Relativity Acquisition Corp. (NASDAQ:RACY) is a blank check company that has been actively pursuing a transformative business combination. With a focus on identifying and acquiring a target that can unlock significant value, RACY has navigated a complex landscape, showcasing its resilience and strategic vision.
Financials
For the three months ended September 30, 2023, RACY reported a net loss of $648,782, which consisted of formation and operating costs of $667,382, a provision for income taxes of $3,754, offset by income from investment in the trust account of $22,354. For the nine months ended September 30, 2023, the company reported a net loss of $2,314,982, which included a decrease in the fair value of warrant liability of $254,731, a provision for income taxes of $9,299, and formation and operating costs of $2,109,560, offset by income from investment in the trust account of $58,608.
In comparison, for the three months ended September 30, 2022, RACY reported net income of $728,646, which consisted of income from investment in the trust account of $661,801, a change in fair value of warrant liability of $450,823, offset by formation and operating costs of $255,500 and a provision for income taxes of $128,478. For the nine months ended September 30, 2022, the company reported net income of $3,629,536, which included income from investment in the trust account of $873,620, a change in fair value of warrant liability of $3,907,592, offset by formation and operating costs of $874,541, warrant issuance cost of $125,175, and a provision for income taxes of $151,960.
As of September 30, 2023, RACY had $25,939 in its operating bank account and a working capital deficit of $1,418,132. The company's annual net income for the year ended December 31, 2023 was $4,752,895, with no annual revenue, annual operating cash flow of -$920,983, and annual free cash flow of -$920,983.
Business Overview
Business Combination Agreement
On February 13, 2023, RACY entered into a Business Combination Agreement with Relativity Holdings Inc., a wholly-owned subsidiary of RACY, Relativity Purchaser Merger Sub Inc., a wholly-owned subsidiary of Relativity Holdings Inc., SVES GO, LLC, SVES LLC, SVES CP LLC, and SVES Apparel LLC (collectively, "SVES"), SVGO LLC, ESGO LLC, SV Apparel LLC, and ES Business Consulting LLC (each a "Seller"), Timothy J. Fullum and Salomon Murciano, the Sponsor, and Timothy J. Fullum.
SVES is a key intermediary connecting full-price fashion brands with off-price retailers that are able to sell inventory that would otherwise be sold or disposed of by full-price brands at a significant loss. At the closing of the transactions contemplated by the Business Combination Agreement, the Merger Sub will merge with and into RACY, with RACY surviving the business combination as a wholly-owned subsidiary of Relativity Holdings Inc., and each Seller will contribute all of its ownership interest in each Operating Company to Relativity Holdings Inc. in exchange for aggregate consideration in the amount of $632,000,000, to be paid in the common stock of Relativity Holdings Inc. valued at $10.00 per share of common stock.
Nasdaq Listing Challenges
On January 12, 2023, RACY received a determination letter from the Nasdaq Listing Qualifications staff indicating that the company was not in compliance with the continued listing requirements of the Nasdaq Listing Rules. The company was not in compliance with the minimum $50 million Market Value of Listed Securities, the minimum 1,100,000 Publicly Held Shares, and the minimum $15 million in Market Value of Publicly Held Shares requirements. Additionally, the staff had concerns that the company might no longer comply with the minimum 400 Total Holders requirement due to the substantial number of shareholder redemptions and low number of shares remaining outstanding.
RACY requested a hearing before the Nasdaq Hearings Panel to appeal the staff's delisting determination. On March 2, 2023, the company had a hearing, and the panel subsequently requested additional information, which was provided on April 12, 2023. On April 20, 2023, the panel granted RACY's request to continue the listing of its securities on the Nasdaq Capital Market. However, the panel did not remove the trading halt that was imposed on January 11, 2023. As of the date of this report, the trading halt is still in place, and there is no indication from Nasdaq as to if or when it will be lifted.
Amendments to the Business Combination Agreement
RACY, the Purchaser Representative, and the Seller Representative have entered into several amendments to the Business Combination Agreement to extend the due diligence period and the date for the required delivery of disclosure schedules. The most recent amendment, dated August 11, 2023, extended the Due Diligence Period and the date of the required delivery of disclosure schedules to August 31, 2023. The amendment also provided for a proposal in the Proxy Statement to approve an amendment to RACY's current charter to eliminate the requirement that the company retain at least $5,000,001 of net tangible assets following the redemption of the company's public shares in connection with the Business Combination. Additionally, the amendment extended the Outside Date to February 15, 2024.
Liquidity
As of September 30, 2023, RACY had $25,939 in its operating bank account and a working capital deficit of $1,418,132. The company will need to raise additional funds in order to meet the expenditures required for operating the business prior to the completion of the Business Combination.
RACY's sponsor or an affiliate of the sponsor or certain of the company's officers and directors may, but are not obligated to, loan the company funds as may be required for working capital purposes (the "Working Capital Loans"). If the company completes the Business Combination, it would repay the Working Capital Loans out of the proceeds of the trust account released to the company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the trust account. At September 30, 2023 and December 31, 2022, no such Working Capital Loans were outstanding.
The company's ability to continue as a going concern is dependent on its ability to complete the proposed Business Combination before the end of the Combination Period, which has been extended to February 15, 2024. If the company is unable to complete the Business Combination by this date, it will be required to liquidate. Management has determined that the liquidity condition and mandatory liquidation, should a Business Combination not occur, raise substantial doubt about the company's ability to continue as a going concern.
Risks and Challenges
RACY's results of operations and its ability to complete the Business Combination may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond its control. The company's business could be impacted by, among other things, downturns in the financial markets or in economic conditions, inflation, increases in interest rates, supply chain disruptions, and geopolitical instability, such as the military conflict in Ukraine.
Additionally, the Inflation Reduction Act of 2022 introduced a 1% U.S. federal excise tax on certain repurchases of stock, which may apply to any redemption or other repurchase that occurs after December 31, 2022 in connection with the Business Combination, extension vote, or otherwise. The extent to which RACY would be subject to the excise tax would depend on various factors, including the fair market value of the redemptions and repurchases, the structure of the Business Combination, and the content of any proposed or final regulations from the U.S. Department of the Treasury.
Conclusion
RACY's journey as a blank check company has been marked by both challenges and opportunities. The company's pursuit of a transformative Business Combination with SVES, a key player in the fashion industry, showcases its strategic vision and potential for value creation. However, the company's recent Nasdaq listing challenges and the potential impact of the Inflation Reduction Act's excise tax highlight the complexities it must navigate.
As RACY continues to work towards the completion of the Business Combination, investors will closely monitor the company's ability to overcome these obstacles and unlock the full potential of the proposed transaction. The company's financial performance, liquidity position, and progress in addressing the Nasdaq listing issues will be crucial factors in determining the success of this endeavor.