You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our condensed financial statements
and related notes included in Part I, Item 1 of this Quarterly Report. This
discussion and other parts of this report contain forward-looking statements
that involve risks and uncertainties, such as statements of our plans,
objectives, expectations and intentions. Our actual results could differ
materially from those discussed in these forward-looking statements. See
"Cautionary Note Regarding Forward-Looking Statements." Factors that could cause
or contribute to such differences include, but are not limited to, those
discussed in Part I, Item 1A "Risk Factors" of our Annual Report on Form 10-K.
Overview
We are a blank check company incorporated in Delaware on August 31, 2020 for the
purpose of effecting a merger, capital stock exchange, asset acquisition, stock
purchase, reorganization or similar business combination with one or more
businesses, which we refer to as the initial business combination. We are not
limited to a particular industry or sector for purposes of consummating a
business combination. We are 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 Our Business Startups Act of 2012 (the "JOBS Act"),
and, as such, we are subject to all of the risks associated with early stage and
emerging growth companies.
Our sponsor is 5:01 Acquisition LLC, an entity affiliated with two of our
directors. The registration statement for our initial public offering ("IPO"),
was declared effective October 13, 2020 and on October 16, 2020, we issued
8,000,000 shares of our Class A common stock (each, a "public share" and
collectively, the "public shares") in our IPO at $10.00 per share, generating
gross proceeds of $80.0 million, and incurring offering costs of approximately
$4.9 million, inclusive of $2.8 million in deferred underwriting commissions.
The underwriter was granted a 45-day option from the date of the final
prospectus relating to the IPO to purchase up to 1,200,000 additional shares to
cover over-allotments, if any, at $10.00 per share. The underwriters partially
exercised the over-allotment option and on November 12, 2020 purchased an
additional 256,273 shares of Class A common stock, generating gross proceeds of
approximately $2.6 million, and incurred additional offering costs of
approximately $141,000 in underwriting fees (inclusive of approximately $90,000
in deferred underwriting fees).
Simultaneously with the closing of the IPO, we consummated the private placement
of 360,000 shares of Class A common stock (each, a "private placement share" and
collectively, the "private placement shares"), at a price of $10.00 per share to
our sponsor, generating proceeds of $3.6 million. Simultaneously with the
closing of the underwriters' over-allotment on November 12, 2020, we consummated
the second closing of the private placement, resulting in the purchase of an
aggregate of an additional 5,126 private placement shares by our sponsor,
generating gross proceeds to us of approximately $51,000.
Upon the closing of the IPO, the private placement and the partial exercise of
the underwriters' over-allotment, approximately $82.6 million ($10.00 per share)
of the net proceeds of the sale of the public shares in the IPO and of the
private placement shares in the private placement and to the underwriters' upon
partial exercise of the over-allotment option were placed in a trust account
located in the United States, and invested only in U.S. government treasury
bills, notes and bonds 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 and which invest solely in U.S. Treasuries, as determined by us, until the
earlier of: (i) the completion of a business combination and (ii) the
distribution of the trust account.
In addition, our sponsor agreed to forfeit up to 300,000 Class B common stock,
par value $0.0001, or the founder shares to the extent that the over-allotment
option is not exercised in full by the underwriters. The underwriters partially
exercised their over-allotment option on November 12, 2020; thus, on November
30, 2020, the remaining 235,932 shares of Class B common stock subject to
forfeiture were forfeited.
Business Combination
Under our amended and restated certificate of incorporation, if we have not
consummated our initial business combination within 24 months of the closing of
our IPO, or by October 16, 2022, then our existence will terminate and we will
distribute all amounts in the trust account to all of our public holders of
shares of Class A common stock, Since the closing of our IPO, we have
investigated and conducted preliminary due diligence on more than 400 companies
(and more extensive due diligence on more than 140 companies) and have
negotiated several non-binding letters of intent concerning potential business
combinations. Notwithstanding these efforts, to date, we have been unable to
enter into a definitive agreement with respect to our initial business
combination, and it is increasingly likely that we will be unable to find a
suitable target business and consummate our initial business combination by
October 16, 2022.
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If we are unable to consummate our initial business combination by October 16,
2022, we will, as promptly as reasonably possible but not more than 10 business
days thereafter (subject to our amended and restated certificate of
incorporation and applicable law), distribute the aggregate amount then on
deposit in the trust account (net of taxes payable), pro rata to our public
stockholders by way of redemption and cease all operations except for the
purposes of winding up of our affairs, as further described herein. This
redemption of public stockholders from the trust account shall be effected as
required by function of our amended and restated certificate of incorporation
and prior to any voluntary winding up.
Risks and Uncertainties
The full long-term impact of the COVID-19 pandemic continues to evolve. The
impact of the COVID-19 pandemic on our results of operations, financial position
and cash flows will depend on future developments, including the duration and
subsequent waves, including due to variants of the virus, of the pandemic and
related advisories and restrictions. These developments and the long-term impact
of the COVID-19 pandemic on the financial markets and the overall economy are
highly uncertain and cannot be predicted. If the financial markets and/or the
overall economy are impacted for an extended period, our results of operations,
financial position and cash flows may be materially adversely affected.
Additionally, our ability to complete an initial business combination, may be
materially adversely affected due to significant governmental measures being
implemented to contain the COVID-19 pandemic or treat its impact, including
travel restrictions, the shutdown of businesses and quarantines, among others,
which may limit our ability to have meetings with potential investors or affect
the ability of a potential target company's personnel, vendors and service
providers to negotiate and consummate an initial business combination in a
timely manner. Our ability to consummate an initial business combination may
also be dependent on the ability to raise additional equity and debt financing,
which may be impacted by the COVID-19 pandemic and the resulting market
downturn.
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 Quarterly
Report. The specific impact on our financial condition, results of operations,
and cash flows as well as search for a business combination also are not
determinable as of the date of this Quarterly Report.
Results of Operations
During the three months ended March 31, 2022, our entire activity has been
limited to the search for a prospective initial business combination, and we
will not be generating any operating revenues until the closing and completion
of our initial business combination. We expect to continue 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 loss of approximately
$419,000, which consisted of approximately $329,000 in general and
administrative expenses, approximately $50,000 in general and administrative
expenses - related party, $49,000 in franchise tax expense, offset by
approximately $8,000 in interest income from investments held in the trust
account.
For the three months ended March 31, 2021, we had a net loss of approximately
$269,000, which consisted of approximately $175,000 in general and
administrative expenses, approximately $50,000 in general and administrative
expenses approximately $49,000 in franchise tax expense, offset by approximately
$5,000 in interest income from investments held in the trust account.
Liquidity, Capital Resources and Going Concern
As of March 31, 2022, we had approximately $990,000 cash outside of the trust
account, approximately $19,000 of interest income available in the trust account
to pay for tax obligations and working capital of approximately $785,000.
There have been no material changes to our material cash requirements as
disclosed in our Annual Report on Form 10-K.
We did not have any near-term contractual obligations as of March 31, 2022. Our
liquidity needs to date have been satisfied through a capital contribution of
$20,000 from our sponsor to purchase the founder shares, the loan under a
promissory note of $300,000, which was repaid in full on October 16, 2020, the
net proceeds from the consummation of the private placement not held in the
trust account, and the loan under a promissory note of $1,000,000, as described
below. In addition, in order to finance transaction costs in connection with a
business combination, our officers, directors and initial stockholders may, but
are not obligated to, provide working capital.
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On February 14, 2022, we entered into a promissory note ("2022 Note"), in favor
of our sponsor. The 2022 Note has an original principal amount of $1,000,000, is
non-convertible, does not bear interest, and will mature on the earlier of (i)
the winding up of our Company if our initial potential business combination has
not been consummated on or before the 24 month anniversary of the closing of our
initial public offering (as the same may be extended from time to time by the
vote of our stockholders) or (ii) the closing of an initial business
combination. The 2022 Note may be prepaid in whole or in part at any time. The
Note contains customary events of default, including, among others, those
relating to our Company's failure to make a payment of principal when due and to
perform any other obligations that is not timely cured after written notice of
such default from the sponsor. As of March 31, 2022, there was $1,000,000
outstanding under the 2022 Note.
In connection with our assessment of going concern considerations in accordance
with Financial Accounting Standards Board's ("FASB") Accounting Standards
Codification Topic 205-40, "Presentation of Financial Statements - Going
Concern," management has determined that the mandatory liquidation and
subsequent dissolution raises substantial doubt about the Company's ability to
continue as a going concern. No adjustments have been made to the carrying
amounts of assets or liabilities should the Company be required to liquidate
after October 16, 2022. The unaudited condensed financial statements do not
include any adjustment that might be necessary if the Company is unable to
continue as a going concern. See Item 1. Business "Acquisition Strategy" to our
Annual Report on Form 10-K.
Commitments and Contingencies
Registration Rights
The holders of founder shares and private placement shares are entitled to
registration rights pursuant to a registration and stockholder rights agreement.
The holders of these securities are entitled to make up to three demands that we
register such securities, subject to specified conditions. In addition, the
holders have certain "piggy-back" registration rights with respect to
registration statements filed subsequent to the consummation of the business
combination. We will bear the expenses incurred in connection with the filing of
any such registration statements. However, the registration and stockholder
rights agreement will provide that we will not be required to effect or permit
any registration or cause any registration statement to become effective until
termination of the applicable lock-up period.
Underwriting Agreement
The underwriter was entitled to an underwriting discount of $0.20 per share, or
$1.7 million in the aggregate, paid upon the closing of the IPO and partial
exercise of the over-allotment option. In addition, $0.35 per share, or $2.9
million in the aggregate will be payable to the underwriter for deferred
underwriting commissions. The deferred fee will become payable to the
underwriter 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.
Critical Accounting Estimates
The preparation of financial statements in accordance with United States
generally accepted accounting principles ("GAAP") requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. A summary of our significant accounting policies is
included in Note 2 to our condensed financial statements in Part I, Item 1 of
this Quarterly Report. Certain of our accounting policies are considered
critical, as these policies are the most important to the depiction of our
financial statements and require significant, difficult or complex judgments,
often employing the use of estimates about the effects of matters that are
inherently uncertain. Such policies are summarized in the Management's
Discussion and Analysis of Financial Condition and Results of Operations section
in our Annual Report on Form 10-K. There have been no significant changes in the
application of our critical accounting estimates during the three months ended
March 31, 2022.
Recent Accounting Pronouncements
See Note 2 to the unaudited condensed financial statements included in Part I,
Item 1 of this Quarterly Report for a discussion of recent accounting
pronouncements.
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JOBS Act
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
unaudited condensed 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 control over financial reporting pursuant to Section 404, (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 ("PCAOB"), 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 chief
executive officer's compensation to median employee compensation. These
exemptions will apply for a period of five years following the completion of our
IPO or until we are no longer an "emerging growth company," whichever is
earlier.
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