UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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) | (IRS Employer Identification No.) |
(Address of principal executive offices including zip code)
(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 | ||
| The | ||||
| The | ||||
| The |
Check whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| 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
As of August 10, 2022,
COLICITY INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2022
INDEX
| Page | ||
| PART I. FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements (unaudited): | 1 |
| Condensed Balance Sheets | 1 | |
| Condensed Statements of Operations | 2 | |
| Condensed Statements of Changes in Stockholders’ Deficit | 3 | |
| Condensed Statements of Cash Flows | 4 | |
| Notes to Condensed Financial Statements | 5 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 24 |
| Item 4. | Controls and Procedures | 24 |
| PART II. OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 25 |
| Item 1A. | Risk Factors | 25 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 25 |
| Item 3. | Defaults Upon Senior Securities | 26 |
| Item 4. | Mine Safety Disclosures | 26 |
| Item 5. | Other Information | 26 |
| Item 6. | Exhibits | 26 |
| Signatures | 27 | |
i
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
COLICITY INC.
CONDENSED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS: | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Marketable securities held in Trust Account | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT: | ||||||||
| Current liabilities: | ||||||||
| Accrued expenses | $ | $ | ||||||
| Federal tax payable | - | |||||||
| Franchise tax payable | ||||||||
| Total current liabilities | ||||||||
| Warrant liabilities | ||||||||
| Deferred underwriting fee payable | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Class A common stock subject to possible redemption, | ||||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock, $ | ||||||||
| Class A common stock, $ | ||||||||
| Class B common stock, $ | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
1
COLICITY INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| General and administrative expenses | $ | $ | $ | $ | ||||||||||||
| Franchise tax expense | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense), net | ||||||||||||||||
| Interest earned on marketable securities held in Trust Account | ||||||||||||||||
| Warrant offering costs | ( | ) | ||||||||||||||
| Change in fair value of warrant liabilities | ( | ) | ( | ) | ||||||||||||
| Other income (expense), net | ( | ) | ( | ) | ||||||||||||
| Income (loss) before provision for income taxes | ( | ) | ( | ) | ||||||||||||
| Provision for income taxes | ||||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Basic and diluted weighted average shares outstanding of Class A common stock subject to possible redemption | ||||||||||||||||
Basic and diluted net income (loss) per share, Class A common stock subject to possible redemption | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Basic and diluted weighted average shares outstanding of Class B non-redeemable common stock | ||||||||||||||||
Basic and diluted net income (loss) per share, Class B non-redeemable common stock | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
2
COLICITY INC.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(Unaudited)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
| Class A | Class B | Additional | Total | |||||||||||||||||||||||||
| Common Stock | Common Stock | Paid | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | in Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance – December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net income | - | - | - | - | ||||||||||||||||||||||||
| Balance – March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net income | - | - | - | - | ||||||||||||||||||||||||
| Balance – June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021
| Class A | Class B | Additional | Total | |||||||||||||||||||||||||
| Common Stock | Common Stock | Paid | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | in Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance – December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Accretion for Class A common stock to possible redemption amount | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||
| Balance – March 31, 2021 | ( | ) | ( | |||||||||||||||||||||||||
| Net Loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||
| Balance – June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
3
COLICITY INC.
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
| For the six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Interest earned on marketable securities held in Trust Account | ( | ) | ( | ) | ||||
| Deferred warrant offering costs | ||||||||
| Change in fair value of warrant liabilities | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Federal tax payable | ||||||||
| Franchise tax payable | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Investment of cash into Trust Account | ( | ) | ||||||
| Cash withdrawn from Trust Account to pay taxes | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from sale of Units (including $ | ||||||||
| Proceeds from sale of Private Placement Warrants | ||||||||
| Proceeds from promissory note – related party | ||||||||
| 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 | $ | $ | ||||||
| Supplemental disclosure: | ||||||||
| Income taxes paid | $ | $ | - | |||||
| Non-Cash financing activities: | ||||||||
| Accretion for Class A common stock to possible redemption amount | $ | $ | ||||||
| Deferred underwriting fee payable | ||||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
4
COLICITY INC.
Notes to Condensed Financial Statements
(Unaudited)
Note 1—Description of Organization and Business Operations
Colicity Inc. (the “Company”) was incorporated in Delaware on October 19, 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”). Although the Company is not limited to a particular industry or sector for purposes of consummating a Business Combination, the Company intends to initially focus its search on identifying a prospective target business in the technology, media and telecommunications industries in the United States and other developed countries.
All activity for the period from October 19, 2020 (inception) through June 30, 2022 relates to the Company’s formation, its Initial Public Offering (as defined below), and identifying a target company for a Business Combination. The Company will not generate any operating revenues until after the completion of a Business Combination, at the earliest. The Company generates non-operating income in the form of interest income from the proceeds of the Initial Public Offering.
The Company’s sponsor
is X-icity Holdings Corporation, a Washington corporation (the “sponsor”). The registration statement for the Initial Public
Offering was declared effective on February 23, 2021. On February 26, 2021, the Company consummated the Initial Public Offering of
Simultaneously with the closing
of the Initial Public Offering, the Company completed the private sale (the “Private Placement”) of an aggregate of
Upon the closing of the Initial
Public Offering and the Private Placement, a total 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 having an aggregate fair market value of at least
5
The Company will provide
holders of the Company’s outstanding shares of Class A common stock, par value $
The Company’s Certificate
of Incorporation provides 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”)), is restricted from redeeming its shares with respect to more than an aggregate of
The sponsor and the Company’s
officers and directors (the “initial stockholders”) have agreed not to propose an amendment to the Certificate of Incorporation
to modify the substance or timing of the Company’s obligation to redeem
If the Company is unable
to complete a Business Combination by February 26, 2023 (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
(less amounts released to pay taxes and up to $
6
The initial stockholders
have agreed to waive their rights to liquidating distributions from the Trust Account with respect to the Founder Shares if the Company
fails to complete a Business Combination within the Combination Period. However, if the initial stockholders acquire Public Shares in
or after the Initial Public Offering, they will be entitled to liquidating distributions from the Trust Account with respect to such Public
Shares if the Company fails to complete a Business Combination within the Combination Period. The underwriters have agreed to waive their
rights to the deferred underwriting commission (see Note 6) held in the Trust Account in the event the Company does not complete a Business
Combination within in the Combination Period and, in such event, such amounts will be included with the other funds held in the Trust
Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the
per share value of the residual assets remaining available for distribution (including Trust Account assets) will be only $
Note 2—Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements are presented in U.S. dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. 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 U.S. GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. 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 Annual Report on Form 10-K filed with the SEC on March 1, 2022 (the “Annual Report”). The financial information as of December 31, 2021 is derived from the audited financial statements presented in the Annual Report. The interim results for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any future interim periods.
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.
7
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 an emerging growth 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 an 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 those of another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Liquidity and Going Concern
As of June 30, 2022, the
Company had approximately $
Prior to the completion of
the Initial Public Offering, the Company’s liquidity needs had been satisfied through the receipt of $
If the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination exceed the available funds in the operating account, we would have insufficient funds available to operate our business prior to a Business Combination. In order to finance transaction costs in connection with a Business Combination, the sponsor may, but is not obligated to, provide the Company Working Capital Loans (as defined in Note 5). As of June 30, 2022 and December 31, 2021, there were no Working Capital Loans outstanding.
The accompanying condensed
financial statements have been prepared assuming that the Company will continue as a going concern. However, if the Company is unable
to complete a Business Combination by February 26, 2023, then the Company will: (i) cease all operations except for the purpose of liquidating,
(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 (less amounts released to pay
the Company’s taxes and up to $
In connection with the Company’s assessment of going concern considerations in accordance with FASB Accounting Standards Update 2014-15, Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management has determined that the Company’s liquidity needs as well as the mandatory liquidation and subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern. The condensed financial statements do not include any adjustments that might result from the Company’s inability to continue as a going concern, should the Company be required to liquidate after February 26, 2023, as it is management’s intent to consummate a business combination prior to the mandatory liquidation date.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires 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.
8
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 events. One of the more significant accounting estimates included in these financial statements is the determination of 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 June 30, 2022 and December 31, 2021.
Marketable Securities Held in Trust Account
At June 30, 2022 and December
31, 2021, substantially all of the assets held in the Trust Account are in money market funds which are invested in U.S. Treasury securities.
Through June 30, 2022, the Company had withdrawn an aggregate of $
Offering Costs Associated with the Initial Public Offering
Offering costs consist of
legal, accounting, underwriting fees and other costs incurred that are directly related to the Initial Public Offering. Offering costs
amounted to $
Warrant Liabilities
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, meet the definition of a derivative pursuant to ASC 815, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and at fair value at each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the condensed statements of operations. The fair value of the warrants as of June 30, 2022 and December 31, 2021, was estimated using a Monte Carlo simulation approach for the Private Placement Warrants and market price for the public warrants (see Note 9).
Class A Common Stock Subject to Possible Redemption
The Company accounts for
its common stock subject to possible redemption in accordance with the guidance in ASC 480. 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 June 30, 2022 and December 31, 2021, all of the Company’s
9
The Company classifies all of its shares of Class A common stock as redeemable. Immediately upon the closing of the Initial Public Offering, the Company recognized the accretion from initial book value to redemption amount. The change in the carrying value of redeemable shares of Class A common stock resulted in charges against additional paid-in capital (to the extent available) and accumulated deficit.
The Class A common stock subject to possible redemption reflected on the condensed balance sheets as of June 30, 2022 and December 31, 2021 is reconciled in the following table:
| Gross proceeds | $ | |||
| Less: | ||||
| Proceeds allocated to public warrants | ( | ) | ||
| Class A common stock offering costs | ( | ) | ||
| Plus: | ||||
| Accretion of carrying value to possible redemption amount | ||||
| Class A common stock subject to possible redemption | $ |
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under FASB ASC 740, Income Taxes (“ASC 740”). Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement 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.
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 June 30, 2022 and December 31, 2021. 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.
For the three and six months ended June 30, 2022, the Company has utilized the discrete effective tax rate method, as permitted by ASC 740-270-30-18, to calculate its interim income tax provision. The discrete method is applied when it is not possible to reliably estimate the annual effective tax rate and uses the actual effective tax rate for the year to date as the best estimate of the annual effective tax rate used to determine the income tax expense or benefit for an interim period. The Company believes that the use of the discrete method is currently more appropriate because the Company cannot reliably estimate its annual effective tax rate due to the high degree of uncertainty in forecasting (i) gain or loss from changes in the fair value of the warrant liabilities that may occur before the end of the annual reporting period and (ii) interest income from U.S. Treasury securities held in the Trust Account.
The Company’s currently
taxable income primarily consists of interest income on funds held in the Trust Account less any franchise taxes. The Company’s
general and administrative costs are generally considered start-up costs and are not currently deductible. For the three and six months
ended June 30, 2022, the Company recorded income tax expense of $
Net Income (loss) per Common Share
Net income (loss) per common
share is computed by dividing net income by the weighted average number of shares of common stock outstanding for the period. The Company
has not considered the effect of warrants sold in the Initial Public Offering and the Private Placement to purchase
10
The Company has two classes of common shares, which are referred to as Class A common stock and Class B common stock. Income and losses are shared pro rata between the two classes of common shares. This presentation assumes a business combination as it is management’s intent to consummate a business combination prior to the mandatory liquidation date. Accretion associated with the redeemable shares of Class A common stock is excluded from net income (loss) per share as the redemption amount approximates fair value.
The table below presents a reconciliation of the numerator and denominator used to compute basic and diluted net income (loss) per share for each class of common stock (in dollars, except share amounts):
| Three Months Ended June 30 | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Class A | Class B | Class A | Class B | |||||||||||||
| Basic and diluted net income (loss) per common share: | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Allocation of net income (loss) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Denominator: | ||||||||||||||||
| Basic and diluted weighted average common shares outstanding | ||||||||||||||||
| Basic and diluted net income (loss) per common share | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Six Months Ended June 30 | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Class A | Class B | Class A | Class B | |||||||||||||
| Basic and diluted net income (loss) per common share: | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Allocation of net income (loss) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Denominator: | ||||||||||||||||
| Basic and diluted weighted average common shares outstanding | ||||||||||||||||
| Basic and diluted net income (loss) 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 Deposit Insurance Corporation coverage limit of $
Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, Fair Value Measurements and Disclosures, approximates the carrying amounts represented in the condensed balance sheets, except for the warrant liabilities (see Note 9).
Recent Accounting Pronouncements
The Company’s management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
Note 3—Initial Public Offering
On February 26, 2021, the
Company consummated the Initial Public Offering of
Each Unit consists of one
share of Class A common stock, par value $
11
Pendrell Corporation, the
parent of the sponsor (“Pendrell”), and an affiliate of Craig McCaw, the Company’s chief executive officer, purchased
an aggregate of
Note 4—Private Placement
Simultaneously with the closing
of the Initial Public Offering, the Company completed the Private Placement of an aggregate of
The sponsor and the Company’s officers and directors agreed, subject to limited exceptions, not to transfer, assign or sell any of their Private Placement Warrants until 30 days after the completion of the initial Business Combination.
Note 5—Related Party Transactions
Founder Shares
On October 20, 2020, the
sponsor paid for certain offering costs for an aggregate price of $
The initial stockholders
have agreed, subject to limited exceptions, not to transfer, assign or sell any of the Founder Shares until the earlier to occur of:
12
Related Party Loans
On October 20, 2020, the
sponsor agreed to loan the Company an aggregate of up to $
In addition, 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 or, at the lender’s discretion, up to $
Administrative Services Agreement
The Company entered into
an agreement whereby, commencing on February 23, 2021 and continuing until the earlier of the Company’s consummation of a Business
Combination or the Company’s liquidation, the Company will pay an affiliate of the sponsor a total of $
The sponsor, executive officers and directors, or any of their respective affiliates, will be reimbursed for any out-of-pocket expenses incurred in connection with activities on the Company’s behalf such as identifying potential target businesses and performing due diligence on suitable Business Combinations. The Company’s audit committee will review on a quarterly basis all payments that were made to the sponsor, officers, directors or their affiliates.
Note 6—Commitments and Contingencies
Registration Rights
The holders of Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans, if any, (and any shares of Class A common stock issuable upon the exercise of the Private Placement Warrants, warrants that may be issued upon conversion of Working Capital Loans and upon conversion of the Founder Shares) are entitled to registration rights pursuant to a registration rights agreement. These holders are entitled to certain demand and “piggyback” registration rights. The Company will bear the expenses incurred in connection with the filing of any such registration statement. The registration rights agreement does not provide for any maximum cash penalties nor any penalties connected with delays in registering the Company’s common stock.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of these condensed financial statements. The condensed financial statements do not include any adjustments that might results from the outcome of this uncertainty.
Additionally, management notes that in February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy are not determinable as of the date of these unaudited condensed financial statements and the specific impact on the Company’s financial condition, results of operations, and cash flows is also not determinable as of the date of these unaudited condensed financial statements.
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Underwriting Agreement
The underwriters received an underwriting discount of $0.20 per unit (excluding the 400,000 units purchased by Pendrell and an affiliate of Craig McCaw as well as 517,500 shares purchased by certain other parties (total of 917,500 shares) with respect to which no underwriting discount is payable), or $6,716,500 in the aggregate, upon the closing of the Initial Public Offering. $0.35 per unit (excluding the 400,000 units purchased by Pendrell and an affiliate of Craig McCaw as well as 517,500 shares purchased by certain other parties (total of 917,500 shares) with respect to which no underwriting discount is payable), or $11,753,875 in the aggregate will be payable to the underwriters for deferred underwriting commissions. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
On July 19, 2022, one of
the Company’s underwriters waived entitlement to deferred underwriting fees payable of $
Note 7 — Stock
Class A Common
Stock — The Company is authorized to issue
Class B Common
Stock — The Company is authorized to issue
Stockholders of record are entitled to one vote for each share held on all matters to be voted on by stockholders. 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 the Company’s stockholders except as required by law.
The Class B common stock
will automatically convert into Class A common stock at the time of the initial Business Combination on a one-for-one basis, subject
to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like, and subject to further adjustment as
provided herein. In the case that additional shares of Class A common stock or equity-linked securities are issued or deemed issued
in connection with the initial 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,
Preferred Stock —
The Company is authorized to issue
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Note 8 — Warrant Liabilities
Public Warrants may only
be exercised for a whole number of shares. No fractional Public Warrants will be issued upon separation of the Units and only whole Public
Warrants will trade. The Public Warrants will become exercisable on the later of (a) 30 days after the completion of a Business Combination
or (b) 12 months from the closing of the Initial Public Offering; provided in each case that the Company has an effective registration
statement under the Securities Act covering the shares of Class A common stock issuable upon exercise of the Public Warrants and
a current prospectus relating to them is available (or the Company permits holders to exercise their Public Warrants on a cashless basis
and such cashless exercise is exempt from registration under the Securities Act). 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, the Company will use its best efforts to file
with the SEC a registration statement for the registration, under the Securities Act, of the shares of Class A common stock issuable
upon exercise of the Public Warrants. The Company will use its best efforts to cause the same to become effective and to maintain the
effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the Public Warrants in
accordance with the provisions of the warrant agreement. Notwithstanding the above, if the Class A common stock is at the time of
any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security”
under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Public Warrants who exercise their
warrants to do so on a “cashless” basis, and, in the event the Company so elects, the Company will not be required to file
or maintain in effect a registration statement, but the Company will be required to use its best efforts to register or qualify the shares
under applicable blue sky laws to the extent an exemption is not available. The Public Warrants will expire
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 initial stockholders or their affiliates, without taking into account any Founder Shares held by the initial stockholders or such affiliates, as applicable, prior to such issuance), (y) the aggregate gross proceeds from such issuances represent more than 50% of the total equity proceeds, and interest thereon, available for the funding of the initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Class A common stock during the 10 trading day period starting on the trading day after the day on which the Company consummates the initial Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the Public 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 of the Public Warrants will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price.
The Private Placement Warrants
are identical to the Public Warrants, except that the Private Placement Warrants and the shares of Class A common stock issuable
upon exercise of the Private Placement Warrants will not be transferable, assignable or saleable until 30 days after the completion of
a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants will be non-redeemable so
long as they are held by the sponsor or its permitted transferees, unless the Company calls for a redemption of all warrants when the
reported price of the Class A common stock is at least $
The Company may call only the Public Warrants for redemption:
| ● | in whole and not in part; |
| ● | at a price of $0.01 per warrant; |
| ● | upon a minimum of 30 days’ prior written notice of redemption; and |
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement.
The Company may call both the Private Placement Warrants and the Public Warrants for redemption:
| ● | in whole and not in part; |
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| ● | at a price of $0.10 per warrant; |
| ● | upon a minimum of 30 days’ prior written notice of redemption; and |
| ● | if, and only if, (i) there is an effective registration statement covering the Class A common stock issuable upon exercise of the warrants, and a current prospectus relating thereto, available throughout the 30-day redemption period, and (ii) the last reported sales price of the Class A common stock reported has been at least $10.00 per share on the trading day prior to the date on which notice of the redemption is given. |
During this 30-day redemption period in connection with a redemption of warrants when the price of the Class A common stock is at least $10.00 per share and no more than $18.00 per share, the holders of the warrants may elect to receive, in lieu of the redemption price, a number of shares of Class A common stock per warrant determined by reference to the table as set forth in the warrant agreement.
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 warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
Note 9 — Fair Value Measurements
At June 30, 2022 and December
31, 2021, assets held in the Trust Account were comprised of $
At June 30, 2022 and December
31, 2021, there were
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 an assessment of the assumptions that market participants would use in pricing the asset or liability. |
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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 as of June 30, 2022 and December 31, 2021, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| June 30, | December 31, | |||||||||||
| Description | Level | 2022 | 2021 | |||||||||
| Assets: | ||||||||||||
| Marketable securities held in Trust Account - U.S. Treasury Securities | 1 | $ | $ | |||||||||
| Liabilities: | ||||||||||||
| Warrant liabilities - Public Warrants | 2 | $ | $ | |||||||||
| Warrant liabilities - Private Placement Warrants | 3 | |||||||||||
| Total warrant liabilities | $ | $ | ||||||||||
Warrants
The warrants are accounted for as liabilities in accordance with ASC 815 and are presented within warrant liabilities on the condensed balance sheets. 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 statements of operations.
The Company established the initial fair value for the warrants on February 26, 2021, the date of the Company’s Initial Public Offering, using a Monte Carlo simulation model. The Company allocated the proceeds received from (i) the sale of Units (which is inclusive of one share of Class A common stock and one-fifth of one Public Warrant), (ii) the sale of Private Placement Warrants, and (iii) the issuance of Class B common stock, first to the warrants based on their fair values as determined at initial measurement, with the remaining proceeds allocated to Class A common stock subject to possible redemption (temporary equity) and Class B common stock (permanent equity) based on their relative fair values at the initial measurement date.
The warrants were classified as Level 3 at February 26, 2021 due to the use of unobservable inputs. In accordance with the terms of the Units as disclosed in the Prospectus, on April 16, 2021, the shares of Class A common stock and warrants comprising the Units began separate trading on The Nasdaq Capital Market. As a result, the Company began utilizing the market price to determine the fair value of the Public Warrants and the Public Warrants moved from Level 3 to Level 1.
The key inputs into the Monte Carlo simulation model for the Private Placement Warrants were as follows:
| June 30, | December 31, | |||||||
| Input | 2022 | 2021 | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected term (years) | ||||||||
| Expected volatility | % | % | ||||||
| Exercise price | $ | $ | ||||||
| Stock price | $ | $ | ||||||
The Company’s use of a Monte Carlo simulation model required the use of subjective assumptions as follows:
| ● | The risk-free interest rate assumption was based on the U.S. Treasury rate for expected terms, which was commensurate with the contractual term of the warrants, which expire on the earlier of (i) five years after the completion of the initial Business Combination and (ii) upon redemption or liquidation. An increase in the risk-free interest rate, in isolation, would result in an increase in the fair value measurement of the warrant liabilities and vice versa. |
| ● | The expected term was determined based on the exercise period, the warrants become exercisable on the later of (i) 30 days after the completion of a Business Combination and (ii) 12 months from the Initial Public Offering date. An increase in the expected term, in isolation, would result in an increase in the fair value measurement of the warrant liabilities and vice versa. |
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| ● | The expected volatility assumption was based on observed volatilities from comparable publicly-traded companies, determined based on the size and proximity of other similar business combinations, as well as the volatility implied by the public trading price of Colicity Public Warrants and Public Shares. An increase in the expected volatility, in isolation, would result in an increase in the fair value measurement of the warrant liabilities and vice versa. |
| ● | The stock price at Initial Public Offering represents the unit price less one-fifth of the warrant price at the Initial Public Offering date. Commencing April 16, 2021, the Company’s Units were able to be separately traded as Class A common stock and warrants. As a result, the stock price at June 30, 2022 and December 31, 2021, represents the market price of Public Shares on those dates. |
Based on the applied volatility
assumption and the expected term to a business combination, the Company determined that the fair value of the warrant liabilities at February
26, 2021 was $
| Warrant | ||||
| Liabilities | ||||
| Initial measurement on February 26, 2021 | $ | |||
| Change in fair value of warrant liabilities | ||||
| Fair value as of March 31, 2021 | ||||
| Transfers out of Level 3 | ( | ) | ||
| Change in fair value of warrant liabilities | ( | ) | ||
| Fair value as of June 30, 2021 | $ | |||
| Fair value as of December 31, 2021 | $ | |||
| Change in fair value of warrant liabilities | ( | ) | ||
| Fair value as of March 31, 2022 | ||||
| Change in fair value of warrant liabilities | ( | ) | ||
| Fair value as of June 30, 2022 | $ | |||
Note 10 — Subsequent Events
On July 19, 2022, one of the Company’s
underwriters waived entitlement to deferred underwriting fees payable which, at June 30, 2022, were accrued in the amount of $
The Company evaluated subsequent events and transactions that occurred after the balance sheet date through August 10, 2022, the date the unaudited condensed financial statements were issued. Based upon this review, the Company did not identify any subsequent events that, except as noted above, would have required adjustment or disclosure in the financial statements.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Colicity Inc. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to X-icity Holdings Corporation. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the U.S. Securities and Exchange Commission (“SEC”) on March 1, 2022. 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.
Overview
We are a blank check company formed under the laws of the State of Delaware on October 19, 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 (the “Business Combination”). We intend to effectuate our Business Combination utilizing cash from the proceeds of the Initial Public Offering (as defined below), the partial exercise of the Over-Allotment Option (as defined below) and the sale of the Private Placement Warrants (as defined below), our capital stock, debt or a combination of cash, stock and debt. Although we are not limited to a particular industry or sector for purposes of consummating a Business Combination, we intend to initially focus our search on identifying a prospective target business in the technology, media and telecommunications industries in the United States and other developed countries. We are an emerging growth company and, as such, we are subject to all of the risks associated with emerging growth companies.
Our registration statement for the Initial Public Offering was declared effective on February 23, 2021. On February 26, 2021, we consummated the Initial Public Offering of 34,500,000 units (the “Units” and the shares of Class A common stock included in the Units, the “Public Shares”), including the underwriters’ exercise of their full over-allotment option of 4,500,000 units, at $10.00 per Unit (“Over-Allotment Option”), generating gross proceeds of $345.0 million (the “Initial Public Offering”), and incurring offering costs of approximately $18.8 million, inclusive of approximately $11.8 million in deferred underwriting commissions.
Simultaneously with the closing of the Initial Public Offering, we completed the private sale (the “Private Placement”) of an aggregate of 5,933,333 warrants (the “Private Placement Warrants”) to our Sponsor, X-icity Holdings Corporation, at a purchase price of $1.50 per Private Placement Warrant, generating gross proceeds to the Company of $8.9 million.
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Upon the closing of the Initial Public Offering and the Private Placement, a total of $345.0 million was placed in a trust account (“Trust Account”) and we had $2.0 million of cash held outside of the Trust Account, after payment of costs related to the Initial Public Offering, and available for working capital purposes. We incurred $18.9 million in transaction costs, including $6.7 million of underwriting fees, $11.8 million of deferred underwriting fees and $0.3 million of other costs.
Our 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.
If we are unable to complete a Business Combination within 24 months from the closing of the Initial Public Offering, or February 26, 2023, we 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 us (less taxes payable and up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any) and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, liquidate and dissolve, subject, in the case of clauses (ii) and (iii), to our obligations under Delaware law to provide for claims of creditors and in all cases subject to the other requirements of applicable law.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities from October 19, 2020 (inception) through June 30, 2022, were organizational activities, those necessary to prepare for the Initial Public Offering and, after our Initial Public Offering, identifying a target company for a Business Combination. We do not expect to generate any operating revenues until after the completion of a Business Combination. We expect to generate non-operating income in the form of interest income on marketable securities held after the Initial Public 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.
For the three months ended June 30, 2022, we had net income of $2.6 million which primarily consists of a gain of $2.5 million from changes in fair value of warrant liabilities and interest income on marketable securities held in the Trust Account of $0.4 million, partially offset by operating costs of $0.2 million and a $0.1 million provision for income taxes. For the six months ended June 30, 2022, we had net income of $7.6 million which primarily consists of a gain of $7.7 million from changes in fair value of warrant liabilities and interest income on marketable securities held in the Trust Account of $0.5 million, partially offset by operating costs of $0.5 million and a $0.1 million provision for income taxes.
For the three months ended June 30, 2021, we had a net loss of $438,534 which consists of operating costs of $325,388 and a loss from changes in fair value of warrant liabilities of $125,666, partially offset by interest income on marketable securities held in the Trust Account of $12,520. For the six months ended June 30, 2021, we had a net loss of $3,708,632 which consists of operating costs of $440,323, warrant offering costs of $494,746 and a loss from changes in fair value of warrant liabilities of $2,792,999, partially offset by interest income on marketable securities held in the Trust Account of $19,436.
Liquidity and Capital Resources
As of June 30, 2022, we had $0.3 million of cash available for working capital purposes.
Prior to the completion of the Initial Public Offering, our liquidity needs had been satisfied through the Sponsor’s payment of $25,000 of our liabilities in exchange for issuance of 7,187,500 shares of the Company’s Class B common stock, par value $0.0001 per share, (the “Founder Shares”), and a promissory note (the “Note”) issued by the Sponsor. We repaid the Note on February 26, 2021.
On February 26, 2021, we consummated the Initial Public Offering of 34,500,000 Units, including the underwriters’ exercise of their full Over-Allotment Option, generating gross proceeds of $345.0 million. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 5,933,333 Private Placement Warrants to our Sponsor at a purchase price of $1.50 per Private Placement Warrant, generating gross proceeds to the Company of $8.9 million.
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Upon the closing of the Initial Public Offering and the Private Placement, a total of $345.0 million was placed in the Trust Account and we had $2.0 million of cash held outside of the Trust Account, after payment of costs related to the Initial Public Offering, and available for working capital purposes. We incurred $18.9 million in transaction costs, including $6.7 million of underwriting fees, $11.8 million of deferred underwriting fees and $0.3 million of other costs. On July 19, 2022, one of the Company’s underwriters waived entitlement to deferred underwriting fees payable of $8.2 million.
As of June 30, 2022, we had marketable securities held in the Trust Account of $345,265,695. We intend to utilize substantially all of the funds held in the Trust Account, including any amounts representing interest earned on funds in the Trust Account (less deferred underwriting commissions and income taxes payable), to complete our Business Combination. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
For the six months ended June 30, 2022, cash used in operating activities was $0.7 million. Net income of $7.6 million was primarily impacted by the noncash change in fair value of warrant liabilities of $7.7 million, interest earned on marketable securities held in the Trust Account of $0.5 million and changes in operating assets and liabilities which utilized $0.1 million of cash from operating activities.
For the six months ended June 30, 2021, cash used in operating activities was $0.9 million. Net loss of $3.7 million was impacted by the noncash change in fair value of warrant liabilities of $2.8 million and deferred warrant offering costs of $0.3 million and changes in operating assets and liabilities which utilized $0.2 million of cash from operating activities, partially offset by interest earned on marketable securities held in the Trust Account of $0.02 million.
We intend to utilize 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, the initial stockholders or their affiliates may, but are not obligated to, loan us funds as may be required. If we complete a Business Combination, we would repay such loaned amounts. Up to $1.5 million of such loans may be convertible into warrants identical to the Private Placement Warrants, at a price of $1.00 per warrant at the option of the lender. 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.
If the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination exceed the funds available in the operating account, we would 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.
If we are unable to complete a Business Combination by February 26, 2023, then we will: (i) cease all operations except for the purpose of liquidating, (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 (less amounts released to pay taxes and up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, liquidate and dissolve, subject in each case, to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
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In connection with our assessment of going concern considerations in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update 2014-15, Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern, we have determined that our liquidity needs as well as the mandatory liquidation and subsequent dissolution raises substantial doubt about our ability to continue as a going concern. The financial statements contained in this report do not include any adjustments that might result from our inability to continue as a going concern, should we be required to liquidate after February 26, 2023.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of June 30, 2022.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term cash obligations, other than the deferred underwriting commissions described below and an agreement to pay our Sponsor a monthly fee of $10,000 for office space, administrative and support services. We began incurring these fees on February 23, 2021 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination or our liquidation.
Registration Rights
The holders of Founder Shares, Private Placement Warrants, and securities that may be issued upon conversion of working capital loans, if any, will be entitled to registration rights pursuant to a registration rights agreement dated as of February 23, 2021. These holders are entitled to certain demand and “piggyback” registration rights. However, the registration rights agreement provides that we will not permit any registration statement filed under the Securities Act to become effective until the termination of the applicable lock-up period for the securities to be registered. We will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The underwriters were granted a 45-day option from the date of the final prospectus relating to the Initial Public Offering to purchase up to 4,500,000 additional Units to cover over-allotments, if any, at $10.00 per Unit. The underwriters exercised their full Over-Allotment Option concurrent with the consummation of the Initial Public Offering on February 26, 2021.
The underwriters were paid an underwriting discount of $0.20 per unit (excluding the 400,000 units purchased by Pendrell and an affiliate of Craig McCaw as well as 517,500 shares purchased by certain other parties (total of 917,500 shares) with respect to which no underwriting discount is payable), or $6,716,500 in the aggregate, upon the closing of the Initial Public Offering. $0.35 per unit (excluding the 400,000 units purchased by Pendrell and an affiliate of Craig McCaw as well as 517,500 shares purchased by certain other parties (total of 917,500 shares) with respect to which no underwriting discount is payable), or $11,753,875 in the aggregate will be payable to the underwriters for deferred underwriting commissions. 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.
On July 19, 2022, one of the Company’s underwriters waived entitlement to deferred underwriting fees payable of $8.2 million.
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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 periods reported. Actual results could materially differ from those estimates We have identified the following as critical accounting policies:
Class A Common Stock Subject to Possible Redemption
All of the 34,500,000 shares of Class A common stock included in the Units sold as part of the Initial Public Offering contain a redemption feature as described in the prospectus for the public offering. In accordance with the FASB Accounting Standards Codification (“ASC”) Topic 480, Distinguishing Liabilities from Equity, redemption provisions not solely within the control of Colicity Inc. require the security to be classified outside of permanent equity. As a result, all of our Class A common stock is classified as temporary equity.
Our amended and restated certificate of incorporation provides a minimum net tangible asset threshold of $5,000,001. However, we believe classifying all of our common stock subject to possible redemption as temporary equity does not invalidate the $5 million requirement as we will not redeem our Class A common stock in an amount that would cause our net tangible assets to be less than $5,000,001.
Public and Private Placement Warrants
We account for the warrants issued in connection with our Initial Public Offering in accordance with ASC Topic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity (“ASC 815”), under which we have determined that the warrants do not meet the criteria for equity classification and must be recorded as liabilities. As the warrants meet the definition of derivatives as contemplated in ASC 815, the warrants are measured at fair value at inception and at each reporting date, with changes in fair value recognized in the condensed statements of operations in the period of the change.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” and under the JOBS Act are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, the financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company,” we choose to rely on such exemptions we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis) and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our Initial Public Offering or until we are no longer an “emerging growth company,” whichever is earlier.
Recent accounting standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our financial statements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined in Rule 12b-2 under the Exchange Act and are not required to provide the information otherwise required under this item. As of June 30, 2022, we were not subject to significant market or interest rate risk. Following the consummation of our Initial Public Offering, the net proceeds of our Initial Public Offering, including amounts in the Trust Account, have been invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (“Investment Company Act”), having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government treasury obligations. Due to the short-term nature of these investments, we believe there will be no material associated exposure to interest rate risk.
We have not engaged in any hedging activities since our inception and we do not expect to engage in any hedging activities with respect to the market risk to which we are exposed.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer (the “Certifying Officers”), we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the fiscal quarter ended June 30, 2022, as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our Certifying Officers concluded that our disclosure controls and procedures were effective as of June 30, 2022.
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Certifying Officers or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
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 June 30, 2022 covered by this Quarterly Report on Form 10-Q 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 Quarterly Report, other than the additional risk factors described below, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K filed with the SEC on March 1, 2022.
Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, including our ability to negotiate and complete our initial business combination, and results of operations.
We are and will be subject to laws and regulations enacted by national, regional and local governments and, potentially, foreign jurisdictions. In particular, we will be required to comply with certain SEC and other legal requirements, our business combination may be contingent on our ability to comply with certain laws and regulations and any post-business combination company may be subject to additional laws and regulations. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time, including as a result of changes in economic, political, social and government policies, and those changes could have a material adverse effect on our business, including our ability to negotiate or complete our initial business combination, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business, including our ability to negotiate and complete our initial business combination, and results of operations.
On March 30, 2022, the SEC issued proposed rules relating to, among other items, increasing disclosures in business combination transactions involving special purpose acquisition companies (“SPACs”) and private operating companies; amending the financial statement requirements applicable to transactions involving shell companies; changing the treatment of financial projections in SEC filings in connection with proposed business combination transactions; increasing the potential liability of certain participants in proposed business combination transactions; and a proposed safe harbor for SPACs under the Investment Company Act (including certain time limits to announce and consummate a business combination). These proposed rules, if adopted, whether in the form proposed or in revised form, may materially impact our ability to negotiate and complete our initial business combination and may increase the costs and time related thereto.
Recent increases in inflation in the United States and elsewhere could make it more difficult for us to consummate a business combination.
Recent increases in inflation in the United States and elsewhere may be leading to increased price volatility for publicly traded securities, including ours, and may lead to other national, regional and international economic disruptions, any of which could make it more difficult for us to consummate a business combination.
Military conflict in Ukraine could make it more difficult for us to consummate a business combination.
Military conflict in Ukraine may lead to increased price volatility for publicly traded securities, including ours, and to other national, regional and international economic disruptions and economic uncertainty, any of which could make it more difficult for us to identify a business combination partner and consummate a business combination on acceptable commercial terms or at all.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
On October 20, 2020, our Sponsor paid for certain offering costs for an aggregate price of $25,000 in exchange for issuance of 7,187,500 shares of the Company’s Class B common stock, par value $0.0001 per share. On February 3, 2021, we effected a 312,500 share stock dividend, on February 8, 2021, we effected a 1.0541667-for-1 common stock split and on February 23, 2021, we effected a 1.0909091-for-1 common stock split, resulting in an aggregate of 8,625,000 shares of Class B common stock outstanding. Our Sponsor transferred shares to its independent director nominees and various other directors, officers, employees and consultants of the Company and Pendrell, in each case for approximately the same per-share price as initially paid by our Sponsor, resulting in our Sponsor holding 7,708,852 Founder Shares. The foregoing issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
On February 26, 2021, we consummated the Initial Public Offering of 34,500,000 Units, including the issuance of 4,500,000 Units as a result of the underwriters’ exercise of their Over-Allotment Option in full. The Units were sold at an offering price of $10.00 per Unit, generating total gross proceeds of $345.0 million. Goldman Sachs & Co. LLC and PJT Partners LP acted as joint book-running managers of the Initial Public Offering. The securities in the offering were registered under the Securities Act on a registration statement on Form S-1 (No. 333-252811). The SEC declared the registration statement effective on February 23, 2021.
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Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 5,933,333 Private Placement Warrants to our Sponsor at a price of $1.50 per warrant, generating gross proceeds of $8.9 million. The issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
The Private Placement Warrants are identical to the warrants underlying the Units sold in the Initial Public Offering, except that the Private Placement Warrants are not transferable, assignable or salable until after the completion of a Business Combination, subject to certain limited exceptions.
Use of Proceeds
Following the Initial Public Offering, the full exercise of the Over-Allotment Option and the sale of the Private Placement Warrants, a total of $345.0 million was placed in the Trust Account and we had $2.0 million of cash held outside of the Trust Account, after payment of costs related to the Initial Public Offering, and available for working capital purposes.
We paid a total of $6.7 million in underwriting fees and incurred $0.3 million for other costs and expenses related to the Initial Public Offering and the full exercise of the Over-Allotment Option. In addition, the underwriters agreed to defer up to $11.8 million in underwriting fees.
On July 19, 2022, one of the Company’s underwriters waived entitlement to deferred underwriting fees payable of $8.2 million.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| * | These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing. |
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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.
| COLICITY INC. | ||
| (Registrant) | ||
| Date: August 10, 2022 | By: | /s/ Steve Ednie |
| Steve Ednie | ||
| Chief Financial Officer and Secretary | ||
| Principal Financial and Accounting Officer | ||
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