References in this report (the "Annual Report") to "we," "us" or the "Company"
refer to CONX Corp. References to our "management" or our "management team"
refer to our officers and directors, and references to the "Sponsor" refer to
nXgen Opportunities, LLC. The following discussion and analysis of the Company's
financial condition and results of operations should be read in conjunction with
the audited financial statements and the notes related thereto which are
included in "Item 8. Financial Statements and Supplementary Data" of this Annual
Report on Form 10-K. Certain information contained in the discussion and
analysis set forth below includes forward-looking statements. Our actual results
may differ materially from those anticipated in these forward-looking statements
as a result of many factors, including those set forth under "Special Note
Regarding Forward-Looking Statements," "Item 1A. Risk Factors" and elsewhere in
this Annual Report on Form 10-K.
This "Management's Discussion and Analysis of Financial Condition and Results of
Operations" has been amended and restated to give effect to the restatement of
our financial statements, as more fully described in Note 2 to our financial
statements entitled "Restatement of Previously Issued Financial Statements". For
further detail regarding the restatement, see "Explanatory Note" and "Item 9A.
Controls and Procedures."
Overview
We are an early-stage blank check company incorporated in the State of Nevada on
August 26, 2020, whose business purpose is to effect a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses or assets. We intend to effectuate our
initial business combination utilizing cash from the proceeds of our initial
public offering and the sale of the Private Placement Warrants (as defined
below), our capital stock, debt or a combination of cash, stock and debt.
Although we are not limited to a particular industry or sector for purposes of
consummating an initial business combination, we intend to focus our search on
identifying a prospective target that can benefit from our operational expertise
in the technology, media and telecommunications ("TMT") industry, including the
wireless communications industry. We are an emerging growth company and, as
such, we are subject to all of the risks associated with emerging growth
companies.
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Our registration statement for our initial public offering (the "Initial Public
Offering") was declared effective on October 29, 2020. On November 3, 2020, we
consummated the Initial Public Offering of 75,000,000 Units at a price of $10.00
per Unit, generating gross proceeds of $750.0 million. Simultaneously with the
closing of the Initial Public Offering, we consummated the sale of 11,333,333
Private Placement Warrants to the Sponsor at a price of $1.50 per warrant,
generating gross proceeds of $17 million.
Following the Initial Public Offering and the sale of the Private Placement
Warrants, a total of $750.0 million was placed in the Trust Account (as defined
below) and we had $1.7 million of cash held outside of the Trust Account, after
payment of costs related to the Initial Public Offering, and available for
working capital purposes. We incurred $42.3 million in transaction costs,
including $15 million of underwriting fees, $26.3 million of deferred
underwriting fees and $1 million of other costs.
Our management has broad discretion with respect to the specific application of
the net proceeds of the Initial Public Offering and the sale of private
placement units, although substantially all of the net proceeds are intended to
be applied generally toward consummating an initial business combination.
If we are unable to complete an initial business combination within 24 months
from the closing of the Initial Public Offering, or November 3, 2022 (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 (less taxes payable and up to $100,000 of interest
to pay dissolution expenses), divided by the number of then outstanding public
shares, which redemption will completely extinguish public stockholders' rights
as stockholders (including the right to receive further liquidation
distributions, if any) and (iii) as promptly as reasonably possible following
such redemption, subject to the approval of our remaining stockholders and our
board of directors, liquidate and dissolve, subject, in the case of clauses
(ii) and (iii), to our obligations under Nevada law to provide for claims of
creditors and in all cases subject to the other requirements of applicable law.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from August 26, 2020 (inception) through November 3, 2020
were organizational activities, and those necessary to prepare for the Initial
Public Offering, described below. Subsequent to our Initial Public Offering, we
have been focused on identifying a target company for our initial business
combination. We do not expect to generate any operating revenues until after the
completion of our initial business combination. We generate non-operating income
in the form of interest income on marketable securities held after the Initial
Public Offering. We incur expenses as a result of being a public company (for
legal, financial reporting, accounting and auditing compliance), as well as for
due diligence expenses. Additionally, we recognize non-cash gains and losses
within other income (expense) related to changes in recurring fair value
measurement of our warrant liabilities at each reporting period.
For the period from August 26, 2020 (inception) through December 31, 2020, we
had net income of $1,088,658, which was primarily related to a change in fair
value of derivative warrant liabilities of $4,155,537, partially offset by
offering costs associated with derivative warrant liabilities of $2,908,718 and
general and administrative expenses of $162,382.
Liquidity and Capital Resources
Prior to the completion of the Initial Public Offering, our liquidity needs had
been satisfied through the receipt of $25,000 from Charles W. Ergen in exchange
for the issuance of the founder shares, and a promissory note (the "Note")
issued by Mr. Ergen. We repaid the Note on November 3, 2020.
On November 3, 2020, we consummated the Initial Public Offering of 75,000,000
Units at a price of $10.00 per unit generating gross proceeds of $750.0 million.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 11,333,333 private placement warrants (the "Private Placement
Warrants") to the Sponsor at a price of $1.50 per warrant, generating gross
proceeds of $17 million.
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Following the Initial Public Offering and the sale of the Private Placement
Warrants, a total of $750.0 million was placed in the trust account (the "Trust
Account") and we had $1.7 million of cash held outside of the Trust Account,
after payment of costs related to the Initial Public Offering, and available for
working capital purposes. We incurred $42.3 million in transaction costs,
including $15 million of underwriting fees, $26.3 million of deferred
underwriting fees and $1 million of other costs in connection with our initial
public offering and the sale of the Private Placement Warrants.
For the period ended December 31, 2020, net cash used in operating activities
was $(115,223). Net income of $1,088,658 was offset by offering costs associated
with derivative warrant liabilities of $2,908,718. Changes in operating assets
and liabilities resulted in $(115,223) of cash used in operating activities.
At December 31, 2020, we had cash and marketable securities held in the Trust
Account of $751,217,180.
We intend to utilize substantially all of the funds held in the Trust Account,
including any amounts representing interest earned on the Trust Account (less
deferred underwriting commissions and income taxes payable), to complete our
initial business combination. During the period ended December 31, 2020, we
withdrew no interest earned on the Trust Account to pay income taxes. To the
extent that our capital stock or debt is used, in whole or in part, as
consideration to complete our initial business combination, the remaining
proceeds held in the Trust Account will be used as working capital to finance
the operations of the target business or businesses, make other acquisitions and
pursue our growth strategies.
We intend to use the funds held outside the Trust Account primarily to identify
and evaluate target businesses, perform business due diligence on prospective
target businesses, travel to and from the offices, plants or similar locations
of prospective target businesses or their representatives or owners, review
corporate documents and material agreements of prospective target businesses,
and structure, negotiate and complete our initial business combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with our initial business combination, the initial stockholders or
their affiliates may, but are not obligated to, loan us funds as may be
required. If we complete our initial business combination, we would repay such
loaned amounts. In the event that our initial business combination does not
close, we may use a portion of the working capital held outside the Trust
Account to repay such loaned amounts but no proceeds from the Trust Account
would be used for such repayment. Up to $1,500,000 of such loans may be
convertible into warrants identical to the Private Placement Warrants, at a
price of $1.50 per warrant at the option of the lender.
We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business. However, if our estimate of
the costs of identifying a target business, undertaking in-depth due diligence
and negotiating and consummating our initial business combination are less than
the actual amount necessary to do so, we may have insufficient funds available
to operate our business prior to our initial business combination. Moreover, we
may need to obtain additional financing either to complete our initial business
combination or because we become obligated to redeem a significant number of our
public shares upon consummation of our initial business combination, in which
case we may issue additional securities or incur debt in connection with such
business combination. Subject to compliance with applicable securities laws, we
would only complete such financing simultaneously with the completion of our
initial business combination. If we are unable to complete our initial business
combination because we do not have sufficient funds available to us, we will be
forced to cease operations and liquidate the Trust Account. In addition,
following our initial business combination, if cash on hand is insufficient, we
may need to obtain additional financing in order to meet our obligations.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities.
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Registration Rights
The holders of founder shares, Private Placement Warrants, and securities that
may be issued upon conversion of working capital loans, if any, will be entitled
to registration rights pursuant to a registration and stockholder rights
agreement dated as of October 29, 2020. These holders are entitled to certain
demand and "piggyback" registration rights. We will bear the expenses incurred
in connection with the filing of any such registration statements.
Underwriting Agreement
The underwriters were paid a cash underwriting discount of $0.20 per unit, or
$15 million in the aggregate, upon the closing of the Initial Public Offering.
In addition, $0.35 per unit, or approximately $26.3 million in the aggregate,
will be payable to the underwriters for deferred underwriting commissions. The
deferred fee will become payable to the underwriters from the amounts held in
the Trust Account solely in the event that we complete our initial business
combination, subject to the terms of the underwriting agreement.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have not identified any critical accounting policies, except as
described below.
Warrant Liabilities
We account for the warrants issued in connection with our initial public
offering in accordance with Accounting Standards Codification ("ASC") 815-40,
"Derivatives and Hedging-Contracts in Entity's Own Equity" ("ASC 815"), under
which the warrants do not meet the criteria for equity classification and must
be recorded as liabilities. As the warrants meet the definition of a derivative
as contemplated in ASC 815, the warrants are measured at fair value at issuance
and at each reporting date in accordance with ASC 820, Fair Value Measurement,
with changes in fair value recognized in the Statement of Operations in the
period of change. In accordance with ASC 825-10 "Financial Instruments", the
Company has concluded that a portion of the transaction costs which directly
related to the IPO and the private placement of the Private Placement Warrants,
which were previously charged to stockholders' equity, should be allocated to
the warrants based on their relative fair value against total proceeds, and
recognized as transaction costs in the statement of operations.
Common Stock Subject to Possible Redemption
The Company will provide holders of the Company's outstanding shares of Class A
common stock, par value $0.0001 per share, sold in the Initial Public Offering
with the opportunity to redeem all or a portion of their public shares upon the
completion of a Business Combination either: (i) in connection with a
stockholder meeting called to approve the Business Combination or (ii) without a
stockholder vote by means of a tender offer. The decision as to whether the
Company will seek stockholder approval of a Business Combination or conduct a
tender offer will be made by the Company, solely in its discretion. The public
stockholders will be entitled to redeem their public shares for a pro rata
portion of the amount then held in the Trust Account (initially anticipated to
be $10.00 per Public Share). The per-share amount to be distributed to public
stockholders who redeem their public shares will not be reduced by the deferred
underwriting commissions the Company will pay to the underwriters. These public
shares will be recorded at a redemption value and classified as temporary equity
upon the completion of the Initial Public Offering in accordance with ASC 480
"Distinguishing Liabilities from Equity." The Company will proceed with a
Business Combination if a majority of the shares voted are voted in favor of the
Business Combination. The Company will not redeem the public shares in an amount
that would cause its net tangible assets to be less than $5,000,001. If a
stockholder vote is not required by law and the Company does not decide to hold
a stockholder vote for business or other legal reasons, the Company will,
pursuant to its articles of incorporation, conduct the redemptions pursuant to
the tender offer rules of the SEC and file tender offer documents with the SEC
prior to completing a Business Combination. If, however, stockholder approval of
the transaction is required by law, or the Company decides to obtain stockholder
approval for business or legal reasons, the Company will offer to redeem shares
in conjunction with a proxy solicitation pursuant to the proxy rules and not
pursuant to the tender offer rules. Additionally, each public stockholder may
elect to redeem their public shares irrespective of whether they vote for or
against the proposed transaction.
Recent accounting standards
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
audited financial statements.
Off-Balance Sheet Arrangements
As of December 31, 2020, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") contains
provisions that, among other things, relax certain reporting requirements for
qualifying public companies. We qualify as an "emerging growth company" and
under the JOBS Act are allowed to comply with new or revised accounting
pronouncements based on the effective date for private (not publicly traded)
companies. We are electing to delay the adoption of new or revised accounting
standards, and as a result, we may not comply with new or revised accounting
standards on the relevant dates on which adoption of such standards is required
for non-emerging growth companies. As a result, the audited financial statements
may not be comparable to companies that comply with new or revised accounting
pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the
other reduced reporting requirements provided by the JOBS Act. Subject to
certain conditions set forth in the JOBS Act, if, as an "emerging growth
company," we choose to rely on such exemptions we may not be required to, among
other things, (i) provide an auditor's attestation report on our system of
internal controls over financial reporting pursuant to Section 404, (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 PCAOB
regarding mandatory audit firm rotation or a supplement to the auditor's report
providing additional information about the audit and the unaudited condensed
financial statements (auditor discussion and analysis) and (iv) disclose certain
executive compensation related items such as the correlation between executive
compensation and performance and comparisons of the CEO's compensation to median
employee compensation. These exemptions will apply for a period of five years
following the completion of our Initial Public Offering or until we are no
longer an "emerging growth company," whichever is earlier.
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CONX CORP. 
