UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
For the transition period from to
Commission File No.
| (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, including zip code) | ||
| (Registrant’s telephone number, including area code) | ||
| N/A | ||
| (Former name, former address and former fiscal year, if changed since last report) | ||
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, and one Warrant | MEOAU | The Nasdaq Stock Market LLC | ||
| The | ||||
| Warrants, each warrant exercisable for one share of Class A Common Stock at an exercise price of $11.50 per share | MEOAW | The Nasdaq Stock Market LLC |
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 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 the 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 | |
| ☒ | ||
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 May 23, 2022, there were
MINORITY EQUALITY OPPORTUNITIES ACQUISITION
INC.
Form 10-Q For the Quarter Ended March 31, 2022
Table of Contents
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements.
MINORITY EQUALITY OPPORTUNITIES ACQUISITION INC.
CONDENSED BALANCE SHEETS
| March 31, 2022 | December 31, | |||||||
| (Unaudited) | 2021 | |||||||
| Assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Cash held in Trust Account | ||||||||
| Prepaid expenses - noncurrent | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities, Redeemable Common Stock and Stockholder’s Deficit | ||||||||
| Accrued offering costs and expenses | $ | $ | ||||||
| Due to Sponsor | ||||||||
| Working capital loans – related party | ||||||||
| Total current liabilities | ||||||||
| Warrant liabilities | ||||||||
| Deferred underwriting fee | ||||||||
| 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, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholder’s deficit | ( | ) | ( | ) | ||||
| Total Liabilities, Redeemable Common Stock and Stockholder’s Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
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MINORITY EQUALITY OPPORTUNITIES ACQUISITION INC.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
| For the three months ended March 31, 2022 | For the period from February 18, 2021 (inception) through March 31, 2021 | |||||||
| Formation and operating costs | $ | $ | ||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income | ||||||||
| Interest income earned on cash held in trust account | ||||||||
| Offering costs allocated to warrants | ||||||||
| Change in fair value of warrant liabilities | ||||||||
| Total other income | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Basic and diluted weighted average shares outstanding, Class A common stock | ||||||||
| Basic and diluted net income per common stock, Class A common stock | $ | $ | ||||||
| Basic and diluted weighted average shares outstanding, Class B common stock | ||||||||
| Basic and diluted net income (loss) per common stock, Class B common stock | $ | $ | ) | |||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
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MINORITY EQUALITY OPPORTUNITIES ACQUISITION INC.
UNAUDITED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
THE THREE MONTHS ENDED MARCH 31, 2022
| Class A | Class B | Additional | Total | |||||||||||||||||||||||||
| Common Stock | Common Stock | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net Income | — | — | ||||||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
THE PERIOD FROM FEBRUARY 18, 2021 (INCEPTION) THROUGH MARCH 31, 2021
| Class A | Class B | Additional | Total | |||||||||||||||||||||||||
| Common Stock | Common Stock | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance as of February 18, 2021 (inception) | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Net Loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
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MINORITY EQUALITY OPPORTUNITIES ACQUISITION INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
| For the three months ended March 31, 2022 | For the period from February 18, 2021 (inception) through March 31, 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Interest Income earned | ( | ) | ||||||
| Formation costs paid by related party | ||||||||
| Change in fair value of warrant liabilities | ( | ) | ||||||
| Changes in current assets and liabilities: | ||||||||
| Prepaid expenses | ||||||||
| Due to sponsor | ( | ) | ||||||
| Accrued offering costs and expenses | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from working capital loans – related party | ||||||||
| Net cash provided by financing activities | $ | $ | ||||||
| Net change in cash | ( | ) | ||||||
| Cash, beginning of the period | ||||||||
| Cash, end of the period | $ | $ | ||||||
| Supplemental disclosure of non-cash financing activities: | ||||||||
| Accrued deferred offering costs | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
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MINORITY EQUALITY OPPORTUNITIES ACQUISITION INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1 - Organization and Business Operations
Minority Equality Opportunities Acquisition Inc. (the “Company”) was incorporated as a Delaware corporation on February 18, 2021. The Company was incorporated 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 has not selected any Business Combination target. The Company may pursue an initial Business Combination target in any business or industry.
As of March 31, 2022, the Company had not commenced any operations. All activity through March 31, 2022 relates to the Company’s formation and preparation for the Initial Public Offering (the “Public Offering” or “IPO”) as described 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 derived from the IPO. The Company has selected December 31 as its fiscal year end.
Financing
The Company’s sponsor is Minority Equality Opportunities
Acquisition Sponsor, LLC, a Delaware limited liability company (the “Sponsor”). The registration statement for the Company’s
IPO was declared effective by the U.S. Securities and Exchange Commission (the “SEC”) on August 25, 2021 (the “Effective
Date”). On August 30, 2021, the Company consummated the IPO of
Simultaneously with the closing of the IPO, the
Company consummated the sale of
The Company also issued
Transaction costs amounted to $
Trust Account
Following the closing of the IPO on August 30,
2021, an amount of $
Initial Business Combination
The Company will provide its public stockholders
with the opportunity to redeem all or a portion of their public shares upon the completion of the initial Business Combination either
(i) in connection with a stockholder meeting called to approve the initial Business Combination; or (ii) by means of a tender offer.
The decision as to whether the Company will seek stockholder approval of a proposed initial Business Combination or conduct a tender
offer will be made by the Company, solely in its discretion, and will be based on a variety of factors, such as the timing of the transaction
and whether the terms of the transaction would require the Company to seek stockholder approval under the law or stock exchange listing
requirements. The Company will provide the public stockholders with the opportunity to redeem all or a portion of their public shares
upon the completion of the initial Business Combination at a per-share price, payable in cash, equal to the aggregate amount then on
deposit in the Trust Account as of two business days prior to voting on the initial Business Combination, including interest earned on
the funds held in the Trust Account and not previously released to the Company to pay its franchise and income taxes, divided by the
number of then outstanding public shares, subject to the limitations described herein. The amount in the Trust Account is initially $
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The Company will have only 12 months from the
closing of the IPO (or 21 months from the closing of the IPO if the Company extends the period of time to consummate the initial Business
Combination) (the “Combination Period”) to complete the initial Business Combination. If the Company anticipates that it may
not be able to consummate the initial Business Combination within 12 months, the Company may extend the period of time to consummate
a Business Combination by up to three additional three-month periods (up to a maximum of 21 months from the closing of the IPO). Pursuant
to the terms of the Company’s certificate of incorporation and the trust agreement entered into between the Company and Continental Stock
Transfer & Trust Company, in order to extend the time available for the Company to consummate its initial Business Combination, the
sponsor or its affiliates or designees must deposit into the trust account, for each additional three-month period, $
The initial stockholders, Sponsor, executive
officers and directors have entered into a letter agreement with the Company, pursuant to which they have agreed to (i) waive their redemption
rights with respect to their founder shares and public shares in connection with the completion of the initial Business Combination;
(ii) waive their redemption rights with respect to their founder shares and public shares in connection with a stockholder vote to approve
an amendment to the certificate of incorporation: (A) to modify the substance or timing of the Company’s obligation to redeem
The Sponsor has agreed that it will 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 entered into a written letter of intent, confidentiality or similar agreement or Business
Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of
Liquidity, Capital Resources and Going Concern Considerations
As of March 31, 2022, the Company had $
Based on the foregoing, management believes that the Company will not have sufficient working capital and borrowing capacity to meet its needs through the earlier of the consummation of a Business Combination or one year from this filing. Over this time period, the Company will be using these funds for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.
The Company is within
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These condensed financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic and the Russian military action in Ukraine and has concluded that while it is reasonably possible that the virus and/or such military action 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. These condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 2 - Significant Accounting Policies
Basis of Presentation
The accompanying condensed financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the SEC. In the opinion of management, all adjustments (consisting of normal recurring adjustments) have been made that are necessary to present fairly the financial position, and the results of its operations and its cash flows. In the opinion of management, the unaudited condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected through December 31, 2022.
The accompanying unaudited condensed financial statements should be read in conjunction with the audited condensed financial statements and notes thereto included in the Annual Form 10-K filed by the Company with the SEC on April 14, 2022.
Emerging Growth Company Status
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart the Company’s 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 auditor 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 condensed 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 these condensed financial statements in conformity with US 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 condensed financial statements and the reported amounts of expenses during the reporting period. Actual results could differ 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. At March 31, 2022 and December 31, 2021, there were no cash equivalents that was recognized by the Company.
Marketable Securities Held in Trust Account
At March 31, 2022 and December 31, 2021, the
Company had $
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under the FASB ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the balance sheets.
The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
7
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 - | Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not being applied. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment. |
| Level 2 - | Valuations based on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived principally from or corroborated by market through correlation or other means. |
| Level 3 - | Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
See Note 7 for additional information on assets and liabilities measured at fair value.
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 Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing
Liabilities from Equity.” 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 are 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
in 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 March 31, 2022 and December 31, 2021, the
As of March 31, 2022 and December 31, 2021, the shares of common stock reflected on the balance sheets are reconciled in the following table:
| Gross proceeds from IPO | $ | |||
| Less: | ||||
| Proceeds allocated to Public Warrants | ( | ) | ||
| Common stock issuance costs | ( | ) | ||
| Plus: | ||||
| Remeasurement of carrying value to redemption value | ||||
| Class A common stock subject to possible redemption at redemption value | $ |
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. Derivative instruments are initially recorded at fair value on the grant date and re-valued at each reporting date, with changes in the fair value reported in the statements of operations. Derivative assets and liabilities are classified in the balance sheets as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
Warrant Liability
The Company evaluated the Public Warrants and Private Placement Warrants to be issued in connection with the IPO (collectively, “Warrants”) in accordance with ASC 815-40, “Derivatives and Hedging — Contracts in Entity’s Own Equity” and concluded that a provision in the Warrant Agreement related to certain tender or exchange offers precludes the Warrants from being accounted for as components of equity. As the Warrants meet the definition of a derivative as contemplated in ASC 815, the Warrants will be recorded as derivative liabilities on the balance sheets and measured at fair value at inception (on the date of the IPO) and at each reporting date in accordance with ASC 820, “Fair Value Measurement”, with changes in fair value recognized in the statements of operations in the period of change.
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Offering Costs
The Company complies with the requirements of
the ASC 340-10-S99-1. Offering costs consisted of legal, accounting, underwriting fees and other costs incurred through the IPO that
were directly related to the Public Offering. Offering costs are allocated to the separable financial instruments issued in the IPO based
on a relative fair value basis, compared to total proceeds received. Offering costs associated with warrant liabilities are expensed
as incurred and presented as non-operating expenses in the statements of operations. Offering costs associated with the Class A common
stock were charged to temporary equity upon the completion of the IPO. Transaction costs amounted to $
Convertible Instruments
The Company accounts for its promissory notes that feature conversion options in accordance with ASC No. 815, Derivatives and Hedging Activities (“ASC No. 815”). ASC No. 815 requires companies to bifurcate conversion options from their host instruments and account for them as freestanding derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) a promissory note that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
Net Income Per Common Stock
The Company has two classes of shares, which
are referred to as Class A common stock and Class B common stock. Earnings and losses are shared pro rata between the two classes of
shares. The Company did not consider the effect of the warrants sold in the Initial Public Offering and the Private Placement to purchase
an aggregate of
| For the three months Ended March 31, 2022 | For the period from February 18, 2021 (inception) through March 31, 2021 | |||||||||||||||
| Class A | Class B | Class A | Class B | |||||||||||||
| Basic and diluted net income (loss) per share: | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Allocation of net income (loss) | $ | $ | $ | $ | ( | ) | ||||||||||
| Denominator: | ||||||||||||||||
| Weighted-average shares outstanding | ||||||||||||||||
| Basic and diluted net income (loss) per share | $ | $ | $ | $ | ( | ) | ||||||||||
Income Taxes
The Company accounts for income taxes under FASB ASC 740, “Income Taxes” (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the condensed financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position 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. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition. 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 March 31, 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 has identified the United States as its only “major” tax jurisdiction. The Company is subject to income tax examinations by major taxing authorities since inception. These examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
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Concentration of Credit Risk
Financial instruments that potentially subject
the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal
Depository Insurance Corporation coverage of $
Recent Accounting Pronouncements
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 guidance was adopted starting January 1, 2022. Adoption of the ASU did not impact the Company’s financial position, results of operations or cash flows.
Management does not believe that any other recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed financial statements.
Note 3 - Initial Public Offering
Public Units
On August 30, 2021, the Company sold
Public Warrants
Each whole warrant entitles the holder to purchase one share of the Company’s Class A common stock at a price of $11.50 per share, subject to adjustment as described herein. 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 the 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 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 its affiliates, 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 initial Business Combination on the date of the consummation of the initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the common stock during the 20 trading day period starting on the trading day prior to 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 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 below under “Redemption of 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 warrants will expire at 5:00 p.m., New York
City time on the warrant expiration date, which is
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 with respect to the shares of Class A common stock underlying the warrants is then effective and a prospectus relating thereto is current, subject to the Company’s satisfying its obligations described below 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. In the event that the conditions in the two immediately preceding sentences are not satisfied with respect to a warrant, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In no event will the Company be required to net cash settle any warrant. In the event that a registration statement is not effective for the exercised warrants, the purchaser of a Unit containing such warrant will have paid the full purchase price for the Unit solely for the share of Class A common stock underlying such Unit.
The Company did not register the shares of Class A common stock issuable upon exercise of the warrants at the time of the IPO. However, the Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of the initial Business Combination, the Company will use its best efforts to file with the SEC a registration statement covering 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 within 60 business days after the closing of the initial Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption.
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Redemption of warrants
Once the warrants become exercisable, the Company may redeem the outstanding warrants:
| ● | 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 (the “30-day redemption period”); and |
If the Company calls the warrants for redemption as described above, management will have the option to require all holders that wish to exercise warrants to do so on a “cashless basis.” In determining whether to require all holders to exercise their warrants on a “cashless basis,” management will consider, among other factors, the Company’s cash position, the number of warrants that are outstanding and the dilutive effect on the stockholders of issuing the maximum number of shares of Class A common stock issuable upon the exercise of the warrants. In such event, each holder would pay the exercise price by surrendering the warrants for that number of shares of Class A common stock equal to the quotient obtained by dividing (x) the product of the number of shares of Class A common stock underlying the warrants, multiplied by the excess of the “fair market value” (defined below) over the exercise price of the warrants by (y) the fair market value. The “fair market value” shall mean the average reported last sale price of the Class A common stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants.
Note 4 - Private Placement
Simultaneously with the closing of the IPO, the
Sponsor and Maxim Partners LLC purchased an aggregate of
The Private Placement Warrants will not be transferable,
assignable or saleable until
Note 5 - Related Party Transactions
Founder Shares
In April 2021, the Sponsor paid $
The initial stockholders have agreed not to transfer, assign, or sell any of their founder shares until the earlier to occur of: (i) one year after the date of the consummation of the initial Business Combination; or (ii) the date on which the Company consummates a liquidation, merger, stock exchange, or other similar transaction that results in all of the stockholders having the right to exchange their shares of Class A common stock for cash, securities, or other property, except to permitted transferees. Any permitted transferees will be subject to the same restrictions and other agreements of the initial stockholders with respect to any founder shares (the “Lock-up”).
Promissory Note - Related Party
The Sponsor agreed to loan the Company up to
$
Working Capital Loans
On
September 3, 2021, the Sponsor agreed to provide the Company with loans in such amounts as may be required by the Company to fund the
Company’s working capital requirements up to an aggregate of $
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On February 28, 2022 and March 21, 2022, the Sponsor agreed to loan
the Company $
Administrative Service Fee
The Company entered into an administrative
services agreement on the effective date of the registration statement for the IPO pursuant to which the Company will pay an
affiliate of the Sponsor a total of $
Note 6 - Commitments and Contingencies
Registration Rights
The holders of the founder shares, representative’s common stock, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans (and any shares of 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 be entitled to registration rights pursuant to a registration rights agreement signed on August 25, 2021, requiring the Company to register such securities for resale (in the case of the founder shares, only after conversion to Class A common stock). The holders of these securities will be entitled to make up to three demands, excluding short form demands, that the Company registers such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the Company’s completion of the initial Business Combination. Notwithstanding the foregoing, the underwriters may not exercise their demand and “piggyback” registration rights after five and seven years after the effective date of the registration statement for the IPO and may not exercise their demand rights on more than one occasion.
Underwriting Agreement
The underwriter is entitled to a deferred underwriting
discount of
Representative’s Common Stock
The Company had agreed to issue to Maxim and/or
its designees,
Right of First Refusal
Subject to certain conditions, the Company granted to Maxim, for a period of 18 months from the closing of the Business Combination, a right of first refusal to act as book running manager and/or placement agent for any and all future private or public equity, equity-linked, convertible and debt offerings during such 18 month period for the Company or any of its successors or subsidiaries. In accordance with FINRA Rule 5110(g)(6), such right of first refusal shall not have a duration of more than three years from the closing of the IPO.
Financial Advisory Agreements
In November 2021, the Company entered into agreements
with PGP Capital Advisors and Vaughan Capital Advisors whereby such entities would provide financial advisory services to the Company.
Pursuant to such agreements, the Company would pay monthly fees to such advisors in the aggregate amount of $
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Note 7 - Stockholders’ Deficit
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
The shares of Class B common stock will automatically
convert into shares of 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 excess of the
amounts offered in the IPO and related to the closing of the initial Business Combination, the ratio at which shares of Class B common
stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of the outstanding shares of
Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the number of shares
of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate, on an as-converted
basis,
Note 8 - Recurring Fair Value Measurements
The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at March 31, 2022 and December 31, 2021, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| March 31, | Quoted Prices In Active Markets | Significant Other Observable Inputs | Significant Other Unobservable Inputs | |||||||||||||
| 2022 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets: | ||||||||||||||||
| Money Market Funds held in Trust Account | $ | $ | ||||||||||||||
| Liabilities: | ||||||||||||||||
| Working Capital Loans-conversion feature | ||||||||||||||||
| Public Warrants: Liabilities | ||||||||||||||||
| Private Placement Warrants: Liabilities | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
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| December 31, | Quoted Prices In Active Markets | Significant Other Observable Inputs | Significant Other Unobservable Inputs | |||||||||||||
| 2021 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets: | ||||||||||||||||
| Money Market Funds held in Trust Account | $ | $ | ||||||||||||||
| Liabilities: | ||||||||||||||||
| Public Warrants: Liabilities | $ | $ | $ | $ | ||||||||||||
| Private Placement Warrants: Liabilities | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
The Warrants are accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on the 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 statements of operations.
The Company established the initial fair value of the Public Warrants on August 30, 2021 using a Modified Black Scholes simulation model, and as of March 31, 2022 and December 31, 2021 by using the associated trading price of the Public Warrants. The Company established the initial fair value of the Private Placement Warrants on August 30, 2021 and on March 31, 2022 and December 31, 2021 by using a modified Black Scholes calculation. The Warrants were classified as Level 3 at the initial measurement date due to the use of unobservable inputs. The Public Warrants were subsequently classified as Level 1 as the subsequent valuation was based upon the trading price of the Public Warrants.
The following table presents the changes to Level 3 labilities for the year ended March 31, 2022 and December 31, 2021:
| Fair Value at January 1, 2021 | $ | |||
| Initial fair value of public and private warrants | ||||
| Transfer of public warrants to Level 1 | ( | ) | ||
| Change in fair value | ( | ) | ||
| Fair Value at December 31, 2021 | $ | |||
| Change in fair value | ( | ) | ||
| Fair Value at March 31, 2022 | $ |
The key inputs into the Modified Black Scholes simulation, which is considered to be a Level 3 fair value measurement, as of August 30, 2021 and March 31, 2022 were as follows:
(Initial Measurement) August 30, 2021 | December 31, 2021 | March 31, 2022 | ||||||||||
| Risk-free interest rate | % | % | % | |||||||||
| Expected term remaining (years) | ||||||||||||
| Expected volatility | % | % | % | |||||||||
| Stock price | $ | $ | $ | |||||||||
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The probability of a business combination
was
Working Capital Loans-conversion feature
The Company utilizes a Monte Carlo model to estimate the fair value of the conversion feature within the working capital loans which is required to be recorded at its initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the conversion feature are recognized as non-cash gains or losses in the condensed statements of operations.
The key assumptions in the model relate to expected share-price volatility, risk-free interest rate, exercise price, expected term and the probability of occurrence of the transaction. The expected volatility was based on the average volatility of SPACs that are searching for an acquisition target. The risk-free interest rate is based on interpolation of U.S. Treasury yields with a term commensurate with the term of the warrants. The Company anticipates the dividend yield to be zero. The expected term of the warrants is assumed to be the estimated date of a Business Combination.
The estimated fair value of the conversion feature
related to the working capital loans as of issuance and for the period ended March 31, 2022 are
The following are the primary assumptions used for the valuation of the conversion feature within the working capital loans:
| March 1, | March 23, | March 31, | ||||||||||
| 2022 | 2022 | 2022 | ||||||||||
| Warrant Valuation Terms | ||||||||||||
| Risk-free interest rate | % | % | % | |||||||||
| Term | ||||||||||||
| Expected volatility | % | % | % | |||||||||
| Stock Price | $ | $ | $ | |||||||||
| Compound Option Terms | ||||||||||||
| Strike price-debt conversion | $ | $ | $ | |||||||||
| Strike price - warrants | $ | $ | $ | |||||||||
| Term - debt conversion | ||||||||||||
| Term - warrant conversion | ||||||||||||
| Probability of transaction | % | % | % | |||||||||
| Probability of transaction - Target Date 5/30/2022 | % | % | % | |||||||||
| Probability of transaction - Target Date 8/30/2022 | % | % | % | |||||||||
The following table presents the changes in the fair value of the Level 3 conversion option:
| Working | ||||
| Capital | ||||
| Loans-Conversion Feature | ||||
| Fair value at issuance dates of March 1, 2022 and March 23, 2022 | $ | |||
| Change in valuation inputs or other assumptions | ||||
| Fair value as of March 31, 2022 | $ |
There were no transfers in or out of Level 3 from other levels in the fair value hierarchy during the period ended March 31, 2022 for the working capital loans-conversion feature.
Note 9 - 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, other than as noted below, the Company did not identify any subsequent events that would have required adjustments or disclosures in the condensed financial statements.
On May 16, 2022, the Company and Sphere 3D Corp. (“Sphere”) entered into Amendment No. 1 (the “Amendment”) of that certain Administrative Support Agreement dated August 25, 2022 by and between the Company and Sphere (the “Support Agreement”). Pursuant to the Amendment, the Company and Sphere agreed that, notwithstanding anything in the Support Agreement to the contrary, the monthly payment referenced in clause (i) of the Support Agreement shall, beginning with respect to the monthly period that begins on February 26, 2022 and ends on March 25, 2022, and continuing thereafter until the earlier of the consummation by the Company of an initial business combination or the liquidation of the Company, accrue without interest thereon and be due and payable on the earlier of the consummation by the Company of an initial business combination or the liquidation of the Company.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
References to the “Company,” “Minority Equality Opportunities Acquisition Inc.,” “our,” “us” or “we” refer to Minority Equality Opportunities Acquisition Inc. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited interim condensed financial statements and the notes thereto contained elsewhere in this report. 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 Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other SEC filings.
Overview
We are a newly organized blank check company incorporated on February 18, 2021 as a Delaware corporation and 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”).
Our sponsor is Minority Equality Opportunities Acquisition Sponsor, LLC, a Delaware limited liability company (the “Sponsor”). The registration statement for our initial public offering was declared effective on August 25, 2021. On August 30, 2021, we consummated our initial public offering (the “Initial Public Offering”) of 12,650,000 Units, which included the full exercise by the underwriters of the over-allotment option to purchase an additional 1,650,000 Units, at $10.00 per Unit, generating gross proceeds of $126,500,000. Transaction costs amounted to $8,998,713, consisting of $2,403,500 of underwriting fees, $4,554,000 of deferred underwriting fees, $586,779 of other offering costs, and $1,454,434 of the fair value of the representative’s common stock. Of the $8,998,713 aggregate transaction costs, $741,209 was allocated to expense associated with the warrant liability.
We issued 158,125 shares of Class A common stock, with a fair value of $1,454,434, to Maxim, the representative of the underwriters, which is deemed compensation by FINRA and therefore subject to a lock-up for a period of 180 days immediately following the commencement of sales of the IPO. Additionally, Maxim has agreed not to transfer, assign or sell any such shares until the completion of our initial Business Combination. In addition, Maxim has agreed (i) to waive its redemption rights with respect to such shares in connection with the completion of our initial Business Combination and (ii) to waive its rights to liquidating distributions from the trust account with respect to such shares if we fail to complete our initial Business Combination within 12 months from the closing of the IPO (or 21 months from the closing of the IPO if we extend the period of time to consummate the initial Business Combination).
Simultaneously with the closing of the IPO, we consummated the sale of an aggregate of 6,027,500 warrants (the “Private Placement Warrants”) at a price of $1.00 per warrant in a private placement to our Sponsor and to Maxim Partners LLC, generating gross proceeds to us of $6,027,500. A total of 5,395,000 Private Placement Warrants were issued to the Sponsor and a total of 632,500 Private Placement Warrants were issued to Maxim Partners LLC.
Upon the closing of the Initial Public Offering and the Private Placement, an amount of $128,397,500 ($10.15 per Unit) from the net proceeds of the sale of the Units in the IPO and the sale of the Private Placement Warrants was placed in a trust account (the “Trust Account”) and will only be invested in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations. Except with respect to interest earned on the funds held in the Trust Account that may be released to our company to pay our franchise and income tax obligations (less up to $100,000 of interest to pay dissolution expenses), the proceeds from the IPO and the sale of the Private Placement Warrants will not be released from the Trust Account until the earliest of: (a) the completion of our initial Business Combination; (b) the redemption of any public shares properly submitted in connection with a stockholder vote to amend our certificate of incorporation: (i) to modify the substance or timing of our obligation to redeem 100% of the public shares if we do not complete the initial Business Combination within 12 months from the closing of the IPO (or 21 months from the closing of the IPO if we extend the period of time to consummate a Business Combination); or (ii) with respect to any other material provision relating to stockholders’ rights or pre-Business Combination activity; and (c) the redemption of the public shares if we are unable to complete the initial Business Combination within 12 months from the closing of the IPO (or 21 months from the closing of the IPO if we extend the period of time to consummate a Business Combination), subject to applicable law.
Our management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination.
16
We will have only 12 months from the closing of the IPO (or 21 months from the closing of the IPO if we extend the period of time to consummate the initial Business Combination) (the “Combination Period”) to complete the initial Business Combination. However, if we anticipate that we may not be able to consummate the initial Business Combination within 12 months, we may extend the period of time to consummate a Business Combination by up to three additional three-month periods (up to a maximum of 21 months from the closing of the IPO). Pursuant to the terms of our certificate of incorporation and the trust agreement entered into between us and Continental Stock Transfer & Trust Company, in order to extend the time available for us to consummate our initial Business Combination, the sponsor or its affiliates or designees must deposit into the trust account, for each additional three-month period, $1,265,000 ($0.10 per share), on or prior to the date of the deadline with respect to such three-month extension period. Our sponsor and its affiliates or designees are not obligated to fund the trust account to extend the time for us to complete our initial Business Combination. If we are unable to complete the initial Business Combination within the Combination Period, 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 to pay the franchise and income taxes (less 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), subject to applicable law; and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and the board of directors, dissolve and liquidate, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to the warrants, which will expire worthless if we fail to complete the initial Business Combination within the Combination Period.
Liquidity, Capital Resources and Going Concern Considerations
As of March 31, 2022, we had $203,304 in cash and working capital of $102,151.
Based on the foregoing, management believes that we will not have sufficient working capital and borrowing capacity to meet our needs through the earlier of the consummation of a Business Combination or one year from IPO filing. Over this time period, we will be using these funds for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.
Our liquidity needs up to March 31, 2022 had been satisfied through a capital contribution from our Sponsor of $25,000 for the founder shares and the loan under an unsecured promissory note from our Sponsor of up to $300,000. After consummation of the IPO on August 30, 2021, we had approximately $1.6 million in our operating bank account, and working capital of approximately $0.8 million. On September 3, 2021, the Sponsor agreed to provide us with loans in such amounts as may be required to fund our working capital requirements up to an aggregate of $500,000. In addition, in order to 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, provide us Working Capital Loans.
On February 28, 2022 and March 21, 2022, the Sponsor agreed to loan the Company $174,000 and $163,000, respectively, as part of the Working Capital Loans. The promissory notes are non-interest bearing and payable upon consummation of the Company’s initial Business Combination. At the lender’s discretion, the promissory notes may be repayable in warrants of the post Business Combination entity at a price of $1.00 per warrant. As of March 31, 2022 and December 31, 2021, there was $337,000 of borrowings, respectively. The Company assessed the provisions of the convertible promissory notes under ASC 815-15. The derivative component of the obligations is initially valued and classified as derivative liabilities with an offset to a discount on the promissory notes. To calculate the value of the embedded derivative the Monte Carlo Model was utilized to fair value the underlying warrants and the compound option. The fair value of the conversion feature was zero at the dates of issuance and at March 31, 2022.
17
We are within 12 months of our mandatory liquidation date as of the time of filing of this Quarterly Report on Form 10-Q. In connection with our assessment of going concern considerations in accordance with Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” this raises substantial doubt about our ability to continue as a going concern. If we are unable to complete a Business Combination by August 30, 2022, we will cease all operations except for the purpose of liquidating.
These condensed financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should we be unable to continue as a going concern.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic and the Russian military action in Ukraine and has concluded that while it is reasonably possible that the virus and/or such military action could have a negative effect on our 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 the condensed financial statements included in this report. The condensed financial statements included in this report do not include any adjustments that might result from the outcome of this uncertainty.
Results of Operations
As of March 31, 2022, we had not commenced any operations. All activity for the period from February 18, 2021 (inception) through March 31, 2022 relates to our formation and the Initial Public Offering and search for a target for our initial Business Combination. We have neither engaged in any operations nor generated any revenues to date. We will not generate any operating revenues until after the completion of our initial Business Combination, at the earliest. We will generate non-operating income in the form of interest income on cash and cash equivalents from the proceeds derived from the Initial Public Offering. We expect to incur increased 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 March 31, 2022, we had a net income of $3,976,791, which included a gain from the change in fair value of warrant liabilities of $4,326,744 and interest income earned on cash held in Trust Account of $8,287, offset by formation and operating costs of $358,240.
For the period from February 18, 2021 (inception) to March 31, 2021, we had a net loss of $547, which included formation and operating costs.
Contractual Obligations
We do not have any long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations or long-term liabilities.
18
Administrative Services Agreement
Commencing on the date that our securities are first listed on the NASDAQ Capital Market, we agreed to pay to an affiliate of the Sponsor $10,000 per month for office space, utilities and secretarial and administrative support services. Upon the earlier of the completion of the initial Business Combination or our liquidation, we will cease paying such monthly fees. On May 16, 2022, we and the Sponsor’s affiliate amended this agreement so that, notwithstanding anything therein to the contrary, the monthly payment shall, beginning with respect to the monthly period that begins on February 26, 2022 and ends on March 25, 2022, and continuing thereafter until the earlier of the completion of the initial Business Combination and our liquidation, accrue without interest thereon and be due and payable on the earlier of the completion of the initial Business Combination or our liquidation.
Registration Rights
The holders of the founder shares, representative’s common stock, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans (and any shares of 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 be entitled to registration rights pursuant to a registration rights agreement dated August 25, 2021, requiring us to register such securities for resale (in the case of the founder shares, only after conversion to Class A common stock). The holders of these securities will be entitled to make up to three demands, excluding short form demands, that we register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of the initial Business Combination. Notwithstanding the foregoing, the underwriters may not exercise their demand and “piggyback” registration rights after five and seven years after the effective date of the registration statement for the IPO and may not exercise their demand rights on more than one occasion.
Underwriting Agreement
The underwriter had a 45-day option from the date of the IPO to purchase up to an aggregate of 1,650,000 additional Units at the public offering price less the underwriting commissions to cover over-allotments, if any. On August 30, 2021, the underwriter fully exercised its over-allotment option.
The underwriter is entitled to a deferred underwriting discount of 3.6% of the gross proceeds of the Initial Public Offering, which included the exercise of the over-allotment option, or $4,554,000, held in the Trust Account upon the completion of our initial Business Combination subject to the terms of the underwriting agreement.
Financial Advisory Agreements
In November 2021, we entered into agreements with PGP Capital Advisors and Vaughan Capital Advisors whereby such entities would provide financial advisory services to our company. Pursuant to such agreements, we would pay monthly fees to such advisors in the aggregate amount of $25,000 and would reimburse such advisors for their out-of-pocket costs and expenses. We also agreed to pay to such advisors an aggregate success fee upon the closing of a business combination transaction equal to the sum of: (i) three percent of the transaction value of the target company in such business combination up to $100 million, plus (ii) two percent of the transaction value of the target company greater than $100 million up to $200 million, plus (iii) one percent of the transaction value of the target company above $200 million. The success fee shall be reduced by the monthly fees previously paid to the financial advisors. The financial advisors shall have the option to receive an equivalent dollar amount of warrants and/or shares of our Class A common stock in lieu of cash up to twenty percent of the success fee payable.
Recent Accounting Pronouncements
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 guidance was adopted starting January 1, 2022. Adoption of the ASU did not impact the Company’s financial position, results of operations or cash flows.
Management does not believe that any other recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed financial statements.
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Critical Accounting Policies
Offering Costs
We comply with the requirements of ASC 340-10-S99-1. Deferred offering costs consists of legal, accounting, underwriting fees and other costs incurred through the balance sheet date that are directly related to the Public Offering. Offering costs are allocated to the separable financial instruments to be issued in the IPO based on a relative fair value basis, compared to total proceeds received. Upon closing of the IPO on August 30, 2021, offering costs associated with warrant liabilities were expensed, and offering costs associated with the Class A common stock were charged to temporary equity. Transaction costs amounted to $8,998,713, of which $741,209 were allocated to expense associated with the warrant liability.
Convertible Instruments
The Company accounts for its promissory notes that feature conversion options in accordance with ASC No. 815, Derivatives and Hedging Activities (“ASC No. 815”). ASC No. 815 requires companies to bifurcate conversion options from their host instruments and account for them as freestanding derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) a promissory note that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
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 Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” 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 are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified in temporary equity. At all other times, common stock is classified as stockholders’ equity. Our Class A common stock feature certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, at March 31, 2022 and December 31, 2021, the 12,650,000 Class A common stock is presented at redemption value as temporary equity, outside of the stockholders’ deficit section of our balance sheets.
Net Income Per Common Stock
We have two classes of shares, Class A common stock and Class B common stock. Earnings and losses are shared pro rata between the two classes of shares. We have not considered the effect of the outstanding warrants to purchase 18,677,500 shares of Class A common stock in the calculation of diluted income per share, since their exercise is contingent upon future events. As a result, diluted net income per common stock is the same as basic net income per common stock for the periods.
Derivative Financial Instruments
We evaluated the financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. Derivative instruments are initially recorded at fair value on the grant date and re-valued at each reporting date, with changes in the fair value reported in the statements of operations. Derivative assets and liabilities are classified in the balance sheets as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
Warrant Liability
We evaluated the Public Warrants and Private Placement Warrants to be issued in the IPO (collectively, “Warrants”) in accordance with ASC 815-40, “Derivatives and Hedging - Contracts in Entity’s Own Equity” and concluded that a provision in the Warrant Agreement related to certain tender or exchange offers precludes the Warrants from being accounted for as components of equity. As the Warrants meet the definition of a derivative as contemplated in ASC 815, the Warrants will be recorded as derivative liabilities on the balance sheets and measured at fair value at inception (on the date of the IPO) and at each reporting date in accordance with ASC 820, “Fair Value Measurement”, with changes in fair value recognized in the statements of operations in the period of change.
Off-Balance Sheet Arrangements
As of March 31, 2022 and December 31, 2021, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Inflation
We do not believe that inflation had a material impact on our business, revenues or operating results during the period presented.
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Emerging Growth Company Status
We are 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 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 auditor 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. We have 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 our condensed 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
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 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.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended March 31, 2022, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer concluded that during the period covered by this report, our disclosure controls and procedures were not effective.
Specifically, management’s determination was based on the following material weaknesses which existed as of March 31, 2022. Since inception in 2021 to the present, we did not effectively segregate certain accounting duties due to the small size of our accounting staff. In addition, we restated our financial statements as of August 25, 2021 regarding the classification of redeemable Class A Shares, which constitutes a material weakness in our internal control over financial reporting. Regarding the restatement of our balance sheet included in our Form 8-K, as filed with the SEC on September 3, 2021, certain redemption provisions not solely within our control require common stock subject to redemption to be classified outside of permanent equity. We had previously classified a portion of the Class A common stock in permanent equity. We restated our financial statements to classify all Class A common stock as temporary equity and any related impact, as the threshold in our charter would not change the nature of the underlying shares as redeemable and thus would be required to be disclosed outside of permanent equity. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. Notwithstanding the determination that our internal control over financial reporting was not effective, as of March 31, 2022, and that there were material weaknesses as identified in this Quarterly Report, we believe that our condensed financial statements contained in this Quarterly Report fairly present our financial position, results of operations and cash flows for the periods covered hereby in all material respects.
To respond to this material weakness, we have devoted, and plan to continue to devote, significant effort and resources to the remediation and improvement of our internal control over financial reporting. While we have processes to identify and appropriately apply applicable accounting requirements, we plan to enhance these processes to better evaluate and understand the nuances of the complex accounting standards that apply to our condensed financial statements. Our plans at this time include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party service providers. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
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 March 31, 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.
Factors that could cause our actual results to differ materially from those in this Quarterly Report include the risk factors described under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 that was filed with the Securities and Exchange Commission on April 14, 2022 (the “2021 Form 10-K”). As of the date of this Quarterly Report, there have been no material changes to the risk factors disclosed in the 2021 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Sales of Unregistered Securities
None.
Use of Proceeds
On August 30, 2021, we consummated the initial public offering (the “IPO”) of 12,650,000 units, which included the full exercise of the underwriter’s option to purchase up to an additional 1,650,000 units at the initial public offering price to cover over-allotments. The units sold in the IPO and the full exercise of the over-allotment option sold at an offering price of $10.00 per unit, generating total gross proceeds of $126,500,000. Maxim Group LLC acted as sole book-running manager of the IPO. The securities in the IPO were registered under the Securities Act of 1933, as amended (the “Securities Act”), on a Registration Statement on Form S-1 (No. 333-258241) that was declared effective by the Commission on August 25, 2021 (the “IPO Registration Statement”).
Simultaneously with the closing of the IPO, we consummated the sale of 6,027,500 Private Placement Warrants to the Sponsor and to Maxim Partners LLC (5,395,000 Private Placement Warrants to the Sponsor and 632,500 Private Placement Warrants to Maxim Partners LLC) at a price of $1.00 per Private Placement Warrant, generating total gross proceeds of $6,027,500. Such securities were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
Simultaneous with the closing of the IPO, we issued 158,125 shares of Class A Common Stock to the underwriter as compensation under the Underwriting Agreement (the “Representative’s Shares”). The issuance of the Representative’s Shares was registered under the Securities Act on the IPO Registration Statement.
Of the gross proceeds received from the IPO, including the full exercise of the over-allotment option, and the Private Placement Warrants, $128,397,500 was placed in the trust account.
We paid a total of $2,403,500 in underwriting discounts and commissions, excluding a deferred underwriting discount of $4,554,000, the fair value of the Representative’s Shares of $1,454,434, and $586,779 for other offering costs related to the IPO.
There has been no material change in the planned use of the proceeds from the IPO and the private placement as is described in the final prospectus included in the IPO Registration Statement.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
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.
| * | Filed herewith. | |
| ** | Furnished. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| MINORITY EQUALITY OPPORTUNITIES ACQUISITION INC. | ||
| May 23, 2022 | By: | /s/ Shawn D. Rochester |
| Name: | Shawn D. Rochester | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| May 23, 2022 | By: | /s/ Robin D. Watkins |
| Name: | Robin D. Watkins | |
| Title: | Chief Financial Officer | |
| (Principal Accounting and Financial Officer) | ||
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