References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Mercury Ecommerce Acquisition Corp. References to our
"management" or our "management team" refer to our officers and directors, and
references to the "Sponsor" refer to Mercury Sponsor Group I LLC The following
discussion and analysis of the Company's 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 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" 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" 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. 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 its Initial Public
Offering (as defined below) 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 blank check company incorporated on March 1, 2021 as a Delaware
corporation and formed for the purpose of effectuating a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses, which we refer to throughout this
Quarterly Report as our "initial business combination". We intend to effectuate
our initial business combination using cash from the proceeds of our initial
public offering (the "Initial Public Offering") and the private placement of the
Private Placement Warrants (as defined below), the proceeds of the sale of our
shares in connection with our initial business combination (pursuant to forward
purchase agreements or backstop agreements we may enter into following the
consummation of the Initial Public Offering or otherwise), shares issued to the
owners of the target, debt issued to bank or other lenders or the owners of the
target, or a combination of the foregoing.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues
to date. Our only activities for the period from March 1, 2021 (inception)
through September 30, 2021 were organizational activities, those necessary to
prepare for the Initial Public Offering, described below. We do not expect to
generate any operating revenues until after the completion of our initial
business combination. We will generate non-operating income in the form of
interest income on the proceeds derived from the Initial Public Offering. We
incur expenses as a result of being a public company (for legal, financial
reporting, accounting and auditing compliance), as well as for due diligence
expenses.
21
--------------------------------------------------------------------------------
Table of Contents
For the three months ended September 30, 2021, we had net income of $6,049,580,
which resulted from gains on the fair value of warrant liabilities of $7,153,945
and unrealized gains on investments held in the Trust Account of $3,059,
partially offset by expensed offering costs of $762,517, formation and operating
costs of $228,514, and franchise tax expense of $116,393.
For the period from March 1, 2021 (inception) through September 30, 2021, we had
a net income of $5,994,892, which resulted from gains on the fair value of
warrant liabilities of $7,153,945 and unrealized gains on investments held in
the Trust Account of $3,059, partially offset by expensed offering costs of
$762,517, formation and operating costs of $283,202, and franchise tax expense
of $116,393
Liquidity and Capital Resources
The registration statement for our Initial Public Offering was declared
effective on July 27, 2021. On July 30, 2021, we consummated the Initial Public
Offering of 17,500,000 Units, at $10.00 per Unit, generating gross proceeds of
$175,000,000.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 7,850,000 units (the "Private Placement Warrants") at a price of
$1.00 per Private Placement Warrant in a private placement to Mercury Sponsor
Group I LLC, generating gross proceeds of $7,850,000.
We had granted the underwriters in the Initial Public Offering a 45-day option
to purchase up to 2,625,000 additional Units to cover over-allotments, if any.
On August 20, 2021, the underwriters partially exercised the over-allotment
option and purchased an additional 541,500 Units, generating gross proceeds of
$5,415,000, and incurred $108,300 in cash underwriting fees and $189,525 that
will be payable to the underwriters for deferred underwriting commissions.
Simultaneously with the underwriters partially exercising the over-allotment
option, the Sponsor purchased an additional 162,450 units ( the "Over-Allotment
Private Placement Warrants") at a price of $1.00 per Over-Allotment Private
Placement Warrant ($162,450 in the aggregate).
For the period from March 1, 2021 (inception) through September 30, 2021, net
cash used in operating activities was $734,990, which was due to the change in
fair value of warrant liabilities of $7,153,945, changes in working capital of
$335,395, and unrealized gain on investments held in Trust Account of $3,059,
partially offset by our net income of $5,994,892, and Expensed offering costs of
$762,517.
For the period from March 1, 2021 (inception) through September 30, 2021, net
cash used in investing activities was 182,219,150, which was the result of the
amount of net proceeds from the initial public offering and partial exercise of
the over-allotment option by the underwriters being deposited to the Trust
Account.
For the period from March 1, 2021 (inception) through September 30, 2021, net
cash provided by financing activities was $184,079,957, which was due to
proceeds from the Initial Public Offering and the partial exercise of the
over-allotment option by the underwriters, net of underwriter's discount paid of
$176,806,700, proceeds from sale of Private Placement Units of $8,012,451, the
proceeds from the promissory note - related party of $300,000 and the proceeds
from the sale of Class B common stock to the Sponsor of $25,000, partially
offset by the payment of offering costs of $764,193 and the repayment of the
promissory note - related party of $300,000.
22
--------------------------------------------------------------------------------
Table of Contents
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
amounts released to us for taxes payable, expenses relating to the
administration of the trust account and the deferred underwriting commissions)
to complete our initial business combination. We may withdraw interest to pay
franchise and income taxes as well as expenses relating to the administration of
the trust account. We estimate our annual franchise tax obligations, based on
the number of shares of our common stock authorized and outstanding after the
completion of this offering, to be $200,000, which is the maximum amount of
annual franchise taxes payable by us as a Delaware corporation per annum. Our
annual income tax obligations will depend on the amount of interest and other
income earned on the amounts held in the trust account. Based on current
interest rates, the interest earned on the trust account, net of income taxes,
may not be sufficient to pay Delaware franchise taxes. To the extent that our
capital stock or debt is used, in whole or in part, as consideration to complete
our 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.
As of September 30, 2021, we had cash of $1,125,817 held outside the trust
account. We will use these funds 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.
We anticipate that the cash held outside of the Trust Account as of September
30, 2021, will be not sufficient to allow us to operate for at least the next 12
months from the issuance of the financial statements, assuming that a Business
Combination is not consummated during that time. We have incurred and expect to
continue to incur significant costs in pursuit of our acquisition plans. These
conditions raise substantial doubt about the our ability to continue as a going
concern for a period of time within one year after the date that the financial
statements are issued. Management plans to address this uncertainty through the
Business Combination as discussed above. There is no assurance that the our
plans to consummate the Business Combination will be successful or successful
within the Combination Period. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2021.
Contractual Obligations
Promissory Note - Related Party
On March 4, 2021, the Company issued an unsecured promissory note to the Sponsor
(the "Promissory Note"), pursuant to which the Company could borrow up to an
aggregate of $300,000 to cover expenses related to the Initial Public Offering.
The Promissory Note was non-interest bearing and was payable on the earlier of
(i) August 30, 2021 or (ii) the consummation of the Initial Public Offering. As
of September 30, 2021, there was no outstanding balance under the Promissory
Note. On July 30, 2021, the Company repaid the outstanding balance under the
Promissory Note.
Underwriting Agreement
The Company granted the underwriters a 45-day option to purchase up to 2,625,000
additional Units to cover over-allotments at the Initial Public Offering price,
less the underwriting discounts and commissions. On August 20, 2021, the
underwriters partially exercised the over-allotment option to purchase an
additional 541,500 Units at an offering price of $10.00 per Unit for an
aggregate purchase price of $5,415,000.
23
--------------------------------------------------------------------------------
Table of Contents
The underwriters were paid a cash underwriting discount of $0.20 per Unit, or
$3,608,300 in the aggregate, upon the closing of the Initial Public Offering and
partial exercise of the over-allotment option. In addition, $0.35 per unit, or
$6,314,525 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
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 accounting principles generally accepted in the United States of
America 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 Liabilities
The Company accounts 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 ASC 480 and ASC 815,
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 the Company's 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.
Upon initial measurement at July 30, 2021, the Company utilized a
binomial/lattice model to value the Public Warrants and Private Placement
Warrants. The estimated fair value upon the initial measurement of the warrant
liabilities at July 30, 2021, was determined using Level 3 inputs. The Company
estimated volatility based on research on comparable companies with the same
type of warrants along with the implied volatilities shortly after they start
trading. The risk-free interest rate was based on the U.S. Treasury zero-coupon
yield curve on the grant date for a maturity similar to the expected remaining
life of the warrants. The expected life of the warrants was assumed to be
equivalent to their remaining contractual term. The dividend rate was based on
the historical rate, which the Company anticipated to remain at zero. As of
September 30, 2021, since both Public Warrants and Private Warrants are subject
to the make-whole table, Private Warrants will have the same value as the Public
Warrants and the public trading price is used.
The following table provides the significant unobservable inputs used in the
binomial/lattice model for the initial valuation of the Public Warrants and
Private Placement Warrants at July 30, 2021:
At July 30, 2021
(Initial Measurement)
Stock price $ 9.47
Exercise price $ 11.50
Dividend yield - %
Expected term (in years) 5.50
Volatility 20.0 %
Risk-free rate 0.80 %
Fair value $ 0.95
Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting
period. The estimated fair value of the Public Warrants transferred from a Level
3 measurement to a Level 1 fair value measurement in September 2021 after the
Public Warrants were separately listed and traded. The estimated fair value of
the Private Placement Warrants transferred from a Level 3 measurement to a Level
2 fair value measurement in September 2021 due to the use of an observable
market quote for a similar asset in an active market.
24
--------------------------------------------------------------------------------
Table of Contents
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in
Entity's Own Equity (Subtopic 815-40) ("ASU 2020-06") to simplify accounting for
certain financial instruments. ASU 2020-06 eliminates the current models that
require separation of beneficial conversion and cash conversion features from
convertible instruments and simplifies the derivative scope exception guidance
pertaining to equity classification of contracts in an entity's own equity. The
new standard also introduces additional disclosures for convertible debt and
freestanding instruments that are indexed to and settled in an entity's own
equity. ASU 2020-06 amends the diluted earnings per share guidance, including
the requirement to use the if-converted method for all convertible instruments.
ASU 2020-06 is effective January 1, 2022 and should be applied on a full or
modified retrospective basis, with early adoption permitted beginning on January
1, 2021. The Company is currently assessing the impact, if any, that ASU 2020-06
would have on its financial position, results of operations or cash flows.
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on the Company's financial statements.
© Edgar Online, source Glimpses
SEP ACQUISITION CORP. 
