byNordic Acquisition Corp: Form 10-Q for the period ended Mar 31, 2024

References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to byNordic Acquisition Corporation. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Water by Nordic AB. 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 and Section 21E of the Exchange Act that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the completion of the Business Combination, the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “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 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 final prospectus for its Initial Public Offering and in the Company’s Form 10-K for the year ended December 31, 2023 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 (http://www.sec.gov). Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Overview

We are a blank check company incorporated as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We are not presently engaged in, and we will not engage in, any operations until we consummate our business combination. We intend to effectuate our business combination using cash from the proceeds of our initial public offering, the private placement of the private shares, the private placement of the forward purchase shares, the proceeds of the sale of our shares in connection with our business combination (pursuant to forward purchase agreements or backstop agreements we may enter into following the closing of our initial public offering or otherwise), shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing. We have not selected any specific business combination target.

The issuance of additional shares in connection with a business combination to the owners of the target or other investors, including the forward purchase shares:

• may significantly dilute the equity interest of our public stockholders, which dilution would increase if the anti-dilution provisions in the Class B common stock resulted in the issuance of shares of Class A Common Stock on a greater than one-to-one basis upon conversion of the Class B common stock;
• may subordinate the rights of holders of our common stock if preferred stock is issued with rights senior to those afforded our common stock;
• could cause a change in control if a substantial number of shares of our common stock is issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors;
• may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us; and
• may adversely affect prevailing market prices for our Class A common stock and/or warrants.

Similarly, if we issue debt securities or otherwise incur significant debt to bank or other lenders or the owners of a target, it could result in:

• default and foreclosure on our assets if our operating revenues after a business combination are insufficient to repay our debt obligations;
• acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;
• our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand;
• our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding;
• our inability to pay dividends on our common stock;
• using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, our ability to pay expenses, make capital expenditures and acquisitions, and fund other general corporate purposes;
• limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
• increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;
• limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, and execution of our strategy; and
• other disadvantages compared to our competitors who have less debt.

Recent Developments

Promissory Note

On April 10, 2024, the Company issued a promissory note (the “April Note”) in the principal amount of $300,000 to DDM Debt AB (the “Lender”), an affiliate of Water by Nordic AB, the Company’s sponsor. The proceeds of the April Note will be used to provide the Company with general working capital.

The April Note bears no interest and is payable in full upon the consummation of the Company’s initial Business Combination (the “Maturity Date”). A failure to pay the principal on the Maturity Date shall be deemed an event of default, in which case the April Note may be accelerated. If the Company does not consummate an initial Business Combination, the April Note will be repaid solely to the extent the Company has funds available outside its Trust Account established in connection with the Company’s initial public offering.

Departure of Director

On April 30, 2024, Mats Karlsson resigned as Director of Acquisition of the Company in order to pursue other opportunities. Mr. Karlsson’s decision to resign was not the result of any dispute or disagreement with the Company or any matter relating to the Company’s operations, policies or practices.

Trust Account Funding

In each of April 2024 and May 2024, the Company deposited $105,000 in the Trust Account with the Company’s board of directors’ election to exercise a one-month extension of the Combination Period to May 12, 2024 and June 12, 2024, respectively.

Results of Operations

We have neither engaged in any operations nor generated any revenues to date. Our only activities from December 27, 2019 (inception) through March 31, 2024 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and identifying a target company for a Business Combination. We do not expect to generate any operating revenues until after the completion of our Business Combination. We generate non-operating income in the form of interest income on marketable securities held in the Trust Account. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.

For the three months ended March 31, 2024, we had net income of $94,733 which consisted of interest earned on investments held in trust account and cash of $526,580, partially offset by operating costs of $330,841 and federal income taxes of $101,006.

For the three months ended March 31, 2023, we had a net income of $1,046,525, which consisted of earnings on cash and investments in the Trust Account of $1,962,523 partially offset by operating costs of $515,242 and federal income taxes of $400,756.

Liquidity, Capital Resources and Going Concern

On February 11, 2022, we completed our Initial Public Offering of 15,000,000 Units at $10.00 per Unit, generating gross proceeds of $150,000,000. Simultaneously with the closing of the Initial Public Offering, we completed the sale of 850,000 Private Shares at a price of $10.00 per Private Share in a private placement to our sponsor, generating gross proceeds of $8,500,000.

On February 18, 2022, in connection with the underwriters’ exercise of their over-allotment option in full, we consummated the sale of an additional 2,250,000 Units at a price of $10.00 per Unit, generating an additional $22,500,000 of gross proceeds. In addition, we also consummated the sale of an additional 90,000 Private Shares at a price of $10.00 per Private Share, generating an additional $900,000 of gross proceeds.

Following the Initial Public Offering, the full exercise of the over-allotment option, and the sale of the Private Shares, a total of $175,950,000 was placed in the Trust Account.

For the three months ended March 31, 2024, cash used in operating activities was $237,456. Net income of $94,733 was affected by interest earned on investments in the Trust Account of $516,175 and unrealized gain on investments in the Trust Account of $1,190. Changes in operating assets and liabilities used $185,176 of cash for operating activities. Cash used in investing activities was $188,340 including $21,660 withdrawn from the Trust Account to pay taxes partially offset by $210,000 of deposits to the Trust Account.

For the three months ended March 31, 2023, cash used in operating activities was $561,217. Net income of $1,046,525 was affected by interest earned on investments in the Trust Account of $1,868,636 and unrealized gain on investments in the Trust Account of $92,420. Changes in operating assets and liabilities generated $353,314 of cash for operating activities. Cash provided by activities was $195,260 from funds withdrawn from the Trust Account to pay taxes.

As of March 31, 2024, we had marketable securities held in the Trust Account of $40,222,342 consisting of money market funds which are invested primarily in U.S. Treasury securities. Interest income on the balance in the Trust Account may be used by us to pay taxes. For the three months ended March 31, 2024, we have withdrawn $21,660 of interest earned on the Trust Account for the payment of franchise or income taxes.

We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less 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 March 31, 2024, the Company had cash of $1,880,939 not held in the Trust Account and available for working capital purposes. On May 8, 2023, the Company announced that its Board of Directors elected to extend the date by which the Company has to consummate a business combination from May 11, 2023 to August 11, 2023 and the Company’s Sponsor subsequently deposited $1,725,000 to the Trust Account with respect to the extension. On May 9, 2023, the Company received the Initial Extension Loan from the Sponsor and on May 12, 2023, the Company received the Initial Working Capital Loan from the Sponsor. In connection with certain amendments to the Certificate of Incorporation approved by stockholders on August 10, 2023, (i) the deadline for the Company to complete a business combination was extended, (ii) the Company’s Sponsor funded a $625,000 deposit into the Trust Account, and (iii) the Company issued to the Sponsor a convertible promissory note in the amount of $625,000 in connection with the Sponsor’s funding of the extension (the “Additional Extension Loan” and collectively with the Initial Extension Loan, the “Extension Loans”) and a convertible promissory note to the sponsor in the amount of $710,000 in connection with the Sponsor’s funding of the Company’s working capital needs, of which $110,000 was funded on August 10, 2023 and $600,000 is available for future borrowings (the “Additional Working Capital Loan”). The amendments to the Amended and Restated Certificate of Incorporation extend the Combination Period to February 12, 2024, or such earlier date as determined by the Company’s Board of Directors, and allow the Company to further extend the Combination Period by one month up to a total of six months, until August 12, 2024, unless the closing of a business combination shall have occurred prior thereto, provided that the Company’s Sponsor or its designee deposits the lesser of $105,000 or $0.04 per outstanding Public Share into the Trust Account with respect to each such one-month extension.

Additionally, on December 15, 2023, the Company issued a promissory note in the principal amount of $1,700,000 to DDM Debt AB (the “December Note”), an affiliate of the sponsor. The proceeds of the Note will be used to provide the Company with general working capital. In February 2024 the Company’s board elected to exercise a one-month extension of the Combination Period in each of February, March, April and May 2024, the board elected to exercise a one-month extension of the Combination Period to March12, 2024, April 12, 2024, May 12, 2024 and June 12, 2024, respectively. In connection with each one-month extension, $105,000 was deposited in the Trust Account.

If the Company completes a Business Combination, the Company would expect to repay the Extension Loans, the Initial Working Capital Loan and the Additional Working Capital Loan from funds that are released to the Company from the Trust Account or, at the option of the Sponsor, convert all or a portion of the Extension Loans, the Initial Working Capital Loan and the Additional Working Capital Loan into Private Shares at a price of $10.00 per private share, which Private Shares will be identical to the Private Shares described herein. If the Company does not complete a Business Combination, the Company will repay the Extension Loans, the Initial Working Capital Loan and the Additional Working Capital Loan only from funds held outside of the Trust Account. Following receipt of (i) the Initial Working Capital Loan from the Sponsor in the amount of $775,000 on May 12, 2023, (ii) the Additional Working Capital Loan from the Sponsor in the amount of $710,000, of which $110,000 was funded on August 10, 2023 and $600,000 is available for future borrowings, (iii) the $1,700,000 loan from the Lender on December 15, 2023, and (iv) the $300,000 loan from the Lender on April 10, 2024, the Company believes that the funds held outside the Trust Account will be sufficient to meet the expenditures required for operating its business through June 12, 2024 (the current expiration date of the business combination period), and that it will be able to borrow sufficient funds from the Sponsor or Sponsor’s affiliates to meet its needs for cash through August 12, 2024 in the event the Company elects to extend the business combination period to that date. However, if the estimate of the costs of (i) legal, accounting, due diligence, travel and other expenses related to identifying, negotiating and closing a business combination, (ii) legal and accounting fees related to regulatory reporting requirements, (iii) administrative expenses, and (iv) working capital used for miscellaneous expenses and reserves, are less than the actual amount of such costs, the Company may have insufficient funds available to operate its business prior to a business combination. Moreover, if the Combination Period is extended beyond August 12, 2024, the Company would need to obtain additional financing to fund its cash needs during any such further extension period, including the amount required to be deposited in the Trust Account to fund the cost of any further extension and working capital to pay its operating costs during any such further extension period, including expenses relating to its business acquisition activities, and ongoing corporate and administrative expenses. If the Company is unable to raise sufficient funds to continue its operations until completion of a business combination, the Company would be forced to cease operations and liquidate. In addition, the Company may need to obtain additional financing either to complete a business combination or because it becomes obligated to redeem a significant number of the Public Shares in connection with a further extension of the Combination Period beyond August 12, 2024 or 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.

The Company has until June 12, 2024 (or August 12, 2024 if it elects to extend the business combination period to that date and makes required deposits to the Trust Account) or the end of any further extension period to consummate a business combination beyond August 12, 2024 pursuant to an amendment of its Amended and Restated Certificate of Incorporation. It is uncertain that the Company will be able to consummate a business combination by August 12, 2024 or such later date to which the business combination period may be extended. If a business combination is not consummated by June 12, 2024 (or August 12, 2024 if the Company elects to extend the business combination period and makes required deposits to the Trust Account) or during any further extension period, there will be a mandatory liquidation and subsequent dissolution.

In connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’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 (i) uncertainty with respect to the Company’s ability to obtain the cash needed to fund professional fees and other expenses related to its target search activities, SEC reports, tax returns, Nasdaq listing, trust and stock transfer administration and other business and corporate activities, and trust deposits required for further extensions to the business combination period, and (ii) the mandatory liquidation and subsequent dissolution, should the Company be unable to complete a business combination by the end of the business combination period, raises substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after June 12, 2024 or at the end of any further extension period.

Off-Balance Sheet Arrangements

We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of March 31, 2024. 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 pay the Sponsor a total of $10,000 per month for administrative support services and the Initial Extension Loan, the Initial Working Capital Loan, the Additional Extension Loan, the Additional Working Capital Loan and the December Note. We began incurring the administrative support services fees on February 8, 2022 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation.

The underwriters are entitled to a deferred underwriting discount of 3.5% of the gross proceeds of the IPO and exercise of the over-allotment option, or $6,037,500, upon the completion of the Company’s business combination. The Company’s former legal counsel agreed to defer legal fees in the amount of $175,000, which is payable (without interest) upon and concurrently with the completion of a business combination.

Critical Accounting Policies

We describe our significant accounting policies in Note 2 - Summary of Significant Accounting Policies, of the Notes to Financial Statements included in this report. Our audited financial statements have been prepared in accordance with U.S. GAAP. Certain of our accounting policies require that the Company’s management apply significant judgments in defining the appropriate assumptions integral to financial estimates. On an ongoing basis, the Company’s management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with U.S. GAAP. Judgments are based on historical experience, terms of existing contracts, industry trends and information available from outside sources, as appropriate. However, by their nature, judgments are subject to an inherent degree of uncertainty, and, therefore, actual results could differ from our estimates..

Evaluation of Disclosure Controls and Procedures

In February 2022, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer (together, the “Certifying Officers”), we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officers concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Report due to the material weakness in our internal control over financial reporting related to the Company’s accounting for certain deferred contingent transaction costs. As a result, we performed additional analysis as deemed necessary to ensure that the financial statements included in this Form 10-Q were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the period presented.

Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Certifying Officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Management has implemented remediation steps to improve our internal control over financial reporting. Specifically, we expanded and improved our review process for accrued, deferred or contingent expenses and related accounting standards. We plan to further improve this process by enhancing access to accounting literature, identifying third-party professionals with whom to consult on complex questions regarding accounting for accrued, deferred or contingent expenses, and improving the processes for sharing, approving and evaluating contractual arrangements and invoices related to accrued, deferred or contingent expenses. We believe that the actions described above will be sufficient to remediate the identified material weakness and strengthen our internal control over financial reporting.

Changes in Internal Control over Financial Reporting

Other than as described above and elsewhere in this Report, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

Factors that could cause our actual results to differ materially from those in this report include the risk factors described in our final prospectus for our Initial Public Offering filed with the SEC. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. As of the date of this Report, there have been no material changes to the risk factors disclosed in our Form 10-K for the year ended December 31, 2023 filed with the SEC.