UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
or
For the transition period from to
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
(Address of principal executive offices) | ||
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| 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, par value $0.0001 per share, and one-third of one Redeemable Warrant | ZWRKU | The Nasdaq Stock Market LLC | ||
| The | ||||
| Redeemable Warrants included as part of the Units | ZWRKW | The Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date.
As
of December 23, 2021,
Z-WORK
ACQUISITION CORP.
QUARTERLY REPORT ON FORM 10-Q/A
Table of Contents
i
EXPLANATORY NOTE
Z-Work Acquisition Corp, Inc. (the “Company,” “Z-Work,” “we,” “us” or “our”) is filing this Amendment No. 1 to its Quarterly Report on Form 10-Q/A for the quarterly period ended September 30, 2021 (this “Form 10-Q/A”) to amend and restate certain terms in its Quarterly Report on Form 10-Q for the quarterly period September 30, 2021 originally filed with the Securities and Exchange Commission (the “SEC”) on November 10, 2021 (the “Original Quarterly Report”).
Background of Restatement
All of the shares held by the Company’s public stockholders (the “Public Shares”) contain a redemption feature which provides each holder of such shares with the opportunity to have their shares redeemed, and management has no control over which Public Shares will be redeemed. ASC 480-10-S99-3A provides that redemption provisions not solely within the control of the issuer require shares subject to redemption to be classified outside of permanent equity. Furthermore, ASC 480-10-25-6(b) provides guidance stating that in determining if an instrument is mandatorily redeemable, a provision that defers redemption until a specified liquidity level is reached would not affect classification of the instrument. As such, in connection with the preparation of the Company’s financial statements as of September 30, 2021, the Company’s management, in consultation with its advisors, identified errors made in the historical financial statements where, at the closing of the Company’s Initial Public Offering, the Company improperly classified its Class A common stock subject to possible redemption. The Company previously determined the Class A common stock subject to possible redemption to be equal to the redemption value, while also taking into consideration the terms of the Company’s Amended and Restated Certificate of Incorporation, under which a redemption cannot result in net tangible assets being less than $5,000,001. Management determined in consultation with its advisors that the Public Shares can be redeemed or become redeemable subject to the occurrence of future events considered outside the Company’s control. Therefore, management concluded that the redemption value should include all Class A common stock subject to possible redemption, resulting in the Class A common stock subject to possible redemption being equal to their redemption value. Effective as of the filing of the Company’s Original Quarterly Report, the Company revised this interpretation to include temporary equity in net tangible assets. As a result, in the Original Quarterly Report, management noted a reclassification adjustment related to temporary equity and permanent equity as of the Initial Public Offering date and all subsequent reporting periods. The Company determined to present this revision in a prospective manner in all future filings with historical amounts presented in current and future filings recast.
Subsequently, on December 22, 2021, the Company’s management, together with the Audit Committee, concluded that the Company’s financial statements and other financial data as of and for the three months ended March 31, 2021 and June 30, 2021 should be restated in the Form 10-Q/A as a result of this error and should no longer be relied upon. Accordingly, the three months ended March 31, 2021 and June 30, 2021 are restated in Note 2 of this Form 10-Q/A to report all Public Shares as temporary equity. These restatements result in a change in the initial carrying value of the Class A common stock subject to possible redemption with the offset recorded to additional paid-in capital (to the extent available), accumulated deficit and Class A common stock. Further, there is no impact to the reported amounts for total assets, total liabilities, cash flows, or net income (loss) but earnings per share was impacted due to a change in presentation relating to the restatements.
In connection with the change in presentation for the shares of Class A common stock subject to redemption, the Company also restated its income (loss) per common share calculated to allocate net income (loss) evenly to Class A and Class B common stock. This presentation contemplates a Business Combination as the most likely outcome, in which case, both classes of common stock pro rata in the income (loss) of the Company.
The financial information that has been previously filed or otherwise reported for this period is superseded by the information in this Form 10-Q/A, and the financial statements and related financial information contained in the Original Quarterly Report should no longer be relied upon. On December 22, 2021, the Company filed a report on Form 8-K disclosing the non-reliance on the financial statements included in the Original Quarterly Report.
In addition, the Company’s Executive Co-Chairman and Chief Financial Officer have provided new certifications dated as of the date of this filing in connection with this Form 10-Q/A (Exhibits 31.1, 31.2, 32.1 and 32.2).
Internal Control Considerations
In connection with the restatement, management has re-evaluated the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting as of September 30, 2021. The Company’s management has concluded that, in light of the errors described above, and the filing of this Form 10-Q/A, a material weakness exists in the Company’s internal control over financial reporting and that the Company’s disclosure controls and procedures were not effective due to the weakness in internal control over financial reporting relating to the accounting of complex financial instruments described above. For a discussion of the Company’s remediation plan and management’s consideration of our disclosure controls and procedures, internal controls over financial reporting, and the material weaknesses identified, see Part I, Item 4, “Controls and Procedures” of this Form 10-Q/A.
Except as described above, this Form 10-Q/A does not amend, update or change any other items or disclosures contained in the Original Quarterly Report, and accordingly, this Form 10-Q/A does not reflect or purport to reflect any information or events occurring after the original filing date or modify or update those disclosures affected by subsequent events. Accordingly, this Form 10-Q/A should be read in conjunction with the Original Quarterly Report and the Company’s other filings with the SEC.
ii
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Z-WORK ACQUISITION CORP.
CONDENSED BALANCE SHEETS
| September 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Deferred offering costs | ||||||||
| Investments held in Trust Account | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued offering costs | ||||||||
| Promissory note – related party | ||||||||
| Total Current Liabilities | ||||||||
| Deferred underwriting fee payable | ||||||||
| Warrant liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Class A common stock subject to possible redemption, $ | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Preferred stock, $ | ||||||||
| Class B common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings/(accumulated deficit) | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
1
Z-WORK ACQUISITION CORP.
CONDENSED
STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended | |||||||
| 2021 | 2021 | |||||||
| General and administrative expenses | $ | $ | ||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other (expense) income: | ||||||||
| Change in fair value of warrant liabilities | ||||||||
| Transaction costs incurred in connection with warrant liabilities | ( | ) | ||||||
| Interest earned on investments held in Trust Account | ||||||||
| Total other income, net | ||||||||
| Net income | $ | $ | ||||||
| Weighted average shares outstanding, Class A common stock | ||||||||
| Basic and diluted earnings per share, Class A common stock | $ | $ | ||||||
| Weighted average shares outstanding, Class B common stock | ||||||||
| Basic and diluted earnings per share, Class B common stock | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
2
Z-WORK ACQUISITION CORP.
CONDENSED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY(DEFICIT)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
(Unaudited)
| Class B Common Stock | Additional Paid-in | Retained Earnings (Accumulated | Total Stockholders’ Equity | |||||||||||||||||
| Shares | Amount | Capital | Deficit) | (Deficit) | ||||||||||||||||
| Balance — January 1, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Accretion for Class A common stock to redemption amount | — | ( | ) | ( | ) | ( | ) | |||||||||||||
| Excess of cash received in sale of | — | |||||||||||||||||||
| Net income | — | |||||||||||||||||||
| Balance – March 31, 2021 (unaudited) (as restated) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance – June 30, 2021 (unaudited) (as restated) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Net income | — | |||||||||||||||||||
| Balance – September 30, 2021 (unaudited) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
3
Z-WORK ACQUISITION CORP.
CONDENSED
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
(Unaudited)
| Cash Flows from Operating Activities: | ||||
| Net income | $ | |||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||
| Interest earned on investments held in Trust Account | ( | ) | ||
| Change in fair value of warrant liabilities | ( | ) | ||
| Transaction costs related to warrant liabilities | ||||
| Changes in operating assets and liabilities: | ||||
| Prepaid expenses | ( | ) | ||
| Accounts payable and accrued expenses | ||||
| Net cash used in operating activities | ( | ) | ||
| Cash Flows from Investing Activities: | ||||
| Investment of cash in Trust Account | ( | ) | ||
| Net cash used in investing activities | ( | ) | ||
| Cash Flows from Financing Activities: | ||||
| Proceeds from sale of Units, net of underwriting discounts paid | ||||
| Proceeds from sale of Private Placement Warrants | ||||
| Repayment of promissory note – related party | ( | ) | ||
| Payment of offering costs | ( | ) | ||
| Net cash provided by financing activities | ||||
| Net Change in Cash | ||||
| Cash – Beginning of period | ||||
| Cash – End of period | $ | |||
| Non-Cash investing and financing activities: | ||||
| Offering costs included in accrued offering costs | $ | |||
| Offering costs paid through promissory note | $ | |||
| Deferred underwriting fee payable | $ | |||
The accompanying notes are an integral part of the unaudited condensed financial statements.
4
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Z-Work Acquisition Corp. (the “Company”) is a blank check company incorporated in Delaware on September 30, 2020. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”).
The Company is not limited to a particular industry or sector for purposes of consummating a Business Combination. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of September 30, 2021, the Company had not commenced any operations. All activity for the period from September 30, 2020 (inception) through September 30, 2021 relates to the Company’s formation and the initial public offering (“Initial Public Offering”), which is described below. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company generates non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering.
The
registration statement for the Company’s Initial Public Offering was declared effective on January 28, 2021. On February 2, 2021,
the Company consummated the Initial Public Offering of
Simultaneously
with the closing of the Initial Public Offering, the Company consummated the sale of
Transaction
costs amounted to $
Following
the closing of the Initial Public Offering on February 2, 2021, an amount of $
The
Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering
and the sale of Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward
consummating a Business Combination. There is no assurance that the Company will be able to complete a Business Combination successfully.
The Company must complete one or more initial Business Combinations with one or more operating businesses or assets with a fair market
value equal to at least
5
The
Company will provide the holders of the outstanding Public Shares (the “Public Stockholders”) with the opportunity to redeem
all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder
meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will
seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company. The Public Stockholders will
be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially anticipated to be
$
The
Company will only proceed with a Business Combination if the Company has net tangible assets of at least $
Notwithstanding
the foregoing, if the Company seeks stockholder approval of a Business Combination and it does not conduct redemptions pursuant to the
tender offer rules, the Certificate of Incorporation will provide that a Public Stockholder, together with any affiliate of such stockholder
or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with
respect to more than an aggregate of
The
Sponsor has agreed (a) to waive its redemption rights with respect to the Founder Shares and Public Shares held by it in connection
with the completion of a Business Combination, (b) to waive its liquidation rights with respect to the Founder Shares if the Company
fails to complete a Business Combination by February 2, 2023 and (c) not to propose an amendment to the Certificate of Incorporation
(i) to modify the substance or timing of the Company’s obligation to allow redemptions in connection with a Business Combination
or to redeem
The
Company will have until February 2, 2023 to complete a Business Combination (the “Combination Period”). If the Company has
not completed a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purpose
of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares,
at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned
on the funds held in the Trust Account and not previously released to pay taxes (less up to $
6
In
order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims
by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed
entering into a transaction agreement, reduce the amount of funds in the Trust Account to below the lesser of
NOTE 2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
In
connection with the preparation of the Company’s financial statements as of September 30, 2021, management identified
errors made in its historical financial statements where, at the closing of the Company’s Initial
Public Offering, the Company improperly classified its Class A common stock subject to possible redemption. The
Company previously determined the Class A common stock subject to possible redemption to be equal to the redemption value of $
There has been no change in the Company’s total assets, liabilities, or operating results.
The impact of the restatement on the Company’s financial statements is reflected in the following table:
| Balance Sheet as of March 31, 2021 (unaudited) | As Previously Reported | Adjustment | As Restated | |||||||||
| Class A common stock subject to possible redemption | $ | $ | $ | |||||||||
| Class A common stock | $ | $ | ( | ) | $ | |||||||
| Additional paid-in capital | $ | $ | ( | ) | $ | |||||||
| Retained earnings | $ | $ | ( | ) | $ | ( | ) | |||||
| Total Stockholders’ Equity (Deficit) | $ | $ | ( | ) | $ | ( | ) | |||||
| Balance Sheet as of June 30, 2021 (unaudited) | ||||||||||||
| Class A common stock subject to possible redemption | $ | $ | $ | |||||||||
| Class A common stock | $ | $ | ( | ) | $ | |||||||
| Additional paid-in capital | $ | $ | ( | ) | $ | |||||||
| Retained earnings | $ | $ | ( | ) | $ | ( | ) | |||||
| Total Stockholders’ Equity (Deficit) | $ | $ | ( | ) | $ | ( | ) | |||||
| Statement of Cash Flows for the three months ended March 31, 2021 (unaudited) | ||||||||||||
| Initial classification of Class A common stock subject to possible redemption | $ | $ | ( | ) | $ | |||||||
| Change in value of Class A common stock subject to possible redemption | $ | $ | ( | ) | $ | |||||||
| Statement of Cash Flows for the sixth months ended June 30, 2021 (unaudited) | ||||||||||||
| Initial classification of Class A common stock subject to possible redemption | $ | $ | ( | ) | $ | |||||||
| Change in value of Class A common stock subject to possible redemption | $ | $ | ( | ) | $ | |||||||
7
In connection with the change in presentation for the shares of Class A common stock subject to redemption, the Company also restated its income (loss) per common share calculated to allocate net income (loss) evenly to Class A and Class B common stock. This presentation contemplates a Business Combination as the most likely outcome, in which case, both classes of common stock pro rata in the income (loss) of the Company. There is no impact to the reported amounts for total assets, total liabilities, cash flows, or net income (loss). The impact of this restatement on the Company’s financial statements is reflected in the following table:
| Statement of Operations for the Three Months Ended March 31, 2021 | ||||||||||||
| Basic and diluted weighted average shares outstanding, Class A common stock | ( |
) | ||||||||||
| Basic and diluted net income per share, Class A common stock | $ | $ | $ | |||||||||
| Basic and diluted weighted average shares outstanding, Class B common stock | ||||||||||||
| Basic and diluted net income per share, Class B common stock | $ | $ | ( |
) | $ | |||||||
| Statement of Operations for the Three Months Ended June 30, 2021 | ||||||||||||
| Basic and diluted weighted average shares outstanding, Class A common stock | ||||||||||||
| Basic and diluted net loss per share, Class A common stock | $ | $ | ( |
) | $ | ( |
) | |||||
| Basic and diluted weighted average shares outstanding, Class B common stock | ||||||||||||
| Basic and diluted net loss per share, Class B common stock | $ | ( |
) | $ | $ | ( |
) | |||||
| Statement of Operations for the Six Months Ended June 30, 2021 | ||||||||||||
| Basic and diluted weighted average shares outstanding, Class A common stock | ( |
) | ||||||||||
| Basic and diluted net income per share, Class A common stock | $ | $ | $ | |||||||||
| Basic and diluted weighted average shares outstanding, Class B common stock | ||||||||||||
| Basic and diluted net income per share, Class B common stock | $ | $ | ( |
) | $ | |||||||
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s prospectus for its Initial Public Offering as filed with the SEC on February 1, 2021, as well as the Company’s Current Report on Form 8-K, as filed with the SEC on February 8, 2021. The interim results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021. The Company incorporated on September 30, 2020 but had no financial activity for that period. Therefore, no comparative is included in the financial statements.
8
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company, which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of the condensed financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. One of the more significant accounting estimates included in these financial statements is the determination of the fair value of the warrant liability. Such estimates may be subject to change as more current information becomes available and, accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of September 30, 2021 and December 31, 2020.
Offering Costs
Offering
costs consisted of legal, accounting and other expenses incurred through the Initial Public Offering that were directly related to the
Initial Public Offering. Offering costs were allocated to the separable financial instruments issued in the Initial Public Offering based
on a relative fair value basis, compared to total proceeds received. Offering costs allocated to warrant liabilities were expensed as
incurred in the statements of operations. Offering costs associated with the Class A common stock issued were initially charged to temporary
equity and then accreted to common stock subject to redemption upon the completion of the Initial Public Offering Offering costs amounting
to $
9
Class A Common Stock Subject to Possible Redemption
The Company accounts for its Class A common stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Shares of Class A common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s Class A common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, at September 30, 2021, Class A common stock subject to possible redemption is presented as temporary equity, outside of the stockholders’ equity section of the Company’s balance sheet.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period.
At September 30, 2021, the Class A common stock reflected in the unaudited condensed balance sheet are reconciled in the following table:
| Gross proceeds | $ | |||
| Less: | ||||
| Proceeds allocated to Public Warrants | ( | ) | ||
| Class A common stock issuance costs | ( | ) | ||
| Plus: | ||||
| Accretion of carrying value to redemption value | ||||
| Class A common stock subject to possible redemption | $ | |||
Warrant Liabilities
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its 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 FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The Company accounts for the Public Warrants and Private Placement Warrants (together with the Public Warrants, the “Warrants”) in accordance with the guidance contained in ASC 815-40 under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the Warrants as liabilities at their fair value and adjusts the Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations. See Note 9 for further discussion of the pertinent terms of the Warrants and Note 10 for further discussion of the methodology used to determine the value of the warrant liabilities.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements’ carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The Company’s deferred tax assets were deemed to be de minimis as of September 30, 2021 and December 31, 2020.
The
Company’s current taxable income primarily consists of interest earned on the Trust Account. The Company’s general and administrative
costs are generally considered start-up costs and are not currently deductible. The change in fair value of the warrant liability is
a permanent difference. During the three and nine months ended September 30, 2021, the Company recorded no income tax expense. The Company’s
effective tax rate for three and nine months ended September 30, 2021 was
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of September 30, 2021 and December 31, 2020. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
10
Net Income (Loss) per Common Share
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share”. Net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common stock outstanding for the period. The Company applies the two-class method in calculating earnings per share.
Accretion associated with the redeemable shares of Class A common stock is excluded from earnings per share as the redemption value approximates fair value.
The
Company has not considered the effect of warrants sold in the Initial Public Offering and private placement to purchase
The following table reflects the calculation of basic and diluted net income (loss) per common share (in dollars, except share amounts):
| Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | |||||||||||||||
| Class A | Class B | Class A | Class B | |||||||||||||
| Basic and diluted net income per common share | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Allocation of net income, as adjusted | $ | $ | $ | $ | ||||||||||||
| Denominator: | ||||||||||||||||
| Basic and diluted weighted average shares outstanding | ||||||||||||||||
| Basic and diluted net income per common share | $ | $ | $ | $ | ||||||||||||
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution,
which, at times may exceed the Federal Depository Insurance Corporation coverage limit of $
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities (excluding the warrant liabilities) which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximate the carrying amounts represented in the accompanying condensed balance sheets, primarily due to their short-term nature.
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Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 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 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 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 2020-06 would have on its financial position, results of operation or cash flows.
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed financial statements.
NOTE 4. PUBLIC OFFERING
Pursuant
to the Initial Public Offering, the Company sold
NOTE 5. PRIVATE PLACEMENT
Simultaneously
with the closing of the Initial Public Offering, the Sponsor and Jefferies purchased an aggregate of
NOTE 6. RELATED PARTY TRANSACTIONS
Founder Shares
On
December 1, 2020, the Sponsor purchased
The
Sponsor has agreed, subject to limited exceptions, not to transfer, assign or sell any of the Founder Shares until the earlier to occur
of: (A) one year after the completion of a Business Combination and (B) subsequent to a Business Combination, (x) if the
last reported sale price of the Class A common stock equals or exceeds $
Administrative Services Agreement
The
Company had agreed to pay the Sponsor $
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Promissory Note — Related Party
On October 1, 2020, the Sponsor issued an unsecured
promissory note to the Company (the “Promissory Note”), pursuant to which the Company may borrow up to an aggregate principal
amount of $
Related Party Loans
In order to finance transaction costs in connection
with a Business Combination, the 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 (“Working Capital Loans”). If the Company completes a
Business Combination, the Company 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. In the event that a Business Combination
does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds
held in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital
Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either
be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $
Anchor Investor
P. Schoenfeld Asset Management LP, an institutional
investor (the “anchor investor” or “PSAM”) purchased
PSAM has also purchased membership interests in our sponsor representing an indirect beneficial interest in 400,000 founder shares and 666,667 private placement warrants held by our sponsor (which we refer to as the “anchor founder shares” and “anchor private placement warrants”, respectively) for $1,000,000, which represents a price for founder shares and private placement warrants equal to those paid by other outside investors in our sponsor. The terms to which the anchor founder shares and the anchor private placement warrants, respectively, are subject are also substantially identical to the terms to which the remaining founder shares and private placement warrants, respectively, are subject, except that: (i) PSAM will receive no anchor founder shares or anchor private placement warrants if it does not pay the $1,000,000 purchase price; (ii) PSAM will forfeit, for no additional consideration or refund, 75% of the anchor founder shares and 75% of the anchor private placement warrants it has purchased if it does not also purchase 9.9% of the units in our offering (without regard to the exercise of the over-allotment option), or if it purchases such units but sells units or public shares or redeems public shares prior to or in connection with the completion of our initial business combination such that it no longer holds public shares equal in number to at least 9.9% of the number of units sold in our offering (without regard to the exercise of the over-allotment option). Following the completion of our initial business combination, the anchor founder shares and the anchor private placement warrants, respectively, will be subject to the same lock-up restrictions as all other founder shares and private placement warrants, respectively. Following the completion of our initial business combination, PSAM’s public shares will be subject to a lock-up restricting their sale or other transfer, such that 50% of such shares will become freely tradable (subject to applicable securities laws) after 30 days and the remaining 50% of such shares will become freely tradable (subject to applicable securities laws) after 90 days. If PSAM does not sell units or public shares or redeem public shares such that it holds a lesser number of public shares than 9.9% of the number of units sold in our offering and complies with the post-business combination lock-ups, then our sponsor will thereafter extend to PSAM a right of first refusal to participate on substantially similar terms in our sponsor’s next special purpose acquisition company (if any) and, if PSAM similarly invests and holds in any such second special purpose acquisition company, then our sponsor will extend to PSAM a right of first refusal to participate on substantially similar terms in our sponsor’s next special purpose acquisition company thereafter (if any).
PSAM has not been granted any additional stockholder or other rights, and through its membership interests in our sponsor will have no right to control our sponsor or vote or dispose of any founder shares (which will continue to be held and voted by our sponsor until after our initial business combination). In addition, PSAM is not required to vote any of its public shares in favor of our initial business combination or for or against any other matter presented for a stockholder vote. Nevertheless, purchases by PSAM of units in our offering, or of our securities in the open market after the completion of our offering, or both, could potentially allow PSAM to control a sufficient number of public shares to influence the conduct of our business, including with respect to a business combination. No assurance can be given as to the amount of securities PSAM may retain or purchase in the open market following our offering.
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NOTE 7. COMMITMENTS
Registration Rights
Pursuant to a registration rights agreement entered into on January 28, 2021, the holders of the Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans (and any Class A common stock issuable upon the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans and upon conversion of the Founder Shares) will have registration rights to require the Company to register a sale of any of the securities held by them. The holders of these securities will be entitled to make up to three demands, excluding short form registration demands, that the Company register such securities for sale under the Securities Act. In addition, these holders will have “piggy-back” registration rights to include their securities in other registration statements filed by the Company, subject to certain limitations. The registration rights agreement does not contain liquidated damages or other cash settlement provisions resulting from delays in registering our securities. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The underwriters are entitled to a deferred fee
of $
NOTE 8. STOCKHOLDERS’ EQUITY
Preferred Stock — The Company
is authorized to issue
Class A Common Stock — The
Company is authorized to issue
Class B Common Stock —
The Company is authorized to issue
Holders of Class A common stock and holders of Class B common stock will vote together as a single class on all matters submitted to a vote of our stockholders except as otherwise required by law.
The shares of Class B common stock will automatically
convert into Class A common stock at the time of a Business Combination, or earlier at the option of the holder, on a one-for-one
basis, subject to adjustment. In the case that additional shares of Class A common stock or equity-linked securities are issued or
deemed issued in connection with a Business Combination, the number of shares of Class A common stock issuable upon conversion of
all Founder Shares will equal, in the aggregate, on an as-converted basis,
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NOTE 9. WARRANT LIABILITIES
As of September 30, 2021, there were
The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act covering the issuance of the shares of Class A common stock underlying the warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration. No warrant will be exercisable and the Company will not be obligated to issue shares of Class A common stock upon exercise of a warrant unless Class A common stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants.
The Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of a Business Combination, it will use its best efforts to file with the SEC a registration statement registering the issuance of the shares of Class A common stock issuable upon exercise of the warrants, to cause such registration statement to become effective and to maintain a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed, as specified in the warrant agreement. If a registration statement covering the shares of Class A common stock issuable upon exercise of the warrants is not effective by the 60th business day after the closing of a Business Combination or within a specified period following the consummation of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” pursuant to the exemption provided by Section 3(a)(9) of the Securities Act; provided that such exemption is available. If that exemption, or another exemption, is not available, holders will not be able to exercise their warrants on a cashless basis.
Redemption of Warrants When the Price per share of Class A common stock Equals or Exceeds $18.00 — Once the warrants become exercisable, the Company may redeem the outstanding Public Warrants:
| ● | in whole and not in part; |
| ● | upon a minimum of 30 days’ prior written notice of redemption to each warrant holder; and |
If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
Redemption of Warrants When the Price per share of Class A common stock Equals or Exceeds $10.00 —Once the warrants become exercisable, the Company may redeem the outstanding warrants:
| ● | in whole and not in part, and only if the Private Placement Warrants are simultaneously redeemed; |
| ● | at a price of $0.01 per warrant; |
| ● | 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 based on the redemption date and the “fair market value” of the shares of Class A common stock; |
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The exercise price and number of Class A common stock issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, except as described below, the Public Warrants will not be adjusted for issuances of Class A common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the Public Warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of Public Warrants will not receive any of such funds with respect to their Public Warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such Public Warrants. Accordingly, the Public Warrants may expire worthless.
In addition, if (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of its initial Business Combination at an issue price or effective issue price of less than $9.20 per share of Class A common stock (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance to the Sponsor or its affiliates, without taking into account any Founder Shares held by the Sponsor or such affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of the Company’s initial Business Combination on the date of the consummation of such initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Company’s common stock during the 20 trading day period starting on the trading day prior to the day on which the Company consummates its initial Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price and the $18.00 per share redemption trigger price described above will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price and the $10.00 per share redemption trigger price described above will be adjusted (to the nearest cent) to be equal to the higher of the Market Value and the Newly Issued Price.
As of September 30, 2021, there were
NOTE 10. FAIR VALUE MEASUREMENTS
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
| 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. |
At September 30, 2021, assets held in the Trust
Account was comprised of $
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The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at September 30, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.
| Level | September 30, 2021 | |||||||
| Assets: | ||||||||
| Money Market Funds | 1 | $ | ||||||
| Liabilities: | ||||||||
| Warrant Liability – Public Warrants | 1 | |||||||
| Warrant Liability – Private Placement Warrants | 3 | |||||||
The Warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on our accompanying September 30, 2021 condensed balance sheet. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liabilities in the condensed statement of operations.
The Private Placement Warrants were valued using a Black Scholes Option Pricing Model, which is considered to be a Level 3 fair value measurement. The Modified Black Scholes model’s primary unobservable input utilized in determining the fair value of the Private Placement Warrants is the expected volatility of the common stock. The expected volatility as of the Initial Public Offering date was derived from observable public warrant pricing on comparable ‘blank-check’ companies without an identified target. The Public Warrants were initially valued using a Monte Carlo simulation approach. For periods subsequent to the detachment of the warrants from the Units, the closing trading price for the public warrants was used as the fair value of the Public Warrants.
The key inputs into the Black Scholes model and the Monte Carlo Simulation for the warrants were as follows:
| Input | September 30, 2021 | |||
| Market price | $ | |||
| Risk-free interest rate | % | |||
| Dividend yield | % | |||
| Effective volatility | % | |||
| Exercise price | $ | |||
| Time to expiration | ||||
The following table presents the changes in the fair value of warrant liabilities using Level 3 fair value measurements:
| Private Placement Warrants | Public Warrants | Warrant Liabilities | ||||||||||
| Fair value as of January 1, 2021 | $ | $ | $ | |||||||||
| Initial measurement on February 2, 2021 | ||||||||||||
| Change in fair value | ( | ) | ( | ) | ( | ) | ||||||
| Transfer to Level 1 | ( | ) | ( | ) | ||||||||
| Fair value as of September 30, 2021 | $ | |||||||||||
Transfers to/from Levels 1, 2 and 3 are recognized
at the end of the reporting period in which a change in valuation technique or methodology occurs. The estimated fair value of the public
warrants transferring from a Level 3 measurement to a Level 1 fair value measurement during the three and nine months ended September
30, 2021 was approximately $
NOTE 11. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed financial statements were issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed financial statements, other than the restatement discussed in Note 2.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this Quarterly Report on Form 10-Q/A (the “Form 10-Q/A”) to the “Company,” “Z-Work,” “our,” “us” or “we” refer to Z-Work Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors and references to “Sponsor” refer to Z-Work Acquisition, LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this Form 10-Q/A. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Form 10-Q/A 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 10-Q 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 10-K 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.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations has been amended and restated to give effect to the restatement of our financial statements as of March 31, 2021 and June 30, 2021. Management identified errors made in its historical financial statements where, at the closing of our Initial Public Offering, we improperly valued our Class A common stock subject to possible redemption. We previously determined the Class A common stock subject to possible redemption to be equal to the redemption value of $10.00 per share of Class A common stock while also taking into consideration a redemption cannot result in net tangible assets being less than $5,000,001. Management determined that the Class A common stock issued during the Initial Public Offering can be redeemed or become redeemable subject to the occurrence of future events considered outside of the Company’s control. Therefore, management concluded that the redemption value should include all Class A common stock subject to possible redemption, resulting in the Class A common stock subject to possible redemption being equal to their redemption value. As a result, management has noted a reclassification error related to temporary equity and permanent equity. This resulted in a restatement to the initial carrying value of the Class A common stock subject to possible redemption with the offset recorded to additional paid-in capital (to the extent available), accumulated deficit and Class A common stock. In connection with the change in presentation for the shares of Class A common stock subject to redemption, the Company also restated its income (loss) per common share calculated to allocate net income (loss) evenly to Class A and Class B common stock. This presentation contemplates a Business Combination as the most likely outcome, in which case, both classes of common stock pro rata in the income (loss) of the Company.
Overview
We are a blank check company formed under the laws of the State of Delaware on September 30, 2020, for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses. We intend to effectuate our business combination using cash from the proceeds of the offering and the sale of the Private Placement Warrants, our capital stock, debt or a combination of cash, stock and debt.
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.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues to date. Our only activities for the three and nine months ended September 30, 2021, were organizational activities and those necessary to prepare for the offering, described below, and after the completion of our offering, identifying a target company for a business combination. We do not expect to generate any operating revenues until after the completion of our initial business combination. We generate non-operating income in the form of interest income on marketable securities held after the offering. 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 in connection with searching for, and completing, a business combination. Additionally, we recognize non-cash gains and losses with other income (expense) related to changes in recurring fair value measurement of our warrant liabilities at each reporting period.
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For the three months ended September 30, 2021, we had net income of $2,147,156, which consisted of the change in fair value of warrants of $3,271,333 and income on investments held in the Trust Account of $4,916, offset by operating costs of $1,129,093.
For the nine months ended September 30, 2021, we had a net income of $3,316,995, which consisted of the change in fair value of warrants of $5,893,334 and income on investments held in the Trust Account of $29,159, offset by operating costs of $2,116,139 and transaction costs of $489,399 incurred in connection with warrant liabilities.
Liquidity and Capital Resources
On February 2, 2021, we consummated the offering of 23,000,000 units (the “Units” and, with respect to the Class A common stock included in the Units sold, the “Public Shares”), at a price of $10.00 per Units, which included the full exercise by the underwriters of their over-allotment option in the amount of 3,000,000 Units, generating gross proceeds of $230,000,000. Simultaneously with the closing of the offering, we consummated the sale of 4,733,333 warrants (the “Private Placement Warrants”) to the Sponsor and Jefferies LLC (“Jefferies”) at a price of $1.50 per Private Placement Warrant generating gross proceeds of $7,100,000.
Following the offering, the full exercise of the over-allotment option, and the sale of the Private Placement Warrants, a total of $230,000,000 was placed in the Trust Account. We incurred $13,088,318 in transaction costs, including $4,600,000 of underwriting fees, $8,050,000 of deferred underwriting fees and $438,919 of other offering costs.
For the nine months ended September 30, 2021, net cash used in operating activities was $1,136,204, which consisted of our net income of $3,316,955 and transaction costs allocated to warrant liabilities of $489,399, offset by change in fair value of warrant liabilities of $5,893,334 and income on investments held in the Trust Account of $29,159. Changes in operating assets and liabilities provided $979,935 of cash from operating activities.
As of September 30, 2021, we had cash of $1,075,056 held outside 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 may 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 warrants, at a price of $1.50 per warrant, at the option of the lender. The warrants would be identical to the Private Placement Warrants.
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 in-depth 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.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of September 30, 2021.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than the administrative support agreement with our Sponsor, under which we began to incur monthly fees in connection with our offering.
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Administrative Services Agreement
Pursuant to the agreement, we pay our Sponsor a monthly fee of $12,500 until the earlier of the consummation of an initial business combination or the Company’s liquidation (or its earlier termination), or $150,000 per year, $100,000 of which will be paid to our President, Chief Financial Officer, as an annual cash salary and $50,000 of which will be paid for additional support services expected to be sourced from Communitas Capital, a venture firm of which our Executive Co-Chairman is Managing Partner. We will continue to incur these fees monthly until the earlier of the completion of the business combination and our liquidation.
Deferred Underwriters Fees
Additionally, the underwriters of our offering are entitled to a deferred fee of $0.35 per share, or $8,050,000 in the aggregate of which $6.9 million is deferred and held in the Trust Account and $1.15 million was used to purchase warrants in connection with our offering. 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.
Registration Rights
The holders of Founders Shares, Private Placement Warrants issued in connection with the offering and Private Placement warrants that may be issued upon conversion of working capital loans (and the securities underlying such securities) have registration rights to require us to register a sale of any of our securities held by them. These holders may make up to three demands, excluding short form registration demands, that we register such securities for sale under the Securities Act. In addition, these holders will have “piggy-back” registration rights to include their securities in other registration statements filed by us, subject to certain limitations. We will bear the expenses incurred in connection with the filing of any such registration statements.
Critical Accounting Policies
The preparation of 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 period reported. Actual results could materially differ from those estimates. We have not identified any critical accounting policies.
Warrant Liabilities
We account for the Warrants (as defined herein) in accordance with the guidance contained in Accounting Standards Codification (“ASC”) 815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity (“ASC 815-40”), 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 re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations. The Private Placement Warrants are valued using a Black Scholes Option Pricing Model. The Public Warrants for periods where no observable traded price was available are valued using a Monte Carlo simulation. For periods subsequent to the detachment of the Public Warrants from the Units, the Public Warrant quoted market price was used as the fair value as of each relevant date.
Class A Common Stock Subject to Possible Redemption
We account for our Class A common stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Shares of Class A common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that feature redemption rights that is 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’ equity section of our condensed balance sheets.
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Net Income Per Common Share
Net income per common share is computed by dividing net income by the weighted average number of common stock outstanding for the period. The Company applies the two-class method in calculating earnings per share. Accretion associated with the redeemable shares of Class A common stock is excluded from earnings per share as the redemption value approximates fair value.
Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 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 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 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 2020-06 would have on its financial position, results of operations or cash flows.
Management does not believe that any other recently issued, but not yet effective, accounting standards, including the standard referenced in the next paragraph, if currently adopted, would have a material effect on our condensed financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), 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.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Executive Co-Chairman and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2021. Based upon their evaluation, our Executive Co-Chairman and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective, due to the material weakness in our internal control over financial reporting related to the Company’s accounting for complex financial instruments. As a result, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the period presented.
Management has implemented remediation steps to improve our internal control over financial reporting. Specifically, we expanded and improved our review process for complex securities and related accounting standards. We plan to further improve this process by enhancing access to accounting literature, identification of third-party professionals with whom to consult regarding complex accounting applications and consideration of additional staff with the requisite experience and training to supplement existing accounting professionals.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2021 covered by this Form 10-Q/A that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION.
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
As of the date of this Form 10-Q/A, there have been no material changes from the risk factors previously disclosed in the Company’s most recent prospectus for our Annual Report on Form 10-K filed with the SEC on March 30, 2021. 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, other than the following:
In connection with the recent restatement of our financial statements, we have identified a material weakness in our internal control over financial reporting as of September 30, 2021 due to a material weakness in internal control over financial reporting related to our accounting for complex financial instruments. If we are unable to develop and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our business and operating results.
As described elsewhere in this Quarterly Report on Form 10-Q/A, we have identified a material weakness in our internal control over financial reporting related to the Company’s accounting and reporting of complex financial instruments, including application of ASC 480-10-S99-3A to its accounting classification of public shares. As a result of this material weakness, our management has concluded that our disclosure controls and procedures were not effective as of September 30, 2021. See “Note 2—Restatement of Previously Issued Financial Statements” to the accompanying financial statements, as well as Part I. Item 4. Controls and Procedures included in this Quarterly Report on Form 10-Q/A. We have taken a number of measures to remediate the material weaknesses described herein. However, if we are unable to remediate our material weaknesses in a timely manner or we identify additional material weaknesses, we may be unable to provide required financial information in a timely and reliable manner and we may incorrectly report financial information. 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 ordinary shares are listed, the SEC or other regulatory authorities. The existence of material weaknesses in internal control over financial reporting could adversely affect our reputation or investor perceptions of us, which could have a negative effect on the trading price of our shares. We can give no assurance that the measures we have taken and plan to take in the future will remediate the material weakness identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls. Even if we are successful in strengthening our controls and procedures, in the future those controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our financial statements.
Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. We continue to evaluate steps to remediate the material weakness. These remediation measures may be time consuming and costly and there is no assurance that these initiatives will ultimately have the intended effects.
If we identify any new material weaknesses in the future, any such newly identified material weakness could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim financial statements. In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and our stock price may decline as a result. We cannot assure you that any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Default Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
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Item 6. Exhibits
The following exhibits are filed as part of or incorporated by reference into this Quarterly Report on Form 10-Q/A:
| * | Filed herewith. |
| ** | The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q/A and are not deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Z-WORK ACQUISITION CORP. | |||
| Date: December 23, 2021 | By: | /s/ Doug Atkin | |
| Name: | Doug Atkin | ||
| Title: | Executive Co-Chairman | ||
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