References to the "Company," "Minority Equality Opportunities Acquisition Inc.,"
"our," "us" or "we" refer to Minority Equality Opportunities Acquisition Inc.
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the unaudited interim
condensed financial statements and the notes thereto contained elsewhere in this
report. Certain information contained in the discussion and analysis set forth
below includes forward-looking statements that involve risks and uncertainties.
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, and
Section 21E of 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.
Overview
We are a newly organized blank check company incorporated on February 18, 2021
as a Delaware corporation and formed for the purpose of effecting a merger,
capital stock exchange, asset acquisition, stock purchase, reorganization or
similar business combination with one or more businesses (the "Business
Combination").
Our sponsor is Minority Equality Opportunities Acquisition Sponsor, LLC, a
Delaware limited liability company (the "Sponsor"). The registration statement
for our initial public offering was declared effective on August 25, 2021. On
August 30, 2021, we consummated our initial public offering (the "Initial Public
Offering") of 12,650,000 Units, which included the full exercise by the
underwriters of the over-allotment option to purchase an additional 1,650,000
Units, at $10.00 per Unit, generating gross proceeds of $126,500,000.
Transaction costs amounted to $8,998,713, consisting of $2,403,500 of
underwriting fees, $4,554,000 of deferred underwriting fees, $586,779 of other
offering costs, and $1,454,434 of the fair value of the representative's common
stock. Of the $8,998,713 aggregate transaction costs, $741,209 was allocated to
expense associated with the warrant liability.
We issued 158,125 shares of Class A common stock, with a fair value of
$1,454,434, to Maxim, the representative of the underwriters, which is deemed
compensation by FINRA and therefore subject to a lock-up for a period of 180
days immediately following the commencement of sales of the IPO. Additionally,
Maxim has agreed not to transfer, assign or sell any such shares until the
completion of our initial Business Combination. In addition, Maxim has agreed
(i) to waive its redemption rights with respect to such shares in connection
with the completion of our initial Business Combination and (ii) to waive its
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 the IPO (or 21 months from the closing of the IPO if we
extend the period of time to consummate the initial Business Combination).
Simultaneously with the closing of the IPO, we consummated the sale of an
aggregate of 6,027,500 warrants (the "Private Placement Warrants") at a price of
$1.00 per warrant in a private placement to our Sponsor and to Maxim Partners
LLC, generating gross proceeds to us of $6,027,500. A total of 5,395,000 Private
Placement Warrants were issued to the Sponsor and a total of 632,500 Private
Placement Warrants were issued to Maxim Partners LLC.
Upon the closing of the Initial Public Offering and the Private Placement, an
amount of $128,397,500 ($10.15 per Unit) from the net proceeds of the sale of
the Units in the IPO and the sale of the Private Placement Warrants was placed
in a trust account (the "Trust Account") and will only be invested 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 our company to pay our franchise and income tax
obligations (less up to $100,000 of interest to pay dissolution expenses), the
proceeds from the IPO and the sale of the Private Placement Warrants will not be
released from the Trust Account until the earliest of: (a) the completion of our
initial Business Combination; (b) the redemption of any public shares properly
submitted in connection with a stockholder vote to amend our certificate of
incorporation: (i) to modify the substance or timing of our obligation to redeem
100% of the public shares if we do not complete the initial Business Combination
within 12 months from the closing of the IPO (or 21 months from the closing of
the IPO if we extend the period of time to consummate a Business Combination);
or (ii) with respect to any other material provision relating to stockholders'
rights or pre-Business Combination activity; and (c) the redemption of the
public shares if we are unable to complete the initial Business Combination
within 12 months from the closing of the IPO (or 21 months from the closing of
the IPO if we extend the period of time to consummate a Business Combination),
subject to applicable law.
Our management has broad discretion with respect to the specific application of
the net proceeds of the Initial Public Offering and the sale of the Private
Placement Warrants, although substantially all of the net proceeds are intended
to be applied generally toward consummating a Business Combination.
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We will have only 12 months from the closing of the IPO (or 21 months from the
closing of the IPO if we extend the period of time to consummate the initial
Business Combination) (the "Combination Period") to complete the initial
Business Combination. However, if we anticipate that we may not be able to
consummate the initial Business Combination within 12 months, we may extend the
period of time to consummate a Business Combination by up to three additional
three-month periods (up to a maximum of 21 months from the closing of the IPO).
Pursuant to the terms of our certificate of incorporation and the trust
agreement entered into between us and Continental Stock Transfer & Trust
Company, in order to extend the time available for us to consummate our initial
Business Combination, the sponsor or its affiliates or designees must deposit
into the trust account, for each additional three-month period, $1,265,000
($0.10 per share), on or prior to the date of the deadline with respect to such
three-month extension period. Our sponsor and its affiliates or designees are
not obligated to fund the trust account to extend the time for us to complete
our initial Business Combination. If we are unable to complete the initial
Business Combination within the Combination Period, 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 the franchise and
income 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 the board
of directors, dissolve and liquidate, subject in each case 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 the warrants, which will expire worthless if we
fail to complete the initial Business Combination within the Combination Period.
Liquidity, Capital Resources and Going Concern Considerations
As of March 31, 2022, we had $203,304 in cash and working capital of $102,151.
Based on the foregoing, management believes that we will not have sufficient
working capital and borrowing capacity to meet our needs through the earlier of
the consummation of a Business Combination or one year from IPO filing. Over
this time period, we will be using these funds for paying existing accounts
payable, identifying and evaluating prospective initial Business Combination
candidates, performing due diligence on prospective target businesses, paying
for travel expenditures, selecting the target business to merge with or acquire,
and structuring, negotiating and consummating the Business Combination.
Our liquidity needs up to March 31, 2022 had been satisfied through a capital
contribution from our Sponsor of $25,000 for the founder shares and the loan
under an unsecured promissory note from our Sponsor of up to $300,000. After
consummation of the IPO on August 30, 2021, we had approximately $1.6 million in
our operating bank account, and working capital of approximately $0.8 million.
On September 3, 2021, the Sponsor agreed to provide us with loans in such
amounts as may be required to fund our working capital requirements up to an
aggregate of $500,000. In addition, in order to finance transaction costs in
connection with a Business Combination, our Sponsor or an affiliate of our
Sponsor or certain of our officers and directors may, but are not obligated to,
provide us Working Capital Loans.
On February 28, 2022 and March 21, 2022, the Sponsor agreed to loan the Company
$174,000 and $163,000, respectively, as part of the Working Capital Loans. The
promissory notes are non-interest bearing and payable upon consummation of the
Company's initial Business Combination. At the lender's discretion, the
promissory notes may be repayable in warrants of the post Business Combination
entity at a price of $1.00 per warrant. As of March 31, 2022 and December 31,
2021, there was $337,000 of borrowings, respectively. The Company assessed the
provisions of the convertible promissory notes under ASC 815-15. The derivative
component of the obligations is initially valued and classified as derivative
liabilities with an offset to a discount on the promissory notes. To calculate
the value of the embedded derivative the Monte Carlo Model was utilized to fair
value the underlying warrants and the compound option. The fair value of the
conversion feature was zero at the dates of issuance and at March 31, 2022.
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We are within 12 months of our mandatory liquidation date as of the time of
filing of this Quarterly Report on Form 10-Q. In connection with our assessment
of going concern considerations in accordance with Accounting Standards Update
("ASU") 2014-15, "Disclosures of Uncertainties about an Entity's Ability to
Continue as a Going Concern," this raises substantial doubt about our ability to
continue as a going concern. If we are unable to complete a Business Combination
by August 30, 2022, we will cease all operations except for the purpose of
liquidating.
These condensed financial statements do not 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.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic and the
Russian military action in Ukraine and has concluded that while it is reasonably
possible that the virus and/or such military action could have a negative effect
on our financial position, results of its operations, and/or search for a target
company, the specific impact is not readily determinable as of the date of the
condensed financial statements included in this report. The condensed financial
statements included in this report do not include any adjustments that might
result from the outcome of this uncertainty.
Results of Operations
As of March 31, 2022, we had not commenced any operations. All activity for the
period from February 18, 2021 (inception) through March 31, 2022 relates to our
formation and the Initial Public Offering and search for a target for our
initial Business Combination. We have neither engaged in any operations nor
generated any revenues to date. We will not generate any operating revenues
until after the completion of our initial Business Combination, at the earliest.
We will generate non-operating income in the form of interest income on cash and
cash equivalents from the proceeds derived from the Initial Public Offering. 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, 2022, we had a net income of $3,976,791,
which included a gain from the change in fair value of warrant liabilities of
$4,326,744 and interest income earned on cash held in Trust Account of $8,287,
offset by formation and operating costs of $358,240.
For the period from February 18, 2021 (inception) to March 31, 2021, we had a
net loss of $547, which included formation and operating costs.
Contractual Obligations
We do not have any long-term debt obligations, capital lease obligations,
operating lease obligations, purchase obligations or long-term liabilities.
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Administrative Services Agreement
Commencing on the date that our securities are first listed on the NASDAQ
Capital Market, we agreed to pay to an affiliate of the Sponsor $10,000 per
month for office space, utilities and secretarial and administrative support
services. Upon the earlier of the completion of the initial Business Combination
or our liquidation, we will cease paying such monthly fees. On May 16, 2022, we
and the Sponsor's affiliate amended this agreement so that, notwithstanding
anything therein to the contrary, the monthly payment shall, beginning with
respect to the monthly period that begins on February 26, 2022 and ends on March
25, 2022, and continuing thereafter until the earlier of the completion of the
initial Business Combination and our liquidation, accrue without interest
thereon and be due and payable on the earlier of the completion of the initial
Business Combination or our liquidation.
Registration Rights
The holders of the founder shares, representative's common stock, Private
Placement Warrants and warrants that may be issued upon conversion of Working
Capital Loans (and any shares of Class A common stock issuable upon the exercise
of the Private Placement Warrants and warrants that may be issued upon
conversion of Working Capital Loans and upon conversion of the founder shares)
will be entitled to registration rights pursuant to a registration rights
agreement dated August 25, 2021, requiring us to register such securities for
resale (in the case of the founder shares, only after conversion to Class A
common stock). The holders of these securities will be 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 the completion of the
initial Business Combination. Notwithstanding the foregoing, the underwriters
may not exercise their demand and "piggyback" registration rights after five and
seven years after the effective date of the registration statement for the IPO
and may not exercise their demand rights on more than one occasion.
Underwriting Agreement
The underwriter had a 45-day option from the date of the IPO to purchase up to
an aggregate of 1,650,000 additional Units at the public offering price less the
underwriting commissions to cover over-allotments, if any. On August 30, 2021,
the underwriter fully exercised its over-allotment option.
The underwriter is entitled to a deferred underwriting discount of 3.6% of the
gross proceeds of the Initial Public Offering, which included the exercise of
the over-allotment option, or $4,554,000, held in the Trust Account upon the
completion of our initial Business Combination subject to the terms of the
underwriting agreement.
Financial Advisory Agreements
In November 2021, we entered into agreements with PGP Capital Advisors and
Vaughan Capital Advisors whereby such entities would provide financial advisory
services to our company. Pursuant to such agreements, we would pay monthly fees
to such advisors in the aggregate amount of $25,000 and would reimburse such
advisors for their out-of-pocket costs and expenses. We also agreed to pay to
such advisors an aggregate success fee upon the closing of a business
combination transaction equal to the sum of: (i) three percent of the
transaction value of the target company in such business combination up to $100
million, plus (ii) two percent of the transaction value of the target company
greater than $100 million up to $200 million, plus (iii) one percent of the
transaction value of the target company above $200 million. The success fee
shall be reduced by the monthly fees previously paid to the financial advisors.
The financial advisors shall have the option to receive an equivalent dollar
amount of warrants and/or shares of our Class A common stock in lieu of cash up
to twenty percent of the success fee payable.
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("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 guidance was adopted starting January 1, 2022. Adoption of the ASU
did not impact the Company's financial position, results of operations or cash
flows.
Management does not believe that any other recently issued, but not effective,
accounting standards, if currently adopted, would have a material effect on the
Company's condensed financial statements.
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Critical Accounting Policies
Offering Costs
We comply with the requirements of ASC 340-10-S99-1. Deferred offering costs
consists of legal, accounting, underwriting fees and other costs incurred
through the balance sheet date that are directly related to the Public
Offering. Offering costs are allocated to the separable financial instruments
to be issued in the IPO based on a relative fair value basis, compared to total
proceeds received. Upon closing of the IPO on August 30, 2021, offering costs
associated with warrant liabilities were expensed, and offering costs associated
with the Class A common stock were charged to temporary equity. Transaction
costs amounted to $8,998,713, of which $741,209 were allocated to expense
associated with the warrant liability.
Convertible Instruments
The Company accounts for its promissory notes that feature conversion options in
accordance with ASC No. 815, Derivatives and Hedging Activities ("ASC No. 815").
ASC No. 815 requires companies to bifurcate conversion options from their host
instruments and account for them as freestanding derivative financial
instruments according to certain criteria. The criteria includes circumstances
in which (a) the economic characteristics and risks of the embedded derivative
instrument are not clearly and closely related to the economic characteristics
and risks of the host contract, (b) a promissory note that embodies both the
embedded derivative instrument and the host contract is not re-measured at fair
value under otherwise applicable GAAP with changes in fair value reported in
earnings as they occur and (c) a separate instrument with the same terms as the
embedded derivative instrument would be considered a derivative instrument.
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 Accounting Standards Codification ("ASC") Topic
480 "Distinguishing Liabilities from Equity." 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
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 in temporary equity. At all other times, common stock
is classified as stockholders' equity. Our Class A common stock feature certain
redemption rights that are considered to be outside of our control and subject
to occurrence of uncertain future events. Accordingly, at March 31, 2022 and
December 31, 2021, the 12,650,000 Class A common stock is presented at
redemption value as temporary equity, outside of the stockholders' deficit
section of our balance sheets.
Net Income Per Common Stock
We have two classes of shares, Class A common stock and Class B common stock.
Earnings and losses are shared pro rata between the two classes of shares. We
have not considered the effect of the outstanding warrants to purchase
18,677,500 shares of Class A common stock in the calculation of diluted income
per share, since their exercise is contingent upon future events. As a result,
diluted net income per common stock is the same as basic net income per common
stock for the periods.
Derivative Financial Instruments
We evaluated the financial instruments to determine if such instruments are
derivatives or contain features that qualify as embedded derivatives in
accordance with ASC Topic 815, "Derivatives and Hedging". Derivative instruments
are initially recorded at fair value on the grant date and re-valued at each
reporting date, with changes in the fair value reported in the statements of
operations. Derivative assets and liabilities are classified in the balance
sheets as current or non-current based on whether or not net-cash settlement or
conversion of the instrument could be required within 12 months of the balance
sheet date.
Warrant Liability
We evaluated the Public Warrants and Private Placement Warrants to be issued in
the IPO (collectively, "Warrants") in accordance with ASC 815-40, "Derivatives
and Hedging - Contracts in Entity's Own Equity" and concluded that a provision
in the Warrant Agreement related to certain tender or exchange offers precludes
the Warrants from being accounted for as components of equity. As the Warrants
meet the definition of a derivative as contemplated in ASC 815, the Warrants
will be recorded as derivative liabilities on the balance sheets and measured at
fair value at inception (on the date of the IPO) and at each reporting date in
accordance with ASC 820, "Fair Value Measurement", with changes in fair value
recognized in the statements of operations in the period of change.
Off-Balance Sheet Arrangements
As of March 31, 2022 and December 31, 2021, we did not have any off-balance
sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Inflation
We do not believe that inflation had a material impact on our business, revenues
or operating results during the period presented.
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Emerging Growth Company Status
We are an "emerging growth company," as defined in Section 2(a) of the
Securities Act, as modified by the Jumpstart our Business Startups Act of 2012
(the "JOBS Act"), and may take advantage of certain exemptions from various
reporting requirements that are applicable to other public companies that are
not emerging growth companies including, but not limited to, not being required
to comply with the auditor attestation requirements of Section 404 of the
Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation in its periodic reports and proxy statements, and exemptions from
the requirements of holding a nonbinding advisory vote on executive compensation
and stockholder approval of any golden parachute payments not previously
approved.
Further, 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 a standard is issued or revised and it
has different application dates for public or private companies, the Company, as
an emerging growth company, can adopt the new or revised standard at the time
private companies adopt the new or revised standard. This may make comparison of
our condensed financial statements with another public company which is neither
an emerging growth company nor an emerging growth company which has opted out of
using the extended transition period difficult or impossible because of the
potential differences in accounting standards used.
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MINORITY EQUALITY OPPORTUNITIES ACQUISITION INC. 
