
redemption to the warrant holders; and |
|
|
|
|
● |
if the closing price of the Class A ordinary
shares for any 20 trading days within a 30-trading day period
ending on the third trading day prior to the date on which the
Company sends the notice of redemption to the warrant holders is
less than $18.00 per share (as adjusted), the Private Placement
Warrants must also be concurrently called for redemption on the
same terms as the outstanding Public Warrants, as described
above; |
provided that holders will be able to exercise their warrants on a
cashless basis prior to redemption and receive that number of
shares determined by reference to an agreed table based on the
redemption date and the “fair market value” of the Class A ordinary
shares.
The “fair market value” of the Class A ordinary shares for the
above purpose shall mean the volume weighted average price of Class
A ordinary shares during the 10 trading days immediately following
the date on which the notice of redemption is sent to the holders
of warrants. In no event will the warrants be exercisable in
connection with this redemption feature for more than 0.365 Class A
ordinary shares per warrant (subject to adjustment).
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
If the Company has not completed the initial 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.
Note 7-Class A Ordinary Shares Subject to Possible
Redemption
The Company’s Class A ordinary shares feature certain redemption
rights that are considered to be outside of the Company’s control
and subject to the occurrence of future events. The Company is
authorized to issue 300,000,000 Class A ordinary shares with a par
value of $0.0001 per share. Holders of the Company’s Class A
ordinary shares are entitled to one vote for each share. As of June
30, 2022 and December 31, 2021, there were 23,000,000 Class A
ordinary shares issued and subject to possible redemption.
The Class A ordinary shares subject to possible redemption
reflected on the condensed balance sheets is reconciled on the
following table:
Gross proceeds received from Initial Public Offering |
|
$ |
230,000,000 |
|
Less: |
|
|
|
|
Fair value of Public Warrants at issuance |
|
|
(12,420,000 |
) |
Offering costs allocated to Class A ordinary shares |
|
|
(12,572,940 |
) |
Plus: |
|
|
|
|
Accretion on Class A ordinary shares to redemption value |
|
|
24,992,940 |
|
Class A ordinary shares subject to possible redemption as of
December 31, 2021 |
|
|
230,000,000 |
|
Increase in redemption value of Class A ordinary shares subject to
redemption |
|
|
234,409 |
|
Class A ordinary shares subject to possible redemption as of June
30, 2022 |
|
$ |
230,234,409 |
|
Note 8-Shareholders’ Deficit
Preference Shares - The Company is authorized to
issue 1,000,000 preference shares with such designations, voting
and other rights and preferences as may be determined from time to
time by the Company’s board of directors. As of June 30, 2022 and
December 31, 2021, there were no preference shares issued or
outstanding.
Class A Ordinary Shares - The Company is authorized
to issue 300,000,000 Class A ordinary shares with a par value of
$0.0001 per share. As of June 30, 2022 and December 31, 2021, there
were 23,000,000 Class A ordinary shares issued and outstanding, and
all of which were subject to possible redemption and included as
temporary equity (see Note 7).
Class B Ordinary Shares - The Company is authorized
to issue 30,000,000 Class B ordinary shares with a par value of
$0.0001 per share. On October 1, 2020, the Company issued 5,750,000
Class B ordinary shares to the Sponsor. In December 2020, the
Company effected a share capitalization with respect to the Class B
ordinary shares resulting in an aggregate of 7,000,000 Class B
ordinary shares outstanding. At December 31, 2020, of the 7,000,000
Class B ordinary shares outstanding, up to 750,000 Class B ordinary
shares were subject to forfeiture to the extent that the
underwriters’ over-allotment option was not exercised in full or in
part, and up to 1,250,000 Class B ordinary shares are subject to
forfeiture depending on the number of units purchased by GEPT under
the Forward Purchase Agreement if such number is below 5,000,000,
so that the initial shareholders will collectively own
approximately 20% of the Company’s issued and outstanding ordinary
shares (less the total number of Class B ordinary shares forfeited
(if any) by the Sponsor to the extent less than 5,000,000 units are
purchased under the Forward Purchase Agreement) plus the number of
Class A ordinary shares that may be sold pursuant to the Forward
Purchase Agreement (See Note 6). On January 20, 2021, the
underwriter fully exercised its over-allotment option; thus,
750,000 Class B ordinary shares were no longer subject to
forfeiture. As of June 30, 2022 and December 31, 2021, there were
7,000,000 shares of Class B ordinary shares issued and outstanding,
including up to 1,250,000 Class B ordinary shares were subject to
forfeiture depending on the number of units purchased under the
Forward Purchase Agreement.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Ordinary shareholders of record are entitled to one vote for each
share held on all matters to be voted on by shareholders. Except as
described below, holders of Class A ordinary shares and holders of
Class B ordinary shares will vote together as a single class on all
matters submitted to a vote of the Company’s shareholders except as
required by law.
The Class B ordinary shares will automatically convert into Class A
ordinary shares at the time of the initial Business Combination or
earlier at the option of the holders thereof at a ratio such that
the number of Class A ordinary shares issuable upon conversion of
all Founder Shares will equal, in the aggregate, on an as-converted
basis, 20% of the sum of (i) the total number of ordinary shares
issued and outstanding upon completion of the Initial Public
Offering (less the total number of Class B ordinary shares
forfeited (if any) by the Sponsor to the extent less than 5,000,000
units are purchased under the Forward Purchase Agreement) and the
number of Class A ordinary shares that may be sold pursuant to the
Forward Purchase Agreement, plus (ii) the total number of Class A
ordinary shares issued or deemed issued or issuable upon conversion
or exercise of any equity-linked securities or rights issued or
deemed issued, by the Company in connection with or in relation to
the consummation of the initial Business Combination, excluding any
Class A ordinary shares or equity-linked securities exercisable for
or convertible into Class A ordinary shares issued, deemed issued,
or to be issued, to any seller in the initial Business Combination,
any Private Placement Warrants issued to the Sponsor, its
affiliates or any member of the management team upon conversion of
Working Capital Loans and any Forward Purchase Warrants. In no
event will the Class B ordinary shares convert into Class A
ordinary shares at a rate of less than one-to-one.
Note 9-Fair Value Measurements
The following table presents information about the Company’s assets
and liabilities that are measured at fair value on a recurring
basis as of June 30, 2022 and December 31, 2021 and indicates the
fair value hierarchy of the valuation techniques that the Company
utilized to determine such fair value.
|
|
Fair Value Measured as of June 30, 2022 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
Investments held in Trust Account -Mutual Funds |
|
$ |
230,334,409 |
|
|
$ |
-
|
|
|
$ |
-
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities - Public Warrants |
|
$ |
1,150,000 |
|
|
$ |
-
|
|
|
$ |
-
|
|
Derivative liabilities - Private Placement Warrants |
|
$ |
-
|
|
|
$ |
660,000 |
|
|
$ |
-
|
|
Derivative liabilities - Forward Purchase Agreement |
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
81,600 |
|
|
|
Fair Value Measured as of December 31, 2021 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
Investments held in Trust Account - Mutual Funds |
|
$ |
230,021,742 |
|
|
$ |
-
|
|
|
$ |
-
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities - Public Warrants |
|
$ |
6,210,000 |
|
|
$ |
-
|
|
|
$ |
-
|
|
Derivative liabilities - Private Placement Warrants |
|
$ |
-
|
|
|
$ |
3,564,000 |
|
|
$ |
-
|
|
Derivative liabilities - Forward Purchase Agreement |
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
36,600 |
|
Transfers to/from Levels 1, 2, and 3 are recognized at the
beginning of the reporting period. The estimated fair value of the
Public Warrants and the Private Placement Warrants transferred from
a Level 3 measurement to a Level 1 and a Level 2 fair value
measurement in March 2021, respectively, when the Public Warrants
were separately listed and traded. There were no transfers during
the three and six months ended June 30, 2022.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Level 1 instruments include investments invested in mutual funds
that invest in U.S. government securities. The Company uses inputs
such as actual trade data, benchmark yields, quoted market prices
from dealers or brokers, and other similar sources to determine the
fair value of its investments.
The fair value of the warrants issued in connection with the
Initial Public Offering was initially measured using a binomial
lattice model and subsequently been measured based on the market
price of such warrants at each measurement date. The fair value of
warrants issued in connection with the Private Placement was
initially measured using Black-Scholes Option Pricing model and
subsequently using the quoted price in active market when the
Public Warrants were separately listed and traded. The fair value
of the units committed to be issued in connection with the forward
purchase agreement has been estimated using Black-Scholes Option
Pricing model at each measurement date. For the three months ended
June 30, 2022 and 2021, the Company recognized a gain/(loss) on
change in the fair value of derivative instruments of approximately
$3.5 million and $(4.1 million), respectively, presented on the
accompanying unaudited condensed statements of operations. For the
six months ended June 30, 2022 and 2021, the Company recognized a
gain on change in the fair value of derivative instruments of
approximately $7.9 million and $4.8 million, respectively,
presented on the accompanying unaudited condensed statements of
operations.
The change in the fair value of the Level 3 derivative liabilities
(assets) for the six months ended June 30, 2022 and 2021 are
summarized as follows:
Derivative liabilities as of January 1, 2022 |
|
$ |
36,600 |
|
Change in fair value of derivative assets and liabilities |
|
|
(115,200 |
) |
Derivative
(assets) as of March 31, 2022 |
|
|
(78,600 |
) |
Change in fair value of derivative assets and liabilities |
|
|
160,200 |
|
Derivative liabilities as of June 30, 2022 |
|
$ |
81,600 |
|
Derivative
liabilities as of January 1, 2021 |
|
$ |
-
|
|
Issuance of Public and Private Warrants |
|
|
19,548,000 |
|
Initial
fair value of forward purchase agreement |
|
|
824,500 |
|
Public
Warrants transfer to Level 1 |
|
|
(12,420,000 |
) |
Private
Warrants transfer to Level 2 |
|
|
(7,128,000 |
) |
Change in fair value of derivative assets and liabilities |
|
|
(915,800 |
) |
Derivative
(assets) as of March 31, 2021 |
|
|
(91,300 |
) |
Change in fair value of derivative assets and liabilities |
|
|
256,700 |
|
Derivative liabilities as of June 30, 2021 |
|
$ |
165,400 |
|
The estimated fair value of the forward purchase agreement is
determined using Level 3 inputs. Inherent in a Black-Scholes Option
Pricing model are assumptions related to expected stock-price
volatility, expected life, risk-free interest rate and dividend
yield. The Company estimates the volatility of the forward purchase
unit based on implied volatility from the Company’s traded units
and from historical volatility of select peer company’s ordinary
shares that matches the expected remaining life of the units. The
risk-free interest rate is based on the U.S. Treasury zero-coupon
yield curve on the grant date for a maturity similar to the
expected remaining life of the unit. The expected life of the
forward purchase unit is assumed to be equivalent to their
remaining contractual term. The dividend rate is based on the
historical rate, which the Company anticipates remaining at
zero.
AUTHENTIC EQUITY ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The following table provides quantitative information regarding
Level 3 fair vale measurements inputs of the forward purchase
agreement at each measurement date:
|
|
As of
June 30,
2022 |
|
|
As of
December 31,
2021 |
|
Exercise
price |
|
$ |
10.00 |
|
|
$ |
10.00 |
|
Unit
price |
|
$ |
9.89 |
|
|
$ |
9.99 |
|
Term (in years) |
|
|
0.60 |
|
|
|
0.80 |
|
Volatility |
|
|
2.20 |
% |
|
|
11.40 |
% |
Risk-free interest rate |
|
|
2.50 |
% |
|
|
0.30 |
% |
Dividend yield |
|
|
-
|
|
|
|
-
|
|
Probability of completing a Business Combination |
|
|
50.00 |
% |
|
|
80.00 |
% |
Note 10-Subsequent Events
Management has evaluated subsequent events and transactions that
occurred after the balance sheet date up to the date the unaudited
condensed financial statements were issued. Based upon this review,
the Company did not identify any subsequent event that would have
required adjustment or disclosure in the unaudited condensed
financial statements.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
References to the “Company,” “our,” “us” or “we” refer to Authentic
Equity Acquisition Corp. The following discussion and analysis of
the Company’s financial condition and results of operations should
be read in conjunction with the unaudited condensed financial
statements and the notes thereto contained elsewhere in this
report. Certain information contained in the discussion and
analysis set forth below includes forward-looking statements that
involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”). We have based these
forward-looking statements on our current expectations and
projections about future events. These forward-looking statements
are subject to known and unknown risks, uncertainties and
assumptions about us that may cause our actual results, levels of
activity, performance or achievements to be materially different
from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking
statements. In some cases, you can identify forward-looking
statements by terminology such as “may,” “should,” “could,”
“would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,”
“continue,” or the negative of such terms or other similar
expressions. Such statements include, but are not limited to,
possible business combinations and the financing thereof, and
related matters, as well as all other statements other than
statements of historical fact included in this Form 10-Q. Factors
that might cause or contribute to such a discrepancy include, but
are not limited to, those described in our other Securities and
Exchange Commission (“SEC”) filings.
Overview
We are a blank check company incorporated as a Cayman Islands
company on September 29, 2020. We were formed for the purpose
entering into a merger, share exchange, asset acquisition, share
purchase, recapitalization, reorganization or other similar
business combination with one or more target businesses (the
“Business Combination”).
Sponsor and Financing
Our Sponsor is Authentic Equity Sponsor LLC, a Delaware limited
liability company (the “Sponsor”). The registration statement for
our initial public offering (the “Initial Public Offering”) was
declared effective on January 14, 2021. On January 20, 2021, we
consummated its Initial Public Offering of 23,000,000 units (the
“Units” and, with respect to the Class A ordinary shares included
in the Units being offered, the “Public Shares”), including
3,000,000 additional Units to cover over-allotments (the
“Over-Allotment Units”), at $10.00 per Unit, generating gross
proceeds of $230.0 million, and incurring offering costs of
approximately $13.3 million, of which approximately $8.1 million
was for deferred underwriting commissions.
Simultaneously with the closing of the Initial Public Offering, we
consummated the sale of 6,600,000 warrants (each, a “Private
Placement Warrant” and collectively, the “Private Placement
Warrants”) to the Sponsor for an aggregate purchase price of
approximately $5.8 million, and incurred offering costs of
approximately $18,000, in a private placement (the “Private
Placement”). In addition, the Company consummated the sale of
certain rights to General Electric Pension Trust (“GEPT” and such
rights, the “GEPT Rights”) for gross proceeds of $824,500, which
will allow GEPT to purchase up to $50.0 million of Forward Purchase
Units (as defined below) immediately prior to an initial Business
Combination.
Trust Account
Upon the closing of the Initial Public Offering and the Private
Placement, $230.0 million ($10.00 per Unit) of the net proceeds of
the Initial Public Offering and certain of the proceeds of the
Private Placement were placed in a trust account (“Trust Account”)
located in the United States with Continental Stock Transfer &
Trust Company acting as trustee, and are invested only in United
States “government securities” within the meaning of Section
2(a)(16) of the Investment Company Act of 1940, as amended (the
“Investment Company Act”), having a maturity of 185 days or less or
in money market funds meeting certain conditions under Rule 2a-7
promulgated under the Investment Company Act, which invest only in
direct U.S. government treasury obligations, until the earlier of:
(i) the completion of a Business Combination and (ii) the
distribution of the Trust Account as described below.
Initial Business Combination
Our management has broad discretion with respect to the specific
application of the net proceeds of the Initial Public Offering, the
sale of Private Placement Warrants and the sale of the GEPT Rights,
although substantially all of the net proceeds are intended to be
applied generally toward consummating a Business Combination. There
is no assurance that we will be able to complete a Business
Combination successfully. Our initial Business Combination must be
with one or more operating businesses or assets with a fair market
value equal to at least 80% of the net assets held in the Trust
Account (excluding the deferred underwriting commissions and taxes
payable on the interest earned on the trust account) at the time of
the signing of the agreement to enter into the initial Business
Combination. However, we will only complete a Business Combination
if the post-transaction company owns or acquires 50% or more of the
outstanding voting securities of the target or otherwise acquires a
controlling interest in the target sufficient for it not to be
required to register as an investment company under the Investment
Company Act.
If we are unable to complete a Business Combination within the
Combination 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 the Trust Account, including
interest earned on the funds held in the Trust Account and not
previously released to us to pay its tax obligations, if any (less
up to $100,000 of interest to pay dissolution expenses) divided by
the number of the then-outstanding Public Shares, which redemption
will completely extinguish Public Shareholders’ rights as
shareholders (including the right to receive further liquidation
distributions, if any); and (iii) as promptly as reasonably
possible following such redemption, subject to the approval of the
remaining shareholders and the board of directors, liquidate and
dissolve, subject in the case of clauses (ii) and (iii), to our
obligations under Cayman Islands law to provide for claims of
creditors and the requirements of other applicable law.
Liquidity and Going Concern
As of June 30, 2022, we had approximately $50,000 in our operating
bank account and a working capital deficit of approximately
$668,000.
Our liquidity needs to date have been satisfied through a
contribution of $25,000 from Sponsor to cover for certain expenses
in exchange for the issuance of the Founder Shares, a loan of
approximately $97,000 from the Sponsor pursuant to a promissory
note originally issued on September 30, 2020 (the “Note”), and
certain portion of the proceeds from the Private Placement and sale
of the GEPT Right held outside of the Trust Account. We repaid the
Note in full on January 20, 2021. In addition, in order to finance
transaction costs in connection with a Business Combination, the
Sponsor or an affiliate of the Sponsor, or certain of our officers
and directors may, but are not obligated to, provide us Working
Capital Loans. As of June 30, 2022 and December 31, 2021, there
were no amounts outstanding under any Working Capital Loans.
We may need to raise additional capital through loans or additional
investments from its Sponsor, an affiliate of the Sponsor, or its
officers or directors. Our officers, directors and Sponsor, or
their affiliates, may, but are not obligated to, loan us funds,
from time to time or at any time, in whatever amount they deem
reasonable in their sole discretion, to meet the Company’s working
capital needs. Accordingly, we may not be able to obtain additional
financing. If we are unable to raise additional capital, it may be
required to take additional measures to conserve liquidity, which
could include, but not necessarily be limited to, curtailing
operations, suspending the pursuit of a potential transaction,
reducing overhead expenses, and extending the terms and due dates
of certain accrued expenses and other liabilities. We cannot
provide any assurance that new financing will be available to it on
commercially acceptable terms, if at all.
In connection with our assessment of going concern considerations
in accordance with FASB Accounting Standards Update (“ASU”)
2014-15, “Disclosure of Uncertainties about an Entity’s Ability to
Continue as a Going Concern,” we have determined that the working
capital deficit and mandatory liquidation and subsequent
dissolution raises substantial doubt about our ability to continue
as a going concern. No adjustments have been made to the carrying
amounts of assets or liabilities should we be required to liquidate
after January 20, 2023. The financial statements do not include any
adjustment that might be necessary if we are unable to continue as
a going concern.
We continue to evaluate the impact of the COVID-19 pandemic and has
concluded that the specific impact is not readily determinable as
of the date of the balance sheet. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Results of Operations
Our entire activity from inception to June 30, 2022 was for our
formation, preparation for our Initial Public Offering, and, since
the closing of our Initial Public Offering, a search for business
combination candidates. We will not be generating any operating
revenues until the closing and completion of our initial Business
Combination, at the earliest.
For the three months ended June 30, 2022, we had net income of
approximately $3.6 million, which consisted of approximately $3.5
million of a gain from change in fair value of derivative
instruments and approximately $292,000 of net gain from investments
held in Trust Account, partially offset by approximately $134,000
of general and administrative expenses and $30,000 of related party
administrative fees.
For the three months ended June 30, 2021, we had net loss of
approximately $4.3 million, which consisted of approximately $4.1
million of a loss from change in fair value of derivative
instruments, approximately $216,000 of general and administrative
expenses and $30,000 of related party administrative fees,
partially offset by approximately $6,000 of net gain from
investments held in Trust Account.
For the six months ended June 30, 2022, we had net income of
approximately $7.8 million, which consisted of approximately $7.9
million of a gain from change in fair value of derivative
instruments and approximately $313,000 of net gain from investments
held in Trust Account, partially offset by approximately $407,000
of general and administrative expenses and $60,000 of related party
administrative fees.
For the six months ended June 30, 2021, we had net income of
approximately $1.9 million, which consisted of approximately $4.8
million of a gain from change in fair value of derivative
instruments, approximately $10,000 of net gain from investments
held in Trust Account, partially offset by approximately $803,000
of general and administrative expenses, approximately $1.4 million
loss on excess of fair value over cash received for private
placement warrants, approximately $702,000 offering costs allocated
to issuance of public and private placement warrants and
approximately $54,000 of related party administrative fees.
Contractual Obligations
Forward Purchase Agreement
In connection with the consummation of the Initial Public Offering,
we entered into a forward purchase agreement (the “Forward Purchase
Agreement”) with GEPT, pursuant to which, in exchange for $824,500
of proceeds paid to the Company simultaneously with the closing of
the Initial public Offering, GEPT has the right, in its discretion,
to purchase up to the lesser of (i) $50.0 million of units and (ii)
a number of units equal to 19.99% of the pro forma equity
outstanding at the time of the closing of our initial Business
Combination, including but not limited to, any ordinary shares
issued in connection with the Initial Public Offering, the Forward
Purchase Agreement or any private placement or other offering or to
any seller in the initial Business Combination (the “Forward
Purchase Units”), with each unit consisting of one Class A ordinary
share (the “Forward Purchase Shares”) and 0.425 of one warrant to
purchase one Class A ordinary share at $11.50 per share, subject to
adjustment (the “Forward Purchase Warrants”), for a purchase price
of $10.00 per unit, in a private placement to occur immediately
prior to the closing of the initial Business Combination.
In consideration for the purchase for the Forward Purchase Units,
if GEPT purchases the maximum number of Forward Purchase Units
available to it under the Forward Purchase Agreement, the Company
will issue to GEPT, at the closing of the Company’s initial
Business Combination and prior to the conversion of the Class B
ordinary shares into Class A ordinary shares in accordance with the
terms thereof (the “GEPT Issuance”):
|
● |
a
number of Class B ordinary shares (the “GEPT Class B ordinary
shares”) that is equal to 12.5% of the aggregate number of Class B
ordinary shares outstanding at the time of the initial Business
Combination prior to the conversion of such Class B ordinary shares
into Class A ordinary shares pursuant to the terms thereof and
after giving effect to the issuance of the GEPT Class B ordinary
shares and any other Class B ordinary shares as a result of
anti-dilution rights or other adjustments and the number of Class B
ordinary shares transferred, assigned, sold or forfeited in
connection with the initial Business Combination but excluding
115,000 Class B ordinary shares from such calculation (the
“Post-Business Combination Class B ordinary shares”) (provided,
however, that if the Founder Shares are converted into Class A
ordinary shares prior to the date of the Company’s initial Business
Combination, GEPT will receive a number of Class A ordinary shares
equal to the number of Class A ordinary shares that it would have
been entitled to pursuant to the GEPT Issuance); and |
|
● |
a
number of Private Placement Warrants equal to 12.5% of the
aggregate number of Private Placement Warrants outstanding at the
time of the Company’s initial business combination prior to the
conversion of such Class B ordinary shares into Class A ordinary
shares pursuant to the terms thereof and after giving effect to any
Private Placement Warrants transferred, assigned, sold or forfeited
in connection with the initial Business Combination (the
“Post-Business Combination Private Placement
Warrants”). |
In connection with such issuance, the Sponsor agreed to forfeit to
us for no consideration a number of Class B ordinary shares and
Private Placement Warrants (the “Sponsor Forfeiture”) such that
after the Sponsor Forfeiture and the GEPT Issuance, the Sponsor
will own (i) a number of Class B ordinary shares equal to 87.5% of
the number of Post-Business Combination Class B ordinary shares
plus 15,000 Class B ordinary shares, and (ii) a number of Private
Placement Warrants equal to 87.5% of the number of Post-Business
Combination Private Placement Warrants.
We will determine the number of Forward Purchase Units to be sold
under the Forward Purchase Agreement and GEPT’s obligation to
purchase such units will be subject to the satisfaction of certain
conditions, including, among others, the delivery by GEPT of a
notice to us that it will purchase the Forward Purchase Units in
whole or in part. The rights of GEPT under the Forward Purchase
Agreement do not depend on whether any Class A ordinary shares are
redeemed by our public shareholders. If GEPT does not purchase the
maximum number of forward purchase units available to it under the
Forward Purchase Agreement, GEPT will not be entitled to receive
any of the Founder Shares or Private Placement Warrants described
above, and we will be entitled to retain the $824,500 paid to us by
GEPT.
The Forward Purchase Warrants purchased by GEPT under the Forward
Purchase Agreement will have the same terms as the Public Warrants.
The Private Placement Warrants to be issued to GEPT as described
above will have the same terms and be subject to the same transfer
restrictions as the Private Placement Warrants held by the
Sponsor.
Registration and Shareholder Rights
The holders of Founder Shares, Private Placement Warrants and
warrants that may be issued upon conversion of Working Capital
Loans (and any Class A ordinary shares issuable upon the exercise
of the Private Placement Warrants and warrants that may be issued
upon conversion of Working Capital Loans) are entitled to
registration rights pursuant to a registration and shareholder
rights agreement signed upon consummation of the Initial Public
Offering. These holders are entitled to certain demand and
“piggyback” registration rights. However, the registration and
shareholder rights agreement provide that the Company will not
permit any registration statement filed under the Securities Act to
become effective until the termination of the applicable lock-up
period for the securities to be registered We will bear the
expenses incurred in connection with the filing of any such
registration statements.
Pursuant to the Forward Purchase Agreement, we agreed to use
reasonable best efforts to: (i) file within 30 days after the
closing of the initial Business Combination a registration
statement with the SEC for a secondary offering of the Forward
Purchase Shares and the Forward Purchase Warrants (and underlying
Class A ordinary shares); (ii) cause such registration statement to
be declared effective promptly thereafter but in no event later
than sixty (60) days after the initial filing; (iii) maintain the
effectiveness of such registration statement until the earliest of
(A) the date on which GEPT or its assignees cease to hold the
securities covered thereby, and (B) the date all of the securities
covered thereby can be sold publicly without restriction or
limitation under Rule 144 of the Securities Act; and (iv), after
such registration statement is declared effective, cause us to
conduct firm commitment underwritten offerings, subject to certain
limitations. In addition, the Forward Purchase Agreement provides
for certain “piggy-back” registration rights to the holders of
forward purchase securities to include their securities in other
registration statements filed by us. We will bear the cost of
registering these securities.
Underwriting Agreement
We granted the underwriters a 45-day option from the final
prospectus relating to the Initial Public Offering to purchase up
to 3,000,000 additional Units to cover over-allotments, if any, at
$10.00 per Unit, less the underwriting discounts and commissions.
On January 20, 2021, the underwriter fully exercised its
over-allotment option.
The underwriters were entitled to an underwriting discount of $0.20
per unit, or $4.6 million in the aggregate, paid upon the closing
of the Initial Public Offering. In addition, $0.35 per unit, or
approximately $8.1 million in the aggregate will be payable to the
underwriters for deferred underwriting commissions. The deferred
underwriting commissions will become payable to the underwriters
from the amounts held in the Trust Account solely in the event that
we complete a Business Combination, subject to the terms of the
underwriting agreement.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of
America (“GAAP”) requires management to make estimates and
judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. A summary of our significant accounting
policies is included in Note 2 to our condensed financial
statements in Part I, Item 1 of this Quarterly Report. Certain of
our accounting policies are considered critical, as these policies
are the most important to the depiction of our financial statements
and require significant, difficult or complex judgments, often
employing the use of estimates about the effects of matters that
are inherently uncertain. Such policies are summarized in the
Management’s Discussion and Analysis of Financial Condition and
Results of Operations section in our 2021 Annual Report on Form
10-K filed with the SEC on March 25, 2022. There have been no
significant changes in the application of our critical accounting
policies during the six months ended June 30, 2022.
Recent Accounting Pronouncements
See Note 2 to the unaudited condensed financial statements included
in Part I, Item 1 of this Quarterly Report for a discussion of
recent accounting pronouncements.
Off-Balance Sheet Arrangements
As of June 30, 2022, we did not have any off-balance sheet
arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and
did not have any commitments or contractual obligations.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”)
contains provisions that, among other things, relax certain
reporting requirements for qualifying public companies. We qualify
as an “emerging growth company” and under the JOBS Act are allowed
to comply with new or revised accounting pronouncements based on
the effective date for private (not publicly traded) companies. We
are electing to delay the adoption of new or revised accounting
standards, and as a result, we may not comply with new or revised
accounting standards on the relevant dates on which adoption of
such standards is required for non-emerging growth companies. As a
result, the financial statements may not be comparable to companies
that comply with new or revised accounting pronouncements as of
public company effective dates.
Additionally, we are in the process of evaluating the benefits of
relying on the other reduced reporting requirements provided by the
JOBS Act. Subject to certain conditions set forth in the JOBS Act,
if, as an “emerging growth company,” we choose to rely on such
exemptions we may not be required to, among other things, (i)
provide an auditor’s attestation report on our system of internal
controls over financial reporting pursuant to Section 404, (ii)
provide all of the compensation disclosure that may be required of
non-emerging growth public companies under the Dodd-Frank Wall
Street Reform and Consumer Protection Act, (iii) comply with any
requirement that may be adopted by the PCAOB regarding mandatory
audit firm rotation or a supplement to the auditor’s report
providing additional information about the audit and the financial
statements (auditor discussion and analysis) and (iv) disclose
certain executive compensation related items such as the
correlation between executive compensation and performance and
comparisons of the CEO’s compensation to median employee
compensation. These exemptions will apply for a period of five
years following the completion of our Initial Public Offering or
until we are no longer an “emerging growth company,” whichever is
earlier.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
We are a smaller reporting company as defined by Rule 12b-2 of the
Exchange Act and are not required to provide the information
otherwise required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required to
be disclosed in our reports filed or submitted under the Exchange
Act is recorded, processed, summarized, and reported within the
time periods specified in the SEC’s rules and forms. Disclosure
controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be
disclosed in company reports filed or submitted under the Exchange
Act is accumulated and communicated to management, including our
principal executive officer and principal financial officer, to
allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management,
including our principal executive officer and principal financial
officer (our “Certifying Officer”), we conducted an evaluation of
the effectiveness of our disclosure controls and procedures, as
such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act. Based on this evaluation, our principal executive
officer and principal financial officer have concluded that during
the period covered by this report, our disclosure controls and
procedures were effective as of June 30, 2022.
We previously identified a material weakness in 2021 related to our
control around the interpretation and accounting for certain
complex financial instruments that was not effectively designed or
maintained. A material weakness is a deficiency, or a combination
of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement
of our annual or interim financial statements will not be prevented
or detected on a timely basis. We designed and implemented new
controls to remediate the control. We have expanded and improved
our processes to ensure that the nuances of such transactions were
effectively evaluated in the context of increasingly complex
accounting standards. Based on the actions taken, as well as the
evaluation of the design of the new controls, we concluded that the
controls were operating effectively as of June 30, 2022. As a
result, management concluded that the material weakness was
remediated as of June 30, 2022.
Changes in Internal Control Over Financial Reporting
During the most recent fiscal quarter ended June 30, 2022, there
has been no change in our internal control over financial reporting
that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting. Based on the
evaluation we conducted, other than remediation of the material
weakness identified and discussed above, our management has
concluded that no such changes have occurred.
PART II - OTHER INFORMATION
Item 1A. Risk Factors
Factors that could cause our actual results to differ materially
from those in this report are any of the risks disclosed in our
Annual Report on Form 10-K, which was filed with the SEC on March
25, 2022. Any of these factors could result in a significant or
material adverse effect on our results of operations or financial
condition. Additional risk factors not presently known to us or
that we currently deem immaterial may also impair our business or
results of operations.
The information presented below updates, and should be read in
conjunction with, the risk factors disclosed in our Annual Report
on Form 10-K, which was filed with the SEC on March 25, 2022.
Changes in laws or regulations, or a failure to comply with
any laws and regulations, may adversely affect our business,
including our ability to negotiate and complete our Business
Combination and results of operations.
We are subject to laws and regulations enacted by national,
regional and local governments. In particular, we are required to
comply with certain SEC and other legal requirements. Compliance
with, and monitoring of, applicable laws and regulations may be
difficult, time consuming and costly. Those laws and regulations
and their interpretation and application may also change from time
to time and those changes could have a material adverse effect on
the business, investments and results of our operations. In
addition, a failure to comply with applicable laws or regulations,
as interpreted and applied, could have a material adverse effect on
our business, including our ability to negotiate and complete our
Business Combination and results of operations.
On March 30, 2022, the SEC issued proposed rules (the “2022
Proposed Rules”) relating to, among other items, enhancing
disclosures in business combination transactions involving SPACs
and private operating companies; amending the financial statement
requirements applicable to transactions involving shell companies;
effectively limiting the use of projections in SEC filings in
connection with proposed business combination transactions;
increasing the potential liability of certain participants in
proposed business combination transactions; and the extent to which
SPACs could become subject to regulation under the Investment
Company Act. The 2022 Proposed Rules, if adopted, whether in the
form proposed or in revised form, and certain positions and legal
conclusions expressed by the SEC in connection with the 2022
Proposed Rules may materially adversely affect our ability to
negotiate and complete our Business Combination and may increase
the costs and time related thereto.
Our search for a Business Combination, and any target
business with which we may ultimately consummate a Business
Combination, may be materially adversely affected by the
geopolitical conditions resulting from the recent invasion of
Ukraine by Russia and subsequent sanctions against Russia, Belarus
and related individuals and entities and the status of debt and
equity markets, as well as protectionist legislation in markets
around the world.
United States and global markets are experiencing volatility and
disruption following the escalation of geopolitical tensions and
the recent invasion of Ukraine by Russia in February 2022. In
response to such invasion, the North Atlantic Treaty Organization
(“NATO”) deployed additional military forces to eastern Europe, and
the United States, the United Kingdom, the European Union and other
countries have announced various sanctions and restrictive actions
against Russia, Belarus and related individuals and entities,
including the removal of certain financial institutions from the
Society for Worldwide Interbank Financial Telecommunication (SWIFT)
payment system. Certain countries, including the United States,
have also provided and may continue to provide military aid or
other assistance to Ukraine during the ongoing military conflict,
increasing geopolitical tensions with Russia. The invasion of
Ukraine by Russia and the resulting measures that have been taken,
and could be taken in the future, by NATO, the United States, the
United Kingdom, the European Union and other countries have created
global security concerns that could have a lasting impact on
regional and global economies. Although the length and impact of
the ongoing military conflict in Ukraine is highly unpredictable,
the conflict could lead to market disruptions, including
significant volatility in commodity prices, credit and capital
markets, as well as supply chain interruptions. Additionally,
Russian military actions and the resulting sanctions could
adversely affect the global economy and financial markets and lead
to instability and lack of liquidity in capital markets.
Any of the abovementioned factors, or any other negative impact on
the global economy, capital markets or other geopolitical
conditions resulting from the Russian invasion of Ukraine and
subsequent sanctions, could adversely affect our search for a
Business Combination and any target business with which we may
ultimately consummate a Business Combination. The extent and
duration of the Russian invasion of Ukraine, resulting sanctions
and any related market disruptions are impossible to predict, but
could be substantial, particularly if current or new sanctions
continue for an extended period of time or if geopolitical tensions
result in expanded military operations on a global scale. Any such
disruptions may also have the effect of heightening many of the
other risks described in the “Risk Factors” section of our Annual
Report on Form 10-K. If these disruptions or other matters of
global concern continue for an extensive period of time, our
ability to consummate a Business Combination, or the operations of
a target business with which we may ultimately consummate a
Business Combination, may be materially adversely affected.
In addition, the recent invasion of Ukraine by Russia, and the
impact of sanctions against Russia and the potential for
retaliatory acts from Russia, could result in increased
cyber-attacks against U.S. companies.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds.
Simultaneously with the closing of the Initial Public Offering, we
consummated the sale of 6,600,000 warrants to the Sponsor for an
aggregate purchase price of approximately $5.8 million, in a
private placement. In addition, we consummated the sale of certain
rights to GEPT for gross proceeds of $824,500, which will allow
GEPT to purchase up to $50.0 million of Forward Purchase Units
immediately prior to any initial Business Combination.
Of the gross proceeds received from the Initial Public Offering and
certain portion of the proceeds received from the Private
Placement, $230,000,000 was placed in the Trust Account. The net
proceeds of the Initial Public Offering and certain proceeds from
the Private Placement are invested in U.S. government treasury
bills with a maturity of 185 days or less and in money market funds
meeting certain conditions under Rule 2a-7 under the Investment
Company Act which invest only in direct U.S. government treasury
obligations.
Item 6. Exhibits.
* |
Filed
herewith. |
** |
Furnished herewith. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized on this
10th day of August 2022.
|
Authentic Equity
Acquisition Corp. |
|
|
|
By: |
/s/ David M. Hooper |
|
Name: |
David M. Hooper |
|
Title: |
Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
By: |
/s/ Todd Khoury |
|
Name: |
Todd Khoury |
|
Title: |
Chief Financial Officer |
|
|
(Principal Financial and Accounting
Officer) |
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