References in this quarterly report on Form 10-Q (the "Quarterly Report") to
"we," "us" or the "Company" refer to Kadem Sustainable Impact Corporation.
References to our "management" or our "management team" refer to our officers
and directors, and references to the "Sponsor" refer to Kadem Management, 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" within the meaning
of Section 27A of the Securities Act of 1933, as amended (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 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2021
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 in Delaware on December 29, 2020. The
Company was 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 Business
Combination using cash derived from the proceeds of the Initial Public Offering
and the sale of the Private Placement Warrants, our shares, debt or a
combination of cash, shares 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.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues
to date. Our only activities from December 29, 2020 (inception) to September 30,
2022, were organizational activities and those necessary to prepare for the
Initial Public Offering, described below, the identification and evaluation of
prospective acquisition targets for a Business Combination and ongoing
administrative and compliance matters. We do not expect to generate any
operating revenues until after the completion of our initial Business
Combination. We expect to generate non-operating income in the form of dividend
income on marketable securities held after the Initial Public Offering. We
expect that we will incur increased expenses as a result of being a public
company (for legal, financial reporting, accounting and auditing compliance), as
well as for due diligence expenses in connection with searching for, and
completing, a Business Combination. For the three and nine months ended
September 30, 2022, we had a net (loss) income of ($489,904) and $3,440,316,
respectively. For the three and nine months ended September 30, 2021, we had a
net income of $3,242,023 and $4,681,177, respectively. Such net (loss) income
consisted of formation and operating costs, net of interest income, change in
fair value of Public Warrants liability and Private Placement Warrant liability
and provision for income taxes.
Liquidity and Capital Resources
On March 19, 2021, the Company consummated the IPO of 17,500,000 units (the
"Units") at $10.00 per Unit, generating gross proceeds of $175,000,000. Each
Unit consists of one Public Share, and one-half of one warrant which entitles
the holder to purchase one share of Class A Common Stock at a price of $11.50
per share.
Simultaneously with the closing of the IPO, the Company consummated the sale of
4,875,000 warrants at a price of $1.00 per Private Placement Warrant in a
private placement to the Sponsor, generating gross proceeds of $4,875,000.
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Following the closing of the IPO, $175,000,000 ($10.00 per Unit) from the net
proceeds of the sale of the Units in the IPO and certain of the proceeds of the
Private Placement was placed in a trust account. The remaining proceeds outside
the Trust Account may be used to pay for business, legal and accounting due
diligence on prospective acquisitions and continuing general and administrative
expenses.
As of September 30, 2022, the Company had $39,872 of cash in its operating bank
account and negative working capital of $3,518,702.
Prior to the completion of the Public Offering, the Company's liquidity needs
were satisfied through a capital contribution of $25,000 from the Sponsor in
exchange for the issuance of the Founder Shares. Subsequent to the consummation
of the Public Offering, the Company's liquidity needs have been satisfied
through the proceeds from the consummation of Private Placement Warrants for
$4,875,000 (see Note 4 to the unaudited condensed financial statements), not
held in the Trust Account. In addition, in order to finance transaction costs in
connection with a business combination, on November 17, 2021, the Company
entered into the Working Capital Loan with the Sponsor (as described in Note 4
to the unaudited condensed financial statements). The Working Capital Loan will
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 Loan
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. If the Company does not complete a business combination, the
Working Capital Loan will not be repaid, and all amounts owed under the Working
Capital Loan will be forgiven. $700,000 was drawn down under the Working Capital
Loan as of September 30, 2022.
The Company has incurred and expects to incur additional significant costs in
pursuit of its financing and acquisition plans. Also, the Company is subject to
mandatory liquidation and subsequent dissolution if no business combination is
consummated within twenty-four months from the IPO filing date. In connection
with the Company's assessment of going concern considerations in accordance with
FASB ASC 205-40, "Basis of Presentation - Going Concern," management has
determined that the limited amounts of cash and working capital and risk of
mandatory liquidation raise substantial doubt about the Company's ability to
continue as a going concern within one year after the date that the accompanying
unaudited condensed financial statements are issued. No adjustments have been
made to the carrying amounts of assets or liabilities should the Company be
required to liquidate after March 19, 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.
Critical Accounting Policies
The preparation of unaudited 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 unaudited condensed
financial statements, and income and expenses during the period reported. Actual
results could materially differ from those estimates. The Company has identified
the following as its critical accounting policies.
Shares of Class A Common Stock Subject to Possible Redemption
The Company accounts for its shares of Class A Common Stock subject to possible
redemption in accordance with the guidance in Accounting Standards Codification
("ASC") Topic 480 "Distinguishing Liabilities from Equity." The Company's shares
of Class A Common Stock feature certain redemption rights that is considered to
be outside of the Company's control and subject to the occurrence of uncertain
future events. Accordingly, shares of Class A Common Stock subject to possible
redemption are presented at redemption value as temporary equity, outside of the
stockholders' equity (deficit) section of the Company's condensed balance sheet.
Derivative Financial Instruments
Simultaneously with the closing of the IPO, the Sponsor purchased an aggregate
of 4,875,000 Private Placement Warrants at a price of $1.00 per whole Warrant
($4,875,000 in the aggregate) in the Private Placement. Each whole Private
Placement Warrant is exercisable for one whole share of the Company's Class A
common stock at a price of $11.50 per share, as discussed in Note 4.
Pursuant to the IPO, the Company sold 17,500,000 units at a price of $10.00 per
unit for a total of $175,000,000 (the "Units"). Each Unit consists of one Public
Share, and one-half of one warrant ("Public Warrants"). Each whole Warrant
entitles the holder to purchase one share of Class A Common Stock at a price of
$11.50 per share, as discussed in Note 3.
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The Private Placement Warrants and the shares of common stock issuable upon the
exercise of the Private Placement Warrants are not transferable, assignable or
salable until after the completion of a Business Combination, subject to certain
limited exceptions. Additionally, the Private Placement Warrants are exercisable
for cash or on a cashless basis, at the holder's option, and are non-redeemable
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 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.
The Company evaluated the Public Warrants, Private Placement Warrants and
Working Capital Loan conversion option (collectively, the "Instruments") in
accordance with the guidance contained in ASC 815-40, Derivatives and
Hedging-Contracts in Entity's Own Equity, and concluded that they do not meet
the criteria to be classified in stockholders' equity and must be recorded as
liabilities. Specifically, the exercise of the Public Warrants and Private
Placement Warrants may be settled in cash upon the occurrence of a tender offer
or exchange that involves 50% or more of the Company's outstanding shares of
Common Stock.
Because not all of the Company's shareholders need to participate in such tender
offer or exchange to trigger the potential cash settlement and the Company does
not control the occurrence of such an event, the Company concluded that the
Public Warrants and Private Placement Warrants do not meet the conditions to be
classified in equity. Since the Public Warrants and Private Placement Warrants
meet the definition of a derivative under ASC 815, the Company recorded these
warrants as liabilities on the condensed balance sheet at its initial fair
value, with subsequent changes in their respective fair values recognized in the
condensed statement of operations at each reporting date.
The conversion feature within the Working Capital Loan gives the Sponsor an
option to convert the loan to warrants of the Company's Class A common stock.
This bifurcated feature is assessed at the end of each reporting period to
conclude whether additional liability should be recorded. The Instruments are
subjected 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.
See Note 4 for further discussion of the pertinent terms of the Working Capital
Loan.
Net (Loss) Income Per Common Share
Net (loss) income per common share is computed by dividing net (loss) income by
the weighted-average number of shares of common stock outstanding during the
period, excluding shares of common stock forfeited. The Company has not
considered both effects of the conversion of the Working Capital Loan warrants
to Class A common shares upon merger and the warrants sold in the Initial Public
Offering and private placement to purchase an aggregate of 13,625,000 shares, in
the calculation of diluted net income (loss) per share since the exercise of the
conversion option and warrants are contingent upon the occurrence of future
events and the inclusion of such conversion option and warrants would be
anti-dilutive.
The Company's statement of operations includes a presentation of net (loss)
income per share for common shares subject to possible redemption in a manner
similar to the two-class method of net loss per share. Net (loss) income per
common share, basic and diluted, for Class A Common stock subject to possible
redemption is calculated by dividing the net (loss) income or loss by the
weighted average number of shares of Common stock subject to possible redemption
outstanding since original issuance.
Non-redeemable common stock includes Founder Shares (which are shares of the
Company's Class B common stock) as these shares do not have any redemption
features.
Recent Accounting Pronouncement
In August 2020, the FASB issued Accounting Standards Update ("ASU") No. 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): Accounting for
Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06"),
which simplifies accounting for convertible instruments by removing major
separation models required under current GAAP. The ASU also removes certain
settlement conditions that are required for equity-linked contracts to qualify
for the derivative scope exception, and it simplifies the diluted earnings per
share calculation in certain areas. The new standard will become effective for
the Company beginning January 1, 2024, using either a modified retrospective or
a fully retrospective method of transition and early adoption is permitted.
Management is currently evaluating the impact of the new standard on the
Company's unaudited condensed financial statements.
The Company's management does not believe that any other recently issued, but
not yet effective, accounting pronouncements, if currently adopted, would have a
material effect on the Company's unaudited condensed financial statements.
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Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 2022 and December 31, 2021.
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 the Sponsor a monthly fee of $10,000 for office space, utilities
and secretarial, and administrative support services provided to the Company. We
began incurring these fees on March 19, 2021 and will continue to incur these
fees monthly until the earlier of the completion of a Business Combination and
the Company's liquidation.
On November 17, 2021, the Company issued an unsecured promissory note in the
principal amount of $1,500,000 to the Sponsor (the "Working Capital Loan"). The
Working Capital Loan does not bear interest and is repayable in full upon
consummation of the initial business combination. If the Company does not
complete an initial business combination, the Working Capital Loan shall not be
repaid, and all amounts owed under it will be forgiven. Upon the consummation of
an initial business combination, the Sponsor shall have the option, but not the
obligation, to convert all or a portion of the unpaid principal balance of the
Working Capital Loan into warrants ("Working Capital Warrants") equal to the
principal amount of the Working Capital Loan so converted divided by $1.00. The
terms of the Working Capital Warrants will be identical to the terms of the
Private Placement Warrants. The Working Capital Loan is subject to customary
events of default, the occurrence of which automatically trigger the unpaid
principal balance of the Working Capital Loan and all other sums payable with
regard to the Working Capital Loan becoming immediately due and payable. No
amounts were drawn down under the Working Capital Loan as of December 31, 2021.
$700,000 was drawn as of September 30, 2022. Additionally, $100,000 was drawn as
of October 30, 2022.
The Company granted the underwriters a 45-day option from March 16, 2021, to
purchase up to 2,625,000 additional Units to cover any over- allotments at the
initial public offering price less the underwriting discounts and commissions.
The underwriters did not exercise any of the over- allotment units which expired
on May 3, 2021. Because the underwriters did not exercise their over-allotment
option, 656,250 shares of Class B Common Stock were forfeited at no cost on
May 3, 2021, so that total Class B Common Stock were reduced from 5,031,250 to
4,375,000 shares (Note 4). The forfeited shares returned to the authorized but
unissued shares of the Class B Common Stock of the Company.
The underwriter is entitled to a deferred underwriting discount of 3.5% of the
gross offering proceeds of the IPO, or $6,125,000 (the "Deferred Discount"), and
BMO Capital Markets Corp. will be entitled to a cash fee (the "Advisory Fee")
equal to 0.5% of the gross offering proceeds of the IPO, or $875,000, for
providing certain capital markets advisory services to the Company. Each of the
Deferred Discount and the Advisory Fee will be payable upon the Company's
completion of its Initial Business Combination. The Deferred Discount will
become payable to the underwriters from the amounts held in the Trust Account
solely in the event the Company completes its Initial Business Combination.
The holders of Founder Shares and Working Capital Warrants that may be issued
upon conversion of working capital loans, if any, will be entitled to
registration rights (in the case of the Founder Shares, only after conversion of
such shares to shares of Class A common stock) pursuant to a registration rights
agreement signed on March 16, 2021. These holders will be entitled to certain
demand and "piggyback" registration rights. The Company will bear the expenses
incurred in connection with the filing of any such registration statements.
As of September 30, 2022, the Company recorded in its accrued expenses legal
accruals of $3,154,044 which will be payable upon the Company's completion of
its Business Combination.
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