References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to RF Acquisition Corp. References to our "management" or our
"management team" refer to our officers and directors, and references to the
"Sponsor" refer to RF Dynamic LLC. 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 Quarterly Report. Certain information
contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" that are not
historical facts and involve risks and uncertainties that could cause actual
results to differ materially from those expected and projected. All statements,
other than statements of historical fact included in this Quarterly Report
including, without limitation, statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position, business strategy and the plans and objectives of
management for future operations, are forward-looking statements. Words such as
"expect," "believe," "anticipate," "intend," "estimate," "seek" and variations
and similar words and expressions are intended to identify such forward-looking
statements. Such forward-looking statements relate to future events or future
performance, but reflect management's current beliefs, based on information
currently available. A number of factors could cause actual events, performance
or results to differ materially from the events, performance and results
discussed in the forward-looking statements. For information identifying
important factors that could cause actual results to differ materially from
those anticipated in the forward-looking statements, please refer to the Risk
Factors section of the Company's final prospectus for its Initial Public
Offering (as defined below) filed with the U.S. Securities and Exchange
Commission (the "SEC"). The Company's securities filings can be accessed on the
EDGAR section of the SEC's website at www.sec.gov. Except as expressly required
by applicable securities law, the Company disclaims any intention or obligation
to update or revise any forward-looking statements whether as a result of new
information, future events or otherwise.
Overview
We are a blank check company incorporated on January 11, 2021 as a Delaware
corporation and formed for the purpose of effecting a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses. We intend to effectuate our initial
business combination using cash from the proceeds of this offering and the
private placement warrants, the proceeds of the sale of equity or equity-linked
securities or through loans, advances or other indebtedness in connection with
our initial business combination, shares issued to the owners of the target,
debt issued to banks or other lenders or the owners of the target, or a
combination of the foregoing.
We expect to continue to incur significant costs in the pursuit of a business
combination. We cannot assure you that our plans to complete a business
combination will be successful.
Results of Operations
Our only activities from inception through September 30, 2022, were those
related to our formation, the preparation for our Initial Public Offering and,
since the closing of the Initial Public Offering, the search for a prospective
initial Business Combination. We have neither engaged in any operations nor
generated any operating revenues to date. We will not generate any operating
revenues until after completion of our initial Business Combination, at the
earliest. We incurred expenses as a result of being a public company (including
for legal, financial reporting, accounting and auditing compliance), as well as
for expenses in connection with searching for a prospective initial Business
Combination.
For the three months ended September 30, 2022, we had a net income of $92,989,
which is comprised of $282,791 of formation and operating expenses, $540,805
interest income, $115,025 in income tax expenses and $50,000 in franchise tax
expenses.
For the nine months ended September 30, 2022, we had a net loss of $124,280,
which is comprised of $556,993 of formation and operating expenses, $697,103 in
interest income, $115,025 in income tax expenses and $149,365 in franchise tax
expenses.
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For the period from January 11, 2021 (inception) through September 30, 2021, we
had a net loss of $659, which is comprised of formation and operating expenses
of $659.
Liquidity and Going Concern
On March 28, 2022, the Company consummated the Initial Public Offering of
10,000,000 units, generating gross proceeds of $100,000,000. Simultaneously with
the closing of the IPO, pursuant to the Private Placement Warrants Purchase
Agreements, the Company completed the private sale of 4,050,000 warrants (the
"Private Placement Warrants") to the Sponsor at a purchase price of $1.00 per
Private Placement Warrant, and 500,000 warrants to EarlyBirdCapital, Inc.,
generating gross proceeds to the Company of $4,550,000.
On March 30, 2022, the underwriters fully exercised the over-allotment option
and purchased an additional 1,500,000 Units, generating an aggregate of gross
proceeds of $15,000,000. Simultaneously with the closing of the exercise of the
over-allotment option, the Company completed the private sale of an aggregate of
450,000 Private Placement Warrants to the Company's Sponsor, at a purchase price
of $1.00 per Private Placement Warrant, generating gross proceeds of $450,000.
Following the closing of the Initial Public Offering on March 28, 2022 and the
exercise of the over-allotment option on March 30, 2022, an amount of
$116,150,000 from the net proceeds was placed in the Trust Account. Transaction
costs amounted to $3,803,330 consisting of $2,300,000 of underwriting fees, and
$1,503,330 of other costs.
As of September 30, 2022 and December 31, 2021, we had approximately
$116,775,120 and $0 investments held in the Trust Account, respectively. We
intend to use substantially all of the funds held in the Trust Account to
complete our Business Combination. To the extent that our shares or debt is
used, in whole or in part, as consideration to complete our Business
Combination, the remaining proceeds held in the Trust Account will be used as
working capital to finance the operations of the post-Business Combination
entity, make other acquisitions and pursue our growth strategies.
As of September 30, 2022 and December 31, 2021, we had cash of $284,987 and $0
held outside of the Trust Account, respectively. We intend to use the funds held
outside of the Trust Account primarily to identify and evaluate target
businesses, perform business due diligence on prospective target businesses,
travel to and from the offices, properties, or similar locations of prospective
target businesses or their representative or owners, review corporate documents
and material agreements of prospective target businesses, and structure,
negotiate and complete a Business Combination.
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 on a non-interest basis ("Working Capital Loans"). If the Company
completes a Business Combination, the Company would repay such loaned amounts.
If a Business Combination does not close, the Company may use a portion of the
working capital held outside the trust account to repay such loaned amounts but
no proceeds from its Trust account would be used for such repayment. The terms
of such Working Capital Loans by the Sponsor or its affiliates, or the Company's
officers and directors, if any, have not been determined and no written
agreements exist with respect to such loans.
In connection with the Company's assessment of going concern considerations in
accordance with the authoritative guidance in Financial Accounting Standard
Board ("FASB") Accounting Standards Update ("ASU") 2014-15, "Disclosures of
Uncertainties about an Entity's Ability to Continue as a Going Concern." The
Company has until March 28, 2023, 12 months from the closing of the IPO, to
consummate a Business Combination. It is uncertain that the Company will be able
to consummate a Business Combination by the specified period. If a Business
Combination is not consummated by March 28, 2023, and the Company decides not to
extend the period of time to consummate a Business Combination, there will be a
mandatory liquidation and subsequent dissolution. The liquidity condition and
date for mandatory liquidation and subsequent dissolution raise substantial
doubt about the Company's ability to continue as a going concern one year from
the date that these condensed financial statements are issued. These condensed
financial statements do not include any adjustments relating to the recovery of
the recorded assets or the classification of the liabilities that might be
necessary should the Company be unable to continue as a going concern.
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Related Party Transactions
Founder Shares
On January 21, 2021, the Company issued an aggregate of 2,875,000 shares of
Class B common stock (the "Founder Shares") to the Sponsor in exchange for cash
of $25,000. The Founder Shares include an aggregate of up to 375,000 shares
subject to forfeiture by the Sponsor to the extent that the underwriter's
overallotment is not exercised in full or in part, so that the Sponsor will own,
on an as-converted basis, 20% of the Company's issued and outstanding shares
after the Initial Public Offering.
As a result of the underwriter's election to exercise their over-allotment
option on March 30, 2022, 375,000 Founder Shares are no longer subject to
forfeiture.
The Sponsor has agreed not to, except to permitted transferees, transfer, assign
or sell any of its Founder Shares until the earlier to occur of: (A) one year
after the completion of a Business Combination or (B) the date on which the
Company completes a liquidation, merger, capital stock exchange or similar
transaction that results in all of the Company's stockholders having the right
to exchange their shares of common stock for cash, securities or other property.
Notwithstanding the foregoing, if the last sale price of the Company's Class A
common stock equals or exceeds $12.00 per share (as adjusted for stock splits,
stock dividends, reorganizations, recapitalizations and the like) for any 20
trading days within any 30-trading day period commencing at least 120 days after
the Business Combination, the Founder Shares will be released from the lock-up.
Related Party Loans
The Sponsor agreed to loan the Company an aggregate of up to $300,000 in the
aggregate, to cover expenses related to the Initial Public Offering pursuant to
a promissory note (the "Note"). The Note is non-interest bearing and is payable
on the earlier of (i) September 30, 2022 or (ii) the closing of the Initial
Public Offering. As of September 30, 2022, the Company has not drawn down on the
promissory note.
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 on a non-interest basis ("Working Capital Loans"). If the Company
completes a Business Combination, the Company would repay such loaned amounts.
If a Business Combination does not close, the Company may use a portion of the
working capital held outside the trust account to repay such loaned amounts but
no proceeds from its Trust account would be used for such repayment. The terms
of such Working Capital Loans by the Sponsor or its affiliates, or the Company's
officers and directors, if any, have not been determined and no written
agreements exist with respect to such loans.
Contractual Obligations
Administrative Services Agreement
Commencing on the date of the Initial Public Offering and until completion of
the Company's initial business combination or liquidation, the Company will make
a payment of a monthly fee of $10,000 to the Sponsor for office space, utilities
and secretarial and administrative support provided to the Company. Upon
completion of the initial Business Combination or the Company's liquidation, the
Company will cease paying these monthly fees. Given the timing of the Company's
initial public offering, $60,000 has been recognized in connection with such
services for the nine months ended September 30, 2022.
Registration and Stockholder Rights
The holders of the Founder Shares, Private Placement Warrants and any warrants
that may be issued upon conversion of the Working Capital Loans (and in each
case holders of their component securities, as applicable) will be entitled to
registration rights pursuant to a registration rights agreement to be signed
prior to or on the effective date of the Initial Public Offering, requiring the
Company to register such securities for resale (in the case of the Founder
Shares, only after conversion to our Class A common stock). The holders of the
majority of these securities are entitled to make up to three demands, excluding
short form demands, that the Company register such securities. In addition, the
holders have certain "piggy-back" registration rights with respect to
registration statements filed subsequent to the consummation of a Business
Combination and rights to require the Company to register for resale such
securities
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pursuant to Rule 415 under the Securities Act. The Company will bear the
expenses incurred in connection with the filing of any such registration
statements.
Underwriting Agreement
The underwriters were paid a cash underwriting discount of 2.00% of the gross
proceeds of the Initial Public Offering, or $2,300,000. On March 30, 2022, the
underwriters fully exercised the over-allotment option and purchased an
additional 1,500,000 Over-Allotment Units, generating an aggregate of gross
proceeds of $15,000,000.
Business Combination Marketing Agreement
On March 23, 2022, the Company engaged EBC as an advisor in connection with a
Business Combination to assist the Company in holding meetings with its
stockholders to discuss the potential Business Combination and the target
business' attributes, introduce the Company to potential investors that are
interested in purchasing the Company's securities in connection with a Business
Combination, assist the Company with its press releases and public filings in
connection with the Business Combination. The Company will pay EBC a cash fee
for such services upon the consummation of a Business Combination in an amount
equal to 3.5% of the gross proceeds of Initial Public Offering.
Additionally, the Company will pay EBC a cash fee equal to 1.0% of the total
consideration payable in the proposed Business Combination if it introduces the
Company to the target business with which the Company completes a Business
Combination; provided that the foregoing fee will not be paid prior to the date
that is 90 days from the effective date of the Initial Public Offering, unless
the Financial Industry Regulatory Authority ("FINRA") determines that such
payment would not be deemed underwriters' compensation in connection with the
Initial Public Offering pursuant to FINRA Rule 5110.
EarlyBirdCapital Founders Shares
On April 12, 2021 the Company issued to EarlyBirdCapital ("EBC") and or
designees an aggregate of 200,000 shares of Class A common stock at a price of
$0.0001 per share for a total consideration of $20. The Company accounts for the
fair value of the EBC Founder shares (EBC Founder Shares) over consideration
paid as offering cost of the Initial Public Offering, with a corresponding
credit to stockholder's equity.
The Company estimated the fair value of the EBC Founder Shares to be $519,415
and is recorded as an offering cost with a corresponding increase in
stockholder's equity. The Company established the initial fair value of the EBC
Founder Shares on April 12, 2021, using a probability weighted model for the EBC
Founder Shares. The EBC Founder Shares are classified as Level 3 at the
measurement date due to the use of unobservable inputs including the probability
of a business combination, the probability of the initial public offering, and
other risk factors.
EarlyBirdCapital (and/or its designees) has agreed not to transfer, assign or
sell any such shares without the Company's prior written consent until the
completion of the Business Combination. In addition, EarlyBirdCapital (and/or
its designees) has agreed (i) to waive its redemption rights with respect to
such shares in connection with the completion of the Business Combination and
(ii) to waive its rights to liquidating distributions from the trust account
with respect to such shares if the Company fails to complete the Business
Combination within the Combination Period.
The shares have been deemed compensation by FINRA and are therefore subject to a
lock-up for a period of 180 days immediately following the date of the
effectiveness of the registration statement pursuant to FINRA Rule 5110(g)(1).
Pursuant to FINRA Rule 5110(g)(1), these securities will not be the subject of
any hedging, short sale, derivative, put or call transaction that would result
in the economic disposition of the securities by any person for a period of
180 days immediately following the effective date of the registration statement,
nor may they be sold, transferred, assigned, pledged or hypothecated for a
period of 180 days immediately following the effective date of the registration
statement except to any underwriter and selected dealer participating in the
offering and their bona fide officers or partners.
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Critical Accounting Estimates
This management's discussion and analysis of our financial condition and results
of operations is based on our condensed financial statements, which have been
prepared in accordance with United States Generally Accepted Accounting Polices
("GAAP"). The preparation of our condensed financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and the disclosure of contingent assets and
liabilities in our condensed financial statements. On an ongoing basis, we
evaluate our estimates and judgments, including those related to fair value of
financial instruments and accrued expenses. We base our estimates on historical
experience, known trends and events and various other factors that we believe to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Recently Issued Accounting Standards
In August 2020, FASB issued Accounting Standards Update ("ASU") 2020-06, Debt -
Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) ("ASU 2020-06") to
simplify accounting for certain financial instruments. ASU 2020-06 eliminates
the current models that require separation of beneficial conversion and cash
conversion features from convertible instruments and simplifies the derivative
scope exception guidance pertaining to equity classification of contracts in an
entity's own equity. The new standard also introduces additional disclosures for
convertible debt and freestanding instruments that are indexed to and settled in
an entity's own equity. ASU 2020-06 amends the diluted earnings per share
guidance, including the requirement to use the if-converted method for all
convertible instruments. ASU 2020-06 is effective for fiscal years beginning
after December 15, 2023, including interim periods within those fiscal years,
with early adoption permitted. The Company is currently evaluating the impact
this guidance will have on its financial statements.
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on our condensed financial statements.
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