References to the "Company," "our," "us" or "we" refer to Rosecliff Acquisition
Corp I. The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with the
audited financial statements and the notes related thereto which are included in
"Item 8. Financial Statements and Supplementary Data" of this Annual Report on
Form 10-K. Certain information contained in the discussion and analysis set
forth below includes forward-looking statements. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of many factors. Certain information contained in the discussion and
analysis set forth below includes forward-looking statements. Our actual results
may differ materially from those anticipated in these forward-looking statements
as a result of many factors, including those set forth under "Cautionary Note
Regarding Forward-Looking Statements and Risk Factor Summary," "Item 1A. Risk
Factors" and elsewhere in this Annual Report on Form 10-K.
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
Extension of the Expiration Date
In connection with the Company's special meeting of stockholders held on
December 21, 2022, the Company's stockholders approved (A) the proposal to amend
the Company's amended and restated certificate of incorporation to extend the
date by which the Company must either (i) consummate the 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
shares of Class A common stock, and all of the shares of Class B common stock,
included as part of the units sold in the Company's initial public offering that
was consummated on February 17, 2021, from February 17, 2023 to February 17,
2024 and (B) the proposal to amend the amended and restated certificate of
incorporation to eliminate the Redemption Limitation in order to allow the
Company to redeem shares of Class A common stock irrespective of whether such
redemption would exceed the Redemption Limitation.
Notice of Failure to Satisfy a Continued Listing Rule
On January 22, 2023, the Company received the Notice from the Staff of Nasdaq
indicating that the Company is not in compliance with Listing Rule 5550(a)(4),
due to the Company's failure to meet the minimum 500,000 publicly held shares
requirement for the Nasdaq Capital Market. The Notice is a notification of
deficiency, not of imminent delisting. On March 9, 2023, per the Notice, the
Company submitted a plan of compliance to achieve and sustain compliance with
all Nasdaq Capital Market listing requirements. If Nasdaq does not accept the
Company's plan, the Company will have the opportunity to appeal the decision in
front of a Nasdaq Hearings Panel.
Termination of the Previously Announced Business Combination Agreement
On March 11, 2022, the Company, GT Gettaxi Listco, GT Gettaxi Limited, GT
Gettaxi SPV, GT Gettaxi Merger Sub 1, Gett Merger Sub, Inc., and Dooboo Holding
Limited, and Merger Sub entered into a Termination of the Business Combination
Agreement pursuant to which the parties mutually agreed to terminate the
Business Combination Agreement, effective immediately. As per the Company's
Current Report on Form 8-K filed with the SEC on November 11, 2021, the Company
requested that the target's management undertake a thorough analysis of its
financial projections. Following the conclusion of that process, and extensive
mutual efforts to negotiate an appropriate valuation adjustment, both parties
agreed to terminate the Business Combination Agreement.
As a result of the termination of the Business Combination Agreement, the
Business Combination Agreement is of no further force and effect, and certain
transaction agreements entered into in connection with the Business Combination
Agreement, including, but not limited to, the Investors' Rights Agreement, dated
as of November 9, 2021, and to be effective as of the closing of the Business
Combination, by and among the Company, a Delaware limited liability company, and
certain holders, will either be terminated or no longer be effective, as
applicable, in accordance with their respective terms.
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The Company intends to continue to pursue the consummation of a Business
Combination with an appropriate target.
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
December 31, 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.
For the year ended December 31, 2022, we had a net income of $11,039,074, which
consists of change in fair value of warrants of $9,748,442 and interest earned
on investment held in Trust Account of $3,155,965, offset by formation and
operating costs of $1,251,036 and provision for income tax of $614,297.
For the year ended December 31, 2021, we had a net loss of $2,148,278, which
consists of formation and operating costs of $3,420,593 and transaction costs
allocated to warrant liability of $438,283, offset by change in fair value of
warrants of $1,683,358 and interest earned on investment held in Trust Account
of $27,240.
Liquidity, Capital Resources and Going Concern
On February 17, 2021, we consummated the Initial Public Offering of 25,300,000
Units at $10.00 per Unit, generating gross proceeds of $253,000,000 which is
described in Note 3. Simultaneously with the closing of the Initial Public
Offering, the Company consummated the sale of 4,706,667 Private Placement
Warrant at a price of $1.50 per Private Placement Warrant in a private placement
to the Sponsor, generating gross proceeds of $7,060,000, which is described in
Note 4.
For the year ended December 31, 2022, cash used in operating activities was
$1,018,990. Net income of $11,039,074 was affected by change in fair value of
warrants of $9,748,442 and interest earned on investment held in the Trust
Account of $3,155,965. Changes in operating assets and liabilities provided
$846,343 of cash for operating activities.
For the year ended December 31, 2021, cash used in operating activities was
$825,593. Net loss of $2,148,278 was affected by transaction costs associated
with Initial Public Offering of $438,283, change in fair value of warrants of
$1,683,358 and interest earned on investment held in the Trust Account of
$27,240. Changes in operating assets and liabilities provided $2,595,000 of cash
for operating activities.
As of December 31, 2022, we had U.S. Treasury Funds held in the Trust Account of
$4,626,107 consisting of fixed income securities. Interest income on the balance
in the Trust Account may be used by us to pay taxes. As of December 31, 2022,
the Company withdrew an amount of $1,034,596 in the Trust Account to pay tax
obligations and redemption. On December 21, 2022, the Stockholders elected to
redeem an aggregate of 24,841,284 shares of Class A common stock, representing
approximately 98.2% of the issued and outstanding shares of Class A common
stock. 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.
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As of December 31, 2022, the Company had $785,038 in its operating bank account
and a working capital deficit of $2,847,001. 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 Financial Accounting Standards Board ("FASB") Accounting
Standards Update ("ASU") 205-40, "Disclosure of Uncertainties about an Entity's
Ability to Continue as a Going Concern," the Company has until the Expiration
Date 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 that
might result from the outcome of this uncertainty. The Company intends to
complete a 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 the Expiration Date. 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 Expiration Date.
The accompanying 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 the Expiration Date, 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 Financing Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of December 31, 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.
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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 financial statements and related disclosures in conformity
with U.S. GAAP 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 identified the following critical accounting estimates:
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 Accounting
Standards Codification ("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 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 10).
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 are classified as a liability instrument and are
measured at fair value. Conditionally redeemable common stock (including common
stock that features redemption rights that are either within the control of the
holder or subject to redemption upon the occurrence of 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 balance sheets.
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Net Income (Loss) 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 Pronouncements
In August 2020, the FASB issued ASU 2020-06, "Debt-Debt with Conversion and
Other Options (Subtopic 470-20)", which simplifies accounting for convertible
instruments by removing major separation models required under current U.S.
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 December 31, 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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