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 for the year ended December
31, 2021, filed with the SEC on March 16, 2022 and Part II, Item I.A. of this
Quarterly Report. 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 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, 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.
Our registration statement for our 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 Warrants, 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. Management
currently anticipates that an extension of the Combination Period may be
required to complete a Business Combination. There can be no assurance that we
will seek such an extension (if required) or that an extension, if sought, will
be obtained. If we do not complete a Business Combination, there will be no
redemption rights or liquidating distributions with respect to warrants to
purchase our shares of Class A common stock, which will expire worthless.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities for the three months ended March 31, 2022 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 derivative warrant
liabilities at each reporting period.
For the three months ended March 31, 2022, we had net income of $12,727,972,
which was primarily related to a change in fair value of derivative warrant
liabilities of $12,935,833 and included interest income of $18,497, partially
offset by general and administrative expenses of $211,260.
For the three months ended March 31, 2021, we had net income of $8,671,529,
which was primarily related to a change in fair value of derivative warrant
liabilities of $8,724,166 and included interest income of $18,495, partially
offset by general and administrative expenses of $66,572.
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 Founder. 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 three months ended March 31, 2022, net cash used in operating activities
was $(201,363). Net income of $12,727,972 was primarily related to a change in
fair value of derivative warrant liabilities of $12,935,833. Changes in
operating assets and liabilities resulted in $(201,363) of net cash used in
operating activities. For the three months ended March 31, 2021, net cash used
in operating activities was $(184,329). Net income of $8,671,530 was primarily
related to a change in fair value of derivative warrant liabilities of
$8,724,166. Changes in operating assets and liabilities resulted in $(184,329)
of net cash used in operating activities.
As of March 31, 2022 we had operating cash of $549,005 and investments held in
the Trust account of $750,098,852. As of March 31, 2021 we had operating cash of
$1,027,508 and investments held in the Trust account of $750,080,355.
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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.
Subsequent to the consummation of the Initial Public Offering and Private
Placement, the Company's liquidity needs have been satisfied with the proceeds
from the consummation of the Private Placement not held in the Trust Account. In
addition, in order to finance transaction costs in connection with a Business
Combination, the Sponsor may, but is not obligated to, provide the Company
Working Capital Loans. To date, there were no amounts outstanding under any
Working Capital Loan.
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. Management intends to seek additional financing to the extent current
funds are insufficient to meet the Company's working capital needs until
completion of a Business Combination or mandatory liquidation. 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
unaudited condensed financial statements if a Business Combination is not
consummated. These unaudited 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. Lastly, the Company will be required to
liquidate and dissolve if the Business Combination is not completed by November
3, 2022. The Company intends to complete a Business Combination before the
mandatory liquidation date.
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 unaudited condensed 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.
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
unaudited condensed financial statements.
Off-Balance Sheet Arrangements
As of March 31, 2022, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K.
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