Epiphany Technology Acquisition Corp. - Quarter Report: 2022 June (Form 10-Q)

 

 

 

 

 

 

For the transition period from to

Commission

 

 

 

 

 

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.    Yes  ☒    No  ☐

S-T

12b-2

 

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.  ☐

12b-2

As of August , 2022, there were 41,050,000 shares of Class A common stock, $0.0001 par value, and 10,062,500 shares of Class B common stock, $0.0001 par value per share, issued and outstanding.

 

 

 

ITEM 1.

CONDENSED FINANCIAL STATEMENTS

		June 30, 2022				December 31, 2021
		(Unaudited)
ASSETS
Current Assets
Cash		$	108,599			$	353,094
Prepaid expenses			207,136				325,604
Total Current Assets			315,735				678,698
Investments held in Trust Account			402,975,192				402,613,586
TOTAL ASSETS		$	403,290,927			$	403,292,284
LIABILITIES, CLASS A COMMON STOCK SUBJECT TO REDEMPTION AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable and accrued expenses		$	80,268			$	307,293
Income taxes payable			88,678				—
Advance from related parties			160,459				1,000
Total Current Liabilities			329,405				308,293
Warrant liabilities			1,094,666				10,262,500
Deferred underwriting commissions			15,137,500				15,137,500
TOTAL LIABILITIES			16,561,571				25,708,293
Commitments and contingencies
Class A, common stock subject to possible redemption, 40,250,000 shares at approximately $10.01 and $10.00 as of June 30, 2021 and December 31, 2021, respectively			402,836,064				402,500,000
Stockholders’ Deficit
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding			—				—
Class A common stock, $0.0001 par value; 200,000,000 shares authorized, 800,000 shares issued and outstanding (excluding 40,250,000 shares subject to possible redemption) at June 30, 2022 and December 31, 2021			80				80
Class B common stock, $0.0001 par value; 20,000,000 shares authorized; 10,062,500 shares issued and outstanding at June 30, 2022 and December 31, 2021			1,006				1,006
Additional paid-in capital			—				—
Accumulated deficit			(16,107,794	)			(24,917,095	)
Total Stockholders’ Deficit			(16,106,708	)			(24,916,009	)
TOTAL LIABILITIES, CLASS A COMMON STOCK SUBJECT TO REDEMPTION AND STOCKHOLDERS’ DEFICIT		$	403,290,927			$	403,292,284

		Three Months Ended June 30,								Six Months Ended June 30,
		2022				2021				2022				2021
General administrative expenses and operational costs		$	316,473			$	278,283			$	575,533			$	515,966
Loss from operations			(316,473	)			(278,283	)			(575,533	)			(515,966	)
Other income (expense):
Interest earned on investments held in Trust Account			574,248				17,955				641,742				55,893
Transaction cost related to warrant liability			—				—				—				(1,029,081	)
Change in fair value of warrant liabilities			3,557,668				(3,834,000	)			9,167,834				4,384,000
Total other income (expense), net			4,131,916				(3,816,045	)			9,809,576				3,410,812
Income (loss) before provision for income taxes			3,815,443				(4,094,328	)			9,234,043				2,894,846
Provision for income taxes			(88,678	)			—				(88,678	)			—
Net inc o me (loss)		$	3,726,765			$	(4,094,328	)		$	9,145,365			$	2,894,846
Weighted average shares outstanding, Class A common stock			41,050,000				41,050,000				41,050,000				38,555,249
Basic and diluted net income (loss) per share, Class A common stock		$	0.07			$	(0.08	)		$	0.18			$	0.06
Weighted average shares outstanding, Class B common stoc k			10,062,500				10,062,500				10,062,500				9,982,292
Basic and diluted net income (loss) per share, Class B common stock		$	0.07			$	(0.08	)		$	0.18			$	0.06

		Class A Common Stock								Class B Common Stock								Additional Paid-in Capital				Accumulated Deficit				Total Stockholders’ Deficit
		Shares				Amount				Shares				Amount
Balance – January 1, 2022			800,000			$	80				10,062,500			$	1,006			$	—			$	(24,917,095	)		$	(24,916,009	)
Net income			—				—				—				—				—				5,418,600				5,418,600
Balance – March 31, 2022 (unaudited)			800,000			$	80				10,062,500			$	1,006			$	—			$	(19,498,495	)		$	(19,497,409	)
Accretion for Class A common stock to redemption amount			—				—				—				—				—				(336,064	)			(336,064	)
Net income			—				—				—				—				—				3,726,765				3,726,765
Balance – June 30, 2022 (unaudited)			800,000			$	80				10,062,500			$	1,006			$	—			$	(16,107,794	)		$	(16,106,708	)

		Class A Common Stock								Class B Common Stock								Additional Paid-in Capital				Accumulated Deficit				Total Stockholders’ Equity (Deficit)
		Shares				Amount				Shares				Amount
Balance – January 1, 2021			—			$	—				10,062,500			$	1,006			$	23,994			$	(1,465	)		$	23,535
Sale of 800,000 Private Placement Units, net of warrant liability			800,000				80				—				—				7,607,920				—				7,608,000
Accretion for Class A common stock to redemption amount			—				—				—				—				(7,631,914	)			(32,122,921	)			(39,754,835	)
Net income			—				—				—				—				—				6,989,174				6,989,174
Balance – March 31, 2021 (unaudited)			800,000			$	80				10,062,500			$	1,006			$	—			$	(25,135,212	)		$	(25,134,126	)
Net loss			—				—				—				—				—				(4,094,328	)			(4,094,328	)
Balance – June 30, 2021 (unaudited)			800,000			$	80				10,062,500			$	1,006			$	—			$	(29,229,540	)		$	(29,228,454	)

		Six months Ended June 30,
		2022				2021
Cash Flows from Operating Activities:
Net income		$	9,145,365			$	2,894,846
Adjustments to reconcile net income to net cash used in operating activities:
Change in fair value of warrant liabilities			(9,167,834	)			(4,384,000	)
Interest earned on investments held in Trust Account			(641,742	)			(55,893	)
Transaction costs allocated to warrants			—				1,029,081
Changes in operating assets and liabilities:
Prepaid expenses			118,468				(460,739	)
Accounts payable and accrued expenses			(227,025	)			144,065
Income taxes payable			88,678				—
Net cash used in operating activities			(684,090	)			(832,640	)
Cash Flows from Investing Activities:
Cash withdrawn from Trust Account to pay franchise and income taxes			280,136				—
Investment of cash into Trust Account			—				(402,500,000	)
Net cash provided by (used in) investing activities			280,136				(402,500,000	)
Cash Flows from Financing Activities:
Proceeds from sale of Units, net of underwriting discounts paid			—				396,500,000
Proceeds from sale of Private Placement Units			—				8,000,000
Advance from related party			177,419				1,000
Repayment of advances from related party			(17,960	)			—
Repayment of promissory note – related party			—				(140,000	)
Payment of offering costs			—				(305,609	)
Net cash provided by financing activities			159,459				404,055,391
Net Change in Cash			(244,495	)			722,751
Cash – Beginning of period			353,094				10,027
Cash – End of period		$	108,599			$	732,778
Non-Cash Investing and Financing Activities:
Deferred underwriting fee payable		$	—			$	15,137,500

Gross proceeds		$	402,500,000
Less:
Proceeds allocated to Public Warrants			(19,185,834	)
Class A common stock issuance costs			(20,569,001	)
Plus:
Accretion of carrying value to redemption value			39,754,835
Class A common stock subject to possible redemption, December 31, 2021		$	402,500,000
Plus:
Accretion of carrying value to redemption value			336,064
Class A common stock subject to possible redemption, June 30, 2022		$	402,836,064

		Three Months Ended June 30,
		2022								2021
		Class A				Class B				Class A				Class B
Basic and diluted net income (loss) per share of common stock
Numerator:
Allocation of net income (loss), as adjusted		$	2,993,078			$	733,687			$	(3,288,279	)		$	(806,049	)
Denominator:
Basic and diluted weighted average shares outstanding			41,050,000				10,062,500				41,050,000				10,062,500
Basic and diluted net income (loss) per share of common stock		$	0.07			$	0.07			$	(0.08	)		$	(0.08	)

		Six Months Ended June 30,
		2022								2021
		Class A				Class B				Class A				Class B
Basic and diluted net income per share of common stock
Numerator:
Allocation of net income, as adjusted		$	7,344,920			$	1,800,445			$	2,299,488			$	595,358
Denominator:
Basic and diluted weighted average shares outstanding			41,050,000				10,062,500				38,555,249				9,982,292
Basic and diluted net income per share of common stock		$	0.18			$	0.18			$	0.06			$	0.06

•

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, or the 30-day redemption period, to each warrant holder; and

•

if, and only if, the reported last sale price of the Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period commencing once the warrants become exercisable and ending three business days before the Company sends the notice of redemption to the warrant holders.

Level 1:		Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2:		Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3:		Unobservable inputs based on assessment of the assumptions that market participants would use in pricing the asset or liability.

		Held-To-Maturity		Level				Amortized Cost				Gross Holding Gain (Loss)				Fair Value
June 30, 2022		U.S. Treasury Securities (Matures on 07/14/22)			1			$	201,482,835			$	(16,405	)		$	201,466,430
December 31, 2021		U.S. Treasury Securities (Matures on 01/13/2022)			1			$	201,343,000			$	—			$	201,343,000

Description		Level				June 30, 2022				December 31, 2021
Assets:
Investments – Money market funds			1				201,447,977				201,269,466
Liabilities:
Warrant Liability – Public Warrants			1				1,073,333				10,062,500
Warrant Liability – Private Placement Warrants			3				21,333				200,000

		June 30, 2022				June 30, 2021
Input:
Risk-free interest rate			2.97	%			0.85	%
Expected term (years)			5.5				5.5
Expected volatility			3.4	%			18.7	%
Exercise price		$	11.50			$	11.50
Stock price		$	9.82			$	9.73

		Private Placement
Fair value as of January 1, 2021		$	200,000
Change in fair value			(109,333	)
Fair value as of March 31, 2022			90,667
Change in fair value			(69,334	)
Fair value as of June 30, 2022		$	21,333

		Private Placement				Public				Warrant Liabilities (Level 3)
Fair value as of January 1, 2021
Initial classification on January 12, 2021 (Initial Public Offering)		$	392,000			$	19,185,834			$	19,577,834
Transfers to Level 1			—				(19,185,834	)			(19,185,834	)
Change in fair value			(168,000	)			—				(168,000	)
Fair value as of March 31, 2021			224,000				—				224,000
Change in fair value			77,334				—				77,334
Fair value as of June 30, 2021		$	301,334			$	—			$	301,334

References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Epiphany Technology Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors, references to the “Sponsor” refer to Epiphany Technology Sponsor LLC. 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 Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (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 Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding 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. 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 final prospectus for its initial public offering (the “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. In connection with the change in presentation for the Class A common stock subject to redemption, the Company also revised its earnings per share calculation to allocate net income (loss) evenly to Class A and Class B common stock. This presentation contemplates a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”) as the most likely outcome, in which case, both classes of common stock share pro rata in the income (loss) of the Company.

We are a blank check company formed under the laws of the State of Delaware on September 28, 2020 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar Business Combination with one or more target businesses. We intend to effectuate our initial Business Combination using cash from the proceeds of our Initial Public Offering and the concurrent private placement, the proceeds of the sale of our shares in connection with our initial Business Combination, 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 expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful.

non-operating

For the three months ended June 30, 2022, we had net income of $3,726,765, which consists of a change in the fair value warrant liabilities of $3,557,668 and interest income on investments held in the Trust Account where the proceeds from our Initial Public Offering were placed (the “Trust Account”) of $574,248, offset by operational costs of $316,473 and a provision for income taxes of $88,678.

For the six months ended June 30, 2022, we had net income of $9,145,365, which consists of a change in the fair value warrant liabilities of $9,167,834 and interest income on investments held in the Trust Account of $641,742, offset by operational costs of $575,533 and a provision for income taxes of $88,678.

For the three months ended June 30, 2021, we had a net loss of $4,094,328, which consists of a change in the fair value warrant liabilities of $3,834,000 and formation and operational costs of $278,283, offset by interest income on investments held in the Trust Account of $17,955.

For the six months ended June 30, 2021, we had a net income of $2,894,846, which consists of a change in the fair value warrant liabilities of $4,384,000 and interest income on investments held in the Trust Account of $55,893, offset by transaction costs allocable to warrants of $1,029,081 and formation and operational costs of $515,966.

 

19

On January 12, 2021, we consummated the Initial Public Offering of 40,250,000 units (the “Units” and, with respect to the Class A common stock included in the Units sold, the “Public Shares”), which included the full exercise by the underwriters of their over-allotment option to purchase an additional 5,250,000 Units, at $10.00 per Unit, generating gross proceeds of $402,500,000. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 800,000 units (the “Placement Units”) to the Sponsor and Cantor Fitzgerald & Co. (“Cantor”) at a price of $10.00 per Unit, generating gross proceeds of $8,000,000.

Following the Initial Public Offering, the full exercise of the over-allotment option and the sale of the Placement Units, a total of $402,500,000 was placed in the Trust Account. We incurred $21,598,082 in transaction costs, including $6,000,000 of underwriting fees, net of $1,000,000 reimbursed from the underwriters, $15,137,500 of deferred underwriting fees and $460,582 of other offering costs.

For the six months ended June 30, 2022, cash used in operating activities was $684,090. Net income of $9,145,365 was affected by change in the fair value of warrant liabilities of $9,167,834 and interest income on investments held in the Trust Account of $641,742. Changes in operating assets and liabilities used $19,879 of cash from operating activities.

For the six months ended June 30, 2021, cash used in operating activities was $832,640. Net income of $2,894,846 was affected by changes in the fair value of warrant liabilities of $4,384,000, interest earned on investments held in the Trust Account of $55,893 and transaction costs allocable to warrants of $1,029,081. Changes in operating assets and liabilities used $316,674 of cash from operating activities.

As of June 30, 2022, we had cash and investments held in the Trust Account of $402,975,192. Interest income on the balance in the Trust Account may be used by us to pay taxes. During the six months ended June 30, 2022, we withdraw $280,136 of interest earned on the Trust Account to pay for our franchise tax obligations. 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 deferred underwriting commissions) to complete our initial Business Combination. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our initial 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 June 30, 2022, we had $108,599 of cash held outside of the Trust Account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination.

In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete a Business Combination, we would repay such loaned amounts out of the proceeds of the Trust Account released to us. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into units identical to the Placement Units, at a price of $10.00 per unit at the option of the lender. The units would be identical to the Placement Units.

 

20

in-depth

We have until January 12, 2023 to consummate an initial Business Combination. It is uncertain that we will be able to consummate an initial Business Combination by this time. If an initial Business Combination is not consummated by this date, there will be a mandatory liquidation and subsequent dissolution. Management has determined that the mandatory liquidation, should an initial Business Combination not occur, and potential subsequent dissolution raises substantial doubt about our ability to continue as a going concern through the liquidation date of January 12, 2023. No adjustments have been made to the carrying amounts of assets or liabilities should we be required to liquidate after January 12, 2023. In addition, we may need to raise additional capital through loans or additional investments from its Sponsor, stockholders, officers, directors or third parties. Our officers, directors and Sponsor may, but are not obligated to, loan us funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet our working capital needs. Accordingly, we may not be able to obtain additional financing. If we are unable to raise additional capital, we may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. We cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about our ability to continue as a going concern through the liquidation date of January 12, 2023.

Sheet Arrangements

off-balance

We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay an affiliate of our Sponsor a monthly fee of $15,000 for office space, utilities and secretarial and administrative support. We began incurring these fees on January 12, 2021 and will continue to incur these fees monthly until the earlier of the completion of the initial Business Combination and our liquidation.

The underwriters are entitled to a deferred fee of (i) 3.5% of the gross proceeds of the initial 35,000,000 units sold in our Initial Public Offering, or $12,250,000, and (ii) 5.5% of the gross proceeds from the units sold pursuant to the over-allotment option, or $2,887,500. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that we complete a Business Combination, subject to the terms of the underwriting agreement.

The preparation of condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies.

(“ASC”)815-40

Cox-Ross-Rubenstein

Cox-Ross-Rubenstein

 

21

We account for our Class A common stock subject to possible redemption in accordance with the guidance in the Financial Accounting Standards Board’s (“FASB”) ASC Topic 480, “Distinguishing Liabilities from Equity.” Shares of Class A common stock subject to mandatory redemption, if any, are classified as a liability instrument and are measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. Our Class A common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, shares of Class A common stock subject to possible redemption are presented as temporary equity, outside of the stockholders’ deficit section of our balance sheets. We recognize changes in redemption value immediately as they occur and adjust the carrying value of the Class A common stock subject to possible redemption to equal the redemption value at the end of each reporting period. This method would view the end of the reporting period as if it were also the redemption date for the security.

 

22

We have two classes of shares, which are referred to as Class A common stock and Class B common stock. Income and losses are shared pro rata between the two classes of shares. Net income (loss) Per share of Common Stock is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Accretion associated with the redeemable shares of Class A common stock is excluded from income (loss) Per share of Common Stock as the redemption value approximates fair value.

2020-06, “Debt-Debt

470-20)

815-40):Accounting

(“ASU2020-06”),which

GAAP.ASU 2020-06

areas. ASU2020-06

ASU2020-06.

Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed financial statements.

Our results of operations and our ability to complete an initial 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 our control. Our business could be impacted by, among other things, downturns in the financial markets or in economic conditions, increases in oil prices, inflation, increases in interest rates, supply chain disruptions, declines in consumer confidence and spending, the ongoing effects of the COVID-19 pandemic, including resurgences and the emergence of new variants, and geopolitical instability, such as the military conflict in the Ukraine. We cannot at this time fully predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact our business and our ability to complete an initial Business Combination.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.

 

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

13a-15(e)

15d-15(e)

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

10-Q

 

23

In response to the previously identified material weakness, the Company designed and implemented remediation measures to address the material weakness identified and enhanced its internal control over financial reporting. The Company has enhanced its financial reporting processes to better identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to its financial statements, including providing enhanced access to accounting literature, research materials and documents and increased communication among the Company’s personnel and third-party professionals with whom management consults regarding complex accounting applications.

 

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To the knowledge of our management team, there is no litigation currently pending or contemplated against us, any of our officers or directors in their capacity as such or against any of our property.

 

As of the date of this Report, other than as set forth below, there have been no material changes with respect to those risk factors previously disclosed in our (i) final prospectus dated January 7, 2021, as filed with the SEC on January 11, 2021, (ii) Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 30, 2022 and (iii) Quarterly Report on Form 10-Q for the quarter ended March 31, 202, as filed with the SEC on May 13, 2022. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risks could arise that may also affect our business or ability to consummate an initial Business Combination. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.

On March 30, 2022, the SEC issued proposed rules (the “SPAC Rule Proposals”) relating, among other items, to disclosures in Business Combination transactions between SPACS such as us and private operating companies; the condensed financial statement requirements applicable to transactions involving shell companies; the use of projections by SPACs in SEC filings in connection with proposed business combination transactions; the potential liability of certain participants in proposed business combination transactions; and the extent to which SPACs could become subject to regulation under the Investment Company Act, including a proposed rule that would provide SPACs a safe harbor from treatment as an investment company if they satisfy certain conditions that limit a SPAC’s duration, asset composition, business purpose and activities. The SPAC Rule Proposals have not yet been adopted, and may be adopted in the proposed form or in a different form that could impose additional regulatory requirements on SPACs. Certain of the procedures that we, a potential Business Combination target, or others may determine to undertake in connection with the SPAC Rule Proposals, or pursuant to the SEC’s views expressed in the SPAC Rule Proposals, may increase the costs and time of negotiating and completing an initial Business Combination, and may constrain the circumstances under which we could complete an initial Business Combination. The need for compliance with the SPAC Rule Proposals may cause us to liquidate the funds in the Trust Account or liquidate the Company at an earlier time than we might otherwise choose.

As described further above, the SPAC Rule Proposals relate, among other matters, to the circumstances in which SPACs such as the Company could potentially be subject to the Investment Company Act and the regulations thereunder. The SPAC Rule Proposals would provide a safe harbor for such companies from the definition of “investment company” under Section 3(a)(1)(A) of the Investment Company Act, provided that a SPAC satisfies certain criteria, including a limited time period to announce and complete a de-SPAC transaction. Specifically, to comply with the safe harbor, the SPAC Rule Proposals would require a company to file a report on Form 8-K announcing that it has entered into an agreement with a target company for a Business Combination no later than 18 months after the effective date of the Registration Statement. The company would then be required to complete its initial Business Combination no later than 24 months after the effective date of the Registration Statement.

Because the SPAC Rule Proposals have not yet been adopted, there is currently uncertainty concerning the applicability of the Investment Company Act to a SPAC, including a company like ours that may not complete its Business Combination within 24 months after January 7, 2021, the effective date of the Registration Statement.

If we are deemed to be an investment company under the Investment Company Act, our activities would be severely restricted. In addition, we would be subject to burdensome compliance requirements. We do not believe that our principal activities will subject us to regulation as an investment company under the Investment Company Act. However, if we are deemed to be an investment company and subject to compliance with and regulation under the Investment Company Act, we would be subject to additional regulatory burdens and expenses for which we have not allotted funds. As a result, unless we are able to modify our activities so that we would not be deemed an investment company, we would expect to abandon our efforts to complete an initial Business Combination and instead to liquidate the Company.

The funds in the Trust Account have, since our Initial Public Offering, been held only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds investing solely in U.S. government treasury obligations and meeting certain conditions under Rule 2a-7 under the Investment Company Act. However, to mitigate the risk of us being deemed to be an unregistered investment company (including under the subjective test of Section 3(a)(1)(A) of the Investment Company Act) and thus subject to regulation under the Investment Company Act, we may, at any time, and we expect that we will, on or prior to the 24-month anniversary of the effective date of the Registration Statement, instruct Continental Stock Transfer & Trust Company, the trustee with respect to the Trust Account, to liquidate the U.S. government treasury obligations or money market funds held in the Trust Account and thereafter to hold all funds in the Trust Account in cash until the earlier of consummation of our initial Business Combination or liquidation of the Company. Following such liquidation, we would likely receive minimal interest, if any, on the funds held in the Trust Account. However, interest previously earned on the funds held in the Trust Account still may be released to us to pay our taxes, if any, and certain other expenses as permitted. As a result, any decision to liquidate the securities held in the Trust Account and thereafter to hold all funds in the Trust Account in cash would reduce the dollar amount our public stockholders would receive upon any redemption or liquidation of the Company.

In addition, even prior to the 24-month anniversary of the effective date of the Registration Statement, we may be deemed to be an investment company. The longer that the funds in the Trust Account are held in short-term U.S. government treasury obligations or in money market funds invested exclusively in such securities, even prior to the 24-month anniversary, the greater the risk that we may be considered an unregistered investment company, in which case we may be required to liquidate the Company. Accordingly, we may determine, in our discretion, to liquidate the securities held in the Trust Account at any time, even prior to the 24-month anniversary, and instead hold all funds in the Trust Account in cash, which would further reduce the dollar amount our public stockholders would receive upon any redemption or liquidation of the Company.

In connection with the Company’s assessment of going concern considerations under applicable accounting standards, management has determined that our possible need for additional financing to enable us to negotiate and complete our initial Business Combination, as well as the deadline by which we may be required to liquidate our Trust Account, raise substantial doubt about the Company’s ability to continue as a going concern through approximately one year from the date the financial statements included elsewhere in this Report were issued.

Certain federally licensed businesses in the United States, such as broadcasters and airlines, may be subject to rules or regulations that limit foreign ownership. In addition, CFIUS is an interagency committee authorized to review certain transactions involving foreign investment in the United States by foreign persons in order to determine the effect of such transactions on the national security of the United States. Were we considered to be a “foreign person” under such rules and regulations, any proposed Business Combination between us and a U.S. business engaged in a regulated industry or which may affect national security could be subject to such foreign ownership restrictions and/or CFIUS review. The scope of CFIUS was expanded by the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”) to include certain non-controlling investments in sensitive U.S. businesses and certain acquisitions of real estate even with no underlying U.S. business. FIRRMA, and subsequent implementing regulations that are now in force, also subject certain categories of investments to mandatory filings. If our potential initial Business Combination with a U.S. business falls within the scope of foreign ownership restrictions, we may be unable to consummate an initial Business Combination with such business. In addition, if our potential Business Combination falls within CFIUS’s jurisdiction, we may be required to make a mandatory filing or determine to submit a voluntary notice to CFIUS, or to proceed with the initial Business Combination without notifying CFIUS and risk CFIUS intervention, before or after closing the initial Business Combination. CFIUS may decide to block or delay our initial Business Combination, impose conditions to mitigate national security concerns with respect to such initial Business Combination or order us to divest all or a portion of a U.S. business of the combined company if we had proceeded without first obtaining CFIUS clearance. The foreign ownership limitations, and the potential impact of CFIUS, may limit the attractiveness of a transaction with us or prevent us from pursuing certain initial Business Combination opportunities that we believe would otherwise be beneficial to us and our stockholders. A s a result, the pool of potential targets with which we could complete an initial Business Combination may be limited and we may be adversely affected in terms of competing with other special purpose acquisition companies which do not have similar foreign ownership issues.

Moreover, the process of government review, whether by CFIUS or otherwise, could be lengthy. Because we have only a limited time to complete our initial Business Combination, our failure to obtain any required approvals within the requisite time period may require us to liquidate. If we liquidate, our public stockholders may only receive $10.00 per share, and our warrants will expire worthless. This will also cause you to lose any potential investment opportunity in a target company and the chance of realizing future gains on your investment through any price appreciation in the combined company.

We anticipate that the investigation of each specific target business and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys, consultants and others. If we decide not to complete a specific initial Business Combination, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, if we reach an agreement relating to a specific target business, we may fail to complete our initial Business Combination for any number of reasons, including those beyond our control. Any such event will result in a loss to us of the related costs incurred, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business. If we have not completed our initial Business Combination within the Combination Period, our public stockholders may receive only approximately $10.00 per share, or less in certain circumstances, on the liquidation of our trust account and our warrants will expire worthless.

Recent increases in inflation and interest rates in the United States and elsewhere may 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 an initial Business Combination.

Military conflict in Ukraine or elsewhere may lead to increased and price volatility for publicly traded securities, including ours, and to other national, regional and international economic disruptions and economic uncertainty, any of which could make it more difficult for us to identify a Business Combination target and consummate an initial Business Combination on acceptable commercial terms or at all.

In recent years, the number of SPACs that have been formed has increased substantially. Many companies have entered into business combinations with SPACs, and there are still many SPACs seeking targets for their initial business combination, as well as additional SPACs 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 a large number of SPACs 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 or increases in the cost of additional capital needed to close business combinations or operate targets post-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 our initial Business Combination and may result in our inability to consummate an initial Business Combination on terms favorable to our investors altogether.

 

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None. For a description of the use of proceeds generated in our Initial Public Offering and private placement, see Part II, Item 2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, as filed with the SEC on July 20, 2021. There has been no material change in the planned use of proceeds from the Company’s Initial Public Offering and private placement as described in the Registration Statement.

 

None.

 

Not applicable.

 

None.

 

10-Q.

 

 

 

26

Pursuant to the requirements of Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

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