Northern Star Investment Corp. II - Quarter Report: 2021 June (Form 10-Q)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Delaware		85-3909728
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Title of each class		Trading Symbols		Name of each exchange on which registered
Units, each consisting of one share of Class A Common Stock and one-fifth of one redeemable warrant		NSTB.U		The New York Stock Exchange
Class A Common Stock, par value $0.0001 per share		NSTB		The New York Stock Exchange
Redeemable warrants, exercisable for shares of Class A Common Stock at an exercise price of $11.50 per share		NSTB WS		The New York Stock Exchange

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☒		Smaller reporting company		☒
				Emerging growth company		☒

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Part I. Financial Information
		Item 1.		Financial Statements
				Condensed Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and December 31, 2020 (Audited)			1
				Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 (Unaudited)			2
				Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2021 (Unaudited)			3
				Condensed Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2021 (Unaudited)			4
				Notes to Condensed Consolidated Financial Statements (Unaudited)			5
		Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
		Item 3.		Quantitative and Qualitative Disclosures Regarding Market Risk			18
		Item 4.		Controls and Procedures			18
Part II. Other Information
		Item 1.		Risk Factors			18
		Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			18
		Item 3.		Exhibits			19
Part III. Signatures							20

		June 30, 2021				December 31, 2020
		(Unaudited)
ASSETS
Current assets
Cash		$	676,380			$	124,983
Prepaid expenses			2,000				—
Total Current Assets			678,380				124,983
Deferred offering costs			—				52,500
Marketable securities held in Trust Account			400,017,935				—
TOTAL ASSETS		$	400,696,315			$	177,483
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts Payable and Accrued expenses		$	357,096			$	375
Accrued offering costs			16,300				2,500
Promissory note – related party			—				150,000
Total current liabilities			373,396				152,875
Warrant liabilities			43,310,000				—
Deferred underwriting fee payable			14,000,000				—
Total Liabilities			57,683,396				152,875
Commitments
Class A common stock subject to possible redemption 33,801,291 shares at $10.00 per share redemption value			338,012,910				—
Stockholders’ Equity
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding			—				—
Class A common stock, $0.0001 par value; 125,000,000 shares authorized; 6,198,709 and no shares issued and outstanding (excluding 33,801,291 and 0 shares subject to possible redemption) as of June 30, 2021 and December 31, 2020, respectively (1)			620				—
Class B common stock, $0.0001 par value; 25,000,000 shares authorized; 10,000,000 and 10,062,500 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively (1)			1,000				1,007
Additional paid-in capital			31,948,976				23,993
Accumulated deficit			(26,950,587	)			(392	)
Total Stockholders’ Equity			5,000,009				24,608
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	400,696,315			$	177,483

(1)

Included an aggregate of up to 1,312,500 shares of Class B common stock that were subject to forfeiture depending on the extent to which the underwriters’ over-allotment option was exercised. On January 25, 2021, the Company effected a stock dividend of approximately 0.167 shares for each outstanding share, resulting in there being an aggregate of 10,062,500 Founder Shares outstanding (see Note 5). All share and per share amounts have been retroactively restated to reflect the stock dividend  a s a result of the underwriters decision to partially exercise its overallotment workpaper.

		Three Months Ended June 30, 2021				Six Months Ended June 30, 2021
General and administrative expenses		$	622,563			$	945,161
Loss from operations			(622,563	)			(945,161	)
Other income (expense):
Interest earned on marketable securities held in Trust Account			4,879				17,935
Unrealized gain (loss) on marketable securities held in Trust Account			(361	)			—
Transaction expenses attributable to warrant liabilities			—				(462,969	)
Loss on initial issuance of private warrants			—				(195,000	)
Change in fair value of warrant liability			(18,602,500	)			(25,365,000	)
Total other expense, net			(18,597,982	)			(26,005,034	)
Loss before income taxes			(19,220,545	)			(26,950,195	)
Net loss		$	(19,220,545	)		$	(26,950,195	)
Weighted average shares outstanding, basic and diluted			35,723,346				36,009,910
Basic and diluted net income per share, Class A redeemable common stock		$	0.00			$	0.00
Weighted average shares outstanding, Class A and Class B non-redeemable common stock			14,276,654				13,179,468
Basic and diluted net loss per share, Class A and Class B non-redeemable common stock		$	(1.35	)		$	(2.04	)

		Class A Common Stock								Class B Common Stock								Additional Paid-in Capital				Accumulated Deficit				Total Stockholders’ Equity
		Shares				Amount				Shares				Amount
Balance — January 1, 2021			—			$	—				10,062,500			$	1,006			$	23,994			$	(392	)		$	24,608
Sale of 40,000,000 Units, net of underwriting discounts and offering costs			40,000,000				4,000				—				—				369,739,506				—				369,743,506
Loss on initial issuance of private warrants			—				—				—				—				195,000				—				195,000
Forfeiture of Founder Shares			—				—				(62,500	)			(6	)			6				—				—
Common stock subject to possible redemption			(35,723,346	)			(3,572	)			—				—				(357,229,888	)			—				(357,233,460	)
Net loss			—				—				—				—				—				(7,729,650	)			(7,729,650	)
Balance – March 31, 2021			4,276,654			$	428				10,000,000			$	1,000			$	12,728,618			$	(7,730,042	)		$	5,000,004
Change in value of common stock subject to possible redemption			1,922,055				192				—				—				19,220,358				—				19,220,550
Net loss			—				—				—				—				—				(19,220,545	)			(19,220,545	)
Balance – June 30, 2021			6,198,709			$	620				10,000,000			$	1,000			$	31,948,976			$	(26,950,587	)		$	5,000,009

		Six Months Ended June 30, 2021
Cash Flows from Operating Activities:
Net loss		$	(26,950,195	)
Adjustments to reconcile net loss to net cash used in operating activities:
Interest earned on marketable securities held in Trust Account			(17,935	)
Changes in fair value of warrant liabilities			25,365,000
Loss on initial issuance of private warrants			195,000
Transaction costs allocated to warrant liabilities			462,969
Changes in operating assets and liabilities:
Prepaid expenses			(2,000	)
Accounts payable and accrued expenses			356,721
Net cash used in operating activities			(590,440	)
Cash Flows from Investing Activities:
Investment of cash in Trust Account			(400,000,000	)
Net cash used in investing activities			(400,000,000	)
Cash Flows from Financing Activities:
Proceeds from sale of Units, net of underwriting discounts paid			392,000,000
Proceeds from sale of Private Placement Warrants			9,750,000
Repayment of promissory note –related party			(150,000	)
Payment of offering costs			(458,163	)
Net cash provided by financing activities			401,141,837
Net Change in Cash			551,397
Cash – Beginning of period			124,983
Cash – End of period		$	676,380
Non-Cash investing and financing activities:
Offering costs included in accrued offering costs		$	13,800
Deferred underwriting fee payable		$	14,000,000
Initial classification of Class A common stock subject to possible redemption		$	364,305,120
Change in value of Class A common stock subject to possible redemption		$	(26,292,210	)
Forfeiture of Founder Shares		$	(7	)

		Three Months Ended June 30, 2021				Six Months Ended June 30, 2021
Common stock subject to possible redemption
Numerator: Earnings allocable to Common stock subject to possible redemption
Interest earned on marketable securities held in Trust Account		$	4,518			$	17,935
Less: Income taxes and franchise fees available to be withdrawn from the Trust Account			(4,518	)			(17,935	)
Net income allocable to shares subject to possible redemption		$	—			$	—
Denominator: Weighted Average Common stock subject to possible redemption
Basic and diluted weighted average shares outstanding			35,723,346				36,009,910
Basic and diluted net income per share		$	0.00			$	0.00
Non-Redeemable Common Stock
Numerator: Net Loss minus Net Earnings
Net loss		$	(19,220,545	)		$	(26,950,195	)
Less: Net income allocable to Common stock subject to possible redemption			—				—
Non-Redeemable Net Income (Loss)		$	(19,220,545	)		$	(26,950,195	)
Denominator: Weighted Average Non-Redeemable Common Stock
Basic and diluted weighted average shares outstanding			14,276,654				13,179,468
Basic and diluted net loss per share		$	(1.35	)		$	(2.04	)

•

Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;

•

Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

•

Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

•

in whole and not in part;

•

at a price of $0.01 per warrant;

•

upon not less than 30 days’ prior written notice of redemption, and;

•

if, and only if, the reported last sale price of the Company’s Class A common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the warrant holders.

•

in whole and not in part;

•

at $0.10 per Warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their Warrants on a cashless basis prior to redemption and receive that number of shares of Class A common stock to be determined by reference to an agreed table based on the redemption date and the “fair market value” of the Company’s Class A common stock;

•

if, and only if, the last reported sale price of the Company’s Class A common stock equals or exceeds $10.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) on the trading day prior to the date on which the Company sends the notice of redemption to the Warrant holders;

•

if, and only if, the Private Placement Warrants are also concurrently called for redemption on the same terms as the outstanding Public Warrants, as described above; and;

•

if, and only if, there is an effective registration statement covering the issuance of the shares of Class A common stock (or a security other than the Class A common stock into which the Class A common stock has been converted or exchanged for in the event the Company is not the surviving company in the initial Business Combination) issuable upon exercise of the Warrants and a current prospectus relating thereto available throughout the 30-day period after written notice of redemption is given.

Description		Level				December 31, 2020				June 30, 2021
Assets:
Investments held in Trust Account – U.S. Treasury Securities Money Market Fund			1			$	—			$	400,017,935
Liabilities:
Warrant liability – Public Warrants			1			$	—			$	19,520,000
Warrant liability – Private Placement Warrants			3							$	23,790,000

		At January 28, 2021 (Initial Measurement)				As of June 30, 2021
Stock price		$	9.80			$	9.96
Strike price		$	11.50			$	11.50
Term (in years)			4.68				5.17
Volatility			20.0	%			34.4	%
Risk-free rate			0.38	%			0.90	%

		Private Placement				Public				Warrant Liabilities
Initial measurement on January 28, 2021			9,945,000				8,000,000				17,945,000
Change in valuation inputs or other assumptions			3,802,500				2,960,000				6,762,500
Fair value as of March 31, 2021		$	13,747,500			$	10,960,000			$	24,707,500
Change in valuation inputs or other assumptions			10,042,500				8,560,000				18,602,500
Fair value as of June 30, 2021		$	23,790,000			$	19,520,000			$	43,310,000

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 including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the completion of the Proposed Business Combination (as defined below), the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements, including that the conditions of the Proposed Business Combination are not satisfied. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form final prospectus for its Initial Public Offering filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

We have neither engaged in any operations nor generated any revenues to date. Our only activities from November 12, 2020 (inception) through June 30, 2021 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 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.

We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimate of the costs of identifying a target business, undertaking due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our Business Combination. Moreover, we may need to obtain additional financing either to complete our Business Combination or because we become obligated to redeem a significant number of our Public Shares upon consummation of our Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination.

We have no obligations, assets or liabilities, which would be considered sheet arrangements as of June 30, 2021. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating sheet arrangements. We have not entered into any sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any assets.

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a gain or loss on the statements of operations.

We apply the method in calculating earnings per share. Net income (loss) per common share, basic and diluted for Class A redeemable common stock is calculated by dividing the interest income earned on the Trust Account, net of applicable franchise and income taxes, by the weighted average number of Class A redeemable common stock outstanding for the period. Net income (loss) per common share, basic and diluted for Class A and Class B common stock is calculated by dividing the net income, less income attributable to Class A redeemable common stock, by the weighted average number of Class A and Class B common stock outstanding for the period presented.

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) Debt — Debt with Conversion and Other Options (Subtopic and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic (“ASU to simplify accounting for certain financial instruments. ASU eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU amends the diluted earnings per share guidance, including the requirement to use the method for all convertible instruments. ASU is effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is currently assessing the impact, if any, that ASU would have on its financial position, results of operations or cash flows.

We determined that we had initially recorded our public and private warrants as equity instruments instead of as liabilities in our balance sheet as of January 28, 2021 which we filed on on February 4, 2021. We subsequently amended and restated the January 28, 2021 financial statements with our filing of an amended which we filed on May 19, 2021. We determined that our error in accounting for these warrants represented a material weakness in our internal controls.

As required by Rules and under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2021. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules (e) and (e) under the Exchange Act) were not effective.

There was no change in our internal control over financial reporting that occurred during the fiscal quarter of 2020 covered by this Quarterly Report on Form that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Except as set forth below, as of the date of this Quarterly Report, there have been no material changes with respect to those risk factors previously disclosed in our Annual Report on for the year ended December 31, 2020. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.

On April 12, 2021, the staff of the SEC issued a public statement entitled “Staff Statement on Accounting and Reporting Considerations for Warrants issued by Special Purpose Acquisition Companies (“SPACs”) (the “Statement”). In the Statement, the SEC staff expressed it view that certain terms and conditions common to SPAC warrants may require the warrants to be classified as liabilities on the SPAC’s balance sheet as opposed to equity. Since issuance, our warrants were accounted for as equity within our balance sheet, and after discussion and evaluation, including with our independent auditors, we have concluded that our warrants should be presented as liabilities with subsequent and periodic fair value Therefore, we conducted a valuation of our warrants and restated our previously issued financial statements, which resulted in unanticipated costs and diversion of management resources and may result in potential loss of investor confidence. Although we have now completed the restatement, we cannot guarantee that we will have no further inquiries from the SEC or the NYSE regarding our restated financial statements or matters relating thereto.

As described elsewhere in this Quarterly Report, we identified a material weakness in our internal control over financial reporting related to the accounting for a significant and unusual transaction related to our warrants. As a result of this material weakness, our management concluded that our internal control over financial reporting was not effective as of June 30, 2021. This material weakness resulted in a material misstatement of our warrant liabilities, change in fair value of warrant liabilities, accumulated deficit and related financial disclosures.

Any failure to maintain such internal control could adversely impact our ability to report our financial position and results from operations on a timely and accurate basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations. Likewise, if our financial statements are not filed on a timely basis, we could be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC or other regulatory authorities. In either case, there could result a material adverse effect on our business. Failure to timely file will cause us to be ineligible to utilize short form registration statements on or which may impair our ability to obtain capital in a timely fashion to execute our business strategies or issue shares to effect an acquisition. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

On January 28, 2021, we consummated the Initial Public Offering of 40,000,000 Units. The Units were sold at an offering price of $10.00 per unit, generating total gross proceeds of $400,000,000. Citi Group acted as sole book-running manager of the Initial Public Offering. The securities in the offering were registered under the Securities Act on registration statement on Form (No. 251921). The Securities and Exchange Commission declared the registration statements effective on January 25, 2020.

For a description of the use of the proceeds generated in our Initial Public Offering, see Part I, Item 2 of this Form

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form