References in this report (the "Quarterly Report") to "we," "us," "our" or the
"Company" refer to GigCapital2, Inc. References to our "management" or our
"management team" refer to our officers and directors, references to the
"Sponsor" refer to GigAcquisitions2, LLC, and references to the "Founders" refer
to the Sponsor, one of the underwriters, EarlyBirdCapital, Inc. ("EarlyBird")
and certain affiliates and employees of EarlyBird (the "EarlyBird Group"), and
Northland Gig 2 Investment LLC, a Delaware limited liability company ("Northland
Investment"). The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with the
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.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 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,"
"may," "might," "plan," "possible," "potential," "should, "would" 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 the
Company's final prospectus for our initial public offering filed with the U.S.
Securities and Exchange Commission (the "SEC"). 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 Private-to-Public Equity (PPE) company, also known as a blank check
company or special purpose acquisition vehicle, incorporated in the State of
Delaware and formed for the purpose of acquiring, engaging in a share exchange,
share reconstruction and amalgamation with, purchasing all or substantially all
of the assets of, or engaging in any other similar business combination with one
or more businesses or entities. We intend to effectuate our initial Business
Combination using cash from the proceeds from the sale of units in our initial
public offering (the "Offering"), the sale of the Private Placement Units to our
Founders and the sale of the Private Underwriter Shares to one of our
underwriters, both of which occurred simultaneously with the completion of the
Offering, our common equity or any preferred equity that we may create in
accordance with the terms of our charter documents, debt, or a combination of
cash, common or preferred equity and debt. The units sold in the Offering each
consisted of one share of Common Stock, one warrant to purchase one share of
Common Stock, and one right to receive one-twentieth (1/20) of one share of
Common Stock upon or consummation of our initial Business Combination. The
Private Placement Units were substantially similar to the units sold in the
Offering, but for certain differences in the warrants included in each of them.
For clarity, the warrants included in the units are referred to herein as the
"public warrants", and the warrants included in the Private Placement Units are
referred to herein as the "private warrants."
The issuance of additional shares of common stock or the creation of one or more
classes of preferred stock during our initial Business Combination:
• may significantly dilute the equity interest of investors in this offering
who would not have pre-emption rights in respect of any such issue;
• may subordinate the rights of holders of common stock if the rights,
preferences, designations and limitations attaching to the preferred
shares are senior to those afforded our shares of common stock;
• could cause a change in control if a substantial number of shares of
common stock are issued, which may affect, among other things, our ability
to use our net operating loss carry forwards, if any, and could result in
the resignation or removal of our present officers and directors;
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• may have the effect of delaying or preventing a change of control of us by
diluting the share ownership or voting rights of a person seeking to
obtain control of us; and
• may adversely affect prevailing market prices for our shares of common stock.
Similarly, if we issue debt securities or otherwise incur significant
indebtedness, it could result in:
• default and foreclosure on our assets if our operating revenues after our
initial Business Combination are insufficient to repay our debt
obligations;
• acceleration of our obligations to repay the indebtedness even if we make
all principal and interest payments when due if we breach certain
covenants that require the maintenance of certain financial ratios or
reserves without a waiver or renegotiation of that covenant;
• our immediate payment of all principal and accrued interest, if any, if
the debt is payable on demand;
• our inability to obtain necessary additional financing if any document
governing such debt contains covenants restricting our ability to obtain
such financing while the debt security is outstanding;
• our inability to pay dividends on our shares of common stock;
• using a substantial portion of our cash flow to pay principal and interest
on our debt, which will reduce the funds available for dividends on our
common stock if declared, expenses, capital expenditures, acquisitions and
other general corporate purposes;
• limitations on our flexibility in planning for and reacting to changes in
our business and in the industry in which we operate;
• increased vulnerability to adverse changes in general economic, industry
and competitive conditions and adverse changes in government regulation;
and
• limitations on our ability to borrow additional amounts for expenses,
capital expenditures, acquisitions, debt service requirements, execution
of our strategy and other purposes and other disadvantages compared to our
competitors who have less debt.
We expect to incur significant costs in the pursuit of our acquisition plans. We
cannot assure you that our plans to raise capital or to complete our initial
Business Combination will be successful.
We had until December 10, 2020 to complete a Business Combination. On December
8, 2020, after approval by our stockholders of Extension Amendment No. 1 at our
annual meeting of stockholders, we filed the Extension Amendment No. 1 to our
current Amended and Restated Certificate of Incorporation to extend the date by
which we had to consummate an initial Business Combination from December 10,
2020 to March 10, 2021. In connection with Extension Amendment No. 1, an
aggregate 579,881 shares of the Company's Common Stock were redeemed, and
$5,857,340 was withdrawn out of the Trust Account to pay for such redemption.
On March 10, 2021, the Company held a special meeting of its stockholders (the
"Special Meeting"). At the Special Meeting, the Company's stockholders approved
Extension Amendment No. 2. The certificate of amendment was filed with the
Delaware Secretary of State and has an effective date of March 10, 2021. In
connection with this Extension Amendment No. 2, an aggregate 1,852,804 shares of
the Company's Common Stock were redeemed, and $18,715,458 was withdrawn out of
the Trust Account to pay for such redemption.
After these redemptions, approximately $149.6 million remained in our Trust
Account to consummate a Business Combination as of March 31, 2021.
Results of Operations and Known Trends or Future Events
We have neither engaged in any operations nor generated any revenues to date.
For the period from March 6, 2019 (date of inception) through March 31, 2021,
our only activities have been organizational activities, those necessary to
prepare for the Offering and to identify a target business for the Business
Combination. We do not expect to generate any operating revenues until after
completion of our initial Business Combination. We expect to generate
non-operating income in the form of interest income on cash and marketable
securities held in the Trust Account at UBS Financial Services, Inc. in New
York, New York with Continental Stock Transfer & Trust Company acting as
trustee, which was funded after the Offering to hold an amount of cash and
marketable securities equal to that raised in the Offering. Due to the recent
impact from the COVID-19 pandemic that started in March 2020, many investors
sold U.S. treasuries to meet their investment objectives, including but not
limited to, the purchase of depressed equities, the forced sale by losses on
other positions, and the need to settle short-term debts. This created
volatility in the financial markets and
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reduced return on investments in U.S. treasury bills. As a result, we shifted
our investment portfolio held in the Trust Account from U.S. treasury bills to
money market funds in May 2020. We expect to incur increased expenses as a
result of being a public company (for legal, financial reporting, accounting and
auditing compliance), as well as for due diligence expenses.
For the three months ended March 31, 2021, we had a net loss of $936,589, which
consisted of operating expenses of $1,624,076 and a provision for income taxes
of $3,258 partially offset by other income from the change in fair value of the
warrant liability $686,675 and interest income on marketable securities held in
the Trust Account of $4,070. For the three months ended March 31, 2020, we
generated net income of $82,688, which consisted of interest income on
marketable securities held in the Trust Account of $915,995 that was partially
offset by operating expenses of $600,414 and a provision for income taxes of
$238,568. The decrease in interest income from marketable securities held in the
Trust Account was primarily due to the decline in market value of these
securities, which was a direct result from the pandemic as the financial markets
came to terms with the damaging effects of the COVID-19 pandemic starting in
March 2020 when investors rushed out of U.S. treasuries and into cash.
Liquidity and Capital Resources
On June 10, 2019, we consummated the initial closing of the Offering with the
delivery of 15,000,000 Units at a price of $10.00 per unit, generating gross
proceeds of $150,000,000. Simultaneously with the initial closing of the
Offering, we consummated the initial closing of the Private Placement with the
sale of 492,500 Private Placement Units at a price of $10.00 per unit and the
sale of 100,000 Private Underwriter Shares at a price of $10.00 per share,
generating aggregated gross proceeds of $5,925,000.
On June 13, 2019, in connection with the underwriters' exercise in full of their
option to purchase an additional 2,250,000 units solely to cover
over-allotments, if any (the "over-allotment option"), we consummated the sale
of an additional 2,250,000 Units at a price of $10.00 per unit, generating gross
proceeds of $22,500,000. Simultaneously with the closing of the sale of such
additional units, the Company consummated the second closing of the Private
Placement resulting in the sale of an additional 75,000 Private Placement Units
at a price of $10.00 per unit and the sale of 20,000 Private Underwriter Shares
at a price of $10.00 per share, generating aggregated gross proceeds of
$950,000.
Following the initial and second closings of the Offering and the Private
Placement, a total of $172,500,000 was placed in the Trust Account. We incurred
$4,332,430 in offering related costs, including $3,450,000 of underwriting fees
and $882,430 of other costs.
As of March 31, 2021, we held cash and marketable securities in the Trust
Account of $149,605,455 (including $2,899,317 of interest income earned, less
$1,221,063 withdrawn from the interest earned on the Trust Account to pay tax
obligations and $24,572,798 on redemptions) in the Trust Account. The marketable
securities consisted of money market funds meeting certain conditions under Rule
2a-7 under the Investment Company Act of 1940 which invest only in direct U.S.
government obligations. Interest income earned from the funds held in the Trust
Account may be used by us to pay taxes. For the three months ended March 31,
2021, we withdrew $68,105 from the interest earned on the Trust Account to pay
tax obligations.
As of December 31, 2020, we held cash and marketable securities in the Trust
Account of $168,384,949 (including $2,895,247 of interest income earned, less
$1,152,958 withdrawn from the interest earned on the Trust Account to pay tax
obligations and $5,857,340 on redemptions) in the Trust Account. The marketable
securities consisted of money market funds meeting certain conditions under Rule
2a-7 under the Investment Company Act of 1940 which invest only in direct U.S.
government obligations. Interest income earned from the funds held in the Trust
Account may be used by us to pay taxes.
For the three months ended March 31, 2021, cash used in operating activities was
$401,257, consisting of a net loss of $936,589, a decrease in the fair value of
the warrant liability $686,675 and interest earned on marketable securities held
in the Trust Account of $4,070, partially offset by an increase in net operating
liabilities of $1,207,361, including accrued liabilities of $835,440 and other
payables of $371,921 plus an increase in net operating assets, primarily prepaid
expenses, of $18,716.
For the three months ended March 31, 2020, cash used in operating activities was
$547,427, consisting of interest earned on marketable securities held in the
Trust Account of $915,995 and a decrease in the fair value of the warrant
liability of $5,675 partially offset by net income of $82,688 and changes in
operating assets and liabilities of $291,555.
We intend to use substantially all of the funds held in the Trust Account,
including any amounts representing interest earned on the Trust Account (which
interest shall be net of taxes payable by us), to acquire a target business or
businesses to complete our initial Business Combination and to pay our expenses
relating thereto. We may withdraw interest to pay taxes. We estimate our annual
franchise tax obligations to be approximately $200,000. Our annual income tax
obligations will depend on the amount of interest and other income earned on the
amounts held in the Trust Account. To the extent that our capital stock is used
in whole or in part as consideration to effect our initial Business Combination,
the remaining proceeds held in the Trust Account as well as any other net
proceeds not expended will be used as working capital to finance the operations
of the target business or businesses. Such working capital funds could be used
in a variety of ways including continuing or expanding the target business'
operations, for strategic acquisitions and for marketing, research and
development of existing or new products. Such funds could also be used to repay
any
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operating expenses or finders' fees which we had incurred prior to the
completion of our initial Business Combination if the funds available to us
outside of the Trust Account were insufficient to cover such expenses.
As of March 31, 2021 and December 31, 2020, we had cash of $145,586 and
$478,737, respectively, held outside the Trust Account. We intend to manage
existing funds to ensure the proceeds not held in the Trust Account will be
sufficient to allow us to operate for at least 24 months from the closing date
of the Offering, assuming that a Business Combination is not consummated during
that time. Over this time period, we intend to use these funds primarily for
identifying and evaluating prospective acquisition candidates, performing
business due diligence on prospective target businesses, traveling to and from
the offices, plants or similar locations of prospective target businesses,
reviewing corporate documents and material agreements of prospective target
businesses, selecting the target business to acquire and structuring,
negotiating and consummating the Business Combination.
If our estimates of the costs of undertaking in-depth due diligence and
negotiating our initial 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 initial Business Combination. Moreover, we may need to
obtain additional financing either to consummate our initial Business
Combination or because we become obligated to redeem a significant number of our
public shares upon consummation of our initial Business Combination, in which
case we may issue additional securities or incur debt in connection with such
Business Combination. In order to finance operating and/or transaction costs in
connection with a Business Combination, our Sponsor, executive officers,
directors, or their affiliates may, but are not obligated to, loan us funds. In
the event that our initial 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 units of the
post-Business Combination entity at a price of $10.00 per unit at the option of
the lender. The units would be identical to the Private Placement Units.
Following our initial Business Combination, if cash on hand is insufficient, we
may need to obtain additional financing in order to meet our obligations.
On November 2, 2020, the Company filed a definitive proxy statement with the
SEC, to invite the stockholders of the Company to attend the 2020 annual meeting
Annual Meeting to be held on December 3, 2020. At the Annual Meeting, the
stockholders voted on Extension Amendment No.1 to extend the date by which the
Company must consummate a Business Combination from December 10, 2020 to March
10, 2021 (the date which is 21 months from the closing date of the IPO).
On March 10, 2021, the Company held a special meeting of its stockholders (the
"Special Meeting"). At the Special Meeting, the Company's stockholders approved
Extension Amendment No. 2 to extend the date by which the Company must
consummate a Business Combination from March 10, 2021 to June 10, 2021 (the date
which is 24 months from the closing date of the IPO). The certificate of
amendment was filed with the Delaware Secretary of State and has an effective
date of March 10, 2021.
If the Company is unable to consummate its initial Business Combination by June
10, 2021, the Company shall (i) cease all operations except for the purposes of
winding up; (ii) as promptly as reasonably possible, but not more than ten
business days thereafter, redeem the public shares of Common Stock for a per
share pro rata portion of the Trust Account, including interest, but less taxes
payable (less up to $100,000 of such net interest to pay dissolution expenses)
and (iii) as promptly as possible following such redemption, dissolve and
liquidate the balance of the Company's net assets to its creditors and remaining
stockholders, as part of its plan of dissolution and liquidation. The mandatory
liquidation and subsequent dissolution raises substantial doubt about the
Company's ability to continue as a going concern.
Off-Balance Sheet Arrangements
As of March 31, 2021, we have not entered into any off-balance sheet financing
arrangements. 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
As of March 31, 2021 and December 31, 2020, we do not have any long-term debt,
capital lease obligations, operating lease obligations or long-term liabilities,
other than an agreement to pay our Sponsor a monthly fee of $20,000 for office
space, administrative services and secretarial support. We began incurring these
fees on June 6, 2019 and will continue to incur these fees monthly until the
earlier of the completion of the Business Combination or the liquidation of the
Company.
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Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
("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:
Emerging Growth Company
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being
required to comply with new or revised financial accounting standards until
private companies (that is, those that have not had a Securities Act
registration statement declared effective or do not have a class of securities
registered under the Exchange Act) are required to comply with the new or
revised financial accounting standards. The JOBS Act provides that a company can
elect to opt out of the extended transition period and comply with the
requirements that apply to non-emerging growth companies but any such election
to opt out is irrevocable. We have elected not to opt out of such extended
transition period which means that when an accounting standard is issued or
revised and it has different application dates for public or private companies,
we, as an emerging growth company, will adopt the new or revised accounting
standard at the time private companies adopt the new or revised standard.
Net Loss Per Common Share
Net loss per share of common stock is computed by dividing net loss by the
weighted-average number of shares of common stock outstanding for the period. We
apply the two-class method in calculating the net loss per common share. Shares
of common stock subject to possible redemption as of March 31, 2021 and 2020
have been excluded from the calculation of the basic net loss per share since
such shares, if redeemed, only participate in their pro rata share of the Trust
Account earnings. When calculating our diluted net loss per share, we have not
considered the effect of (i) the incremental number of shares of common stock to
settle warrants sold in the Offering and Private Placement, as calculated using
the treasury stock method; and (ii) the contingently issuable shares associated
with the rights sold in the Offering and Private Placement to receive
one-twentieth (1/20) of one share of common stock upon the consummation of our
initial business combination. Since we were in net loss position during the
periods after deducting net income attributable to common stock subject to
redemption, diluted net loss per common share is the same as basic net loss per
common share for the periods presented as the inclusion of all potential common
shares outstanding would have been anti-dilutive.
In accordance with the two-class method, our net income (loss) is adjusted for
net income that is attributable to common stock subject to redemption, as these
shares only participate in the income of the Trust Account and not our losses.
Accordingly, net loss per common share, basic and diluted, is calculated as
follows:
Three Months Ended March 31,
2021 2020
(As Restated)
Net income (loss) $ (936,589 ) $ 82,688
Less: net income attributable to common stock
subject to redemption (576 ) (518,703 )
Net loss attributable to common stockholders $ (937,165 ) $ (436,015 )
Weighted-average common shares outstanding, basic
and diluted
5,695,296 5,216,179
Net loss per share common share, basic and diluted $ (0.16 ) $ (0.08 )
Common Stock subject to possible redemption
Common stock subject to mandatory redemption (if any) is classified as a
liability instrument and is measured at fair value. Conditionally redeemable
common stock (including 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) is classified as
temporary equity. At all other times, common stock is classified as
stockholders' equity. Our common stock features certain redemption rights that
are considered to be outside of our control and subject to occurrence of
uncertain future events. Accordingly, as of March 31, 2021 and December 31,
2020, common stock subject to possible redemption is presented as temporary
equity, outside of the stockholders' equity section of our condensed balance
sheets.
Warrant Liability
We account for warrants for shares of our Common Stock that are not indexed to
our own stock as liabilities at fair value on the condensed balance sheets. The
warrants are subject to remeasurement at each balance sheet date, and any change
in fair value is recognized as a component of other income on the condensed
statements of operations and comprehensive income (loss). We will
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continue to adjust the liability for changes in fair value until the earlier of
the exercise or expiration of the Common Stock warrants. At that time, the
portion of the warrant liability related to the Common Stock warrants will be
reclassified to additional paid-in capital.
Recent Accounting Pronouncements
We do not believe that any recently issued, but not yet effective, accounting
pronouncements, if currently adopted, would have a material effect on our
condensed financial statements.
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