UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
Or
For the transition period from to
Commission file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Address (including zip code) and telephone number (including area code) of principal executive offices
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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.
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).
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 the 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 | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
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.
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 14, 2022,
TABLE OF CONTENTS
i
PART I – FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
SENTINEL ENERGY SERVICES INC.
CONDENSED BALANCE SHEETS
| September 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Prepaid expenses – long term | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Total liabilities | ||||||||
| Stockholders’ Deficit: | ||||||||
| Preferred shares, $ | ||||||||
| Class A common stock, $ | ||||||||
| Class B common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
See accompanying notes to unaudited condensed financial statements
1
SENTINEL ENERGY SERVICES INC.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| REVENUE | $ | $ | $ | $ | ||||||||||||
| EXPENSES | ||||||||||||||||
| General and administrative | ||||||||||||||||
| TOTAL EXPENSES | ||||||||||||||||
| LOSS BEFORE INCOME TAX PROVISION | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax provision | ||||||||||||||||
| Net loss attributable to common stock | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| 1 |
See accompanying notes to unaudited condensed financial statements
2
SENTINEL ENERGY SERVICES INC.
UNAUDITED CONDENSED StatementS of Changes in STOCKHOLDERS’ DEFICIT
For the Three Months ended September 30, 2022
| Class A Common Stock | Class B Common Stock | Additional Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of Class A shares to Sponsor | ||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
For the Three Months ended September 30, 2021
| Class A Common Stock | Class B Common Stock | Additional Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
See accompanying notes to unaudited condensed financial statements
3
SENTINEL ENERGY SERVICES INC.
UNAUDITED CONDENSED StatementS of Changes in STOCKHOLDERS’ DEFICIT
For the Nine Months ended September 30, 2022
| Class A Common Stock | Class B Common Stock | Additional Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of Class A shares to Sponsor | ||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
For the Nine Months ended September 30, 2021
| Class A Common Stock | Class B Common Stock | Additional Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of Class A shares to Sponsor | ||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
See accompanying notes to unaudited condensed financial statements
4
SENTINEL ENERGY SERVICES INC.
UNAUDITED CONDENSED StatementS of Cash Flows
| For the nine months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ||||||||
| Prepaid expenses – long term | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Net Cash used in Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows From Financing Activities: | ||||||||
| Proceeds from issuance of Class A common stock - Sponsor | ||||||||
| Net Cash provided by Financing Activities | ||||||||
| Net change in cash | ( | ) | ( | ) | ||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
See accompanying notes to unaudited condensed financial statements
5
SENTINEL ENERGY SERVICES INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. Description of Organization and Business Operations
Organization and General
Sentinel Energy Services Inc. (the “Company”) was incorporated in the Cayman Islands on June 5, 2017. The Company was formed as a blank check company for the purpose of effecting a merger, amalgamation, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The Company is also a “smaller reporting company” as defined in the Exchange Act of 1934, as amended (the “Exchange Act”).
On December 28, 2018, the Company changed its jurisdiction of incorporation from the Cayman Islands (“Sentinel Cayman”) to the State of Delaware (“Sentinel Delaware”), as described further below (the “Domestication”) and continued to be named Sentinel Energy Services Inc. As a result of the Domestication, the securities of Sentinel Cayman converted into securities of Sentinel Delaware, such that Sentinel Cayman’s issued and outstanding Class A ordinary shares (the “Class A ordinary shares”) and Class B ordinary shares (the “Class B ordinary shares”) automatically converted by operation of law into one share of Class A common stock (“Class A common stock”) and Class B common stock (“Class B common stock”), of Sentinel Delaware, respectively. Similarly, each of Sentinel Cayman’s outstanding units and warrants automatically converted by operation of law, on a one-for-one basis, into Units (as defined below) of Sentinel Delaware and warrants, including the Private Placement Warrants and Public Warrants (each as defined below) to acquire the corresponding number of shares of Class A common stock, respectively. Accordingly, all references to the Company’s capital stock both before and after the Domestication are referred to as shares of “common stock” in this filing.
At September 30, 2022, the Company had not yet commenced operations. All activity through September 30, 2022 relates to (1) the Company’s formation and issuance of the Founder Shares (as defined in Note 4), (2) the Public Offering (as defined below) and sale of warrants in a private placement to our Sponsor (the “Private Placement Warrants”) which closed in November 2017, (3) the subsequent a search for a business combination candidate, including activities in connection with an announced and subsequently terminated proposed business combination and (4) liquidation activities, including liquidation of the Trust Account (as defined below), following the Company’s inability to consummate a business combination prior to the November 7, 2019 deadline under the Company certificate of incorporation (the “Charter”). The Company has not generated any operating revenues since inception. The Company generated non-operating income in the form of interest income from the proceeds derived from the Public Offering and sale of Private Placement Warrants until November 2019.
The Company intended to finance
its initial business combination with proceeds from the Company’s initial public offering (the “Public Offering”) of
the Company units (“Units”) and the sale of the Private Placement Warrants.
6
SENTINEL ENERGY SERVICES INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
In connection with the redemption
of the Public Shares, each stockholder received approximately $
Following the redemption of the Public Shares, the conversion of the Public Warrants and the forfeiture of the Private Placement Warrants, there were no Units, Public Shares, Public Warrants or Private Placement Warrants outstanding. Additional shares of Class A common stock were subsequently issued and shares of Class B common stock remain outstanding. For more information on additional issuances, see Note 4 and the Company’s previous filings with the Securities and Exchange Commission (the “SEC”).
Initial Business Combination
The Company’s management had broad discretion with respect to the specific application of the net proceeds of the Public Offering, although substantially all of the net proceeds of the Public Offering were intended to be generally applied toward consummating an initial business combination.
The Charter and the prospectus
that the Company filed in connection with the Public Offering provided that the Company had 24 months after the closing of its Public
Offering, or until November 7, 2019, to complete a business combination. During the period since the Company’s Public Offering,
the Company diligently searched for a business to combine with in a transaction that would generate value for the Company’s stockholders;
however, over the same period, the energy sector experienced significant headwinds, which increased the challenges faced by the Company
in sourcing a compelling target business. Despite the Company’s best efforts, it was not able to consummate a business combination
prior to the November 7, 2019 deadline under its Charter. As a result, the Company commenced the liquidation of the Trust Account and
returned the funds held therein to its public stockholders by redeeming
Underwriting Discount
Liquidity and Going Concern
In connection with the Company’s
assessment of going concern considerations in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting
Standards Update (“ASU”) 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern,” the Company determined that it does not have sufficient liquidity to meet its future obligations; however, management
has determined that, pursuant to a commitment letter from the Sponsor, it has access to funds from the Sponsor that alleviate going concern.
As of September 30, 2022, the Company had a working capital deficit of approximately $
Pursuant a commitment letter from the Sponsor, the Sponsor intends to financially support the Company sufficient for the Company to satisfy its working capital needs until at least November 14, 2023. For additional information, see the information under the captions “Advances from Related Parties,” “Promissory Note Payable – Sponsor,” “Contributions from Related Party” and “Administrative Support Agreement” in Note 4.
7
SENTINEL ENERGY SERVICES INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The Company demonstrates adverse
conditions that raise substantial doubt about the Company’s ability to continue as a going concern for
The Company has not established any source of revenue to cover its operating costs. Management plans to fund operating expenses with a commitment letter from the Sponsor. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that the Company cannot continue as a going concern.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements of the Company are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the accounting and disclosure rules and regulations of the SEC, and reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position as of September 30, 2022 and the results of operations and cash flows for the periods presented. Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. Interim results are not necessarily indicative of results for a full year.
The accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Annual Report on Form 10-K filed by the Company with the SEC on April 15, 2022.
Reclassification
Certain amounts have been reclassified to conform to current year presentation. The Company allocated the December 31, 2021 balance of prepaid expenses into current and long-term on the accompanying unaudited condensed balance sheets.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by 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 auditor 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 statements with another public company which is (i) not an emerging growth company or (ii) 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.
8
SENTINEL ENERGY SERVICES INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Use of Estimates
The preparation of 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 financial statements and the reported amounts of expenses during the reporting periods. Actual results could differ from those estimates. Making estimates requires management to exercise significant judgement. 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.
Concentration of Credit Risk
Financial instruments that
potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution which at times may
exceed the Federal Deposit Insurance Corporation coverage of $
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 outbreak and other events (such as the recent invasion by Russia of Ukraine and any further escalation of hostilities related thereto, terrorist attacks, natural disasters or a significant outbreak of other infectious diseases) on the industry and has concluded that while it is reasonably possible that the outbreak and other events could have a negative effect on the Company’s financial position and results of its operations, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the condensed balance sheets.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company had no cash equivalents as of September 30, 2022 and December 31, 2021.
Net Loss Per Share of Common Stock
Net loss per share of common stock is computed by dividing net loss applicable to the shares of common stock by the weighted average number of shares outstanding for the periods. As a result of the redemption of Public Shares in November 2019, for the three and nine months ended September 30, 2022 and 2021, the Class A shares have no specific redemption rights. As a result, net loss per common share is calculated by dividing the net loss by the weighted average number of Class A and Class B shares outstanding for the periods.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under FASB ASC Topic 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
9
SENTINEL ENERGY SERVICES INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FASB Topic ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions 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. There were no unrecognized tax benefits as of September 30, 2022 and December 31, 2021. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties at September 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 is subject to income tax examinations by major taxing authorities since inception.
The Company may be subject to potential examination by federal, state, and city taxing authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions, and compliance with federal, state, and city 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.
During the three and
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.
Recent Accounting Pronouncements
The Company’s management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have an effect on the Company’s financial statements.
3. Public Offering and Private Placement Warrants
In November 2017, the Company
closed its Public Offering of
During the liquidation period,
the Company and the holders of its Public Warrants executed an amendment to the Warrant Agreement, dated as of November 2, 2017, between
the Company and Continental Stock Transfer & Trust Company, to automatically convert all of the outstanding Public Warrants into the
right to receive $
Simultaneously with the closing
of the Public Offering on November 7, 2017, the Sponsor purchased an aggregate of
Following the redemption of the Public Shares, the conversion of the Public Warrants and the forfeiture of the Private Placement Warrants, there were no Units, Public Shares, Public Warrants or Private Placement Warrants outstanding. Additional shares of Class A common stock were subsequently issued and shares of Class B common stock remain outstanding. For more information on additional issuances, see Note 4 and the Company’s previous filings with the SEC.
10
SENTINEL ENERGY SERVICES INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
4. Related Party Transactions
Founder Shares
In June 2017 prior to the
Public Offering, the Sponsor entered into an Amended and Restated Securities Purchase Agreement, for the purchase of
The Founder Shares are identical to the shares of Class A common stock that were included in the Units sold in the Public Offering except that (1) holders of the Founder Shares have the right to vote on the election of directors prior to an initial business combination, (2) the Founder Shares are subject to certain transfer restrictions, as described in more detail below, (3) holders of the Founder Shares entered into letter agreements with the Company pursuant to which they agreed to waive their redemption rights with respect to any Founder Shares held by them in connection with the completion of an initial business combination, (4) the Founder Shares will automatically convert on a one-for-one basis into shares of Class A common stock at the time of an initial business combination and (5) the Founder Shares are subject to registration rights, as described below.
In August 2017, the Sponsor
surrendered
In October 2017 and April
2018, the Sponsor transferred
Transfer Restrictions
The terms applicable to the
Founder Shares provide that, subject to limited exceptions, the Sponsor may not transfer, assign or sell any of the same until the earlier
to occur of: (A) one year after the completion of the initial business combination or (B) subsequent to the initial business combination,
(x) if the last sale price of the Company’s Class A common stock equals or exceeds $
11
SENTINEL ENERGY SERVICES INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Registration Rights
The holders of Founder Shares that may be issued equity securities of the Company upon conversion of working capital loans may be entitled to registration rights (in the case of the Founder Shares, only after conversion of such shares to shares of Class A common stock) pursuant to a registration rights agreement, by and between the Company, the Sponsor and Mr. Zenner. The registration rights include certain demand and “piggyback” rights.
However, the registration rights agreement provides that the Company will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable lock-up period for the securities to be registered. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Advances from Related Parties
During the three months ended
September 30, 2022 and 2021, the Sponsor or an affiliate of the Sponsor incurred certain administrative expenses on behalf of the Company
in the amount of $
Promissory Note Payable – Sponsor
On March 1, 2019, the Company
issued a convertible promissory note (the “Convertible Promissory Note”) in the amount of up to $
All unpaid principal under
the Convertible Promissory Note was due and payable in full on the earlier of November 7, 2019 or the consummation of an initial business
combination by the Company by the deadline specified in its Charter. As a result, the Convertible Promissory Note is no longer available
to the Company as a source of financing and no amount has been outstanding thereunder since March 31, 2020. As of September 30, 2022 and
December 31, 2021, the outstanding balance on Convertible Promissory Note was $
Contributions from Related Party
In January 2022,
In September 2022,
As of September 30, 2022 and
December 31, 2021, there were
Administrative Support Agreement
Commencing
on the date the Units were first listed on the Nasdaq Capital Market, the Company agreed to pay an affiliate of the Sponsor up to $
The Company did not incur any expenses under the Administrative Support Agreement for the three and nine months ended September 30, 2022 and 2021.
12
SENTINEL ENERGY SERVICES INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
5. Stockholders’ Deficit
Common Stock
The authorized common stock
of the Company includes up to
At September 30, 2022 and
December 31, 2021, there were
Preferred Stock
The Company is authorized
to issue
13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report”), including, without limitation, statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of Exchange Act. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “look,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. There can be no assurance that actual results will not materially differ from expectations. Such statements include, but are not limited to, any statements relating to our ability to consummate any acquisition or other business combination and any other statements that are not statements of current or historical facts. These statements are based on management’s current expectations, but actual results may differ materially due to various factors, including, but not limited to:
| ● | our inability to complete our initial business combination; |
| ● | the lack of a market for our securities; |
| ● | the Trust Account not being subject to claims of third parties; or |
| ● | our financial performance. |
The forward-looking statements contained in this Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors” in this Report. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These risks and others described under “Risk Factors” in this Report may not be exhaustive.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
14
Overview
The Company was formed as a blank check company for the purpose of effecting a merger, amalgamation, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. For more information about the Company, please see Note 1 to our Unaudited Condensed Financial Statements included in this Report.
Results of Operations
We have not generated any operating revenues to date, and we will likely not generate any operating revenues in the future. Our entire activity up to September 30, 2022 has related (1) the Company’s formation and issuance of the Founder Shares in June 2017, (2) the Public Offering and sale of Private Placement Warrants which closed in November 2017, (3) the subsequent search for a business combination candidate, including activities in connection with an announced and subsequently terminated proposed business combination, and (4) liquidation activities following the Company’s inability to consummate a business combination prior to the November 7, 2019 deadline under the Company’s Charter.
For the three months ended September 30, 2022, we had a net loss of $16,416, which consisted of $16,416 of general and administrative expenses. For the three months ended September 30, 2021, we had a net loss of $27,937, which consisted of $27,937 of general and administrative expenses.
For the nine months ended September 30, 2022, we had a net loss of $87,258, which consisted of $87,258 of general and administrative expenses. For the nine months ended September 30, 2021, we had a net loss of $90,275, which consisted of $90,275 of general and administrative expenses.
Liquidity and Capital Resources
We presently have no revenue; our net loss was $87,258 and $90,275 for the nine months ended September 30, 2022 and 2021, respectively, and consists primarily of professional fees. For the nine months ended September 30, 2022, our liquidity needs were satisfied through funding from our Sponsor. The Company does not expect to seek loans, advances or contributions from parties other than the Sponsor or an affiliate of the Sponsor.
Contributions from Related Party
In September 2022, the Company received a contribution of $30,000 from the Sponsor to fund ongoing operations and expenses. The amount advanced by the Sponsor was treated as a capital contribution in exchange for which the Company issued to the Sponsor 3,000 shares of the Company’s Class A common stock at $10.00 per share on September 20, 2022.
In January 2022, the Company received a contribution of $25,000 from the Sponsor to fund ongoing operations and expenses. The amount advanced by the Sponsor was treated as a capital contribution in exchange for which the Company issued to the Sponsor 2,500 shares of the Company’s Class A common stock at $10.00 per share on January 25, 2022.
In May 2021, the Company received an advance of $35,000 from the Sponsor to fund ongoing operations and expenses. The amount advanced by the Sponsor was treated as a capital contribution in exchange for which the Company issued to the Sponsor 3,500 shares of the Company’s Class A common stock at $10.00 per share on May 3, 2021.
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Mandatory Liquidation, Going Concern and Liquidity
We were unable to complete an initial business combination by the November 7, 2019 deadline under our Charter and so we commenced the liquidation of the assets in the Trust Account on November 8, 2019. This raises substantial doubt about our ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
In connection with the Company’s assessment of going concern considerations in accordance with the FASB’s ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” the Company determined that it does not have sufficient liquidity to meet its future obligations; however, management has determined that, pursuant to a commitment letter from the Sponsor, it has access to funds from the Sponsor that alleviate going concern. As of September 30, 2022, the Company had a working capital deficit of approximately $341,400, current liabilities of approximately $358,500 and cash of approximately $6,400.
Pursuant a commitment letter from the Sponsor, the Sponsor intends to financially support the Company sufficient for the Company to satisfy its working capital needs until at least November 14, 2023. For more information regarding our liquidity, see “Liquidity and Capital Resources” above.
Critical Accounting Policies
Net Loss Per Share of Common Stock
Net loss per share of common stock is computed by dividing net loss applicable to the shares of common stock by the weighted average number of shares outstanding for the periods. As a result of the redemption of Public Shares in November 2019, for the three and nine months ended September 30, 2022 and 2021, the Class A shares have no specific redemption rights. As a result, net loss per common share is calculated by dividing the net loss by the weighted average number of Class A and Class B shares outstanding for the periods.
Recent Accounting Pronouncements
We do not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on our financial statements.
JOBS Act
The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” and under the JOBS Act are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We elected to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company,” we choose to rely on such exemptions we may not be required to, among other things, (i) provide an independent registered public accounting firm’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the independent registered public accounting firm’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), or (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of our Chief Executive Officer’s compensation to median employee compensation. These exemptions are applicable to us for a period of five years from the date of completion of our Public Offering or until we are no longer an “emerging growth company,” whichever is earlier.
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Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2022.
Contractual Obligations
We did not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities as of September 30, 2022.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company,” we are not required to provide disclosure pursuant to this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Financial Officer (the “Certifying Officer”) who is both our principal executive and principal financial officer, 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 evaluation, our Certifying Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Report.
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 Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.
Changes in Internal Control over Financial Reporting
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.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
To the knowledge of our management, there is no material litigation, arbitration, bankruptcy, receivership, governmental proceeding or other proceeding currently pending against us or any members of our management team in their capacity as such.
Item 1A. Risk Factors
Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, including our ability to negotiate and complete our initial business combination, and results of operations.
We are subject to laws and regulations enacted by national, regional and local governments. In particular, we are required to comply with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business, including our ability to negotiate and complete any initial business combination if one were pursued, and results of operations.
On March 30, 2022, the SEC issued proposed rules relating to, among other items, enhancing disclosures in business combination transactions involving special purpose acquisition companies and private operating companies, increasing the potential liability of certain participants in proposed business combination transactions and describing limited circumstances where special purpose acquisition companies may satisfy a safe harbor from the definition of “investment company” under the Investment Company Act, including a limited time period to announce and complete an initial business combination. These rules, if adopted, whether in the form proposed or in revised form, may materially increase the costs and time required to negotiate and complete an initial business combination and could potentially impair our ability to complete an initial business combination, including if an initial business combination is not announced and completed within a limited time period allotted by a safe harbor under such rules. In addition, because the rules have not yet been adopted, there is currently uncertainty concerning the applicability of the Investment Company Act to a special purpose acquisition company if it pursues an initial business combination, including a Company like ours that previously announced and subsequently terminated a proposed business combination and liquidated the Trust Account.
The number of special purpose acquisition companies have increased, which may increase competition and frustrate our ability to find a suitable target for an initial business combination, if an initial business combination is pursued.
In recent years, the number of special purpose acquisition companies that have been formed has increased substantially. Many companies have entered into business combinations with special purpose acquisition companies, and there are still many special purpose acquisition companies seeking targets for their initial business combination, as well as many additional special purpose acquisition companies currently in registration. As a result, at times, fewer attractive targets may be available, and it may require more time, effort and resources to identify a suitable target for an initial business combination.
In addition, because there are more special purpose acquisition companies seeking to enter into an initial business combination with available targets, the competition for available targets with attractive fundamentals or business models may increase, which could cause target companies to demand improved financial terms. Attractive deals could also become scarcer for other reasons, such as economic or industry sector downturns, geopolitical tensions and increases in the cost of additional capital needed to close business combinations or operate targets post-business combination. Recent increases in inflation in the United States and elsewhere may continue to lead to increased price volatility for publicly traded securities, including ours, and may lead to other national, regional and international economic disruptions, any of which could make it more difficult for us to consummate a business combination. In addition, the continuing military incursion of Russia into Ukraine could continue to adversely impact macroeconomic conditions, sustain regional instability and result in further economic sanctions from the U.S. and the international community in a manner that adversely affects us and any ability to consummate an initial business combination. This could increase the cost of, delay or otherwise complicate or frustrate our ability to find a suitable target for and/or complete an initial business combination, if an initial business combination is pursued.
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Recent increases in inflation and interest rates in the United States and elsewhere could make it more difficult for us to consummate an initial business combination.
Recent increases in inflation and interest rates in the United States and elsewhere may lead to increased price volatility for publicly traded securities, including with regard to potential target companies for an initial business combination, and may lead to other national, regional and international economic disruptions, any of which could make it more difficult for us to consummate an initial business combination.
The Excise Tax included in the Inflation Reduction Act of 2022 may hinder our ability to consummate an initial business combination.
On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which, among other things, imposes a 1% excise tax on the fair market value of stock repurchased by a domestic corporation who stock is traded on an established securities market beginning in 2023, with certain exceptions (the “Excise Tax”). If we have a class of stock traded on an established securities market, because we are a Delaware corporation, we would be a “covered corporation” within the meaning of the Inflation Reduction Act, and while not free from doubt, it is possible that, unless an exemption is available, we (or any post-combination company) will be subject to the Excise Tax as a result of any redemptions by us of shares of our common stock that occurs after December 31, 2022, including redemptions in connection with an initial business combination. Whether and to what extent we would be subject to the Excise Tax in connection with a business combination would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the business combination, (ii) the structure of the business combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with the business combination (or otherwise issued not in connection with the business combination but issued within the same taxable year of the business combination) and (iv) the content of regulations and other guidance from the Treasury. In addition, because the Excise Tax would be payable by us, and not by the redeeming holder, the mechanics of any required payment of the Excise Tax have not been determined. The foregoing could cause a reduction in the per-share amount that any public stockholders would otherwise be entitled to receive or reduce the cash available on hand to complete a business combination. This may make a transaction with us less appealing to potential business combination targets, and thus, potentially hinder our ability to enter into and consummate any initial business combination, particularly any initial business combination in which substantial PIPE issuances are not contemplated. Further, the application of the Excise Tax in the event of a liquidation is uncertain, and the proceeds held in any future trust account could be subject to the Excise Tax, in which case the per-share amount that would otherwise be received by public stockholders in connection with our liquidation may be reduced.
Except as noted in this Item 1A, as of the date of this Report, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K filed with the SEC on April 15, 2022.
Item 2. Unregistered Sales of Equity Securities
On September 20, 2022, the Company issued 3,000 of its Class A Common Stock to the Sponsor pursuant to a private placement offering in exchange for the Sponsor’s payment of a $30,000 capital contribution. The proceeds were used to support the ongoing operations of the Company.
Item 5. Other Information
None.
Item 6. Exhibits
EXHIBIT INDEX
| Exhibit Number | Description | |
| 31.1 | Certification of Principal Executive Officer and Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a). | |
| 32.1 | Certification of Principal Executive Officer and Principal Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350. | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema | |
| 101.CAL | Inline XBRL Taxonomy Calculation Linkbase | |
| 101.LAB | Inline XBRL Taxonomy Label Linkbase | |
| 101.PRE | Inline XBRL Definition Linkbase Document | |
| 101.DEF | Inline XBRL Definition Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
November 14, 2022
| SENTINEL ENERGY SERVICES INC. | ||
| By: | /s/ Gerald Cimador | |
| Gerald Cimador | ||
| Chief Financial Officer (Principal Executive, Financial and Accounting Officer) | ||
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