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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 9/12/22 Adara Acquisition Corp. 10-Q/A 6/30/22 51:4.8M Toppan Merrill/FA2 |
Document/Exhibit Description Pages Size
1: 10-Q/A Amendment to Quarterly Report HTML 1.01M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 22K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 22K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 17K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 17K
11: R1 Document and Entity Information HTML 82K
12: R2 Condensed Balance Sheets HTML 94K
13: R3 Condensed Balance Sheets (Parenthetical) HTML 46K
14: R4 Condensed Statements of Operations (Unaudited) HTML 66K
15: R5 Condensed Statements of Changes in Stockholders' HTML 53K
Equity (Deficit)
16: R6 Condensed Statements of Cash Flows (Unaudited) HTML 77K
17: R7 Description of Organization and Business HTML 35K
Operations
18: R8 Summary of Significant Accounting Policies HTML 134K
19: R9 Initial Public Offering HTML 18K
20: R10 Private Placement HTML 18K
21: R11 Related Party Transactions HTML 25K
22: R12 Commitments and Contingencies HTML 30K
23: R13 Stockholders' Deficit HTML 26K
24: R14 Warrant Liabilities HTML 31K
25: R15 Fair Value Measurements HTML 119K
26: R16 Subsequent Events HTML 18K
27: R17 Summary of Significant Accounting Policies HTML 160K
(Policies)
28: R18 Summary of Significant Accounting Policies HTML 119K
(Tables)
29: R19 Fair Value Measurements (Tables) HTML 117K
30: R20 Description of Organization and Business HTML 62K
Operations (Details)
31: R21 Summary of Significant Accounting Policies HTML 27K
(Details)
32: R22 Summary of Significant Accounting Policies - HTML 21K
Income Taxes (Details)
33: R23 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - HTML 52K
Reconciliation of Net Loss per Common Share
(Details)
34: R24 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - HTML 27K
Common class A subject to redemption (Details)
35: R25 Initial Public Offering (Details) HTML 32K
36: R26 Private Placement (Details) HTML 30K
37: R27 RELATED PARTY TRANSACTIONS - Founder Shares HTML 39K
(Details)
38: R28 RELATED PARTY TRANSACTIONS - Additional HTML 48K
Information (Details)
39: R29 Commitments and Contingencies (Details) HTML 36K
40: R30 STOCKHOLDERS' DEFICIT- Preferred Stock Shares HTML 25K
(Details)
41: R31 STOCKHOLDERS' DEFICIT - Common Stock Shares HTML 41K
(Details)
42: R32 Warrant Liabilities (Details) HTML 73K
43: R33 Fair Value Measurements (Details) HTML 41K
44: R34 Fair Value Measurements - Level 3 Fair Value HTML 27K
Measurements Inputs (Details)
45: R35 FAIR VALUE MEASUREMENTS - Change in the Fair Value HTML 48K
of the Warrant Liabilities (Details)
46: R36 FAIR VALUE MEASUREMENTS - Additional information HTML 24K
(Details)
49: XML IDEA XML File -- Filing Summary XML 86K
47: XML XBRL Instance -- adra-20220630x10qa_htm XML 1.25M
48: EXCEL IDEA Workbook of Financial Reports XLSX 96K
7: EX-101.CAL XBRL Calculations -- adra-20220630_cal XML 67K
8: EX-101.DEF XBRL Definitions -- adra-20220630_def XML 459K
9: EX-101.LAB XBRL Labels -- adra-20220630_lab XML 778K
10: EX-101.PRE XBRL Presentations -- adra-20220630_pre XML 598K
6: EX-101.SCH XBRL Schema -- adra-20220630 XSD 128K
50: JSON XBRL Instance as JSON Data -- MetaLinks 225± 350K
51: ZIP XBRL Zipped Folder -- 0001410578-22-002776-xbrl Zip 214K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-Q/A
Amendment No.1
(MARK ONE)
i ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended i June 30, 2022
i ☐ 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: i 001-40014
|
i ADARA ACQUISITION CORP. |
(Exact Name of Registrant as Specified in Its Charter) |
| | |
i Delaware |
| i 85-2373325 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
|
i 8845 Red Oak Boulevard |
(Address of principal executive offices) |
|
( i 704) i 606-2922 |
(Issuer’s telephone number) |
Securities registered pursuant to Section 12(b) of the Act:
| | | | |
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
i Units, each consisting of one share of Class A Common Stock and one-half of one Redeemable Warrant |
| i ADRA.U |
| i NYSE American LLC |
i Class A Common Stock, par value $0.0001 per share |
| i ADRA |
| i NYSE American LLC |
i Warrants, each exercisable for one share Class A Common Stock for $11.50 per share |
| i ADRA WS |
| i NYSE American LLC |
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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. i 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). i 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 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 | ☐ |
i Non-accelerated filer | ☒ | Smaller reporting company | i ☒ |
| Emerging growth company | i ☒ | |
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. i ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i ☒ No ☐
As of August 11, 2022, there were i 11,500,000 shares of Class A common stock, $0.0001 par value and i 2,875,000 shares of Class B common stock, $0.0001 par value, issued and outstanding.
EXPLANATORY NOTE
Adara Acquisition Corp. (the “Company,” “Adara,” “we,” “us” or “our”) is filing this Amendment No. 1 to its Quarterly Report on Form 10-Q/A for the quarterly period ended June 30, 2022 (this “Quarterly Report”) to amend and restate certain terms in its Quarterly Report on Form 10-Q for the quarterly period June 30, 2022 originally filed with the Securities and Exchange Commission (the “SEC”) on August 11, 2022 (the “Original Quarterly Report”) to correct typographical errors.
ADARA ACQUISITION CORP.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2022
i
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements.
ADARA ACQUISITION CORP.
CONDENSED BALANCE SHEETS
| | | | | | |
|
|
| ||||
| | (Unaudited) | | | ||
ASSETS | | | | | | |
Current assets | | | | | | |
Cash | | $ | i 9,607 | | $ | i 724,410 |
Prepaid expenses | |
| i 120,833 | |
| i 199,166 |
Total Current Assets | | | i 130,440 | | | i 923,576 |
Marketable securities held in Trust Account | | | i 116,318,176 | | | i 116,160,281 |
TOTAL ASSETS | | $ | i 116,448,616 | | $ | i 117,083,857 |
| | | | | | |
LIABILITIES, CLASS A COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION, AND STOCKHOLDERS’ DEFICIT | |
| | |
|
|
Current liabilities | | | | | | |
Accrued expenses | | $ | i 569,468 | | $ | i 440,245 |
Promissory note | | | i 330,000 | | | — |
Total Current Liabilities | |
| i 899,468 | |
| i 440,245 |
Warrant Liabilities | |
| i 1,785,600 | |
| i 4,860,800 |
TOTAL LIABILITIES | |
| i 2,685,068 | |
| i 5,301,045 |
| |
|
| |
|
|
Commitments and Contingencies | |
|
| |
|
|
| | | | | | |
Class A common stock subject to possible redemption, $ i i 0.0001 / par value; i i 11,500,000 / shares at $ i i 10.10 / redemption value at June 30, 2022 and December 31, 2021 | | | i 116,150,000 | | | i 116,150,000 |
| |
| | |
| |
STOCKHOLDERS’ DEFICIT | |
| | |
| |
Preferred stock, $ i i 0.0001 / par value; i i 1,000,000 / shares authorized; i i none / issued and outstanding | |
| — | |
| — |
Class A common stock, $ i i 0.0001 / par value; i i 100,000,000 / shares authorized | | | — | | | — |
Class B common stock, $ i i 0.0001 / par value; i i 10,000,000 / shares authorized; i i 2,875,000 / shares issued and outstanding at June 30, 2022 and December 31, 2021 | |
| i 288 | |
| i 288 |
Additional paid-in capital | |
| — | |
| — |
Accumulated deficit | |
| ( i 2,386,740) | |
| ( i 4,367,476) |
TOTAL STOCKHOLDERS’ DEFICIT | |
| ( i 2,386,452) | |
| ( i 4,367,188) |
TOTAL LIABILITIES, CLASS A COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION, AND STOCKHOLDERS’ DEFICIT | | $ | i 116,448,616 | | $ | i 117,083,857 |
The accompanying notes are an integral part of the unaudited condensed financial statements.
1
ADARA ACQUISITION CORP.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | |||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Operating and formation costs |
| $ | i 677,791 | | $ | i 247,167 | | $ | i 1,252,359 | | $ | i 415,170 |
Loss from operations | | | ( i 677,791) | | | ( i 247,167) | | | ( i 1,252,359) | | | ( i 415,170) |
| | | | | | | | | | | | |
Other income (expense): | | | | | | | | | | | | |
Interest earned on marketable securities held in Trust Account | | | i 147,540 | | | i 2,896 | | | i 157,895 | | | i 4,424 |
Transaction costs incurred in connection with IPO | | | — | | | — | | | — | | | ( i 86,544) |
Change in fair value of warrants liabilities | | | i 1,388,800 | | | ( i 1,561,700) | | | i 3,075,200 | | | i 2,545,200 |
Other income (expense), net | | | i 1,536,340 | | | ( i 1,558,804) | | | i 3,233,095 | | | i 2,463,080 |
| | | | | | | | | | | | |
Net income (loss) | | $ | i 858,549 | | $ | ( i 1,805,971) | | $ | i 1,980,736 | | $ | i 2,047,910 |
| | | | | | | |
| | |
| |
Weighted average shares outstanding, Class A common stock | | | i 11,500,000 | | | i 11,500,000 | |
| i 11,500,000 | |
| i 8,831,492 |
| | | | | | | | | | | | |
Basic and diluted net income (loss) per share, Class A common stock | | $ | i 0.06 | | $ | ( i 0.13) | | $ | i 0.14 | | $ | i 0.18 |
| | | | | | | | | | | | |
Weighted average shares outstanding, Class B common stock | | | i 2,875,000 | | | i 2,875,000 | |
| i 2,875,000 | | | i 2,787,983 |
| | | | | | | | | | | | |
Basic and diluted net income (loss) per share, Class B common stock | | $ | i 0.06 | | $ | ( i 0.13) | | $ | i 0.14 | | $ | i 0.18 |
The accompanying notes are an integral part of the unaudited condensed financial statements.
2
ADARA ACQUISITION CORP.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2022
| | | | | | | | | | | | | | |
| | | | Additional | | | | | Total | |||||
| | Class B Common Stock | | Paid-in | | Accumulated | | Stockholders’ | ||||||
|
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficit | ||||
Balance - January 1, 2022 | | i 2,875,000 | | $ | i 288 | | $ | i — | | $ | ( i 4,367,476) | | $ | ( i 4,367,188) |
|
| | | | | |
| | |
| | |
| |
Net income |
| — | | | — | |
| i — | |
| i 1,122,187 | |
| i 1,122,187 |
| | | | | | | | | | | | | | |
Balance - March 31, 2022 |
| i 2,875,000 | | $ | i 288 | | $ | i — | | $ | ( i 3,245,289) | | $ | ( i 3,245,001) |
| | | | | | | | | | | | | | |
Net income | | — | | | — | | | i — | | | i 858,549 | | | i 858,549 |
| | | | | | | | | | | | | | |
Balance – June 30, 2022 | | i 2,875,000 | | $ | i 288 | | $ | i — | | $ | ( i 2,386,740) | | $ | ( i 2,386,452) |
THREE AND SIX MONTHS ENDED JUNE 30, 2021
| | | | | | | | | | | | | | |
| | Class B | | Additional | | | | | Total | |||||
| | Common Stock | | Paid-in | | Accumulated | | Stockholders’ | ||||||
|
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity (Deficit) | ||||
Balance - January 1, 2021 | | i 2,875,000 | | $ | i 288 | | $ | i 24,712 | | $ | ( i 5,476) | | $ | i 19,524 |
|
| | | | | |
| | |
| | |
| |
Accretion for Class A common stock to redemption amount | | — | | | — | | | ( i 313,212) | | | ( i 7,606,206) | | | ( i 7,919,418) |
| | | | | | | | | | | | | | |
Cash paid in excess of fair value of private warrants | | — | | | — | | | i 288,400 | | | i — | | | i 288,400 |
| | | | | | | | | | | | | | |
Issuance of Representative Warrants | | — | | | — | | | i 100 | | | i — | | | i 100 |
| | | | | | | | | | | | | | |
Net income |
| — | | | — | |
| i — | |
| i 3,853,881 | |
| i 3,853,881 |
| | | | | | | | | | | | | | |
Balance – March 31, 2021 | | i 2,875,000 | | $ | i 288 | | $ | i — | | $ | ( i 3,757,801) | | $ | ( i 3,757,513) |
| | | | | | | | | | | | | | |
Net loss | | — | | | — | | | i — | | | ( i 1,805,971) | | | ( i 1,805,971) |
| | | | | | | | | | | | | | |
Balance – June 30, 2021 |
| i 2,875,000 | | $ | i 288 | | $ | i — | | $ | ( i 5,563,772) | | $ | ( i 5,563,484) |
The accompanying notes are an integral part of the unaudited condensed financial statements.
3
ADARA ACQUISITION CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | | | | |
| | Six Months Ended | | Six Months Ended | ||
| | June 30, | | |||
|
| 2022 |
| 2021 | ||
Cash Flows from Operating Activities: |
| | | | | |
Net income | | $ | i 1,980,736 | | $ | i 2,047,910 |
Adjustments to reconcile net income to net cash used in operating activities: | |
| | |
| |
Change in fair value of warrant liabilities | | | ( i 3,075,200) | | | ( i 2,545,200) |
Transaction costs incurred in connection with IPO | | | — | | | i 86,544 |
Interest earned on marketable securities held in Trust Account | | | ( i 157,895) | | | ( i 4,424) |
Changes in operating assets and liabilities: | |
| | |
| |
Prepaid expenses | | | i 78,333 | | | i 104,014 |
Accrued expenses | | | i 129,223 | | | i 182,798 |
Net cash used in operating activities | |
| ( i 1,044,803) | |
| ( i 128,358) |
| | | | | | |
Cash Flows from Investing Activities: | | | | | | |
Investment of cash in Trust Account | | | — | | | ( i 116,150,000) |
Net cash used in investing activities | | | — | | | ( i 116,150,000) |
| |
|
| |
|
|
Cash Flows from Financing Activities: | |
| | |
| |
Proceeds from sale of Units, net of underwriting discounts paid | | | — | | | i 114,000,000 |
Proceeds from sale of Private Placements Warrants | | | i — | | | i 4,120,000 |
Proceeds from sale of Unit Purchase Option | |
| — | |
| i 100 |
Proceeds from promissory note | | | i 330,000 | | | — |
Repayment of promissory note – related party | |
| — | |
| ( i 600,000) |
Payment of offering costs | |
| — | |
| ( i 402,352) |
Net cash provided by financing activities | |
| i 330,000 | |
| i 117,117,748 |
| |
|
| |
|
|
Net Change in Cash | |
| ( i 714,803) | |
| i 839,390 |
Cash – Beginning of period | |
| i 724,410 | |
| i 102,296 |
Cash – End of period | | $ | i 9,607 | | $ | i 941,686 |
| |
| | |
| |
Non-Cash investing and financing activities: | |
| | |
| |
Offering costs included in accrued offering costs | | $ | — | | $ | i 5,000 |
Accretion for Class A common stock to redemption amount | | $ | — | | $ | i 7,606,206 |
The accompanying notes are an integral part of the unaudited condensed financial statements.
4
ADARA ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
iNOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Adara Acquisition Corp. (the “Company”) was incorporated in Delaware on August 5, 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 (the “Business Combination”). The Company is not limited to a particular industry or sector for purposes of consummating a Business Combination. The Company is an early stage and emerging growth company and, as such, the Company is subject to all the risks associated with early stage and emerging growth companies.
As of June 30, 2022, the Company had not commenced any operations. All activity for the period from August 5, 2020 (inception) through June 30, 2022 relates to the Company’s formation and the initial public offering (“Initial Public Offering”), which is described below, identifying a target company for a 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 from the marketable securities held in the Trust Account (as defined below). On June 22, 2022, the Company, Adara Merger Sub Inc., a wholly-owned subsidiary of the Company (“Merger Sub”), and Alliance Entertainment Holding Corporation (“Alliance”) entered into a Business Combination Agreement (“BCA”) related to a proposed Business Combination
The registration statement for the Company’s Initial Public Offering was declared effective on February 8, 2021. On February 11, 2021, the Company consummated the Initial Public Offering of i 11,500,000 units (the “Units” and, with respect to the Class A common stock included in the Units sold, the “Public Shares”), which includes the full exercise by the underwriters of their over-allotment option in the amount of i 1,500,000 Units, at $ i 10.00 per Unit, generating gross proceeds of $ i 115,000,000 which is described in Note 3.
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of i 4,120,000 warrants (the “Private Placement Warrants”) at a price of $ i 1.00 per Private Placement Warrant in a private placement to Adara Sponsor LLC (the “Sponsor”), generating gross proceeds of $ i 4,120,000, which is described in Note 4.
Transaction costs amounted to $ i 1,529,462, consisting of $ i 1,000,000 in cash underwriting fees, net of reimbursement and $ i 529,462 of other offering costs.
Following the closing of the Initial Public Offering on February 11, 2021, an amount of $ i 116,150,000 ($ i 10.10 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Placement Warrants was placed in a trust account (the “Trust Account”), located in the United States and will be invested only in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of i 185 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting certain conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the funds held in the Trust Account, as described below.
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of Placement Warrants, 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 must complete one or more initial Business Combinations with one or more operating businesses or assets with a fair market value equal to at least i 80% of the net assets held in the Trust Account (excluding taxes payable on the interest earned on the Trust Account) at the time of the Company’s signing a definitive agreement in connection with its initial Business Combination. The Company will only complete a Business Combination if the post-transaction company owns or acquires i 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target business sufficient for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”). There is no assurance that the Company will be able to complete a Business Combination successfully.
/5
ADARA ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The Company will provide the holders of the outstanding Public Shares (the “Public Stockholders”) 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 stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company. The Public Stockholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially anticipated to be $ i 10.10 per Public Share, plus any pro rata interest then in the Trust Account, net of taxes payable). There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants.
The Company will only proceed with a Business Combination if the Company has net tangible assets of at least $ i 5,000,001 following any related redemptions and, if the Company seeks stockholder approval, a majority of the shares voted are voted in favor of the Business Combination. If a stockholder vote is not required by applicable law or stock exchange listing requirements and the Company does not decide to hold a stockholder vote for business or other reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”), conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”) and file tender offer documents with the SEC prior to completing a Business Combination. If, however, stockholder approval of the transaction is required by applicable law or stock exchange listing requirements, or the Company decides to obtain stockholder approval for business or other 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. If the Company seeks stockholder approval in connection with a Business Combination, the Sponsor has agreed to vote its Founder Shares (as defined in Note 5) and any Public Shares purchased during or after the Initial Public Offering in favor of approving a Business Combination. Additionally, each Public Stockholder may elect to redeem their Public Shares without voting, and if they do vote, irrespective of whether they vote for or against the proposed transaction.
Notwithstanding the foregoing, if the Company seeks stockholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Certificate of Incorporation provides that a Public Stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder 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 i 15% of the Public Shares, without the prior consent of the Company.
The Sponsor has agreed (a) to waive its redemption rights with respect to the Founder Shares and Public Shares held by it in connection with the completion of a Business Combination, (b) to waive its liquidation rights with respect to the Founder Shares if the Company fails to complete a Business Combination by February 11, 2023 and (c) not to propose an amendment to the Certificate of Incorporation (i) to modify the substance or timing of the Company’s obligation to allow redemptions in connection with a Business Combination or to redeem i 100% of its Public Shares if the Company does not complete a Business Combination within the Combination Period (as defined below) or (ii) with respect to any other provision relating to stockholders’ rights or pre-business combination activity, unless the Company provides the Public Stockholders with the opportunity to redeem their Public Shares in conjunction with any such amendment. However, if the Sponsor acquires Public Shares in or after the Initial Public Offering, such Public Shares will be entitled to liquidating distributions from the Trust Account if the Company fails to complete a Business Combination within the Combination Period.
The Company will have until February 11, 2023 to complete a Business Combination (the “Combination Period”). If the Company has not completed 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 pay taxes (less up to $ i 100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish Public Stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to complete a Business Combination within the Combination Period.
6
ADARA ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
In order to protect the amounts held in the Trust Account, the Sponsor has 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 to below the lesser of (i) $ i 10.10 per Public Share and (ii) the actual amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $ i 10.10 per public Share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to monies held in the Trust Account nor will it apply 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 for the Company’s independent registered public accounting firm), prospective target businesses and 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 Capital Resources and Going Concern
As of June 30, 2022, the Company had cash of $ i 9,607 not held in the Trust Account and available for working capital purposes and working capital deficit of $ i 789,028. If the estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, the Company may have insufficient funds available to operate its business prior to a Business Combination. Moreover, the Company may need to obtain additional financing or draw on the Working Capital Loans (as defined below) either to complete a Business Combination or because it becomes obligated to redeem a significant number of the Public Shares upon consummation of a Business Combination, in which case the Company may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, the Company would only complete such financing simultaneously with the completion of our Business Combination. If the Company is unable to complete the Business Combination because it does not have sufficient funds available, the Company will be forced to cease operations and liquidate the Trust Account. In addition, following the Business combination, if cash on hand is insufficient, the Company may need to obtain additional financing in order to meet its obligations.
In connection with the Company’s assessment of going concern considerations in accordance with FASB’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that if the Company is unable to raise additional funds to alleviate liquidity needs as well as complete a Business Combination by February 11, 2023, then the Company will cease all operations except for the purpose of liquidating. 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. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after February 11, 2023.
7
ADARA ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
iBasis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K as filed with the SEC on March 28, 2022. The interim results for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any future periods.
iEmerging 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 independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, 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 stockholder 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 a 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 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 statement with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
iUse of Estimates
The preparation of the 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 condensed financial statements and the reported amounts of revenues 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 financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
/8
ADARA ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Offering Costs
Offering costs consist of legal, accounting, underwriting fees and other costs incurred through the condensed balance sheet date that are directly related to the Initial Public Offering. Offering costs associated with the Class A common stock issued were initially charged to temporary equity and then accreted to common stock subject to redemption upon the completion of the Initial Public Offering. Offering costs amounting to $ i 1,442,918 were charged to temporary equity upon the completion of the Initial Public Offering, and $ i 86,544 of the offering costs were related to the warrant liabilities and charged to the condensed statements of operations.
/ iClass A Common Stock Subject to Possible Redemption
The Company accounts for its Class A common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity”. 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 features redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholder’s equity. The Company’s Class A common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, at June 30, 2022 and December 31, 2021, Class A common stock subject to possible redemption is presented as temporary equity, outside of the stockholder’s deficit section of the Company’s condensed balance sheets.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period.
iAt June 30, 2022 and December 31, 2021, the Class A common stock reflected in the condensed balance sheets are reconciled in the following table:
| | | |
Gross proceeds |
| $ | i i 115,000,000 / |
Less: |
| |
|
Proceeds allocated to Public Warrants | | $ | ( i i 5,290,000 / ) |
Class A common stock issuance at cost | | $ | ( i i 1,479,418 / ) |
Plus: | |
|
|
Accretion of carrying value to redemption value | | $ | i i 7,919,418 / |
Class A common stock subject to possible redemption | | $ | i i 116,150,000 / |
9
ADARA ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Warrant Liabilities
The Company accounts for the Warrants in accordance with the guidance contained in ASC 815-40-15 under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the Warrants as liabilities at their fair value and adjust the Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statements of operations. The Private Warrants, Public Warrants, and the Representative Warrants for periods where no observable traded price was available are valued using a lattice model, specifically a binomial lattice. For periods subsequent to the detachment of the Public Warrants from the Units, the Public Warrant quoted market price was used as the fair value as of each relevant date.
iIncome Taxes
The Company accounts for income taxes under ASC 740, “Income Taxes.” ASC 740, Income Taxes, requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the unaudited condensed financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. As of June 30, 2022 and December 31, 2021, the Company’s deferred tax asset had a full valuation allowance recorded against it. ASC 740-270-25-2 requires that an annual effective tax rate be determined and such annual effective rate applied to year to date income in interim periods under ASC 740-270-30-5. The Company’s effective tax rate was i i i i 0.00 / / / % for the three and six months ended June 30, 2022 and 2021. The effective tax rate differs from the statutory tax rate of i i i i 21 / / / % for the three and six months ended June 30, 2022 and 2021, due to changes in fair value in warrant liability and the valuation allowance on the deferred tax assets.
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position 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. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of June 30, 2022 and December 31, 2021. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
The Company has identified the United States as its only “major” tax jurisdiction. The Company is subject to income taxation by major taxing authorities since inception. These examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
/10
ADARA ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Net Income (Loss) per Common Share
The Company complies with accounting and disclosure requirements of Financial Accounting Standards Board (“FASB”) ASC Topic 260, “Earnings Per Share”. Income and losses are shared pro rata between the two classes of shares. Net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common stock outstanding for the 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.
The calculation of diluted income (loss) per common share does not consider the effect of the warrants issued in connection with the (i) Initial Public Offering, and (ii) the private placement since the exercise of the warrants is contingent upon the occurrence of future events. The warrants are exercisable to purchase i 9,870,000 shares of Class A common stock in the aggregate. As of June 30, 2022 and 2021, the Company did not have any other dilutive securities or other contracts that could, potentially, be exercised or converted into common stock and then share in the earnings of the Company. As a result, diluted net income (loss) per share of common stock is the same as basic net income (loss) per common share for the periods presented.
iThe following table reflects the calculation of basic and diluted net income (loss) per common share (in dollars, except per share amounts):
| | | | | | | | | | | | | | | | | | |
| | | | | | | | Basic Dilutive | | Dilutive | ||||||||
|
| Three Months Ended | Three Months Ended |
| Three Months Ended | |||||||||||||
| | | | |||||||||||||||
|
| Class A |
| Class B |
| Class A |
| Class B |
| Class A |
| Class B | ||||||
Numerator: | | | | | | | | | | | | | |
| | |
| |
Allocation of net income (loss), as adjusted | | $ | i 686,839 | | $ | i 171,710 | | $ | ( i 1,444,777) | | $ | ( i 361,194) | | $ | ( i 1,444,777) | | $ | ( i 361,194) |
Denominator: | | | | | | | | | | | | | | | | | | |
Basic and diluted weighted average shares outstanding | | | i 11,500,000 | | | i 2,875,000 | | | i 11,500,000 | | | i 2,875,000 | | | i 11,500,000 | | | i 2,875,000 |
| | | | | | | | | | | | | | | | | | |
Basic and diluted net income (loss) per common shares | | $ | i 0.06 | | $ | i 0.06 | | $ | ( i 0.13) | | $ | ( i 0.13) | | $ | ( i 0.13) | | $ | ( i 0.13) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | Basic Dilutive | | Dilutive | ||||||||
|
| Six Months Ended | Six Months Ended |
| Six Months Ended | |||||||||||||
| | | | |||||||||||||||
|
| Class A |
| Class B |
| Class A |
| Class B |
| Class A |
| Class B | ||||||
Numerator: | | | | | | | | | | | | | |
| | |
| |
Allocation of net income, as adjusted | | $ | i 1,584,589 | | $ | i 396,147 | | $ | i 1,556,533 | | $ | i 491,377 | | $ | i 1,556,533 | | $ | i 491,377 |
Denominator: | | | | | | | | | | | | | | | | | | |
Basic and diluted weighted average shares outstanding | | | i 11,500,000 | | | i 2,875,000 | | | i 8,831,492 | | | i 2,787,983 | | | i 8,831,492 | | | i 2,875,000 |
| | | | | | | | | | | | | | | | | | |
Basic and diluted net income per common shares | | $ | i 0.14 | | $ | i 0.14 | | $ | i 0.18 | | $ | i 0.18 | | $ | i 0.18 | | $ | i 0.18 |
iConcentration 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 coverage limit of $ i 250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such account.
/11
ADARA ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying condensed balance sheets, primarily due to their short-term nature, except for the warrant liabilities (see Note 9).
iRecent Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s condensed financial statements.
iDerivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
iNOTE 3. INITIAL PUBLIC OFFERING
Pursuant to the Initial Public Offering, the Company sold i 11,500,000 Units, inclusive of i 1,500,000 Units sold to the underwriters on February 11, 2021 upon the underwriters’ election to fully exercise their over-allotment option, at a price of $ i 10.00 per Unit. Each Unit consists of i one share of Class A common stock and one-half of one redeemable warrant (“Public Warrant”). Each whole Public Warrant entitles the holder to purchase i one share of Class A common stock at a price of $ i 11.50 per share, subject to adjustment (see Note 8).
/
iNOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of i 4,120,000 Placement Warrants at a price of $ i 1.00 per Placement Warrant ($ i 4,120,000) from the Company in a private placement. Each Placement Warrant will be exercisable to purchase i one share of Class A common stock at a price of $ i 11.50 per share, subject to adjustment (see Note 8). The proceeds from the sale of the Placement Warrants were added to the net 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 proceeds from the sale of the Placement Warrants held in the Trust Account will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Placement Warrants will expire worthless.
/
iNOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
In August 2020, the Sponsor purchased i 2,875,000 shares (the “Founder Shares”) of the Company’s Class B common stock for an aggregate price of $ i 25,000. The Founder Shares included an aggregate of up to i 375,000 shares subject to forfeiture to the extent that the underwriters’ over-allotment was not exercised in full or in part, so that the number of Founder Shares will equal, on an as-converted basis, approximately i 20% of the Company’s issued and outstanding shares of common stock after the Initial Public Offering. As a result of the underwriters’ election to fully exercise their over-allotment option, no Founder Shares are currently subject to forfeiture.
/12
ADARA ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The Sponsor has agreed, subject to limited exceptions, not to transfer, assign or sell any of the Founder Shares until the earlier to occur of: (A) one year after the completion of a Business Combination and (B) subsequent to a Business Combination, (x) if the last sale price of the Class A common stock equals or exceeds $ i 12.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any i 20 trading days within any i 30-trading day period commencing at least i 150 days after a Business Combination, or (y) the date on which the Company completes a liquidation, merger, capital stock exchange or other similar transaction that results in all of the Public Stockholders having the right to exchange their shares of common stock for cash, securities or other property.
Promissory Note — Related Party
On August 5, 2020, the Sponsor issued an unsecured promissory note to the Company, which was amended and restated on November 18, 2020 (the “Promissory Note”), pursuant to which the Company may borrow up to an aggregate principal amount of $ i 600,000. The Promissory Note was non-interest bearing and payable on the earlier of (i) March 31, 2021 or (ii) the consummation of the Initial Public Offering. As of December 31, 2021, there was i i no / amounts outstanding under the Promissory Note. No future borrowings are permitted.
On June 22, 2022, Blystone & Donaldson, LLC issued an unsecured promissory note to the Company, pursuant to which the Company may borrow up to an aggregate principal amount of $ i 250,000. The Promissory Note was non-interest bearing and payable on the earlier of (i) closing of the Merger as described in the BCA or (ii) February 11, 2023. As June 30, 2022, $ i 165,000 was outstanding under the Promissory Note.
On June 22, 2022, Thomas Finke, LLC issued an unsecured promissory note to the Company, pursuant to which the Company may borrow up to an aggregate principal amount of $ i 250,000. The Promissory Note was non-interest bearing and payable on the earlier of (i) closing of the Merger as described in the Business Combination Agreement (“BCA”) dated as of June 22, 2022 by and among Thomas Finke, the Company, and Adara Merger Sub Inc. and Alliance Entertainment Holding Corporation as defined therein or (ii) February 11, 2023. As June 30, 2022, $ i 165,000 was outstanding under the Promissory Note.
Related Party Loans
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 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 $ i 1,500,000 of such Working Capital Loans may be convertible into warrants of the post-Business Combination entity at a price of $ i 1.00 per warrant. The warrants would be identical to the Placement Warrants. As of June 30, 2022 and December 31, 2021, there were i i no / amounts outstanding under the Working Capital Loans.
Administrative Services Agreement
The Company entered into an agreement, commencing on February 11, 2021, through the earlier of the Company’s consummation of a Business Combination and its liquidation, to pay Adara Sponsor LLC, a total of $ i 10,000 per month for office space and administrative support services. For the three and six months ended June 30, 2022, the Company incurred $ i 30,000 and $ i 60,000 in fees for these services, of which is included in amounts due to related party in the accompanying condensed consolidated balance sheet. For the three and six months ended June 30, 2021, the Company incurred $ i 30,000 and $ i 50,000 in fees for these services, respectively. As of June 30, 2022 and December 31, 2021, $ i 10,000 and i no amount was due, respectively.
13
ADARA ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6. COMMITMENTS AND CONTINGENCIES
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus 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 condensed financial statements. The condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy are not determinable as of the date of these condensed financial statements. The specific impact on the Company’s financial condition, results of operations, and cash flows is also not determinable as of the date of these condensed financial statements.
Registration Rights
Pursuant to a registration rights agreement entered into on February 8, 2021, the holders of the Founder Shares, Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans (and any Class A common stock issuable upon the exercise of the Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans and upon conversion of the Founder Shares) are entitled to registration rights pursuant to a registration rights agreement requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion to the Company’s Class A common stock). The holders of the majority of these securities are entitled to make up to i 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 completion of a Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. The registration rights agreement does not contain liquidated damages or other cash settlement provisions resulting from delays in registering our securities. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Business Combination Agreement
On June 22, 2022, the Company, Merger Sub and Alliance entered into the Business Combination Agreement, pursuant to which the Company and Alliance will consummate the Business Combination. The Business Combination Agreement contains customary representations and warranties, covenants, closing conditions, termination fee provisions and other terms relating to the Merger and the other transactions contemplated thereby.
Pursuant to the BCA, Merger Sub will merge with and into Alliance, with Alliance being the surviving entity (the “Merger”). The Merger is to become effective by the filing of a certificate of merger with the Secretary of State of the State of Delaware, in accordance with the relevant provisions of the Delaware General Corporation Law and mutually agreed by the parties and will be effective immediately upon such filing or upon such later time as may be agreed by the parties and specified in such certificate of merger (such time, “Effective Time”). The parties will hold the closing immediately prior to such filing of a certificate of merger, on the closing date.
The Effective Time shall occur as promptly as practicable but in no event later than i three business days after the satisfaction or, if permissible, waiver of the conditions to the completion of the Business Combination set forth in the BCA (other than those conditions that by their nature are to be satisfied at closing, provided that the occurrence of the closing shall remain subject to the satisfaction or, if permissible, waiver at the closing).
/14
ADARA ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
At the Effective Time, by virtue of the Merger and without any action on the part of Adara, Merger Sub, Alliance or the holders of any of Alliance’s securities:
| ● | Each share of Alliance common stock issued and outstanding immediately prior to the Effective Time will be cancelled and automatically converted into the right to receive the number of shares of the Company surviving the Business Combination (the “Combined Company Common Stock”) equal to the Exchange Ratio; |
| ● | No certificates or scrip or shares representing fractional shares of Combined Company Common Stock shall be issued upon the exchange of Alliance common stock and such fractional share interests will not entitle the owner thereof to vote or to have any rights of a stockholder of Adara or a holder of shares of Combined Company Common Stock. In lieu of any fractional share of Combined Company Common Stock to which each holder of Alliance common stock would otherwise be entitled, the fractional share shall be rounded up or down to the nearest whole share of Combined Company Common Stock, with a fraction of i 0.5 rounded up. i No cash settlements shall be made with respect to fractional shares eliminated by rounding. |
At the closing, the Company will also issue to the Alliance stockholders shares of a to be formed Class E Common Stock (the ”Contingent Consideration Shares”) which shall be placed into an escrow account pursuant to the Contingent Consideration Shares Agreement and shall not be released from escrow over a i ten-year period unless and until they are earned as a result of the occurrence of the applicable triggering event as follows: i 20,000,000 Contingent Consideration Shares will be earned upon the occurrence of triggering event I prior to the five-year anniversary of the closing; i 20,000,000 Contingent Consideration Shares will be earned upon the occurrence of triggering event II prior to the seven-year anniversary of the closing; and i 20,000,000 Contingent Consideration Shares will be earned upon the occurrence of triggering event III prior to the ten-year anniversary of the closing.
Upon the occurrence of a triggering event, the Contingent Consideration Shares released from the escrow shall automatically convert into an equal number of shares of Combined Company Common Stock
iNOTE 7. STOCKHOLDERS’ DEFICIT
Preferred Stock — The Company is authorized to issue i i 1,000,000 / shares of preferred stock with a par value of $ i i 0.0001 / per share with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. At June 30, 2022 and December 31, 2021, there were i no shares of preferred stock issued and outstanding.
Class A Common Stock — The Company is authorized to issue i i 100,000,000 / shares of Class A common stock with a par value of $ i i 0.0001 / per share. Holders of Class A common stock are entitled to i i one / vote for each share. At June 30, 2022 and December 31, 2021, there were i i 11,500,000 / shares of Class A common stock issued and outstanding subject to possible redemption which are presented as temporary equity.
Class B Common Stock — The Company is authorized to issue i i 10,000,000 / shares of Class B common stock with a par value of $ i i 0.0001 / per share. Holders of Class B common stock are entitled to i i one / vote for each share. At June 30, 2022 and December 31, 2021, there were i i 2,875,000 / shares of Class B common stock issued and outstanding.
Holders of Class A common stock and holders of Class B common stock will vote together as a single class on all matters submitted to a vote of the Company’s stockholders except as otherwise required by law.
The shares of Class B common stock will automatically convert into Class A common stock at the time of a Business Combination on a one-for-one basis, subject to adjustment. In the case that additional shares of Class A common stock, or equity-linked securities, are issued or deemed issued in excess of the amounts offered in this prospectus and related to the closing of a Business Combination, the ratio at which shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate, on an as-converted basis, i 20% of the sum of the total number of all shares of common stock
/15
ADARA ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
outstanding upon completion of the Initial Public Offering plus all shares of Class A common stock and equity-linked securities issued or deemed issued in connection with a Business Combination (excluding any shares or equity-linked securities issued, or to be issued, to any seller in a Business Combination, any private placement-equivalent warrants and their underlying securities issued to the Sponsor or its affiliates upon conversion of loans made to the Company). The Company cannot determine at this time whether a majority of the holders of its Class B common stock at the time of any future issuance would agree to waive such adjustment to the conversion ratio.
iNOTE 8. WARRANT LIABILITIES
Warrants — At June 30, 2022 and December 31, 2021, there were i i 5,750,000 / Public Warrants, i i 4,070,000 / Private Placement Warrants and i i 50,000 / Representatives Warrants. The Public Warrants may only be exercised for a whole number of shares. No fractional warrants will be issued upon separation of the Units and only whole warrants will trade. The Public Warrants will become exercisable on the later of (a) i 30 days after the completion of a Business Combination and (b) i 12 months from the closing of the Initial Public Offering. The Public Warrants will expire i five years after the completion of a Business Combination or earlier upon redemption or liquidation.
The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act covering the issuance of the shares of Class A common stock underlying the warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration. No warrant will be exercisable and the Company will not be obligated to issue shares of Class A common stock upon exercise of a warrant unless Class A common stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants.
The Company has agreed that as soon as practicable, but in no event later than i 15 business days after the closing of a Business Combination, it will use its best efforts to file with the SEC a registration statement covering the shares of Class A common stock issuable upon exercise of the warrants, to cause such registration statement to become effective and to maintain a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed, as specified in the warrant agreement. If a registration statement covering the shares of Class A common stock issuable upon exercise of the warrants is not effective by the i 60th business day after the closing of a 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. Notwithstanding the foregoing, if a registration statement covering the Class A common stock issuable upon exercise of the warrants is not effective within a specified period following the consummation of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities Act, provided that such exemption is available. If that exemption, or another exemption, is not available, holders will not be able to exercise their warrants on a cashless basis.
Once the warrants become exercisable, the Company may redeem for cash the outstanding Public Warrants:
| ● | in whole and not in part; |
| ● | at a price of $ i 0.01 per Public Warrant; |
| ● | upon not less than i 30 days’ prior written notice of redemption given after the warrants become exercisable to each warrant holder; and |
| ● | if, and only if, the reported last sale price of the Class A common stock equals or exceeds $ i 18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any i 20 trading days within a i 30-trading day period commencing once the warrants become exercisable and ending i three business days before the Company sends the notice of redemption to the warrant holders. |
16
ADARA ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
If and when the warrants become redeemable by the Company, the Company 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.
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Class A common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, except as described below, the warrants will not be adjusted for issuances of Class A common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants. If the Company is unable to complete a 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.
In addition, if (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of its initial Business Combination at an issue price or effective issue price of less than $ i 9.20 per share of Class A common stock (with such issue price or effective issue price to be determined in good faith by the Company’s 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 i 60% of the total equity proceeds, and interest thereon, available for the funding of the Company’s initial Business Combination on the date of the consummation of such initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Company’s common stock during the i 20 trading day period starting on the trading day prior to the day on which the Company consummates its initial Business Combination (such price, the “Market Value”) is below $ i 9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to i 115% of the greater of the Market Value and the Newly Issued Price and the $ i 18.00 per share redemption trigger price described above will be adjusted (to the nearest cent) to be equal to i 180% of the greater of the Market Value and the Newly Issued Price.
The Placement Warrants were identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Placement Warrants and the Class A common stock issuable upon the exercise of the Placement Warrants will not be transferable, assignable or saleable until i 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the 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 Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
Representative Warrants
The Company issued i 50,000 warrants (the “Representative Warrants”), for minimal consideration, to ThinkEquity (“ThinkEquity”), a division of Fordham Financial Management, Inc. (and/or its designees), in a private placement simultaneously with the closing of Initial Public Offering. The Company accounted for the Representative Warrants as an expense of the Initial Public Offering, with a corresponding credit to temporary equity. The Representative Warrants are identical to the Public Warrants except that each Representative Warrant entitles the holder thereof to purchase i one share of Class A common stock at a price of $ i 11.50 per share, subject to adjustment, and so long as the Representative Warrants are held by ThinkEquity (and/or its designees) or its permitted transferees, (i) will not be redeemable by the Company, (ii) may not (including the Class A common stock issuable upon exercise of these warrants), subject to certain limited exceptions, be transferred, assigned or sold by the holders until i 30 days after the completion of a Business Combination, (iii) may be exercised by the holders on a cashless basis, (iv) will be entitled to registration rights and (v) for so long as they are held by ThinkEquity (and/or its designees), will not be exercisable more than five years from the effective date of the Initial Public Offering in accordance with FINRA Rule 5110(f)(2)(G)(i). The Representative Warrants and the underlying Class A common stock have been deemed compensation by FINRA and are therefore subject to a lock-up for a period of i 180 days immediately following the date of the effectiveness of Initial Public Offering pursuant to FINRA Rule 5110(g)(1).
17
ADARA ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 9. FAIR VALUE MEASUREMENTS
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active or financial instruments for which significant inputs to models are observable (including but not limited to quoted prices for similar securities, interest rates, foreign exchange rates, volatility and credit risk), either directly or indirectly;
Level 3: Prices or valuations that require significant unobservable inputs (including the Management’s assumptions in determining fair value measurement).
At June 30, 2022, marketable securities held in the Trust Account were comprised of $ i 116,318,176 in money market funds which are invested primarily in U.S. Treasury Securities.
At December 31, 2021, marketable securities held in the Trust Account were comprised of $ i 116,160,281 in money market funds which are invested primarily in U.S. Treasury Securities.
The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at June 30, 2022 and December 31, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.
i
| | | | | | |
| | | | June 30, |
| December 31, |
Description |
| Level |
| 2022 | | 2021 |
Assets: | | | | | | |
Marketable Securities held in Trust Account – U.S. Treasury Securities Money Market Fund | | 1 | | i 116,318,176 | | i 116,160,281 |
| | | | | | |
Liabilities: | |
| | | | |
Warrant Liability – Public Warrants | | 1 | | i 1,035,000 | | i 2,817,500 |
Warrant Liability – Private Placement Warrants | | 2 | | i 732,600 | | i 1,994,300 |
Warrant Liability – Representative Warrants | | 3 | | i 18,000 | | i 49,000 |
The Warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on our accompanying June 30, 2022 and December 31, 2021 condensed balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liabilities in the condensed statements of operations.
/18
ADARA ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The Company utilizes a lattice model, specifically a binomial lattice model, to value the representative warrants at each reporting period, with changes in fair value recognized in the statements of operations. The estimated fair value of the representative warrant liabilities are determined using Level 3 inputs. Inherent in a binomial options pricing model are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its shares of common stock based on historical volatility that matches the expected remaining life of the warrants. 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 warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero.
The Public Warrants were initially valued using a lattice model, specifically a binomial lattice model. As of June 30, 2022 and December 31, 2021, the Public Warrants were valued using the instrument’s publicly listed trading price as of the balance sheet date, which is considered to be a Level 1 measurement due to the use of an observable market quote in an active market. As of June 30, 2022 and December 31, 2021, the fair value of the Private Warrants was the equivalent to that of the Public Warrants as they had substantially the same terms; however, they are not actively traded, as such are listed as a Level 2 in the fair value hierarchy table above.
iThe key inputs into the binomial lattice model for the Warrants were as follows:
| | | | | | | | | | | | |
| | | ||||||||||
|
| Representative |
| Private |
| Representative |
| Private | ||||
Input | | Warrants | | Warrants | | Warrants | | Warrants | ||||
Market price of public stock | | $ | i 9.88 | | $ | — | | $ | i 9.89 | | $ | — |
Risk-free rate | | | i 2.44 | % |
| — | % | | i 2.98 | % |
| — |
Dividend Yield | | | i 0.00 | % |
| — | % | | i 0.00 | % |
| — |
Exercise price | | $ | i 11.50 | | $ | — | | $ | i 11.50 | | $ | — |
Effective expiration date | | | 6/23/26 | |
| — | | | 6/23/26 | |
| — |
One-touch hurdle | | $ | — | | $ | — | | $ | — | | $ | — |
iThe following table presents the changes in the fair value of Level 3 warrant liabilities:
| | | | | | | | | | | | |
|
| Private Placement |
| Public |
| Representative |
| Warrant Liabilities | ||||
| | | | | | | | | | | | |
Fair value as of January 1, 2021 |
| $ | i — |
| $ | i — | | $ | i — | | $ | i — |
Initial measurement on February 11, 2021 | | | i 3,785,100 | | | i 5,290,000 | | | i 36,500 | | | i 9,111,600 |
Change in valuation inputs or other assumptions | | | ( i 1,730,400) | | | ( i 2,357,500) | | | ( i 19,000) | | | ( i 4,106,900) |
Transfer to Level 1 | | | ( i 2,054,700) | | | ( i 2,932,500) | | | — | | | ( i 4,987,200) |
Fair value as of March 31, 2021 | | $ | — | | $ | — | | $ | i 17,500 | | $ | i 17,500 |
Change in valuation inputs or other assumptions | | | — | | | — | | | i 16,000 | | | i 16,000 |
Fair value as of June 30, 2021 | | $ | — | | $ | — | | $ | i 33,500 | | $ | i 33,500 |
| | | | | | |
|
| Representative |
| Warrant Liabilities | ||
| | | | | | |
Fair value as of January 1, 2022 | | $ | i 49,000 | | $ | i 49,000 |
Change in valuation inputs or other assumptions | | | ( i 17,000) | | | ( i 17,000) |
Fair value as of March 31, 2022 | | $ | i 32,000 | | $ | i 32,000 |
Change in valuation inputs or other assumptions | | | ( i 14,000) | | | ( i 14,000) |
Fair value as of June 30, 2022 | | $ | i 18,000 | | $ | i 18,000 |
Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period in which a change in valuation technique or methodology occurs. The estimated fair value of the Public Warrants transferred from a Level 3 measurement to a Level 1 during the three and six months period ended June 30, 2021 was $ i i 2,932,500 / . The estimated fair value of the Public Warrants transferred from a
19
ADARA ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Level 3 measurement to a Level 2 measurement during the three and six months ended June 30, 2021 was $ i i 2,054,700 / . There were i i no / transfers from Level 3 to Level 1 or Level 2 during the three and six months period ended June 30, 2022.
iNOTE 10. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the condensed balance sheet date up to the date that the condensed financial statements were issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed financial statements.
20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Adara Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Adara Sponsor 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 of 1933, as amended and Section 21E of the Exchange Act of 1934, as amended (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 Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the completion of the Proposed Business Combination (as defined below), 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, including that the conditions of the Proposed 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 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 formed under the laws of the State of Delaware on August 5, 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 IPO and the sale of the Private Placement Warrants, our capital stock, debt or a combination of cash, stock and debt. While our efforts to identify a target business may span many industries and regions worldwide, we intend to focus our search for businesses in the consumer products industry and related sectors, including those consumer industry businesses in the health and wellness, e-commerce, discretionary spending, and information technology sectors and related channels of distribution.
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
On June 22, 2022, the Company, Alliance Merger Sub, Inc. (“Merger Sub”) and Alliance Entertainment Holding Corporation (“Alliance”) entered into the Business Combination Agreement (the “BCA”), pursuant to which the Company and Alliance will consummate the Business Combination.
Pursuant to the BCA, Merger Sub will merge with and into Alliance, with Alliance being the surviving entity (the “Merger”). The Merger is to become effective by the filing of a certificate of merger with the Secretary of State of the State of Delaware, in accordance with the relevant provisions of the Delaware General Corporation Law and mutually agreed by the parties and will be effective immediately upon such filing or upon such later time as may be agreed by the parties and specified in such certificate of merger (such time, “Effective Time”). The parties will hold the closing immediately prior to such filing of a certificate of merger, on the closing date.
The Effective Time shall occur as promptly as practicable but in no event later than three business days after the satisfaction or, if permissible, waiver of the conditions to the completion of the Business Combination set forth in the BCA (other than those conditions
21
that by their nature are to be satisfied at closing, provided that the occurrence of the closing shall remain subject to the satisfaction or, if permissible, waiver at the closing).
At the Effective Time, by virtue of the Merger and without any action on the part of Adara, Merger Sub, Alliance or the holders of any of Alliance’s securities:
| ● | Each share of Alliance common stock issued and outstanding immediately prior to the Effective Time will be cancelled and automatically converted into the right to receive the number of shares of the Company surviving the Business Combination (the “Combined Company Common Stock”) equal to the Exchange Ratio; |
| ● | No certificates or scrip or shares representing fractional shares of Combined Company Common Stock shall be issued upon the exchange of Alliance common stock and such fractional share interests will not entitle the owner thereof to vote or to have any rights of a stockholder of Adara or a holder of shares of Combined Company Common Stock. In lieu of any fractional share of Combined Company Common Stock to which each holder of Alliance common stock would otherwise be entitled, the fractional share shall be rounded up or down to the nearest whole share of Combined Company Common Stock, with a fraction of 0.5 rounded up. No cash settlements shall be made with respect to fractional shares eliminated by rounding. |
At the closing, the Company will also issue to the Alliance stockholders shares of a to be formed Class E Common Stock (the ”Contingent Consideration Shares”) which shall be placed into an escrow account pursuant to the Contingent Consideration Shares Agreement and shall not be released from escrow over a ten-year period unless and until they are earned as a result of the occurrence of the applicable triggering event as follows: 20,000,000 Contingent Consideration Shares will be earned upon the occurrence of triggering event I prior to the five-year anniversary of the closing; 20,000,000 Contingent Consideration Shares will be earned upon the occurrence of triggering event II prior to the seven-year anniversary of the closing; and 20,000,000 Contingent Consideration Shares will be earned upon the occurrence of triggering event III prior to the ten-year anniversary of the closing.
Upon the occurrence of a triggering event, the Contingent Consideration Shares released from the escrow shall automatically convert into an equal number of shares of Combined Company Common Stock
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities from August 5, 2020 (inception) through June 30, 2022 were organizational activities, those necessary to prepare for the IPO, 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 three months ended June 30, 2022, we had a net income of $858,549, which consists of the change in fair value of warrant liabilities of $1,388,800 and interest earned on marketable securities held in Trust Account of $147,540, offset by operating and formation costs of $677,791.
For the six months ended June 30, 2022, we had net income of $1,980,736, which consists of changes in fair value of the warrant liabilities of $3,075,200 and interest earned on marketable securities held in Trust Account of $157,895, offset by operating and formation costs of $1,252,359.
For the three months ended June 30, 2021, we had a net loss of $1,805,971, which consists of operating and formation costs of $247,167, changes in fair value of the warrant liabilities of $1,561,700, offset by interest income on investments of $2,896.
For the six months ended June 30, 2021, we had a net income of $2,047,910, which consists of changes in fair value of the warrant liabilities of $2,545,200 and interest income on investments of $4,424, offset by operating and formation costs of $415,170 and transaction costs associated with the IPO of $86,544.
22
Liquidity and Capital Resources
On February 11, 2021, the Company consummated the IPO of 11,500,000 Units, which includes the full exercise by the underwriters of their over-allotment option in the amount of 1,500,000 Units, at $10.00 per Unit, generating gross proceeds of $115,000,000. Simultaneously with the closing of the IPO, the Company consummated the sale of 4,120,000 Private Placement Warrants, at a price of $1.00 per Private Placement Warrant in a private placement to the Sponsor, generating gross proceeds of $4,120,000.
For the six months ended June 30, 2022, cash used in operating activities was $1,044,803. Net income of $1,980,736 was affected by the change in fair value of the warrant liabilities of $3,075,200 and interest earned on marketable securities of $157,895. Changes in operating assets and liabilities provided $207,556 of cash for operating activities.
For the six months ended June 30, 2021, cash used in operating activities was $128,358. Net income of $2,047,910 was affected by the change in fair value of the warrant liabilities of $2,545,200, transaction costs associated with the IPO of $86,544 and interest income on marketable securities of $4,424. Changes in operating assets and liabilities provided $286,812 of cash for operating activities.
As of June 30, 2022, we had marketable securities held in the Trust Account of $116,318,176 (including $168,176 of interest income) consisting of U.S. Treasury Bills with a maturity of 185 days or less. Interest income on the balance in the Trust Account may be used by us to pay taxes. Through June 30, 2022, we have not withdrawn any interest earned from the Trust Account.
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 June 30, 2022, we had cash of $9,607 held outside of the Trust Account. 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 would 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 Working Capital Loans may be convertible into warrants of the post-Business Combination entity at a price of $1.00 per warrant.
Going Concern
If the estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, the Company may have insufficient funds available to operate its business prior to a Business Combination. Moreover, the Company may need to obtain additional financing or draw on the Working Capital Loans (as defined below) either to complete a Business Combination or because it becomes obligated to redeem a significant number of the Public Shares upon consummation of a Business Combination, in which case the Company may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, the Company would only complete such financing simultaneously with the completion of our Business Combination. If the Company is unable to complete the Business Combination because it does not have sufficient funds available, the Company will be forced to cease operations and liquidate the Trust Account. In addition, following the Business combination, if cash on hand is insufficient, the Company may need to obtain additional financing in order to meet its obligations.
In connection with the Company’s assessment of going concern considerations in accordance with FASB’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that if the Company is unable to raise additional funds to alleviate liquidity needs as well as complete a Business Combination by February 11, 2023, then the Company will cease all operations except for the purpose of liquidating. 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.
23
No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after February 11, 2023.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of June 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 our Sponsor a monthly fee of $10,000 for office space, utilities and secretarial and administrative support. We began incurring these fees on February 8, 2021 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation.
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 identified the following critical accounting policies:
Warrant Liabilities
We account for the Warrants in accordance with the guidance contained in ASC 815-40-15-7D and 7F under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, we classify the Warrants as liabilities at their fair value and adjust the Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statements of operations. The Private Warrants and the Public Warrants for periods where no observable traded price was available are valued using a binomial lattice model, specifically a binomial lattice model. For periods subsequent to the detachment of the Public Warrants from the Units, the Public Warrant quoted market price was used as the fair value as of each relevant date.
24
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 Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” 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, 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.
Net Income (Loss) Per Common Share
Net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. We apply the two-class method in calculating income (loss) per common share, evenly allocating the net income (loss) to each class of stock. The deemed dividend associated with the redeemable shares of Class A common stock is included in income (loss) per common share in the IPO quarter and year to date calculation in which the IPO occurred.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate 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 and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended June 30, 2022, 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 and accounting officer have concluded that during the period covered by this report, our disclosure controls and procedures were effective. Accordingly, management believes that the financial statements included in this Quarterly Report present fairly in all material respects our financial position, results of operations and cash flows for the period presented.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
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There was no change, except as noted above and below, in our internal control over financial reporting that occurred during the fiscal quarter of 2022 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. The material weakness discussed below was remediated during the quarter ended June 30, 2022.
Remediation of a Material Weakness in Internal Control over Financial Reporting
In response to the previously identified material weakness, the Company designed and implemented remediation measures to address the material weakness identified and enhanced its internal control over financial reporting. The Company has enhanced its financial reporting processes to better identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to its financial statements, including providing enhanced access to accounting literature, research materials and documents and increased communication among the Company’s personnel and third-party professionals with whom management consults regarding complex accounting applications.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
As of the date of this Quarterly Report there have been no changes to the risk factors disclosed in our Annual Report on Form 10-K filed with the SEC on March 28, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
For a description of the use of the proceeds generated in our IPO, see Part II, Item 2 of the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2021. There has been no material change in the planned use of the proceeds from the Company’s IPO and private placement as is described in the Company’s Annual Report on Form 10-K, dated December 31, 2021.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
None
Item 5. Other Information
None
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Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
No. |
| Description of Exhibit |
31.1* |
| |
31.2* |
| |
32.1** |
| |
32.2** |
| |
101.INS* |
| Inline XBRL Instance Document |
101.SCH* |
| Inline XBRL Taxonomy Extension Schema Document |
101.CAL* |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* |
| Inline XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE* |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104* | | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit) |
| * | Filed herewith. |
| ** | Furnished herewith. |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ADARA ACQUISITION CORP. | |
|
|
|
Date: September 12, 2022 | By: | /s/ Thomas Finke |
| Name: | |
| Title: | Chief Executive Officer |
|
| (Principal Executive Officer) |
|
|
|
Date: September 12, 2022 | By: | /s/ Paul G. Porter |
| Name: | |
| Title: | Chief Financial Officer |
|
| (Principal Financial and Accounting Officer) |
27
| This ‘10-Q/A’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 2/11/23 | ||||
| 12/31/22 | ||||
| Filed on: | 9/12/22 | |||
| 8/11/22 | 10-Q | |||
| For Period end: | 6/30/22 | 10-Q | ||
| 6/22/22 | 8-K | |||
| 3/31/22 | 10-Q | |||
| 3/28/22 | 10-K | |||
| 1/1/22 | ||||
| 12/31/21 | 10-K | |||
| 6/30/21 | 10-Q | |||
| 3/31/21 | 10-Q, NT 10-Q | |||
| 2/11/21 | 8-K | |||
| 2/8/21 | 3, 424B4, 8-K, EFFECT | |||
| 1/1/21 | ||||
| 11/18/20 | CORRESP, DRS, S-1 | |||
| 8/5/20 | ||||
| List all Filings | ||||