References to the "Company," "our," "us" or "we" refer to EdtechX Holdings
Acquisition Corp. II The following discussion and analysis of the Company's
financial condition and results of operations should be read in conjunction with
the unaudited condensed 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 Quarterly Report on Form 10-Q 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.
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, the
Company 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 the Company 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. ("MIHI"), 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, and Jefferies LLC, the representative of the underwriters in
the Initial Public Offering ("Jefferies"), 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. See "Trust Account
Redemptions and Extension of Trust Liquidation Date" below for further
description.
23
We will provide the holders (the "Public Stockholders") of the Company's
outstanding shares of Class A common stock, par value $0.0001 per share, sold in
the Initial Public Offering (the "Public Shares") 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) 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. 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.
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.
Proposed Business Combination
On May 16, 2022, the Company entered into an Agreement and Plan of
Reorganization ("Merger Agreement") by and among the Company, EXHAC Merger Sub
I, Inc., a Delaware corporation and a wholly owned subsidiary of the Company
("Merger Sub I"), EXHAC Merger Sub II, LLC, a Delaware limited liability company
and a wholly owned subsidiary of the Company ("Merger Sub II"), and zSpace Inc.,
a Delaware corporation ("zSpace"). Pursuant to the Merger Agreement, the parties
will enter into a business combination transaction by which (i) Merger Sub I
will merge with and into zSpace, with zSpace being the surviving entity of the
merger, and, after giving effect to such merger, continuing as a wholly owned
subsidiary of the Company (the "First Merger") and (ii) following the First
Merger, zSpace will merge with and into Merger Sub II (the "Second Merger" and,
together with the First Merger, the "Merger"), with Merger Sub II being the
surviving company of the Second Merger (Merger Sub II, in its capacity as the
surviving company of the Second Merger, the "Surviving zSpace"). Concurrently
with the consummation of the First Merger, (i) the outstanding shares of common
stock ("zSpace Stock") and preferred stock of zSpace ("Preferred Stock") issued
and outstanding immediately prior to the effective time of the Merger
("Effective Time") will be converted into shares of Class A common stock, in
each case, pursuant to the terms of the Merger Agreement and (ii) each
in-the-money option of zSpace that is outstanding and unexercised immediately
prior to the Effective Time will be assumed by the Company and will represent
the right to acquire an adjusted number of shares of Class A common stock at an
adjusted exercise price.
Further, following consummation of the Merger, pursuant to the terms of the
Merger Agreement, the Company's board of directors will consist of seven
members. the Company, through the Sponsors (as defined below), shall have the
right to designate two directors, bSpace Investments Limited ("bSpace") shall
have the right to designate two directors and a non-director observer in
bSpace's discretion, and zSpace shall have the right to designate the remaining
directors.
Upon consummation of the Merger, all outstanding shares of common stock and
preferred stock of zSpace will be exchanged for an aggregate of 13.1 million
shares of Class A common stock.
24
As part of the aggregate consideration payable to zSpace's securityholders
pursuant to the Merger Agreement, certain holders of zSpace Stock will also have
the right to receive their pro rata portion of (a) warrants exercisable for up
to an aggregate of 1,000,000 shares of Class A common stock with an exercise
price of $11.50 per share and (b) up to an aggregate of 3,694,581 shares of
Class A common stock ("Earnout Shares") if, during the period beginning on the
closing date of the Merger (the "Closing Date") until the fifth anniversary of
the Closing Date (the "Earnout Period"), the following conditions ("Earnout
Conditions") are met:
? One-third (1/3) of the Earnout Shares if (1) over any twenty (20) trading days
within any thirty (30) consecutive trading day period the dollar
volume-weighted average price ("VWAP") of the shares of Class A common stock is
greater than or equal to $11.50 per share (subject to adjustment) and (2) the
Surviving zSpace, the Company or any direct or indirect subsidiary thereof
consummates an Acquisition Transaction (defined below) after the Effective
Time;
? One-third (1/3) of the Earnout Shares if either (1) over any twenty (20)
trading days within any thirty (30) consecutive trading day period the VWAP of
the shares of Class A common stock is greater than or equal to $12.50 per share
(subject to adjustment) or (2) the Surviving zSpace, the Company or any direct
or indirect subsidiary thereof consummates a second Acquisition Transaction in
addition to the Acquisition Transaction described above after the Effective
Time; and
? One-third (1/3) of the Earnout Shares if either (1) over any twenty (20)
trading days within any thirty (30) consecutive trading day period the VWAP of
the shares of Class A common stock is greater than or equal to $13.50 per share
(subject to adjustment) or (2) consolidated revenues of the Company exceed
$100,000,000 in any fiscal year (determined on a pro forma basis with respect
to any acquisitions by the Company).
Pursuant to the Merger Agreement, "Acquisition Transaction" is defined as any
transaction consummated after the time the First Merger becomes effective and
approved by a majority of the non-employee directors on the Company's board in
which (I) the Surviving zSpace acquires either (a) equity interests that
represent more than 50% of the total voting power of an entity or (b) all or
substantially all of the assets of an entity and (II) such transaction is
expected (in the good faith judgment of the non-employee directors and based
upon the information available to such directors at the time they approve such
transaction) to be synergistic with, or accretive to, the Company or the
Surviving zSpace following consummation of the Merger.
The Merger is expected to be consummated following the receipt of required
approval by the stockholders of the Company, required regulatory approvals, and
the fulfilment of other customary closing conditions.
On September 8, 2022, Jefferies notified us that they would not act in any
capacity in connection with the proposed Business Combination with zSpace and
waived its entitlement to the deferred underwriters commissions solely with
respect to the proposed Business Combination with zSpace.
Trust Account Redemptions and Extension of Combination Period
On June 2, 2022, the Company held a special meeting of stockholders at which
such stockholders voted to extend the time the Company has to consummate an
initial Business Combination from June 15, 2022 to December 15, 2022. In
connection with such vote, the holders of an aggregate of 9,195,721 Public
Shares exercised their right to redeem their shares for an aggregate of
approximately $93,377,626 in cash held in the Trust Account. Additionally, upon
shareholder approval of the extension, our Sponsors agreed that they or their
affiliates would lend to the Company for every month of the extension that was
needed to consummate a Business Combination the lesser of an aggregate of (i)
$100,000 and (ii) $0.033 per share for each Public Share that was not redeemed
in connection with the stockholder vote to be deposited by the Company into the
Trust Account on or prior to the 15th day of each month during the extension
period. An aggregate of 2,304,279 Public Shares were not redeemed in connection
with this stockholder vote and accordingly, a total of $456,247 was deposited
into the Trust account, which was funded by the Sponsor's loans to the Company
and zSpace's reimbursement.
On December 13, 2022, the Company held another special meeting of stockholders
at which such stockholders voted to extend the time by which the Company has to
consummate an initial Business Combination from December 15, 2022 to June 15,
2023. In connection with such vote, public holders of an aggregate of 2,029,571
shares of Class A common stock exercised their right to redeem their Public
Shares for an aggregate of $21,055,164 in cash, leaving an aggregate of 274,708
public shares outstanding. Additionally, the Company's board of directors
authorized management to take the steps necessary such that, if a Business
Combination is subsequently consummated, then at the time of the Business
Combination, the Company would issue a dividend to holders of Public Shares who
did not seek redemption of their Public Shares in connection with the Business
Combination for a pro rata portion of the funds held in the Trust Account. The
Company's board of directors authorized a dividend of an aggregate of 350,000
shares to be divided equally among each Public Share held of record on the day
following the consummation of the Business Combination subject to a maximum
dividend payable of 0.50 shares per public share. Accordingly, if the holders of
the 274,708 Public Shares not submitted for redemption in connection with a
Business Combination, they will be entitled to a dividend of 0.50 shares per
public share (or an aggregate of 137,354 shares).
25
Results of Operations
Our entire activity from May 27, 2020 (inception) through December 31, 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.
For the three months ended December 31, 2022, we had net income of approximately
$318,000, which consisted of approximately $281,000 in change in fair value of
derivative warrant liabilities, approximately $195,000 in gain on investments
held in Trust, and approximately $240,000 in franchise tax benefit offset by
approximately $334,000 of general and administrative expenses, inclusive of
$30,000 general administrative expense related party, and approximately $64,000
in income tax expense.
For the three months ended December 31, 2021, we had a loss of approximately
$48,000, which consisted of approximately $222,000 of general and administrative
expenses, inclusive of $25,000 general administrative expense related party, and
approximately $50,000 of franchise tax expense offset by approximately $213,000
in change in fair value of derivative warrant liabilities and approximately
$11,000 in gain on investments held in Trust.
For the six months ended December 31, 2022, we had net income of approximately
$514,000, which consisted of approximately $615,000 in change in fair value of
derivative warrant liabilities, approximately $310,000 in gain on investments
held in Trust, and approximately $190,000 in franchise tax benefit offset by
approximately $537,000 of general and administrative expenses, inclusive of
$60,000 general administrative expense related party, and approximately $64,000
in income tax expense.
For the six months ended December 31, 2021, we had income of approximately $1.1
million, which consisted of approximately $1.5 million change in fair value of
derivative warrant liabilities and approximately $29,000 gain on investments
held in Trust Account offset by approximately $361,000 of general and
administrative expenses, inclusive of $60,000 general administrative expense
related party, and approximately $100,000 of franchise tax expense.
Liquidity and Going Concern
As of December 31, 2022, we had approximately $16,000 in cash and a working
capital deficit of approximately $0.9 million.
Prior to our Initial Public Offering, 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 to 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. In addition, in order to finance transaction costs
in connection with a Business Combination, we have issued unsecured promissory
notes to our Sponsor. See Note 4 for more details.
Management has determined that we do not have sufficient funds and may need to
borrow from our Sponsor 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.
26
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. Subsequently, in March 2022, our
Sponsors transferred 786,025 Founder Shares to A1 Capital Advisory Asia Limited
for no consideration, and in May 2022, MIHI transferred 40,000 Founder Shares to
our Sponsors for no consideration.
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.
On November 15, 2022, our Sponsors and A1 Capital Advisory Asia Limited
respectively elected to convert all 2,875,000 outstanding shares of Class B
Common Stock owned by them into an aggregate of 2,875,000 shares of Class A
Common Stock pursuant to the terms of the Class B Common Stock.
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, and Jefferies, 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.
27
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.
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 December 31, 2022, we had no borrowings under
the Working Capital Loans.
As of December 31, 2022 and June 30, 2022, we have issued unsecured promissory
notes aggregating $674,960 and $250,000, respectively, in principal amount to
our Sponsors. The promissory notes do not bear interest, are not convertible and
are repayable in full upon consummation of the Company's initial Business
Combination. If we do not complete a Business Combination, the promissory notes
will not be repaid and all amounts owed under such notes will be forgiven except
to the extent that the Company has funds available to it outside of the Trust
Account.
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 the Company's 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 three months
ended December 31, 2022 and 2021, $30,000 and $30,000 of these expenses were
incurred, respectively. For the six months ended December 31, 2022 and 2021,
$60,000 and $60,000 of these expenses were incurred, respectively. As of
December 31, 2022, we had prepaid $25,000 of such services, included in prepaid
expenses on the accompanying condensed consolidated balance sheets.
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.
Contractual Obligations
Registration 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.
28
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.
On September 8, 2022, Jefferies notified us that it would not act in any
capacity in connection with the proposed Business Combination with zSpace and
waived its entitlement to the Deferred Discount solely with respect to the
proposed Business Combination with zSpace under and pursuant to that certain
Underwriting Agreement, dated December 10, 2020.
Recent Issued Accounting Pronouncements
Critical Accounting Policies
The preparation of condensed consolidated financial statements in accordance
with accounting principles generally accepted in the United States of America
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
consolidated 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 condensed consolidated 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 2021
Annual Report on Form 10-K filed with the SEC on September 28, 2022. There have
been no significant changes in the application of our critical accounting
policies during the six months ended December 31, 2022.
Recently Issued Accounting Pronouncements
See Note 2 to the unaudited condensed consolidated financial statements included
in Part I, Item 1 of this Quarterly Report for a discussion of recent accounting
pronouncements.
Off-Balance Sheet Arrangements
As of December 31, 2022, 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 condensed 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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