References to the "Company," "our," "us" or "we" refer to Industrial Human
Capital, Inc. The following discussion and analysis of our financial condition
and results of operations should be read in conjunction with the unaudited
condensed financial statements and the notes thereto contained elsewhere in this
report, as well as the information contained in our Annual Report on Form 10-K/A
for the fiscal year ended December 31, 2021 ("Fiscal 2021"), filed with the SEC
on May 16, 2022.
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 (the
"Securities Act"), 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. Factors that might cause or contribute to
such a discrepancy include, but are not limited to, those described in our other
SEC filings, including those found in Item 1A of our Annual Report on Form
10-K/A for Fiscal 2021, filed with the SEC on May, 2022.
Overview
We are a blank check company incorporated as a Delaware corporation on February
16, 2021. We were incorporated for the purpose of effecting a Business
Combination.
Our Sponsor is ShiftPixy Investments, Inc., a wholly owned subsidiary of
ShiftPixy, Inc.
The registration statement for our IPO was declared effective on October 19,
2021 (the "Effective Date"). On October 22, 2021, we consummated our IPO of
11,500,000 units (the "Units" and, with respect to the common stock included in
the Units being offered, the "Public Shares") at $10.00 per Unit (which included
the full exercise of the underwriters' over-allotment option), which is
discussed in Note 3 (the "IPO") and the sale of 4,639,102 warrants (the "Private
Placement Warrants") at a price of $1.00 per Private Placement Warrant in a
private placement to the Sponsor that closed simultaneously with the IPO.
Transaction costs amounted to $11,381,640 consisting of costs of $1,896,783
including $1,150,000 of underwriting commissions, and $746,783 of other offering
costs and $9,484,857 of non-cash costs representing excess fair value
attributable to the representative shares transferred in April, 2021 to the
underwriter of our IPO, AGP.
Following the closing of our IPO on October 22, 2021, $116,725,000 ($10.15 per
Unit) from the net proceeds sold in the IPO, including the proceeds of the sale
of the Private Placement Warrants, was deposited in a Trust Account ("Trust
Account") that has been invested only in U.S. government treasury obligations
with a maturity of 185 days or less or in money market funds meeting certain
conditions under Rule 2a-7 under the Investment Company Act, which invest only
in direct U.S. government treasury obligations. Except with respect to interest
earned on the funds held in the Trust Account that may be released to pay our
tax obligations and up to $100,000 of interest that may be used for the
dissolution expenses, the proceeds from the IPO and the sale of the Placement
Warrants held in the Trust Account will not be released from the Trust Account
until the earliest to occur of: (1) the completion of the initial Business
Combination, (2) the redemption of any Public Shares properly submitted in
connection with a stockholder vote to amend the amended and restated certificate
of incorporation (i) to modify the substance or timing of our obligation to
allow redemption in connection with the initial Business Combination or certain
amendments to our charter prior thereto or to redeem 100% of the Public Shares
if we do not complete our initial Business Combination within 12 months from the
closing of the IPO or (ii) with respect to any other provision relating to
stockholder's rights or pre-Business Combination activity, and (3) the
redemption of the Public Shares if we are unable to complete our initial
Business Combination within 12 months from the closing of the IPO, subject to
applicable law. The proceeds deposited in the Trust Account could become subject
to the claims of our creditors, if any, which could have priority over the
claims of the public stockholders.
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If we have not completed a Business Combination within 12 months from the
closing of our IPO, or October 22, 2022, 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 our taxes (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), subject to applicable law, and (iii) as promptly as
reasonably possible following such redemption, subject to the approval of our
remaining stockholders and our board of directors, dissolve and liquidate,
subject in the case of clauses (ii) and (iii) above to our obligations under
Delaware law to provide for claims of creditors and the requirements of other
applicable law. There will be no redemption rights or liquidating distributions
with respect to our warrants, which will expire worthless if we fail to complete
our initial business combination within the 12-month time period.
Results of Operations
All of our activity from February 16, 2021 (inception) through October 19, 2021,
was in preparation for an IPO, and since our IPO, 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 June 30 2022, we had a net loss of $1,147,240, which
consisted of formation costs of $1,221,344, offset by interest income and
unrealized gains on cash and marketable securities held in Trust Account of
$74,104.
For the six months ended June 30 2022, we had a net loss of $2,485,970, which
consisted of formation costs of $2,564,136, offset by interest income and
unrealized gains on cash and marketable securities held in Trust Account of
$78,166.
For the three months ended June 30, 2021, we had a net loss of $5,849, which
consisted solely of formation costs.
For the period from February 16, 2021 (inception) through June 30, 2021, we had
a net loss of $6,214, which consisted solely of formation costs.
Liquidity and Capital Resources
As of June 30, 2022, we had $2,813 in cash and a working capital deficit of
$2,205,849.
Our liquidity needs up to June 30, 2022 have been satisfied through a payment
from our Sponsor of $25,000 for the Founder Shares, the loan under an unsecured
promissory note from our Sponsor of up to $500,000, and the net proceeds from
the consummation of the IPO, the Private Placement Warrants held outside of the
Trust Account located in the United States at J.P. Morgan Chase Bank, N.A. and a
working capital loan from our Sponsor as disclosed in Note 5 ("Related Party
Transactions"). As of June 30, 2022 and December 31, 2021, there was $0 and
$150,000 of unsecured promissory notes outstanding, respectively. For the three
and six months ended June 30, 2022 and for the period from February 16, 2021
(inception) through June 30, 2021, we received $0 and $75,000 of proceeds from
issuance of promissory note, respectively. As of June 30, 2022, the promissory
note has been paid in full. Furthermore, as of June 30, 2022 and December 31,
2021, we had $195,000 and $0 loans outstanding under the working capital loan,
respectively. For the three and six months ended June 30, 2022 and for the
period from February 16, 2021 (inception) through June 30, 2021, we received
$195,000 and $0 of proceeds from issuance of working capital loan, respectively.
As of June 30, 2022 and December 31, 2021, we had cash in the Trust Account of
approximately $116.8 million. 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 deferred underwriting commissions) to complete our
initial Business Combination. We may withdraw interest to pay taxes. To the
extent that our capital stock or debt is used, in whole or in part, as
consideration to complete its initial 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.
Until the consummation of a Business Combination, we will be using the funds not
held in the Trust Account for identifying and evaluating prospective acquisition
candidates, performing due diligence on prospective target businesses, paying
for travel expenditures,
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selecting the target business to acquire, and structuring, negotiating and
consummating the Business Combination. We will need to raise additional capital
through loans or additional investments from our Sponsor, stockholders,
officers, directors, or third parties. Our Sponsor, officers and directors may,
but are not obligated to, loan us funds from time to time or at any time, in
whatever amount they deem reasonable in their sole discretion, to meet our
working capital needs. Accordingly, we may not be able to obtain additional
financing. If we are unable to raise additional capital, we may be required to
take additional measures to conserve liquidity, which could include, but not
necessarily be limited to, curtailing operations, suspending the pursuit of a
potential transaction, and reducing overhead expenses.
Going Concern
We cannot provide any assurance that new financing along the lines detailed
above will be available to us on commercially acceptable terms, if at all.
Further, we have until October 22, 2022 to consummate a Business Combination,
but we cannot provide assurance that we will be able to consummate a Business
Combination by that date. If a Business Combination is not consummated by the
required date, there will be a mandatory liquidation and subsequent dissolution.
In connection with the our assessment of going concern considerations in
accordance with the authoritative guidance in Financial Accounting Standards
Board ("FASB") Accounting Standards Update ("ASU") 2014-15, "Disclosure of
Uncertainties About an Entity's Ability to Continue as a Going Concern",
management has determined that the capital and liquidity shortage and the
uncertainty surrounding obtaining new financing, along with the possibility of
mandatory liquidation and subsequent dissolution should we be unable to complete
a business combination, raise substantial doubt about our ability to continue as
a going concern. No adjustments have been made to the carrying amounts of assets
and liabilities should we be required to liquidate after October 22, 2022, nor
do these unaudited condensed financial statements include any adjustments
relating to the recovery of the recorded assets or the classification of the
liabilities that might be necessary should we be unable to continue as a going
concern.
Commitments and Contractual Obligations
Registration Rights
The holders of the Founder Shares, Private Placement Warrants (including the
underlying shares of common stock) and warrants (including the underlying shares
of common stock) that may be issued upon conversion of Working Capital Loans,
are entitled to registration rights pursuant to a registration rights agreement
signed as of the effective date of the IPO, requiring us to register such
securities for resale (in the case of the Founder Shares, only after conversion
to common stock). The holders of the majority of these securities are entitled
to make up to three demands, excluding short form demands, that we register such
securities. In addition, the holders have certain "piggy-back" registration
rights with respect to registration statements filed subsequent to our
completion of the initial Business Combination and rights to require us to
register for resale such securities pursuant to Rule 415 under the Securities
Act. The registration rights agreement does not contain liquidated damages or
other cash settlement provisions resulting from delays in registering our
securities. We will bear the expenses incurred in connection with the filing of
any such registration statements.
Underwriting Agreement
We granted the underwriters a 45-day option to purchase up to 1,500,000
additional Units to cover any over-allotments, if any, at the IPO price less the
underwriting discounts and commissions. The underwriters exercised the full
over-allotment at the consummation of the IPO on October 22, 2021, which was the
date of the IPO.
The underwriters earned an underwriting discount of one percent (1%) of the
gross proceeds of the IPO, or $1,150,000, which was paid in cash at closing of
the offering. In addition, AGP purchased 750,000 Representative Founder Shares,
of which 97,826 were subject to forfeiture if the over-allotment option was not
exercised, at a purchase price of $9,639. Due to the underwriters' full exercise
of their over-allotment option on October 22, 2021, these 97,826 Representative
Founder Shares are no longer subject to forfeiture.
Business Combination Marketing Agreement
We engaged AGP as an advisor in connection with our initial Business Combination
to assist us in structuring and negotiating a definitive purchase agreement with
respect to an initial Business Combination, holding meetings with our
stockholders to discuss the potential Business Combination and the target
businesses' attributes, introduce us to potential investors that are interested
in purchasing our
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securities in connection with our initial Business Combination, assist us in
obtaining stockholder approval for the Business Combination, and assist us with
press releases and public filings in connection with the initial Business
Combination. We will pay AGP a cash fee for such services upon the consummation
of our initial Business Combination in an amount equal to 3% of the gross
proceeds of our IPO, exclusive of any applicable finders' fees which might
become payable. If the Business Combination is not consummated for any reason,
no fee shall be due or payable to AGP.
Representative Founder Shares
The representative purchased an aggregate of 750,000 Representative Founder
Shares, of which 97,826 were subject to forfeiture if the over-allotment option
was not exercised, at a purchase price of $9,639. The underwriters'
over-allotment option was exercised in full on October 22, 2021 and thus no
Representative Founder Shares are subject to forfeiture. Our Founder Shares are
subject to transfer restrictions pursuant to lock-up provisions in a letter
agreement with us entered into by the Representative, the Sponsor, and officers
and directors. In addition, the holders of the Representative Founder Shares
have agreed (i) to waive their redemption rights (or right to participate in any
tender offer) with respect to such shares in connection with the completion of
our initial business combination and (ii) to waive their rights to liquidating
distributions from the Trust Account with respect to such shares if we fail to
complete our initial business combination within 12 months from the closing of
our IPO. The Representative Founder Shares have been deemed compensation by
FINRA and are therefore subject to a lock-up until October 14, 2022 pursuant to
Rule 5110(e)(1) of the FINRA Manual.
Critical Accounting Policies and Estimates
This management's discussion and analysis of our financial condition and result
of operations is based on our unaudited condensed financial statements, which
have been prepared in accordance with U.S. GAAP. The preparation of these
unaudited condensed financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, and expenses
and the disclosure of contingent assets and liabilities in our unaudited
condensed financial statements. We will evaluate our estimates and judgments,
including those related to fair value of financial instruments and accrued
expenses. We will 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 believe that the application of the following accounting policies, each of
which require significant judgments and estimates on the part of management, are
the most critical to aid in fully understanding and evaluating our reported
financial results. Our significant accounting policies are more fully described
in Note 2, Summary of Significant Accounting Policies, to our unaudited
condensed financial statements appearing elsewhere in this Form 10-Q.
Offering Costs Associated with Initial Public Offering
We comply with the requirements of ASC 340-10-S99-1 and SEC Staff Accounting
Bulletin Topic 5A-"Expenses of Offering". Offering costs consist of legal,
accounting, underwriting and other costs incurred through the balance sheet date
that are related to the IPO. Offering costs amounted to $11,381,640 and were
charged to temporary equity upon the completion of the IPO.
Common Stock Subject to Possible Redemption
We account for our shares of common stock subject to possible redemption in
accordance with the guidance in ASC Topic 480 "Distinguishing Liabilities from
Equity." Shares of common stock subject to mandatory redemption (if any) are
classified as a liability instrument and are measured at fair value.
Conditionally redeemable shares of common stock (including shares that feature
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, shares of
common stock are classified as stockholders' equity (deficit). Our shares of
common stock sold in the IPO feature certain redemption rights that are
considered to be outside of our control and subject to the occurrence of
uncertain future events. Accordingly, as of June 30, 2022 and December 31, 2021,
11,500,000 shares of common stock subject to possible redemption are presented
at redemption value as temporary equity, outside of the stockholders' equity
(deficit) section of our condensed balance sheets.
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Net Loss Per Common Stock
Net loss per share of common stock is computed by dividing the net loss by the
weighted average number of shares of common stock outstanding for each of the
periods. The calculation of diluted loss per share does not consider the effect
of the 16,139,102 warrants issued in connection with the IPO and Private
Placement since the exercise of the warrants are contingent upon the occurrence
of future events and the inclusion of such warrants would be anti-dilutive.
Recent Accounting Standards
We do not believe that there are any recently issued, but not effective,
accounting standards, which, if currently adopted, would have a material effect
on our unaudited condensed financial statements.
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 unaudited condensed
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 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 IPO or until we are no longer an "emerging
growth company," whichever is earlier.
Off-Balance Sheet Arrangements
As of June 30, 2022 and December 31, 2021, we did not have any off-balance sheet
arrangements.
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