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 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 public offering using cash from the proceeds of our initial business
combination and the private placement of the private placement warrants, 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 revenues to date.
Our only activities for the six months ended June 30, 2022 and for the period
from March 1, 2021 (inception) through June 30, 2021 were organizational
activities, those necessary to prepare for our initial public offering,
described below. We do not expect to generate any operating revenues until after
the completion of our initial business combination. We generate non-operating
income in the form of interest income on cash and cash equivalents held after
our 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 due diligence expenses.
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For the three months ended June 30, 2022, we had net income of $2,525,557, which
resulted from gains on the change in fair value of warrant liabilities of
$2,554,981, unrealized gains on investments held in the Trust Account of
$138,413 and realized gains on investments held in the Trust Account of $92,185,
partially offset by formation and operating costs of $210,022 and franchise tax
expense of $50,000. The gain on the change in fair value of warrant liabilities
was due in large part to the decrease in the publicly traded price of the public
warrants.
For the six months ended June 30, 2022, we had net income of $4,197,211, which
resulted from gains on the change in fair value of warrant liabilities of
$4,428,632, unrealized gains on investments held in the Trust Account of
$191,476 and realized gains on investments held in the Trust Account of
$110,613, partially offset by formation and operating costs of $432,912 and
franchise tax expense of $100,598. The gain on the change in fair value of
warrant liabilities was due in large part to the decrease in the publicly traded
price of the public warrants.
For the three months ended June 30, 2021, we had a net loss of $42,920, which
resulted entirely from formation and operating costs.
For the period from March 1, 2021 (inception) through June 30, 2021, we had a
net loss of $54,688, which resulted entirely from formation and operating costs.
Liquidity and Capital Resources
On July 30, 2021, we consummated our initial public offering of 17,500,000 units
generating gross proceeds to the Company of $175,000,000. Simultaneously with
the consummation of the initial public offering, we completed the private sale
of 7,850,000 warrants to the Sponsor at a purchase price of $1.00 per warrant
(the "private placement warrants"), generating gross proceeds of $7,850,000. The
proceeds from the sale of the private placement warrants were added to the net
proceeds from our initial public offering held in a trust account (the "trust
account"). If we do not sign a definitive agreement for an initial business
combination within 18 months from the closing of our initial public offering
(January 30, 2023) and do not complete an initial business combination within 24
months from the closing of our initial public offering (July 30, 2023), we will
cease all operations except for the purpose of winding up, the proceeds from the
sale of the private placement warrants will be used to fund the redemption of
the public shares (subject to the requirements of applicable law) and the
private placement warrants will expire worthless.
We had granted the underwriter in our 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 underwriter 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 underwriter for deferred underwriting commissions.
Simultaneously with the underwriter partially exercising the over-allotment
option, our sponsor purchased an additional 162,450 private placement warrants
(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 six months ended June 30, 2022, net cash used in operating activities
was $578,285, which was due to a gain on the change in the fair value of warrant
liabilities of $4,428,632, unrealized gain on investments held in Trust Account
of $191,476, realized gain on investments held in Trust Account of $110,613, and
changes in working capital of $44,775, partially offset by our net income of
$4,197,211.
For the period from March 1, 2021 (inception) through June 30, 2021, net cash
used in operating activities was $44,688, which was due our net loss of $54,688,
partially offset by formation and operating costs paid by the Sponsor of
$10,000.
For the six months ended June 30, 2022, net cash used in investing activities
was $0, which was due to the proceeds from the redemption of U.S. government
treasury obligations of $182,345,000, fully offset by the purchase of U.S.
government treasury obligations of $182,345,000.
There were no cash flows from investing activities for the period from March 1,
2021 (inception) through June 30, 2021.
There were no cash flows from financing activities for the six months ended June
30, 2022.
For the period from March 1, 2021 (inception) through June 30, 2021, net cash
provided by financing activities was $204,344, which was due to the proceeds
from the promissory note - related party of $300,000 and the proceeds from the
sale of Class B common stock to our sponsor of 25,000, partially offset by the
payment of deferred offering costs of $120,656.
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As of June 30, 2022 and December 31, 2021, we had cash of $263,774 and $842,059
held outside the trust account, respectively. 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 an intended initial business combination, our sponsor or an
affiliate of our sponsor or certain of our officers and directors may, but are
not obligated to, loan us funds as may be required. If we complete our initial
business combination, we would repay such loaned amounts. 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 warrants, at a price of $1.00
per warrant at the option of the lender. The warrants would be identical to the
private placement warrants, including as to exercise price, exercisability and
exercise period. The terms of such loans by our officers and directors, if any,
have not been determined and no written agreements exist with respect to such
loans. We do not expect to seek loans from parties other than our sponsor or an
affiliate of our sponsor as we do not believe third parties will be willing to
loan such funds and provide a waiver against any and all rights to seek access
to funds in our trust account.
We have incurred and expect to continue to incur significant costs in pursuit of
our acquisition plans. We may have insufficient funds available to operate our
business prior to our initial business combination. Moreover, we may need to
obtain additional financing to complete our initial business combination, either
because the transaction requires more cash than is available from the proceeds
held in our trust account or because we become obligated to redeem a significant
number of our public shares upon completion of our initial business combination,
in which case we may issue additional securities or incur debt in connection
with such business combination, which may include a specified future issuance.
Subject to compliance with applicable securities laws, we would only complete
such financing simultaneously with the completion of our initial business
combination. If we are unable to complete our initial business combination
because we do not have sufficient funds available to us, we will be forced to
cease operations and liquidate the trust account. In addition, following our
initial business combination, if cash on hand is insufficient, we may need to
obtain additional financing in order to meet our obligations.
Contractual Obligations
Underwriting Agreement
We granted the underwriter a 45-day option to purchase up to 2,625,000
additional units to cover over-allotments at our initial public offering price,
less the underwriting discounts and commissions. On August 20, 2021, the
underwriter 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.
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The underwriter was paid a cash underwriting discount of $0.20 per unit, or
$3,608,300 in the aggregate, upon the closing of our 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 underwriter for deferred
underwriting commissions. The deferred fee will become payable to the
underwriter from the amounts held in the trust account solely in the event that
we complete an initial 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 condensed 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
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 Accounting Standards Codification 480,
Distinguishing Liabilities from Equity ("ASC 480") and Accounting Standards
Codification 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 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.
Upon initial measurement as of July 30, 2021, we 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 as of July
30, 2021, was determined using Level 3 inputs. We 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 we
anticipated to remain at zero. After the public warrants were separately listed
and traded in September 2021, since both public warrants and private placement
warrants are subject to the make-whole table, the private placement warrants
have the same value as the public warrants and the public trading price is used.
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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 as of July 30, 2021:
As of July 30, 2021
(Initial
Measurement)
Stock price $ 9.47
Exercise price $ 11.50
Dividend yield - %
Expected term (in years) 5.5
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.
Recent Accounting Pronouncements
See "Recent Accounting Pronouncements" in Note 2 of the accompanying condensed
financial statements.
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