References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Locust Walk Acquisition Corp. References to our "management"
or our "management team" refer to our officers and directors, and references to
the "Sponsor" refer to Locust Walk Acquisition Corp. The following discussion
and analysis of the Company's financial condition and results of operations
should be read in conjunction with the 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.
Special 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 Form
10-Q
including, without limitation, statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
Company's future results of operations and financial position, the Merger and
the transactions contemplated thereby, including the PIPE Financing and entry
into the Subscription Agreements, 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," "project,"
"strategy," "future," "opportunity," "plan," "may," "should," "will," "would,"
"will be," "will continue," "will likely result," 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, including that the conditions under the Merger
Agreement are not satisfied. 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 the
Company's Annual Report on Form
10-K
for the year ended December 31, 2020 filed with the SEC on March 29, 2021, as
supplemented by our subsequent Quarterly Reports on Form
10-Q
filed with the SEC, and the Registration Statement on Form
S-4,
filed with the SEC on June 14, 2021, as amended on July 10, 2021 and August 5,
2021. 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 Delaware on
October 2, 2020 for the purpose of effecting a Business Combination. We intend
to effectuate our Business Combination using cash from the proceeds of the IPO
and the sale of the Placement Units, our capital stock, debt or a combination of
cash, stock and debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete a Business
Combination will be successful.
The Merger
On May 26, 2021, we entered into the Merger Agreement, by and among the Company,
Merger Sub and eFFECTOR, as further described in Note 1 to the unaudited
condensed financial statements included in Item 1 of this Quarterly Report on
Form
10-Q.
Pursuant to the terms and conditions of the Merger Agreement, upon the closing,
Merger Sub will merge with and into eFFECTOR with eFFECTOR surviving the Merger
as a wholly-owned subsidiary of the Company. The Board of Directors has
unanimously approved the Merger and resolved to recommend approval of the Merger
Agreement to the stockholders. Consummation of the Merger is subject to approval
by the Company's stockholders and the satisfaction or waiver of certain other
customary closing conditions. Upon the consummation of the Merger, the Company
will be renamed "eFFECTOR Therapeutics, Inc."
eFFECTOR is a biopharmaceutical company focused on pioneering the development of
selective translation regulation inhibitors for the treatment of cancer.
In connection with the Merger, the Company has entered into the Subscription
Agreements with certain parties for a fully committed $60.7 million financing of
Company common stock to be issued at $10.00 per share. The obligations to
consummate the transactions contemplated by the Subscription Agreements are
conditioned upon, among other things, customary closing conditions and the
consummation of the transactions contemplated by the Merger Agreement.

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Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from October 2, 2020 (inception) through June 30, 2021 were
organizational activities, those necessary to prepare for the IPO, described
below, and identifying 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 securities held in the Trust
Account. We incur expenses as a result of being a public company, as well as for
due diligence expenses.
For the three months ended June 30, 2021, we had net loss of $4,705,383, which
consist of operating cost of $2,243,997 and changes in fair value of warrant
liabilities of $2,465,750 offset by interest earned on marketable securities
held in Trust Account of $4,364.
For the six months ended June 30, 2021, we had net loss of $4,656,546, which
consist of operating cost of $2,612,767, transaction cost related to warrant
liabilities of $242,333 and changes in fair value of warrant liabilities of
$1,809,550 offset by interest earned on marketable securities held in Trust
Account of $8,104.
Liquidity and Capital Resources
On January 12, 2021, we consummated the IPO of 17,500,000 Units at $10.00 per
Unit, generating gross proceeds of $175,000,000. Simultaneously with the closing
of the IPO, we consummated the sale of 545,000 Placement Units") at a price of
$10.00 per Placement Unit in a private placement to the Sponsor, that closed
simultaneously with the IPO, generating gross proceeds of $5,450,000.
Following the IPO, the partial exercise of the over-allotment option, and the
sale of the Private Units, a total of $175,000,000 was placed in the Trust
Account. We incurred $10,097,226 in
IPO-related
costs, consisting of $3,060,000 in cash underwriting fees, $6,565,000 of
deferred underwriting fees and $472,226 of other offering costs.
For the six months ended June 30, 2021, cash used in operating activities was
$737,235. Net loss of $4,656,546 was affected by
non-cash
charges (income) related to the change in fair value of the warrant liability of
$1,809,550, interest earned on marketable securities held in trust account of
$8,104 and transaction costs associated with the warrant liability of
approximately $242,333. Changes in operating assets and liabilities used
$1,875,532 of cash for operating activities.
As of June 30, 2021, we had marketable securities held in the Trust Account of
$175,008,104 (including approximately $8,104 of interest income) consisting of
U.S. Treasury Bills with a maturity of 185 days or less. Interest income on the
balance in the Trust Account may be used by us to pay taxes. Through June 30,
2021, we have not withdrawn any interest earned from the Trust Account.
We intend to use substantially all of the funds held in the Trust Account,
including any amounts representing interest earned on the Trust Account (less
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.
As of June 30, 2021, we had cash of $1,204,291. 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 Sponsor, or certain of our officers
and directors 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 the Working Capital Loans may be converted
into units at a price of $10.00 per unit at the option of the holder. The units
would be identical to the Placement Units. As of June 30, 2021, there were no
amounts outstanding under the Working Capital Loans.
We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business. However, if our estimate of
the costs of identifying a target business, undertaking
in-depth
due diligence and negotiating a Business Combination are less than the actual
amount necessary to do so, we may have insufficient funds available to operate
our business prior to our Business Combination. Moreover, we may need to obtain
additional financing either to complete our Business Combination or because we
become obligated to redeem a significant number of our Public Shares upon
consummation of our Business Combination, in which case we may issue additional
securities or incur debt in connection with such Business Combination.

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Off-balance
Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance
sheet arrangements as of June 30, 2021. We do not participate in transactions
that create relationships with unconsolidated entities or financial
partnerships, often referred to as variable interest entities, which would have
been established for the purpose of facilitating
off-balance
sheet arrangements. We have not entered into any
off-balance
sheet financing arrangements, established any special purpose entities,
guaranteed any debt or commitments of other entities, or purchased any
non-financial
assets.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay to pay the
Sponsor or an affiliate of the Sponsor, a monthly fee of $10,000 for office
space, utilities and secretarial and administrative support. We began incurring
these fees on January 12, 2021 and will continue to incur these fees monthly
until the earlier of the completion of the Business Combination and our
liquidation.
The underwriter is entitled to a deferred underwriting fee of (i) 3.5% of the
gross proceeds of the initial 15,300,000 Units sold in the IPO, or $5,355,000,
and (ii) 5.5% of the gross proceeds from the Units sold pursuant to the
over-allotment option, or $1,210,000. The deferred underwriting fee will become
payable to the underwriter from the amounts held in the Trust Account solely in
the event that the Company completes a Business Combination, subject to the
terms of the underwriting agreement.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in
conformity with GAAP 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 identified the following critical accounting
policies:
Warrant Liability
We account for warrants as either equity-classified or liability-classified
instruments based on an assessment of the warrant's specific terms and
applicable authoritative guidance in ASC480, Distinguishing Liabilities from
Equity (ASC 480) and Derivatives and Hedging (ASC 815). The assessment considers
whether the warrants are freestanding financial instruments pursuant to ASC 480,
meet the definition of a liability pursuant to ASC 480, and whether the warrants
meet all of the requirements for equity classification under ASC 815, including
whether the warrants are indexed to our own common stock, among other conditions
for equity classification. This assessment, which requires the use of
professional judgment, is conducted at the time of warrant issuance and as of
each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity
classification, the warrants are required to be recorded as a component of
additional
paid-in
capital at the time of issuance. For issued or modified warrants that do not
meet all the criteria for equity classification, the warrants are required to be
recorded at their initial fair value on the date of issuance, and each balance
sheet date thereafter. Changes in the estimated fair value of the warrants are
recognized as a
non-cash
gain or loss on the statements of operations.
Class A Common Stock Subject to Possible Redemption
We account for our Class A common stock subject to possible redemption in
accordance with the guidance in ASC 480. Shares of Class A common stock subject
to mandatory redemption is classified as a liability instrument and is measured
at fair value. Conditionally redeemable common stock (including common stock
that feature redemption rights that is either within the control of the holder
or subject to redemption upon the occurrence of uncertain events not solely
within our control) is classified as temporary equity. At all other times,
common stock is classified as stockholders' equity. Our Class A common stock
features certain redemption rights that are considered to be outside of our
control and subject to occurrence of uncertain future events. Accordingly,
shares of Class A common stock subject to possible redemption are presented as
temporary equity, outside of the stockholders' equity section of our balance
sheets.

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Net Income (Loss) Per Share of Common Stock
We apply the
two-class
method in calculating net income per share. Net income per share of common
stock, basic and diluted for Class A redeemable common stock is calculated by
dividing the interest income earned on the Trust Account, net of applicable
franchise and income taxes, by the weighted average number of Class A redeemable
common stock outstanding for the period. Net loss per share of common stock,
basic and diluted for Class A and Class B
non-redeemable
common stock is calculated by dividing the net income, less income attributable
to Class A redeemable common stock, by the weighted average number of Class A
and Class B
non-redeemable
common stock outstanding for the period presented.
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
condensed financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information
required to be disclosed by us in our Exchange Act reports is recorded,
processed, summarized, and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to our management, including our principal executive officer and principal
financial officer or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including
our principal executive officer and principal financial and accounting officer,
we conducted an evaluation of the effectiveness of our disclosure controls and
procedures as of the end of the fiscal quarter ended June 30, 2021, as such term
is defined in Rules
13a-15(e)
and
15d-15(e)
under the Exchange Act. Based on this evaluation and in light of the material
weakness in internal controls described below, our principal executive officer
and principal financial and accounting officer have concluded that during the
period covered by this report, our disclosure controls and procedures were not
effective. Our internal control over financial reporting did not result in the
proper accounting classification of the Placement Warrants and Public Warrants
we issued in January 2021 which, due to its impact on our financial statements,
we determined to be a material weakness. This mistake in classification was
brought to our attention only when, on April 12, 2021, the Acting Director of
the Division of Corporation Finance and Acting Chief Accountant of the SEC
together issued a statement regarding the accounting and reporting
considerations for warrants issued by special purpose acquisition companies
entitled "Staff Statement on Accounting and Reporting Considerations for
Warrants Issued by Special Purpose Acquisition Companies ("SPACs")" (the "SEC
Statement"). The SEC Statement addressed certain accounting and reporting
considerations related to warrants of a kind similar to those we issued at the
time of our IPO in January 2021.
Changes in Internal Control over Financial Reporting
During the fiscal quarter ended June 30, 2021, there has been no change in our
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting. Management has identified a material weakness in internal controls
related to the accounting for warrants issued in connection with our IPO, as
described above. While we have processes to identify and appropriately apply
applicable accounting requirements, we plan to enhance our system of evaluating
and implementing the accounting standards that apply to our financial
statements, including through enhanced analyses by our personnel and third-party
professionals with whom we consult regarding complex accounting applications.
The elements of our remediation plan can only be accomplished over time, and we
can offer no assurance that these initiatives will ultimately have the intended
effects.

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