References in this report (the "Quarterly 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 unaudited condensed financial statements and the notes
thereto contained elsewhere in this Quarterly Report. Certain information
contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties.
Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act that
are not historical facts, and involve risks and uncertainties that could cause
actual results to differ materially from those expected and projected. All
statements, other than statements of historical fact included in this Quarterly
Report including, without limitation, statements in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
regarding the Company's financial position, business strategy and the plans and
objectives of management for future operations, are forward-looking statements.
Words such as "expect," "believe," "anticipate," "intend," "estimate," "seek"
and variations and similar words and expressions are intended to identify such
forward-looking statements. Such forward-looking statements relate to future
events or future performance, but reflect management's current beliefs, based on
information currently available. A number of factors could cause actual events,
performance or results to differ materially from the events, performance and
results discussed in the forward-looking statements. For information identifying
important factors that could cause actual results to differ materially from
those anticipated in the forward-looking statements, please refer to the Risk
Factors section of our Annual Report on Form 10-K/A for the year ended December
31, 2020, filed with the SEC on May 24, 2021 (the "Annual Report on Form
10-K/A"). The Company's securities filings can be accessed on the EDGAR section
of the SEC's website at www.sec.gov. Except as expressly required by applicable
securities law, the Company disclaims any intention or obligation to update or
revise any forward-looking statements whether as a result of new information,
future events or otherwise.
Overview
We are a blank check company formed under the laws of the State of Nevada on
August 26, 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 or assets. We intend to effectuate our
Business Combination utilizing cash from the proceeds of the Initial Public
Offering and the sale of the Private Placement Warrants, our capital stock, debt
or a combination of cash, stock and debt. Although we are not limited to a
particular industry or sector for purposes of consummating a Business
Combination, we intend to 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.
Our registration statement for the 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 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 a Business Combination.
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If we are unable to complete a 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 for the nine months ended September 30, 2021 were associated
with the search for a target company for a Business Combination. We do not
expect to generate any operating revenues until after the completion of our
Business Combination. We generate non-operating income in the form of interest
income on marketable investments held in the Trust Account. 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 three months ended September 30, 2021, we had net income of $5,938,389,
which was primarily related to a change in fair value of derivative warrant
liabilities of $6,016,667 and included interest income of $18,907, partially
offset by general and administrative expenses of $92,765.
For the nine months ended September 30, 2021, we had net income of $10,783,721,
which was primarily related to a change in fair value of derivative warrant
liabilities of $11,130,834 and included interest income of $56,309, partially
offset by general and administrative expenses of $389,537.
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 the Founder in exchange for
the issuance of the Founder Shares, and a promissory note (the "Note") issued by
the Sponsor. 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 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 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.
For the nine months ended September 30, 2021, net cash used in operating
activities was $(345,528). Net income of $10,783,721 was primarily related to a
change in fair value of derivative warrant liabilities of $11,130,834, partially
offset by general and administrative expenses of $389,537.
At September 30, 2021, we had investments held in the Trust Account of
$750,061,652.
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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
Business Combination. To the extent that our capital stock or debt is used, in
whole or in part, as consideration to complete our Business Combination, the
remaining proceeds held in the Trust Account will be used as working capital to
finance the operations of the target business or businesses, make other
acquisitions and pursue our growth strategies.
We intend to use the funds held outside the Trust Account primarily to identify
and evaluate target businesses, perform business due diligence on prospective
target businesses, travel to and from the offices, plants or similar locations
of prospective target businesses or their representatives or owners, review
corporate documents and material agreements of prospective target businesses,
and structure, negotiate and complete a Business Combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, the initial stockholders or their
affiliates may, but are not obligated to, loan us funds as may be required. If
we complete a Business Combination, we would repay such loaned amounts. In the
event that a Business Combination does not close, we may use a portion of the
working capital held outside the Trust Account to repay such loaned amounts but
no proceeds from our Trust Account would be used for such repayment. Up to
$1,500,000 of such loans may be convertible into warrants identical to the
Private Placement Warrants, at a price of $1.50 per warrant at the option of the
lender.
If the Business Combination is not consummated, the Company will need to raise
additional capital through loans or additional investments from its Sponsor,
stockholders, officers, directors, or third parties. The Company's officers,
directors and Sponsor may, but are not obligated to, loan the Company funds,
from time to time or at any time, in whatever amount they deem reasonable in
their sole discretion, to meet the Company's working capital needs. Accordingly,
the Company may not be able to obtain additional financing. If the Company is
unable to raise additional capital, it may be required to take additional
measures to conserve liquidity, which could include, but not necessarily be
limited to, curtailing operations, suspending the pursuit of a potential
transaction, and reducing overhead expenses. The Company cannot provide any
assurance that new financing will be available to it on commercially acceptable
terms, if at all. These conditions raise substantial doubt about the Company's
ability to continue as a going concern through one year from the date of these
financial statements if a Business Combination is not consummated. These
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.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities.
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.
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Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have 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 were recorded at a redemption value and classified as temporary equity
upon the completion of the Initial Public Offering in accordance with ASC
480-10-S99. 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.
During the preparation of the Company's financial statements as of September 30,
2021, management determined it should revise its previously reported financial
statements to reclassify all of the Company's shares of Class A common stock
subject to possible redemption as temporary equity. See Note 2 to the unaudited
condensed financial statements included in Part I, Item 1 of this Quarterly
Report.
Recent Accounting Standards
In August 2020, the FASB issued Accounting Standards Update ("ASU") No. 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): Accounting for
Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06"),
which simplifies accounting for convertible instruments by removing major
separation models required under current U.S. GAAP. ASU 2020-06 also removes
certain settlement conditions that are required for equity-linked contracts to
qualify for the derivative scope exception, and it simplifies the diluted
earnings per share calculation in certain areas. The Company will adopt ASU
2020-06 on January 1, 2022 and is currently assessing the impact on the
Company's financial position, results of operations and cash flows.
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on our unaudited condensed financial statements.
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Off-Balance Sheet Arrangements
As of September 30, 2021, 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 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 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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