References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Rosecliff Acquisition Corp I. References to our "management"
or our "management team" refer to our officers and directors, and references to
the "Sponsor" refer to Rosecliff Acquisition Sponsor I LLC. The following
discussion and analysis of the Company's financial condition and results of
operations should be read in conjunction with the financial statements and the
notes thereto contained elsewhere in this Quarterly Report. Certain information
contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act that
are not historical facts and involve risks and uncertainties that could cause
actual results to differ materially from those expected and projected. All
statements, other than statements of historical fact included in this Form 10-Q
including, without limitation, statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
completion of the Business Combination, the Company's financial position,
business strategy and the plans and objectives of management for future
operations, are forward-looking statements. Words such as "may," "should,"
"could," "would," "expect," "plan," "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,
including that the conditions of the Business Combination are not satisfied. For
information identifying important factors that could cause actual results to
differ materially from those anticipated in the forward-looking statements,
please refer to the Risk Factors section of the Company's Annual Report on Form
10-K filed with the SEC on March 31, 2022, Quarterly Reports on Form 10-Q filed
with the SEC on May 13, 2022 and August 12, 2022 and proxy statement on Schedule
14A for the Special Meeting (as defined below) filed with the SEC on November 9,
2022. Except as expressly required by applicable securities law, the Company
disclaims any intention or obligation to update or revise any forward-looking
statements whether as a result of new information, future events or otherwise.
Overview
We are a blank check company formed under the laws of the State of Delaware on
November 17, 2020, 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 Business
Combination using cash from the proceeds of the Initial Public Offering and the
sale of the Private Placement Warrant, our capital stock, debt or a combination
of cash, stock and debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete a Business
Combination will be successful.
Recent Developments
Special Meeting of Stockholders
On November 9, 2022, the Company filed a preliminary proxy statement in
connection with a special meeting to be held on a date set by a committee of the
board (the "Special Meeting") for the purpose of voting on: (a) a proposal to
amend the Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") pursuant to an amendment to the Certificate of
Incorporation to extend the date by which the Company must either (i) consummate
a merger, capital stock exchange, asset acquisition, stock purchase,
reorganization or similar business combination, involving the Company with one
or more businesses, which we refer to as our "initial Business Combination", or
(ii) cease its operations, except for the purpose of winding up if it fails to
complete such initial Business Combination, and redeem all of the Company's
shares of Class A Common Stock, par value $0.0001 per share, of the Company
("Class A Common Stock"), and all of its shares of Class B Common Stock, par
value $0.0001 per share, of the Company ("Class B Common Stock", collectively
with the Class A Common Stock, the "Common Stock"), included as part of
the units sold in the Initial Public Offering that was consummated on February
17, 2021, from February 17, 2023 to February 17, 2024, (the "Extension
Proposal"); (b) a proposal to amend the Certificate of Incorporation pursuant to
an amendment to the Certificate of Incorporation to eliminate from the
Certificate of Incorporation the limitation that the Company may not redeem
public shares to the extent that such redemption would result in the Company
having net tangible assets (as determined in accordance with Rule 3a51-1(g)(1)
of the Securities Exchange Act of 1934) of less than $5,000,001 (the "Redemption
Limitation") in order to allow the Company to redeem public shares irrespective
of whether such redemption would exceed the Redemption Limitation (the
"Redemption Limitation Amendment Proposal"); and (c) a proposal to approve the
adjournment of the Special Meeting to a later date or dates, if necessary, to
permit further solicitation and vote of proxies in the event that there are
insufficient votes for, or otherwise in connection with, the approval of the
Extension Proposal (the "Adjournment Proposal"), which may be presented at the
Special Meeting if, based on the tabulated votes, there are not sufficient votes
at the time of the Special Meeting to approve the Extension Proposal, in which
case the Adjournment Proposal will be the only proposal presented at the Special
Meeting.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities for the period from November 17, 2020 (inception) through
September 30, 2022 were organizational activities, those necessary to prepare
for the Initial Public Offering, described below, and identifying a target
company for a Business Combination. We do not expect to generate any operating
revenues until after the completion of our Business Combination. We generate
non-operating income in the form of interest income on marketable securities
held in the Trust Account. We incur expenses as a result of being a public
company (for legal, financial reporting, accounting and auditing compliance), as
well as for due diligence expenses.
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For the three months ended September 30, 2022, we had a net income of
$1,185,674, which consists of change in fair value of warrant liabilities of
$525,600 and interest earned on investment held in Trust Account of $1,122,395,
offset by formation and operating costs of $237,071 and provision for income tax
of $225,250.
For the nine months ended September 30, 2022, we had a net income of $9,698,494,
which consists of change in fair value of warrant liabilities of $9,354,242 and
interest earned on investment held in Trust Account of $1,546,924, offset by
formation and operating costs of $950,917 and provision for income tax of
$251,755.
For the three months ended September 30, 2021, we had a net loss of $2,227,170,
which consists of change in fair value of warrant liabilities of $3,416,400 and
interest earned on investment held in Trust Account of $3,506, offset by
formation and operating costs of $1,192,736.
For the nine months ended September 30, 2021, we had a net loss of $2,546,138,
which consists of change in fair value of warrant liabilities of $4,599,000 and
interest earned on investment held in Trust Account of $23,010, offset by
transaction costs allocated to warrant liabilities $438,283 and formation and
operating costs of $1,637,589.
Liquidity and Going Concern
As of September 30, 2022, we had U.S. Treasury Funds held in the Trust Account
of $254,228,158 consisting of fixed income securities. Interest income on the
balance in the Trust Account may be used by us to pay taxes. We intend to use
substantially all of the funds held in the Trust Account, including any amounts
representing interest earned on the Trust Account (less income taxes payable),
to complete our Business Combination. To the extent that our capital stock or
debt is used, in whole or in part, as consideration to complete our Business
Combination, the remaining proceeds held in the Trust Account will be used as
working capital to finance the operations of the target business or businesses,
make other acquisitions and pursue our growth strategies.
As of September 30, 2022, the Company had $517,838 in its operating bank account
and a working capital deficit of $2,429,532. We intend to use the funds held
outside the Trust Account primarily to identify and evaluate target businesses,
perform business due diligence on prospective target businesses, travel to and
from the offices, plants or similar locations of prospective target businesses
or their representatives or owners, review corporate documents and material
agreements of prospective target businesses, and structure, negotiate and
complete a Business Combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, the Sponsor, or certain of our officers
and directors or their affiliates may, but are not obligated to, loan us funds
as may be required. If we complete a Business Combination, we will repay such
loaned amounts. In the event that a Business Combination does not close, we may
use a portion of the working capital held outside the Trust Account to repay
such loaned amounts but no proceeds from our Trust Account would be used for
such repayment. Up to $1,500,000 of such loans may be convertible into Units at
a price of $10.00 per unit, at the option of the lender. The Units would be
identical to the Private Placement Warrants.
In connection with the Company's assessment of going concern considerations in
accordance with FASB's ASU 205-40, "Disclosure of Uncertainties about an
Entity's Ability to Continue as a Going Concern," the Company has until February
17, 2023 to consummate a Business Combination. It is uncertain that the Company
will be able to consummate a Business Combination by this time. Additionally,
the Company may not have sufficient liquidity to fund the working capital needs
of the Company through one year from the issuance of these financial statements.
If a Business Combination is not consummated by this date, there will be a
mandatory liquidation and subsequent dissolution of the Company. Management has
determined that the liquidity condition and mandatory liquidation, should a
Business Combination not occur, and potential subsequent dissolution, raises
substantial doubt about the Company's ability to continue as a going concern. No
adjustments have been made to the carrying amounts of assets or liabilities
should the Company be required to liquidate after February 17, 2023. The Company
intends to complete the proposed Business Combination before the mandatory
liquidation date. However, there can be no assurance that the Company will be
able to consummate any Business Combination by February 17, 2023. In addition,
the Company may need to raise additional capital through loans or additional
investments from its Sponsor, stockholders, officers, directors or third
parties. The Company's officers, directors and Sponsor 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, the Company 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, and reducing
overhead expenses. the Company cannot provide any assurance that new financing
will be available to it on commercially acceptable terms, if at all. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern through the liquidation date of February 17, 2023.
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The accompanying unaudited condensed financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
above to the financial statements, if the Company is unable to raise additional
funds to alleviate liquidity needs as well as complete a Business Combination by
the close of business on February 17, 2023, then the Company will cease all
operations except for the purpose of liquidating. This date for mandatory
liquidation and subsequent dissolution raises substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 2022. We do not participate
in transactions that create relationships with unconsolidated entities or
financial partnerships, often referred to as variable interest entities, which
would have been established for the purpose of facilitating off-balance sheet
arrangements. We have not entered into any off-balance sheet financing
arrangements, established any special purpose entities, guaranteed any debt or
commitments of other entities, or purchased any non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay an
affiliate of one of our executive officers a monthly fee of $10,000 for office
space, support and administrative services. We began incurring these fees on
February 11, 2021 and will continue to incur these fees monthly until the
earlier of the completion of the Business Combination and our liquidation.
The underwriters are entitled to a deferred fee of $0.35 per Unit, or $8,855,000
in the aggregate. The deferred fee will become payable to the underwriters from
the amounts held in the Trust Account solely in the event that the Company
completes a Business Combination, subject to the terms of the underwriting
agreement.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have not identified any critical accounting policies.
Warrant Liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. We evaluate all of our financial instruments, including
issued stock purchase warrants, to determine if such instruments are derivatives
or contain features that qualify as embedded derivatives, pursuant to ASC 480
and ASC 815. The Company accounts for warrants in accordance with the guidance
in ASC 480 and ASC 815 and determined that the Warrants do not meet the criteria
for equity treatment thereunder. The assessment considers whether the warrants
are freestanding financial instruments pursuant to ASC 480, meet the definition
of a liability pursuant to ASC 480, and whether the warrants meet all of the
requirements for equity classification under ASC 815, including whether the
warrants are indexed to the Company's own common stock, among other conditions
for equity classification. This assessment, which requires the use of
professional judgment, is conducted at the time of warrant issuance and as of
each subsequent quarterly period end date while the warrants are outstanding.
Accordingly, the Company recognizes the 8,433,333 Public Warrants and 4,706,667
Private Placement Warrants as liabilities at fair value and adjusts the
instruments to fair value at each reporting period. The 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 condensed statements of operations.
The estimated fair value of the Public Warrants was measured at fair value using
a binomial lattice model incorporating the Cox-Ross-Rubenstein methodology.
The measurement of the Public Warrants after the separation of the Public
Warrants from the Units is classified as Level 1 due to the use of an observable
market quote in an active market. For periods subsequent to the separation of
the Public Warrants from the Units, the closing price of the Public Warrant was
used as the fair value for the warrants as of each relevant date. At December
31, 2021 the Private Placement Warrants transferred to Level 2 due to the use of
an observable market quote for a similar asset in an active market. See Notes 8
and 9.
Class A Common Stock Subject to Possible Redemption
We account for our Class A common stock subject to possible redemption in
accordance with the guidance in ASC Topic 480. Shares of Class A common stock
subject to mandatory redemption is classified as a liability instrument and is
measured at fair value. Conditionally redeemable common stock (including common
stock that feature redemption rights that is either within the control of the
holder or subject to redemption upon the occurrence of uncertain events not
solely within our control) is classified as temporary equity. At all other
times, common stock is classified as stockholders' equity. Our Class A common
stock features certain redemption rights that are considered to be outside of
our control and subject to occurrence of uncertain future events. Accordingly,
25,300,000 shares of Class A common stock subject to possible redemption are
presented as temporary equity, outside of the stockholders' deficit section of
our condensed balance sheets.
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Net Income Per Common Share
The Company complies with accounting and disclosure requirements of FASB ASC
Topic 260, "Earnings Per Share." The Company has two classes of common stock,
which are referred to as Class A common stock and Class B common stock. Income
and losses are shared pro rata between the two classes of stock. Net income
(loss) per common share is calculated by dividing the net income by the weighted
average shares of common stock outstanding for the respective period. Accretion
associated with the redeemable shares of Class A common stock is excluded from
earnings per share as the redemption value approximates fair value.
Recent Accounting Standards
In August 2020, the FASB issued ASU No. 2020-06, "Debt-Debt with Conversion and
Other Options (Subtopic 470-20) and ASU 2020-06, which simplifies accounting for
convertible instruments by removing major separation models required under
current GAAP. ASU 2020-06 removes certain settlement conditions that are
required for equity contracts to qualify for the derivative scope exception, and
it also simplifies the diluted earnings per share calculation in certain areas.
ASU 2020-06 is effective for fiscal years beginning after December 15, 2023,
including interim periods within those fiscal years, with early adoption
permitted. We are currently assessing the impact, if any, that ASU 2020-06 would
have on our financial position, results of operations or cash flows. The Company
has not adopted this guidance as of September 30, 2022.
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 financial statements.
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