Mudrick Capital Acquisition 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		85-2320197
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Units, each consisting of one share of Class A Common Stock and one-half of one Redeemable Warrant		MUDSU		The Nasdaq Stock Market LLC
Class A Common Stock, par value $0.0001 per share		MUDS		The Nasdaq Stock Market LLC
Redeemable Warrants, each whole warrant exercisable for one share of Class A Common Stock at an exercise price of $11.50		MUDSW		The Nasdaq Stock Market LLC

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

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PART 1 – FINANCIAL INFORMATION
Item 1.		Financial Statements
		Condensed Consolidated Balance Sheets as of June 30, 2021 (unaudited) and December 31, 2020			1
		Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021			2
		Unaudited Condensed Consolidated Statement of Changes in Stockholder’s Equity for the Three and Six Months Ended June 30, 2021			3
		Unaudited Condensed Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2021			4
		Notes to Condensed Consolidated Financial Statements (unaudited)			5
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			17
Item 4.		Control and Procedures			17
PART II – OTHER INFORMATION
Item 1.		Legal Proceedings			18
Item 1A.		Risk Factors			18
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			18
Item 3.		Defaults Upon Senior Securities			18
Item 4.		Mine Safety Disclosures			18
Item 5.		Other Information			18
Item 6.		Exhibits			19
SIGNATURES					20

		June 30, 2021				December 31, 2020
		(Unaudited)
ASSETS
Current assets
Cash		$	275,394			$	1,117,679
Prepaid expenses			168,094				167,708
Total Current Assets			443,488				1,285,387
Investments held in Trust Account			321,001,637				321,002,166
TOTAL ASSETS		$	321,445,125			$	322,287,553
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses		$	3,019,388			$	102,348
Advance from related party			2,374				—
Total Current Liabilities			3,021,762				102,348
Warrant liability			132,422,004				24,560,101
Deferred underwriting fee payable			11,068,750				11,068,750
TOTAL LIABILITIES			146,512,516				35,731,199
Commitments and Contingencies
Class A common stock subject to possible redemption 16,741,717 and 27,738,814 shares at approximately $10.15 per share as of June 30, 2021 and December 31, 2020, respectively			169,932,602				281,556,344
Stockholders’ Equity
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; no shares issued and outstanding			—				—
Class A common stock, $0.0001 par value; 100,000,000 shares authorized; 14,883,283 and 3,886,186 shares issued and outstanding (excluding 16,741,717 and 27,738,814 shares subject to possible redemption) as of June 30, 2021 and December 31, 2020, respectively			1,488				389
Class B common stock, $0.0001 par value; 10,000,000 shares authorized; 7,906,250 shares issued and outstanding, as of June 30, 2021 and December 31, 2020, respectively			791				791
Additional paid-in capital			118,358,871				6,736,228
Accumulated deficit			(113,361,143	)			(1,737,398	)
Total Stockholders’ Equity			5,000,007				5,000,010
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	321,445,125			$	322,287,553

		Three Months Ended June 30,				Six Months Ended June 30,
		2021				2021
General and administrative expenses		$	3,074,794			$	3,796,421
Loss from operations			(3,074,794	)			(3,796,421	)
Other expense:
Interest earned on marketable securities held in Trust Account			4,321				34,579
Change in fair value of warrant liability			(112,825,786	)			(107,861,903	)
Total other expense, net			(112,821,465	)			(107,827,324	)
Loss before income taxes			(115,896,259	)			(111,623,745	)
Provision for income taxes			—				—
Net loss		$	(115,896,259	)		$	(111,623,745	)
Weighted average shares outstanding of Class A redeemable common stock			31,625,000				31,625,000
Basic and diluted loss per share, Class A redeemable common stock		$	—			$	—
Weighted average shares outstanding of Class B non-redeemable common stock			7,906,250				7,906,250
Basic and diluted net loss per share, Class B non-redeemable common stock		$	(14.66	)		$	(14.12	)

		Class A Common Stock								Class B Common Stock								Additional Paid-in				Accumulated				Total Stockholders’
		Shares				Amount				Shares				Amount				Capital				Deficit				Equity
Balance – January 1, 2021			3,886,186			$	389				7,906,250			$	791			$	6,736,228			$	(1,737,398	)		$	5,000,010
Change in value of Class A common stock subject to redemption			(421,352	)			(43	)			—				—				(4,272,473	)			—				(4,272,516	)
Net income			—				—				—				—				—				4,272,514				4,272,514
Balance – March 31, 2021			3,464,834			$	346				7,906,250			$	791			$	2,463,755			$	2,535,116			$	5,000,008
Change in value of Class A common stock subject to redemption			11,418,449				1,142				—				—				115,895,116				—				115,895,258
Net loss			—				—				—				—				—				(115,896,259	)			(115,896,259	)
Balance – June 30, 2021			14,883,283			$	1,488				7,906,250			$	791			$	118,358,871			$	(113,361,143	)		$	5,000,007

Cash Flows from Operating Activities:
Net loss		$	(111,623,745	)
Adjustments to reconcile net income to net cash used in operating activities:
Change in fair value of warrant liability			107,861,903
Interest earned on marketable securities held in Trust Account			(34,579	)
Changes in operating assets and liabilities:
Prepaid expenses			(386	)
Accounts payable and accrued expenses			2,917,040
Net cash used in operating activities			(879,767	)
Cash Flows from Investing Activities:
Cash withdrawn from Trust Account to pay franchise taxes			35,108
Net cash provided by investing activities			35,108
Cash Flows from Financing Activities:
Advance from related party			9,883
Repayment of advances from related party			(7,509	)
Net cash provided by financing activities			2,374
Net Change in Cash			(842,285	)
Cash – Beginning of period			1,117,679
Cash – End of period		$	275,394
Non-Cash investing and financing activities:
Change in Class A common stock subject to possible redemption		$	(111,623,742	)

		Three Months Ended June 30,				Six Months Ended June 30,
		2021				2021
Redeemable Class A Common Stock
Numerator: Earnings allocable to Redeemable Class A Common Stock
Interest Income		$	4,321			$	34,579
Less: Company’s portion available to pay taxes			(4,321	)			(34,579	)
Redeemable Net Earnings		$	—			$	—
Denominator: Weighted Average Redeemable Class A Common Stock
Redeemable Class A Common Stock, Basic and Diluted			31,625,000				31,625,000
Earnings/Basic and Diluted Redeemable Class A Common Stock		$	—			$	—
Non-Redeemable Class B Common Stock
Numerator: Net Loss minus Redeemable Net Earnings
Net Loss		$	(115,896,259	)		$	(111,623,745	)
Less: Redeemable Net Earnings			—				—
Non-Redeemable Net Loss		$	(115,896,259	)		$	(111,623,745	)
Denominator: Weighted Average Non-Redeemable Class B Common Stock
Non-Redeemable Class B Common Stock, Basic and Diluted			7,906,250				7,906,250
Income/Basic and Diluted Non-Redeemable Class B Common Stock		$	(14.66	)		$	(14.12	)

•

a combination of stock and cash consideration in an aggregate amount equal to (a) $1.227 billion, minus (b) the net indebtedness of Topps as of immediately prior to the Closing, minus (c) The Company and Topp’s transaction expenses, in each case, incurred in connection with the Transactions, up to a maximum aggregate amount of $50 million (and with respect to the Company, up to a maximum amount of $25 million), minus (d) any remaining amounts payable by Topps under any affiliated contract being terminated as part of the transaction (the “ Closing Merger Consideration ”);

•

7,684,730 shares of Class B common stock of the combined company (the “ Earnout Shares ”), subject to forfeiture if certain share price targets are not achieved in accordance with the applicable terms set forth in the Merger Agreement (and which will convert into shares of the combined company’s Class A common stock or Class E common stock, as applicable, upon the achievement of such share price targets);

•

rights to receive payments under the Tax Receivable Agreement (as defined below); and

•

rights to certain tax refunds received by Topps in respect of pre-Closing tax periods.

•

in whole and not in part;

•

at a price of $0.01 per Public Warrant;

•

upon not less than 30 days’ prior written notice of redemption to each warrant holder; and

•

if, and only if, the reported closing 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 ending three business days before the Company sends the notice of redemption to 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 our assessment of the assumptions that market participants would use in pricing the asset or liability.

		Description		Level				Fair Value
June 30, 2021		Assets :
		Marketable securities held in the Trust Account – Money Market Funds			1			$	321,001,637
		Liabilities:
		Warrant Liability – Public Warrants			1				66,096,250
		Warrant Liability – Private Placement			3				66,325,754

		Description		Leve l				Amortized Cost				Gross Holding Loss				Fair Value
December 31, 2020		Assets :
		Held-to-Maturity Investments—U.S. Treasury Securities (Matured on 3/11/2021)			1			$	321,001,741			$	(18,297	)		$	320,983,444
		Liabilities:
		Warrant Liability – Public Warrants			1				—				—				12,573,343
		Warrant Liability – Private Placement			3				—				—				11,986,758

		June 30, 2021				December 31, 2020
Stock price		$	12.46			$	6.87
Strike price		$	11.50			$	11.50
Term (in years)			5.0				5.0
Volatility			45.0	%			40.0	%
Risk-free rate			0.88	%			0.57	%
Dividend yield			0.0	%			0.0	%

		Private Placement
Fair value as of December 31, 2020		$	11,986,758
Change in fair value			54,338,996
Fair value as of June 30, 2021		$	66,325,754

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 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 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 Company’s definitive merger proxy statement in connection with the Company’s special meeting of stockholders filed with the U.S. Securities and Exchange Commission (the “SEC”) on July 30, 2021. 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 (other than searching for a Business Combination after our Initial Public Offering) nor generated any revenues to date. Our only activities from inception through June 30, 2021 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, identifying a target company for a Business Combination and activities in connection with the proposed acquisition of Topps. 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. 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. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our Business Combination. If we are unable to complete our Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. In addition, following our Business Combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.

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.

We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. We evaluate all of our financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815. We account for the warrants issued in connection with our Initial Public Offering in accordance with the guidance contained in ASC 815 under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, we classify the warrants as liabilities at their fair value and adjust the warrants to fair value at each reporting period. This liability is subject to at each balance sheet date until exercised, and any change in fair value is recognized in our 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 (loss) 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 B common stock is calculated by dividing the net income (loss), less income attributable to Class A redeemable common stock, by the weighted average number of Class B common stock outstanding for the period presented.

In August 2020, the FASB issued Accounting Standards Update No. with Conversion and Other Options (Subtopic and “Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,” which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. We adopted ASU effective as of January 1, 2021. The adoption of ASU did not have an impact on our financial statements.

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

Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the fiscal quarter ended June 30, 2021, as such term is defined in Rules and under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that, solely due to the events that led to the Company’s restatement of its financial statements to reclassify the Company’s warrants as liabilities (which are described in the Company’s Amendment No. 1 to its Annual Report on Form filed on May 10, 2021) (the “Restatement”), during the period covered by this report, a material weakness existed and our disclosure controls and procedures were not effective.

There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2021 covered by this Quarterly Report on Form that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, other than as described herein. Management has implemented remediation steps to address the material weakness and to improve our internal control over financial reporting. Specifically, we enhanced the supervisory review of accounting procedures in this financial reporting area and expanded and improved our review process for complex securities and related accounting standards. As of June 30, 2021, this had not been fully remediated.

As a smaller reporting company, we are not required to include risk factors in our annual report on Form There have been no material changes to the list of material risks, uncertainties and other factors that could have a material effect on the Company and its operations as disclosed in our Form filed with the SEC on May 10, 2021. Please also refer to the Risk Factors section of the Company’s definitive merger proxy statement in connection with the Company’s special meeting of stockholders filed with the SEC on July 30, 2021.

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