QUALTEK SERVICES INC. References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to
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, as amended (the "Securities Act")
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 Form 10-Q 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 filed with the
Overview
We are a blank check company formed under the laws of the
The issuance of additional shares of our stock in a Business Combination:
? may significantly reduce the equity interest of our stockholders;
? may subordinate the rights of holders of common stock if we issue preferred
shares with rights senior to those afforded to our shares of common stock;
will likely cause a change in control if a substantial number of our 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 most likely will also
result in the resignation or removal of our present officers and directors; and
? may adversely affect prevailing market prices for our securities.
Similarly, if we issue debt securities or otherwise incur significant indebtedness, it could result in:
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? default and foreclosure on our assets if our operating revenues after a
business combination are insufficient to pay our debt obligations;
acceleration of our obligations to repay the indebtedness even if we have made
all principal and interest payments when due if the debt security contains
? covenants that required the maintenance of certain financial ratios or reserves
and we breach any such covenant without a waiver or renegotiation of that
covenant;
? our immediate payment of all principal and accrued interest, if any, if the
debt security is payable on demand; and
our inability to obtain additional financing, if necessary, if the debt
? security contains covenants restricting our ability to obtain additional
financing while such security is outstanding.
Business Combination Agreement
On
Pursuant to the terms of the Business Combination Agreement, (i) Blocker Merger
Sub will be merged with and into the Blocker, with the Blocker surviving as a
wholly owned subsidiary of the Company, (ii) immediately thereafter, the Blocker
will be merged with and into the Company, with the Company as the surviving
company, and (iii) immediately thereafter, Company Merger Sub will be merged
with and into
The Business Combination Agreement contains customary representations and warranties, covenants, and closing conditions.
Consideration
Subject to the terms and conditions of the Business Combination Agreement, as a
result of the Merger, the consideration payable or issuable to the owners of
such equity interests in the Blocker ("Blocker Owners") and the equityholders of
Blocker Owner Consideration
The consideration to be received by each Blocker Owner at the Closing will consist of:
the number of shares of Class A Common Stock of the combined company equal to
the merger consideration, multiplied by (ii) such Blocker Owner's pro rata
· percentage, which is the percentage of the aggregate consideration that such
Blocker Owner is entitled to receive pursuant to the Business Combination
Agreement, divided by (iii)
· the number of Blocker Owner Earnout Shares (as defined below) equal to (i)
6,111,111, multiplied by (ii) such Blocker Owner's pro rata percentage.
Flow-Through Seller Consideration
The consideration to be received by each Flow-Through Seller at the Closing will consist of:
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the number of common units of
consideration, multiplied by (ii) such Flow-Through Seller's pro rata
· percentage, which is the percentage of the aggregate consideration that such
Flow-Through Seller is entitled to receive pursuant to the Business Combination Agreement, divided by (iii)$10.00 ; the number of shares of Class B Common Stock of the combined company equal to
· the number of Common Units determined pursuant to the immediately above
calculation;
· the number of Earnout Common Units (as defined below) equal to (i) 6,111,111,
multiplied by (ii) such Flow-Through Seller's pro rata percentage; and
· the number of Earnout Voting Shares equal to the number of Earnout Common Units
determined pursuant to the immediately above calculation.
No fractional shares will be issued pursuant to the Business Combination
Agreement. In lieu of any fractional shares that would otherwise be issuable to
any Blocker Owner or Flow-Through Seller, the Company will pay to such Blocker
Owner or Flow-Through Seller, as applicable, cash (rounded up to the nearest
cent) in an amount equal to such fraction multiplied by
The Earnout Shares and Earnout Common Units
In connection with the Closing, (i) 3,333,333.33 shares of Class A Common Stock issued to the Blocker Owners (the "Blocker Owner Earnout Shares"), (ii) 2,777,777.78 Common Units issued to the Flow-Through Sellers (the "Earnout Common Units") and (iii) an equal number of shares of Class B Common Stock issued to the Flow-Through Sellers by the Company in connection with the Business Combination (the "Earnout Voting Shares", and together with the Blocker Owner Earnout Shares, the "Earnout Shares"), will be subject to certain restriction on transfer and voting and potential forfeiture pending the achievement (if any) of the following earnout targets pursuant to the terms of the Business Combination Agreement:
if, on or any time prior to the fifth anniversary of the date of the Closing,
the closing sale price per share of Class A Common Stock equals or exceeds
·
following the Closing, 50% of the Earnout Shares and Earnout Common Units will be earned and no longer subject to the applicable restrictions on transfer and voting; and if, on or any time prior to the fifth anniversary of the date of the Closing, the closing sale price per share of Class A Common Stock equals or exceeds
·
following the Closing, 50% of the Earnout Shares and Earnout Common Units will be earned and no longer subject to the applicable restrictions on transfer and voting.
Pre-PIPE Convertible Notes Offering
In connection with the Merger, accredited investors (each a "Pre-PIPE Investor")
have purchased convertible notes of
Unless earlier converted or redeemed in accordance with the terms of the Pre-PIPE Notes, the Pre-PIPE Notes have a perpetual maturity. The Pre-PIPE Notes will not bear interest and are subject to certain customary information rights.
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Pursuant to the current terms of the Pre-PIPE Notes, upon consummation of the
Merger, the Pre-PIPE Notes will automatically convert into Class A Common Stock
of the Company at
PIPE Subscription Agreements
In connection with the Merger, the Company has obtained commitments from certain
accredited investors (each a "Subscriber") to purchase shares of Class A Common
Stock which will be issued in connection with the closing of the Merger (the
"PIPE Shares"), for an aggregate cash amount of
For more information about the Business Combination Agreement, the Merger and
related transactions, see "Proposal 1 - The Business Combination Proposal" of
our Preliminary Proxy Statement on Schedule 14A filed with the
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from
For the three months ended
For the six months ended
Liquidity and Capital Resources
On
Following the Initial Public Offering, the full exercise of the over-allotment
option, and the sale of the Private Units, a total of
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For the six months ended
As of
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 income taxes payable), to complete our Business Combination. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our 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
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, the Sponsor, or certain of our officers
and directors or their affiliates may, but are not obligated to, loan us funds
as may be required. If we complete a Business Combination, we would repay such
loaned amounts. In the event that a 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
We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a 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 Business Combination. Moreover, we may need to obtain additional financing either to complete our Business Combination or because we become obligated to redeem a significant number of our Public Shares upon consummation of our Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than as described below.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in
conformity with accounting principles generally accepted in
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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:
Common Stock Subject to Possible Redemption
We account for our common stock subject to possible conversion in accordance with the guidance in Accounting Standards Codification ("ASC") Topic 480 "Distinguishing Liabilities from Equity." Common stock subject to mandatory redemption is classified as a liability instrument and 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, common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders' equity section of our condensed consolidated balance sheets.
Net Income (Loss) Per Common Share
We apply the two-class method in calculating earnings per share. Net income (loss) per common share, basic and diluted for common stock subject to possible redemption is calculated by dividing the interest income earned on the Trust Account, net of applicable taxes, if any, by the weighted average number of shares of common stock subject to possible redemption outstanding for the period. Net income (loss) per common share, basic and diluted for and non-redeemable common stock is calculated by dividing net loss less income attributable to common stock subject to possible redemption, by the weighted average number of shares of non-redeemable common stock outstanding for the period presented.
Recent Accounting Standards
In
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed consolidated financial statements.
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