References to the "Company," "our," "us" or "we" refer to EdtechX Holdings
Acquisition Corp. II. The following discussion and analysis of our financial
condition and results of operations should be read in conjunction with the
consolidated 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 Annual Report on Form 10-K includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (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. Such statements include, but are not limited
to, possible business combinations and the financing thereof, and related
matters, as well as all other statements other than statements of historical
fact included in this Form 10-Q. Factors that might cause or contribute to such
a discrepancy include, but are not limited to, those described in our other
Securities and Exchange Commission ("SEC") filings.
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Overview
We are a blank check company incorporated in Delaware on May 27, 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 (the "Business Combination"). Our sponsors are IBIS Capital Sponsor
II LLC and IBIS Sponsor II EdtechX LLC, limited liability companies affiliated
with certain of our officers and directors (the "Sponsors").
The registration statement for our Initial Public Offering ("Initial Public
Offering") became effective on December 10, 2020. On December 15, 2020, we
consummated its Initial Public Offering of 10,000,000 units (the "Units") at
$10.00 per Unit, generating gross proceeds of $100.0 million, and incurring
offering costs of approximately $6.0 million, inclusive of $3.5 million in
deferred underwriting commissions. The underwriters exercised the over-allotment
option in full and on December 17, 2020 purchased an additional 1,500,000 Units
(the "Over-Allotment Units"), generating gross proceeds of $15.0 million, and we
incurred additional offering costs of $825,000 in underwriting fees, inclusive
of $525,000 in deferred underwriting fees (the "Over-Allotment").
Simultaneously with the closing of the Initial Public Offering, we consummated
the private placement ("Private Placement") of 5,000,000 warrants (each, a
"Private Placement Warrant" and collectively, the "Private Placement Warrants")
at a price of $1.00 per Private Placement Warrant to the Sponsors and MIHI LLC,
an affiliate of Macquarie Capital (USA) Inc., one of the underwriters of the
Initial Public Offering, generating proceeds of $5.0 million (Note 3).
Simultaneously with the consummation of the sale of the Over-Allotment Units,
the Sponsors, MIHI LLC, and Jefferies LLC, the representative of the
underwriters in the Initial Public Offering, purchased an additional 525,000
Private Warrants for an aggregate purchase price of an additional $525,000.
Upon the closing of the Initial Public Offering and the Private Placement,
$101.5 million ($10.15 per Unit) of the net proceeds of the sale of the Units in
the Initial Public Offering and of the Private Placement Warrants in the Private
Placement were placed in a trust account ("Trust Account") located in the United
States with Continental Stock Transfer & Trust Company acting as trustee, and
will be invested only in U.S. "government securities," within the meaning of
Section 2(a)(16) of the Investment Company Act, having a maturity of 185 days or
less or in money market funds meeting certain conditions under Rule 2a-7
promulgated under the Investment Company Act 1940, as amended (the "Investment
Company Act"), which invest only in direct U.S. government treasury obligations,
as determined by the Company, until the earlier of: (i) the completion of a
Business Combination and (ii) the distribution of the Trust Account as described
below. Upon the closing of the Over-Allotment on December 17, 2020, an aggregate
of approximately $15.2 million of the additional net proceeds from the
consummation of the Over-Allotment were placed in the Trust Account, for a total
of approximately $116.7 million held in Trust Account.
If we are unable to complete a Business Combination within 18 months from the
closing of the Initial Public Offering, or June 15, 2022, (the "Combination
Period") and our stockholders have not amended the Certificate of Incorporation
to extend such 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 its taxes and working capital needs
(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), and (iii) as promptly as
reasonably possible following such redemption, subject to the approval of the
remaining stockholders and the board of directors, liquidate and dissolve,
subject in the case of clauses (ii) and (iii) to our obligations under Delaware
law to provide for claims of creditors and the requirements of other applicable
law.
Results of Operations
Our entire activity from May 27, 2020 (inception) through June 30, 2022, was in
preparation for an Initial Public Offering, and since our Initial Public
Offering, our activity has been limited to the search for a prospective initial
Business Combination. We will not generate any operating revenues until the
closing and completion of our initial Business Combination.
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For the year ended June 30, 2022, we had net income of approximately $5.2
million, which consisted of approximately $6.1 million in change in fair value
of derivative warrant liabilities and approximately $184,000 in gain on
investments held in Trust offset by approximately $899,000 of general and
administrative expenses, inclusive of $120,000 general administrative expense
related party and approximately $198,000 in franchise tax expense.
For the year ended June 30, 2021, we had a net loss of approximately $322,000,
which consisted of approximately $496,000 of general and administrative
expenses, inclusive of $65,000 general administrative expense related party,
approximately $217,000 of franchise tax expense and approximately $315,000 in
financing cost - derivative warrant liabilities, offset by approximately $36,000
of gain on investments held in Trust Account and approximately $452,000 change
in fair value of derivative warrant liabilities.
Liquidity and Going Concern
As of June 30, 2022, we had approximately $107,000 in cash and a working capital
deficit of approximately $174,000.
Prior to June 30, 2022, our liquidity needs were satisfied through a payment of
$25,000 from the Sponsor to cover for certain offering costs on our behalf in
exchange for issuance of Founders Shares, and loan proceeds from the Sponsor of
approximately $108,000 under the Note and fully repaid the Note on June 24,
2021. Subsequent to the repayment, the facility was no longer available to us.
Subsequent from the consummation of the Initial Public Offering, our liquidity
needs have been satisfied through the net proceeds from the consummation of the
Initial Public Offering and the Private Placement held outside of the Trust
Account.
Management has determined that we have access to funds from our Sponsor that are
sufficient to fund our working capital needs until the consummation of an
initial Business Combination or for a minimum of one year from the date of
issuance of the consolidated financial statements. However, in connection with
our assessment of going concern considerations in accordance with Financial
Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC")
Topic 205-40, "Presentation of Financial Statements - Going Concern," management
has determined that our liquidity condition, mandatory liquidation and
subsequent dissolution raise substantial doubt about our ability to continue as
a going concern without a business combination.
Related Party Transactions
Founder Shares
On June 30, 2020, our Sponsors purchased 4,312,500 shares of our Class B common
stock, par value $0.0001 per share, (the "Founder Shares") for an aggregate
price of $25,000. In December 2020, our Sponsor contributed an aggregate of
1,437,500 shares of Class B common stock to our Company for no consideration,
resulting in a decrease in the total number of shares of Class B common stock
outstanding from 4,312,500 to 2,875,000. All shares and associated amounts have
been retroactively restated to reflect the share contribution. In connection
with the Initial Public Offering, our Sponsors contributed to our Company's
capital an aggregate of 40,000 Founder Shares and we issued a like number of
shares to one of the underwriters in the Initial Public Offering - see "Private
Placement" below. The initial stockholders agreed to forfeit up to 375,000
Founder Shares to the extent that the over-allotment option was not exercised in
full by the underwriters, so that the Founder Shares would represent 20.0% of
our issued and outstanding shares after the Initial Public Offering. On December
17, 2020, the underwriters fully exercised the over-allotment option to purchase
an additional 1,500,000 Units; thus, these 375,000 shares of Class B common
stock were no longer subject to forfeiture.
The initial stockholders agreed, subject to limited exceptions, not to transfer,
assign or sell any of the Founder Shares until the earlier to occur of: (A) one
year after the completion of the initial Business Combination or (B) subsequent
to the initial Business Combination, (x) if the reported closing price of the
Class A common stock equals or exceeds $12.00 per share (as adjusted for stock
splits, stock dividends, reorganizations, recapitalizations and the like) for
any 20 trading days within any 30-trading day period commencing at least 150
days after the initial Business Combination, or (y) the date on which we
complete a liquidation, merger, capital stock exchange or other similar
transaction that results in all of the stockholders having the right to exchange
their shares of common stock for cash, securities or other property. Any
permitted transferees will be subject to the same restrictions and other
agreements of our initial stockholders with respect to any Founder Shares.
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Private Placement Warrants and Founder Shares
On December 15, 2020, our Sponsors, the underwriters and MIHI purchased an
aggregate of 5,000,000 Private Placement Warrants, and 40,000 Founder Shares for
an aggregate purchase price of approximately $5.0 million in the Private
Placement that occurred simultaneously with the closing of the Initial Public
Offering. Simultaneously with the consummation of the sale of the Over-Allotment
Units on December 17, 2020, our Sponsors, MIHI LLC, and Jefferies LLC, the
representative of the underwriters in the Initial Public Offering, purchased an
additional 525,000 Private Warrants for an aggregate purchase price of an
additional $525,000.
Each Private Placement Warrant is exercisable for one whole share of Class A
common stock at a price of $11.50 per share. The Founder Shares are described
above. A portion of the proceeds from the sale of the Private Placement Warrants
were added to the net proceeds from the Initial Public Offering held in the
Trust Account. If we do not complete a Business Combination within the
Combination Period, the Private Placement Warrants will expire worthless. The
Private Placement Warrants will be non-redeemable for cash and exercisable on a
cashless basis so long as they are held by the initial purchasers or their
permitted transferees.
The purchasers of the Private Placement Warrants agreed, subject to limited
exceptions, not to transfer, assign or sell any of their Private Placement
Warrants (except to permitted transferees) until 30 days after the completion of
the initial Business Combination.
Related Party Loans
On June 30, 2020, our Sponsors agreed to loan us an aggregate of up to $150,000
to cover expenses related to the Initial Public Offering pursuant to a
promissory note (the "Note"). This loan was non-interest bearing and payable on
the earlier of December 31, 2020 or the completion of the Initial Public
Offering. We borrowed approximately $108,000 under the Note and fully repaid the
Note on June 24, 2021. Subsequent to the repayment, the facility was no longer
available to us. In June 2022, we borrowed $250,000 under the Note. As of June
30, 2022, the Note is still outstanding.
In addition, in order to finance transaction costs in connection with a Business
Combination, our Sponsors or an affiliate of our Sponsors, or our officers and
directors or their affiliates may, but are not obligated to, loan us funds as
may be required ("Working Capital Loans"). If we complete a Business
Combination, we would repay the Working Capital Loans out of the proceeds of the
Trust Account released to us. Otherwise, the Working Capital Loans would be
repaid only out of funds held outside the Trust Account. In the event that a
Business Combination does not close, we may use a portion of proceeds held
outside the Trust Account to repay the Working Capital Loans but no proceeds
held in the Trust Account would be used to repay the Working Capital Loans. The
Working Capital Loans would either be repaid upon consummation of a Business
Combination or, at the lender's discretion, up to $1.5 million of such Working
Capital Loans may be convertible into warrants of the post Business Combination
entity at a price of $1.00 per warrant. The warrants would be identical to the
Private Placement Warrants. Except for the foregoing, the terms of such Working
Capital Loans, if any, have not been determined and no written agreements exist
with respect to such loans. As of June 30, 2022, we had no borrowings under the
Working Capital Loans.
Administrative Services Agreement
We entered into an agreement that provided that, commencing on the effective
date of the offering prospectus and continuing until the earlier of our
consummation of a Business Combination and our liquidation, to us agreed to pay
the Sponsors a total of $10,000 per month for providing us with office space and
certain office and secretarial services. For the years ended June 30, 2022 and
2021, $120,000 and $65,000 of these expenses were incurred, respectively.
Our Sponsors, officers and directors, or any of their respective affiliates,
will be reimbursed for any out-of-pocket expenses incurred in connection with
activities on our behalf such as identifying potential target businesses and
performing due diligence on suitable Business Combinations. Our audit committee
will review on a quarterly basis all payments that were made to our Sponsors,
officers, directors or us or their affiliates and will determine which expenses
and the amount of expenses that will be reimbursed. There is no cap or ceiling
on the reimbursement of out-of-pocket expenses incurred by such persons in
connection with activities on our behalf.
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Contractual Obligations
Registration and Rights
The holders of Founder Shares, Private Placement Warrants and warrants that may
be issued upon conversion of Working Capital Loans, if any, (and the securities
underlying such securities) are entitled to registration rights pursuant to a
registration rights agreement signed upon the consummation of the Initial Public
Offering. We will bear the expenses incurred in connection with the filing of
any such registration statements.
Underwriting Agreement
The underwriters were entitled to an underwriting discount of $0.20 per unit, or
$2.0 million in the aggregate, which was paid upon the closing of the Initial
Public Offering. An additional fee of $0.35 per unit, or $3.5 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 a
Business Combination, subject to the terms of the underwriting agreement.
Upon closing of the Over-allotment on December 17, 2020, the underwriters
received approximately $300,000 in fees paid upfront and the underwriters are
eligible for an additional deferred underwriting commissions of $525,000
totaling $4,025,000 deferred underwriting commissions.
Critical Accounting Policies
This management's discussion and analysis of our financial condition and results
of operations is based on our consolidated financial statements, which have been
prepared in accordance with United States generally accepted accounting
principles. The preparation of the consolidated financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and the disclosure of contingent assets and
liabilities in our consolidated financial statements. On an ongoing basis, we
evaluate our estimates and judgments, including those related to fair value of
financial instruments and accrued expenses. We base our estimates on historical
experience, known trends and events and various other factors that we believe to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. We have identified the
following as its critical accounting policies:
Investments Held in the Trust Account
Our portfolio of investments held in the Trust Account is comprised of U.S.
government securities, within the meaning set forth in Section 2(a)(16) of the
Investment Company Act, with a maturity of 185 days or less, or investments in
money market funds that invest in U.S. government securities, or a combination
thereof. When our investments held in the Trust Account are comprised of U.S.
government securities, the investments are classified as trading securities.
When our investments held in the Trust Account are comprised of money market
funds, the investments are recognized at fair value. Trading securities and
investments in money market funds are presented on the consolidated balance
sheets at fair value at the end of each reporting period. Gains and losses
resulting from the change in fair value of these securities is included in gain
on investments held in Trust Account in the accompanying consolidated statements
of operations. The estimated fair values of investments held in the Trust
Account are determined using available market information.
Derivative Warrant Liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. We evaluates all of its financial instruments, including
issued warrants to purchase ordinary shares, to determine if such instruments
are derivatives or contain features that qualify as embedded derivatives,
pursuant to ASC 480 and FASB ASC Topic 815, "Derivatives and Hedging" ("ASC
815"). The classification of derivative instruments, including whether such
instruments should be recorded as liabilities or as equity, is re-assessed at
the end of each reporting period.
46
The warrants issued in connection with the Initial Public Offering (the "Public
Warrants") and the Private Placement Warrants are recognized as derivative
liabilities in accordance with ASC 815. Accordingly, we recognize the warrant
instruments as liabilities at fair value and adjusts the instruments to fair
value at each reporting period. The liabilities are subject to re-measurement at
each balance sheet date until exercised, and any change in fair value is
recognized in our consolidated statements of operations. The fair value of the
Public Warrants issued in connection with the Public Offering and Private
Placement Warrants were initially and subsequently measured at fair value using
a Monte Carlo simulation model. Subsequently, the fair value of the Public
Warrants is determined by their listed trading price. The fair value of the
Private Placement Warrants has been estimated using a Monte Carlo simulation
model at each measurement date. (See Note 8). The determination of the fair
value of the warrant liabilities may be subject to change as more current
information becomes available and accordingly the actual results could differ
significantly. Derivative warrant liabilities are classified as non-current
liabilities as their liquidation is not reasonably expected to require the use
of current assets or require the creation of current liabilities.
Net Income (Loss) Per Share of Common Stock
We comply with accounting and disclosure requirements of FASB ASC Topic 260,
"Earnings Per Share." We have two classes of shares, which are referred to as
Class A common stock and Class B common stock. Income and losses are shared pro
rata between the two classes of shares. We have revised its earnings per share
calculation to allocate income and losses shared pro rata between the two
classes of shares. This presentation contemplates a Business Combination as the
most likely outcome, in which case, both classes of shares share pro rata in the
income and losses. Net income (loss) per common share is calculated by dividing
the net income by the weighted average shares of common stock outstanding for
the respective period.
The calculation of diluted net income (loss) per common stock does not consider
the effect of the warrants issued in connection with the Initial Public Offering
(including exercise of the over-allotment option) and the Private Placement to
purchase an aggregate of 11,275,000 shares of common stock in the calculation of
diluted income per share, because their exercise is contingent upon future
events and their inclusion would be anti-dilutive under the treasury stock
method. As a result, diluted net income (loss) per share is the same as basic
net income per share for the years ended June 30, 2022 and 2021. Accretion
associated with the redeemable Class A common stock is excluded from earnings
per share as the redemption value approximates fair value.
Class A Common Stock Subject to Possible Redemption
We account for its Class A common stock subject to possible redemption in
accordance with the guidance in ASC 480. Class A common stock subject to
mandatory redemption (if any) is classified as liability instruments and are
measured at fair value. Conditionally redeemable Class A common stock (including
Class A 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) are classified as temporary equity. At all
other times, Class A common stock is classified as stockholders' equity. Our
Class A common stock feature certain redemption rights are considered to be
outside of our control and subject to the occurrence of uncertain future events.
Accordingly, as of June 30, 2022 and 2021, 2,304,279 and 11,500,000 shares of
Class A common stock subject to possible redemption are presented at redemption
value as temporary equity, outside of the stockholders' equity section of our
consolidated balance sheets.
Under ASC 480, we have elected to recognize changes in the redemption value
immediately as they occur and adjust the carrying value of the security to equal
the redemption value at the end of the reporting period. This method would view
the end of the reporting period as if it were also the redemption date of the
security. Effective with the closing of the Initial Public Offering (including
exercise of the over-allotment option) we recognized the accretion from initial
book value to redemption amount, which resulted in charges against additional
paid-in capital (to the extent available) and accumulated deficit.
Recently Issued Accounting Pronouncements
Our management does not believe that any recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying consolidated financial statements.
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Off-Balance Sheet Arrangements
As of June 30, 2022 and 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 consolidated 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 consolidated 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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