New Providence Acquisition Corp. II(NPABU) - 2022 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This section details the company's interim financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Item 1. Interim Financial Statements This section presents the unaudited condensed financial statements for New Providence Acquisition Corp. II, including the balance sheets, statements of operations, changes in stockholders' deficit, and cash flows, along with detailed notes explaining the company's organization, significant accounting policies, and specific financial instruments Condensed Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and stockholders' deficit at specific reporting dates Condensed Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021 | Metric | September 30, 2022 (Unaudited) | December 31, 2021 | | :--------------------------------- | :----------------------------- | :------------------ | | Cash | $531,769 | $1,081,525 | | Prepaid expenses | $302,625 | $329,091 | | Total Current Assets | $834,394 | $1,410,616 | | Marketable securities held in Trust Account | $256,456,862 | $254,992,893 | | TOTAL ASSETS | $257,314,788 | $256,638,831 | | Accrued expenses | $611,006 | $378,432 | | Income taxes payable | $154,371 | — | | Total Current Liabilities | $1,290,295 | $903,350 | | Deferred underwriting payable | $8,750,000 | $8,750,000 | | Total Liabilities | $9,952,299 | $9,653,350 | | Class A common stock subject to possible redemption | $255,946,336 | $255,000,000 | | Total Stockholders' Deficit | $(8,671,843) | $(8,014,519) | - The company's total assets increased from $256.6 million at December 31, 2021, to $257.3 million at September 30, 2022, primarily driven by an increase in marketable securities held in the Trust Account[10] - Current liabilities increased significantly from $903,350 to $1,290,295, mainly due to an in-crease in accrued expenses and the recognition of income taxes payable[10] Unaudited Condensed Statements of Operations This section outlines the company's financial performance, including revenues, expenses, and net income or loss over specified periods Unaudited Condensed Statements of Operations for the three months and nine months ended September 30, 2022 and three months ended September 30, 2021, and for the period from January 1, 2021 (commencement of operations) through September 30, 2021 | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Period from Jan 1, 2021 through Sep 30, 2021 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :------------------------------------------------- | | Formation and operating costs | $269,141 | $19,701 | $923,586 | $20,766 | | Interest earned on marketable securities | $1,093,144 | — | $1,406,598 | — | | Unrealized gain on marketable securities | $140,071 | — | $57,371 | — | | Income (loss) before provision for income taxes | $964,074 | $(19,701) | $540,383 | $(20,766) | | Provision for income taxes | $(217,217) | — | $(251,371) | — | | Net income (loss) | $746,857 | $(19,701) | $289,012 | $(20,766) | | Basic and diluted net income (loss) per share, Class A common stock | $0.02 | — | $0.01 | — | | Basic and diluted net income (loss) per share, Class B common stock | $0.02 | $(0.00) | $0.01 | $(0.00) | - The company reported a net income of $746,857 for the three months ended September 30, 2022, a significant improvement from a net loss of $(19,701) in the prior year period, primarily due to interest and unrealized gains on marketable securities in the Trust Account[12] - For the nine months ended September 30, 2022, net income was $289,012, compared to a net loss of $(20,766) for the same period in 2021, driven by substantial interest income from the Trust Account[12] Unaudited Condensed Statements of Changes in Stockholders' Deficit This section tracks changes in the company's equity, including net income/loss, stock issuances, and other adjustments affecting stockholders' deficit Unaudited Condensed Statements of Changes in Stockholders' Deficit for the three months and nine months ended September 30, 2022 and 2021, and Three Months Ended September 30, 2021, and for the Period from January 1, 2021 (commencement of operation) through September 30, 2021 | Metric | Balance – January 1, 2022 | Net loss (Q1 2022) | Net loss (Q2 2022) | Remeasurement of Class A Common Stock | Net income (Q3 2022) | Balance – September 30, 2022 | | :------------------------------------ | :------------------------ | :----------------- | :----------------- | :------------------------------------ | :------------------- | :----------------------------- | | Class B Common Stock Amount | $625 | — | — | — | — | $625 | | Accumulated Deficit | $(8,015,144) | $(321,301) | $(136,544) | $(946,336) | $746,857 | $(8,672,468) | | Total Stockholders' Deficit | $(8,014,519) | $(321,301) | $(136,544) | $(946,336) | $746,857 | $(8,671,843) | Unaudited Condensed Statements of Changes in Stockholders' Deficit for the three months and nine months ended September 30, 2022 and 2021, and Three Months Ended September 30, 2021, and for the Period from January 1, 2021 (commencement of operation) through September 30, 2021 | Metric | Balance – January 1, 2021 | Issuance of Class B common stock | Net loss (Q1 2021) | Net loss (Q2 2021) | Net loss (Q3 2021) | Balance – September 30, 2021 | | :------------------------------------ | :------------------------ | :------------------------------- | :----------------- | :----------------- | :----------------- | :----------------------------- | | Class B Common Stock Amount | — | $647 | — | — | — | $647 | | Additional Paid-in Capital | — | $24,353 | — | — | — | $24,353 | | Accumulated Deficit | — | — | $(1,000) | $(65) | $(19,701) | $(20,766) | | Total Stockholders' Equity | — | $25,000 | $(1,000) | $(65) | $(19,701) | $4,234 | - The accumulated deficit increased from $(8,015,144) at January 1, 2022, to $(8,672,468) at September 30, 2022, primarily due to net losses in the first two quarters and a remeasurement of Class A Common Stock to redemption value, partially offset by net income in the third quarter[15] Unaudited Condensed Statements of Cash Flows This section provides an overview of the company's cash inflows and outflows from operating, investing, and financing activities Unaudited Condensed Statement of Cash Flows for the nine months ended September 30, 2022 and for the period from January 1, 2021 (commencement of operations) through September 30, 2021 | Metric | Nine Months Ended Sep 30, 2022 | Period from Jan 1, 2021 through Sep 30, 2021 | | :------------------------------------------ | :----------------------------- | :------------------------------------------------- | | Net income (loss) | $289,012 | $(20,766) | | Interest earned on marketable securities | $(1,406,598) | — | | Unrealized gain on marketable securities | $(57,371) | — | | Net cash used in operating activities | $(549,756) | $(3,466) | | Net cash provided by financing activities | — | $4,017 | | Net Change in Cash | $(549,756) | $551 | | Cash – End of period | $531,769 | $551 | - Net cash used in operating activities significantly increased to $(549,756) for the nine months ended September 30, 2022, compared to $(3,466) for the prior year period, despite positive net income, due to non-cash adjustments for interest and unrealized gains on marketable securities[19] - Cash at the end of the period decreased from $1,081,525 at the beginning of 2022 to $531,769 by September 30, 2022, primarily due to cash used in operating activities[10][19] Notes to Unaudited Condensed Financial Statements This section provides detailed explanations and additional information supporting the unaudited condensed financial statements NOTE 1. DESCRIPTION OF ORGANIZATION, BUSINESS OPERATIONS, LIQUIDITY, AND RISKS AND UNCERTAINTIES This note describes the company's formation, business purpose as a SPAC, liquidity position, and associated risks and uncertainties - New Providence Acquisition Corp. II is a blank check company (SPAC) formed on November 16, 2020, to effectuate a business combination, with no operating revenues until such combination is completed[22][24] - The company completed its Initial Public Offering (IPO) on November 9, 2021, selling 25,000,000 units at $10.00 per unit, generating $250,000,000, and simultaneously sold 8,000,000 private placement warrants for $12,000,000[25][26] - A total of $255,000,000 from the IPO and private placement proceeds was placed in a Trust Account, invested in U.S. government securities, to be used for a Business Combination or stockholder redemptions[28] - The company has until May 9, 2023 (18 months from IPO closing) to complete a Business Combination, and failure to do so will result in liquidation and redemption of public shares[35][41] - As of September 30, 2022, the company had $531,769 in operating bank accounts and $256,456,862 in marketable securities in the Trust Account, with a working capital surplus of $54,625[39] - The company faces liquidity challenges and may need additional capital from its Sponsor or other parties, and the inability to raise funds or complete a Business Combination by May 9, 2023, raises substantial doubt about its ability to continue as a going concern[41] - The Inflation Reduction Act of 2022, effective January 1, 2023, introduces a 1% excise tax on stock repurchases, which could impact redemptions in connection with a Business Combination and reduce available cash[44][45] NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the key accounting principles and methods used in preparing the company's financial statements - The unaudited condensed financial statements are prepared in accordance with GAAP for interim financial information, with certain disclosures condensed or omitted per SEC rules[46] - The company is an 'emerging growth company' and has elected to use the extended transition period for complying with new or revised financial accounting standards, which may affect comparability[48][49] - Marketable securities held in the Trust Account are classified as trading securities and measured at fair value, with gains and losses included in interest earned on marketable securities[54] - Class A common stock subject to possible redemption is classified as temporary equity and presented at redemption value, with changes in value recognized immediately[55][56] - The company's effective tax rate was 22.5% for the three months ended September 30, 2022, and 46.5% for the nine months ended September 30, 2022, differing from the statutory rate due to fair value changes in warrant liability and valuation allowance on deferred tax assets[59] Basic and Diluted Net Income (Loss) per Common Share | Metric | Three Months Ended Sep 30, 2022 (Class A) | Three Months Ended Sep 30, 2022 (Class B) | Three Months Ended Sep 30, 2021 (Class A) | Three Months Ended Sep 30, 2021 (Class B) | Nine Months Ended Sep 30, 2022 (Class A) | Nine Months Ended Sep 30, 2022 (Class B) | Period from Jan 1, 2021 through Sep 30, 2021 (Class A) | Period from Jan 1, 2021 through Sep 30, 2021 (Class B) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------------------------------------------------- | :----------------------------------------------------- | | Allocation of net income (loss), as adjusted | $597,486 | $149,371 | — | $(19,701) | $231,210 | $57,802 | — | $(20,766) | | Weighted average shares outstanding | 25,000,000 | 6,250,000 | — | 5,625,000 | 25,000,000 | 6,250,000 | — | 5,625,000 | | Basic and diluted net income (loss) per share | $0.02 | $0.02 | — | $(0.00) | $0.01 | $0.01 | — | $(0.00) | NOTE 3. INITIAL PUBLIC OFFERING This note details the specifics of the company's Initial Public Offering, including units sold and proceeds generated - The Company sold 25,000,000 Units in its IPO, including a partial exercise of the over-allotment option, at $10.00 per Unit, with each Unit consisting of one Class A common stock and one-third of one redeemable Public Warrant[72] NOTE 4. PRIVATE PLACEMENT This note describes the private placement of warrants to the Sponsor and the use of the generated proceeds - Simultaneously with the IPO, the Sponsor purchased 8,000,000 Private Placement Warrants at $1.50 each, generating $12,000,000, with proceeds added to the Trust Account[74] - If a Business Combination is not completed, proceeds from Private Placement Warrants will fund Public Share redemptions, and the warrants will expire worthless[74] NOTE 5. RELATED PARTY TRANSACTIONS This note discloses transactions and arrangements between the company and its related parties, primarily the Sponsor - The Sponsor initially received 5,750,000 Founder Shares for $25,000, with some transferred to director nominees and others forfeited after the IPO[75] - The fair value of 50,000 Founder Shares granted to director nominees was $487,000 ($9.74 per share), but no stock-based compensation expense has been recognized as the performance condition (Business Combination) is not yet probable[76] - The Company pays the Sponsor up to $20,000 per month for administrative support, including a portion allocated to the CFO's salary, incurring $60,000 for the three months and $180,000 for the nine months ended September 30, 2022[78] - The Sponsor previously issued a $300,000 unsecured promissory note to the Company, which was repaid on November 18, 2021[79] - Working Capital Loans from related parties may be provided to finance transaction costs, repayable upon Business Combination or convertible into warrants, with no such loans outstanding as of September 30, 2022[81] NOTE 6. COMMITMENTS AND CONTINGENCIES This note outlines the company's contractual obligations, potential liabilities, and other commitments - Holders of Founder Shares, Private Placement Warrants, and Working Capital Loan warrants have registration rights, requiring the Company to register these securities for resale[84] - A deferred underwriting fee of $8,750,000 is payable to the underwriter from the Trust Account only upon completion of a Business Combination[85] - The Company has consulting arrangements for identification and negotiation with potential targets, incurring $30,000 for the three months and $63,000 for the nine months ended September 30, 2022[86] NOTE 7. STOCKHOLDERS' DEFICIT This note provides details on the company's capital structure, including authorized and outstanding shares, and warrant terms - The Company is authorized to issue up to 1,000,000 shares of preferred stock, but none were issued or outstanding as of September 30, 2022, and December 31, 2021[87] - There were 25,000,000 shares of Class A common stock subject to possible redemption and 6,250,000 shares of Class B common stock issued and outstanding as of September 30, 2022[88][89] - Class B common stock will automatically convert into Class A common stock on a one-for-one basis upon a Business Combination, with potential adjustments based on additional equity issuances[90][91] - There are 8,333,333 Public Warrants and 8,000,000 Private Placement Warrants outstanding, exercisable for Class A common stock at $11.50 per share, becoming exercisable later of 30 days post-Business Combination or 12 months from IPO closing[93][102] - Public Warrants may be redeemed by the Company if Class A common stock price equals or exceeds $18.00 for 20 trading days within a 30-day period[98] NOTE 8. FAIR VALUE MEASUREMENTS This note explains the methodology and classification of financial instruments measured at fair value - The Company classifies its financial assets and liabilities using a fair value hierarchy (Level 1, 2, 3) based on observable and unobservable inputs[104][106] Fair Value of Marketable Securities Held in Trust Account (Level 1) | Description | Level | September 30, 2022 | December 31, 2021 | | :-------------------------------- | :---- | :------------------- | :------------------ | | Marketable securities held in Trust Account | 1 | $256,456,862 | $254,992,376 | NOTE 9. SUBSEQUENT EVENTS This note reports on significant events occurring after the balance sheet date but before the financial statements were issued - The Company evaluated subsequent events up to the financial statement issuance date and identified no events requiring adjustment or disclosure[107] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and operational results, highlighting its status as a blank check company, its financial performance driven by trust account interest, and significant liquidity concerns related to completing a business combination Overview This section provides an overview of Overview - New Providence Acquisition Corp. II is a blank check company formed to effectuate a business combination, having completed its IPO on November 9, 2021, raising $250,000,000 from units and $12,000,000 from private placement warrants[110][111] - A total of $255,000,000 was placed in a trust account following the IPO and private placement, with $14,566,172 incurred in IPO-related costs[112] Results of Operations This section provides an overview of Results of Operations - The company has not generated operating revenues to date, with activities focused on organizational tasks, IPO preparation, and identifying a target for a business combination[113] - Non-operating income is generated from interest on marketable securities held in the trust account[113] Net Income (Loss) Summary | Period | Net Income (Loss) | | :------------------------------------------ | :------------------ | | Three months ended September 30, 2022 | $746,857 | | Nine months ended September 30, 2022 | $289,012 | | Three months ended September 30, 2021 | $(22,464) | | Period from January 1, 2021 through September 30, 2021 | $(23,529) | - Net income for the three and nine months ended September 30, 2022, was primarily driven by interest earned and unrealized gains on marketable securities in the trust account, offsetting operating and formation costs and income taxes[114][115] Liquidity and Going Concern This section provides an overview of Liquidity and Going Concern - Cash used in operating activities was $549,756 for the nine months ended September 30, 2022, influenced by interest income and unrealized gains on trust account securities[117] - As of September 30, 2022, the company held $256,456,862 in marketable securities in the trust account and $531,769 in cash outside the trust account[119][121] - The company intends to use trust account funds for a business combination and non-trust funds for identifying and evaluating target businesses[120][121] - The company may need additional capital from its Sponsor or other parties, and the uncertainty of completing a business combination by May 9, 2023, raises substantial doubt about its ability to continue as a going concern[124] Off-Balance Sheet Financing Arrangements This section provides an overview of Off-Balance Sheet Financing Arrangements - As of September 30, 2022, the company had no off-balance sheet arrangements, such as relationships with unconsolidated entities or special purpose entities[125] Contractual Obligations This section provides an overview of Contractual Obligations - The company has no long-term debt or lease obligations, but is committed to paying its Sponsor up to $20,000 per month for administrative services until a business combination or liquidation[126] - A deferred underwriting fee of $8,750,000 is payable upon the completion of a business combination[127] Critical Accounting Policies This section provides an overview of Critical Accounting Policies - The company accounts for warrants as equity-classified instruments based on specific terms and applicable authoritative guidance (ASC 480 and ASC 815)[130] - Class A common stock subject to possible redemption is classified as temporary equity and measured at redemption value, as redemption rights are outside the company's control[131] - Net income (loss) per common stock is computed using the two-class method, with remeasurement of redeemable Class A common stock excluded[132] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, New Providence Acquisition Corp. II is exempt from providing detailed quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[135] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of September 30, 2022, due to a material weakness in accounting for accrued expenses. Remediation efforts are underway to enhance accounting standards evaluation and communication - Management concluded that disclosure controls and procedures were not effective as of September 30, 2022, due to a material weakness related to the accounting for accrued expenses[137][138] - Despite the material weakness, management believes the condensed financial statements fairly present the company's financial position, results of operations, and cash flows after additional analysis[137] - Remediation plans include enhancing the system for evaluating accounting standards, improving analyses by personnel and third-party professionals, and increasing communication regarding accrued expenses[138][140] PART II – OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings New Providence Acquisition Corp. II reported no legal proceedings as of the filing date - The company has no legal proceedings[142] Item 1A. Risk Factors This section refers to previously disclosed risk factors in prior SEC filings and highlights a newly identified material weakness in internal control over financial reporting related to accrued expenses, which could adversely affect financial reporting and business operations - The company refers to risk factors described in its Annual Report on Form 10-K for December 31, 2021, and Current Report on Form 10-Q for March 31, 2022[143] - A material weakness in internal control over financial reporting related to the accounting for accrued expenses has been identified as of September 30, 2022[144][145] - This material weakness could adversely affect the company's ability to accurately report financial results in a timely manner, impact investor confidence, and potentially delay a Business Combination[144][146] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the unregistered sale of equity securities, specifically the private placement warrants, and the allocation of proceeds from the IPO and private placement, with the majority placed in the trust account - On November 9, 2021, the company consummated its IPO of 25,000,000 Units at $10.00 per Unit, generating $250,000,000[147] - Simultaneously, the Sponsor purchased 8,000,000 private placement warrants at $1.50 each, generating $12,000,000, issued under Section 4(a)(2) of the Securities Act[148] - Total IPO-related costs were $14,566,172, including $5,000,000 in underwriting fees and $8,750,000 in deferred underwriting fees[149] - After deducting fees and expenses, net proceeds from the IPO and private placement totaled $256,183,828, with $255,000,000 placed in the trust account[150] Item 3. Defaults Upon Senior Securities New Providence Acquisition Corp. II reported no defaults upon senior securities - The company has no defaults upon senior securities[151] Item 4. Mine Safety Disclosures This item is not applicable to New Providence Acquisition Corp. II - Mine Safety Disclosures are not applicable to the company[152] Item 5. Other Information New Providence Acquisition Corp. II reported no other information - The company has no other information to disclose under this item[153] Item 6. Exhibits This section lists the exhibits filed as part of, or incorporated by reference into, the Quarterly Report, including organizational documents, certifications, and XBRL-related documents - Exhibits include Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, certifications of principal executive and financial officers, and Inline XBRL documents[156] PART III – SIGNATURES This section contains the official signatures of the company's authorized officers, certifying the report's accuracy Signatures The report is duly signed on behalf of New Providence Acquisition Corp. II by its Chief Executive Officer, Gary Smith, and Chief Financial Officer, James Bradley, on November 3, 2022 - The report was signed by Gary Smith, Chief Executive Officer, and James Bradley, Chief Financial Officer, on November 3, 2022[161]