References in this Quarterly Report on Form 10-Q (this "Quarterly Report") to
"we," "us," "our" or the "Company" refer to Schultze Special Purpose Acquisition
Corp. II. References to our "management" or our "management team" refer to our
officers and directors, and references to the "Sponsor" refer to Schultze
Special Purpose Acquisition Sponsor II, LLC. The following discussion and
analysis of the Company's financial condition and results of operations should
be read in conjunction with the 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" 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"), 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 this
Quarterly Report and our Annual Report on Form 10-K filed with the U.S.
Securities and Exchange Commission (the "SEC") on February 27, 2023. 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 formed under the laws of the State of Delaware on
December 15, 2020 for the purpose of entering into a merger, capital stock
exchange, asset acquisition, stock purchase, recapitalization, reorganization or
other similar business combination with one or more businesses or entities
("Business Combination"). We intend to effectuate our initial Business
Combination using cash derived from the proceeds of our initial public offering
("Initial Public Offering"), including the partial exercise of the underwriters'
over-allotment option, and the private placements of the private placement
warrants ("Private Placement Warrants") that occurred simultaneously with the
Initial Public Offering and the closing of the partial exercise of such
over-allotment option (collectively, the "Private Placement"), our capital
stock, debt or a combination of cash, stock and debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete our initial
Business Combination will be successful.
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Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities through March 31, 2023 were organizational activities, those
necessary to prepare for our Initial Public Offering, described below, and,
subsequent to our Initial Public Offering, identifying a target company for our
initial Business Combination. We do not expect to generate any operating
revenues until after the completion of our initial Business Combination, at the
earliest. We generate non-operating income in the form of interest income on
marketable securities held in the trust account established for the benefit of
our public stockholders (the "Trust Account"), with Continental Stock Transfer &
Trust Company acting as trustee. 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 in connection with searching for, and
completing, an initial Business Combination.
For the three months ended March 31, 2023, we had net income of $744,527, which
consists of interest on marketable securities held in the Trust Account of
$1,766,931 and interest income in the operating bank account of $1,412, offset
by formation and operating costs of $662,964 and a provision for income taxes of
$360,852.
For the three months ended March 31, 2022, we had a net loss of $378,121, which
consists of formation and operating costs of $416,537 and an unrealized loss on
marketable securities held in the Trust Account of $2,628, offset by interest on
marketable securities held in the Trust Account of $41,044 and interest income
in the operating bank account of $26.
Liquidity and Capital Resources
Until the consummation of our Initial Public Offering, our only source of
liquidity was an initial purchase of shares of Class B common stock, par value
$0.0001 per share ("Founder Shares"), by the Sponsor and loans from the Sponsor.
On October 13, 2021, we consummated our Initial Public Offering of 15,000,000
units ("Units"), at $10.00 per Unit, generating total gross proceeds of
$150,000,000. Simultaneously with the consummation of our Initial Public
Offering, we consummated the private placement of an aggregate of 6,200,000
Private Placement Warrants to the Sponsor and Stifel Venture Corp. ("Stifel
Venture"), an affiliate of Stifel, Nicolaus & Company, Incorporated ("Stifel"),
one of the representatives of the underwriters of our Initial Public Offering,
at a price of $1.00 per Private Placement Warrant, generating total gross
proceeds of $6,200,000.
On October 19, 2021, the underwriters of our Initial Public Offering notified us
of their exercise of the over-allotment option in part and concurrent forfeiture
of the remaining portion of such option. As such, on October 22, 2021, the
underwriters purchased 1,500,000 additional Units at $10.00 per additional Unit
upon the closing of the partial exercise of the over-allotment option,
generating total gross proceeds of $15,000,000. Simultaneously with the closing
of the partial exercise of the over-allotment option, we consummated the private
placement of an aggregate of 375,000 additional Private Placement Warrants to
the Sponsor and Stifel Venture at $1.00 per additional Private Placement
Warrant, generating total gross proceeds of $375,000.
Of the aggregate 16,500,000 Units sold in our Initial Public Offering,
14,857,500 Units were purchased by certain qualified institutional buyers or
institutional accredited investors that are not affiliated with us, the Sponsor,
our directors or any member of our management team (the "anchor investors"). In
connection with the closing of our Initial Public Offering, each anchor investor
acquired from the Sponsor an indirect economic interest in certain Founder
Shares (937,500 Founder Shares in the aggregate) at a purchase price of $0.10
per share. The Sponsor has agreed to distribute such Founder Shares to the
anchor investors pro rata based on their indirect ownership interest in such
Founder Shares after the completion of our initial Business Combination.
Following our Initial Public Offering, including the partial exercise of the
over-allotment option, and the Private Placement, a total of $166,650,000 was
placed in the Trust Account. We incurred $15,892,398 in Initial Public Offering
related costs, consisting of $2,475,000 of underwriting fees, $6,600,000 of
deferred underwriting fees, $541,773 of other offering costs, and $6,275,625 for
the fair value of the Founder Shares attributable to the anchor investors.
For the three months ended March 31, 2023, cash used in operating activities was
$208,318. Net income of $744,527 was affected by interest on marketable
securities held in the Trust Account of $1,766,931 and a deferred tax benefit of
$293,564. Changes in operating assets and liabilities reflected a source of cash
of $1,107,650 from operating activities during such period.
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For the three months ended March 31, 2022, cash used in operating activities was
$431,578. Net loss of $378,121 was affected by interest earned on marketable
securities held in the Trust Account of $41,044 and an unrealized loss on
marketable securities held in the Trust Account of $2,628. Changes in operating
assets and liabilities used $15,041 of cash for operating activities.
As of March 31, 2023, we had cash and marketable securities held in the Trust
Account of $170,529,598 (including approximately $3,879,598 of interest income
and unrealized gains) consisting of money market funds that invest in U.S.
Treasury securities. Interest income on the balance in the Trust Account may be
used by us to pay taxes. From inception through March 31, 2023, we withdrew an
aggregate of $576,879 in interest earned from the Trust Account to pay for
taxes, respectively.
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 and taxes payable), to complete our initial
Business Combination. 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 March 31, 2023, we had cash of $226,355 held outside of the Trust Account.
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 our initial business combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with our initial Business Combination, the Sponsor or our officers,
directors or their affiliates 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, such loaned amounts would be forgiven. Up to $1,500,000 of such working
capital loans may be convertible into warrants of the post-combination entity at
a price of $1.00 per warrant. The warrants would be identical to the Private
Placement Warrants.
Going Concern
As of March 31, 2023, the Company had cash of $226,355 in its operating bank
accounts, $170,529,598 of cash and marketable securities held in the Trust
Account to be used for an initial Business Combination or to repurchase or
redeem stock in connection therewith and working capital deficit of $1,956,166,
which excludes franchise taxes payable of $50,000 and income taxes payable of
$655,096, of which such amount will be paid from interest earned on the Trust
Account. As of March 31, 2023, $3,879,598 of the amount on deposit in the Trust
Account represented interest income that is available to pay the Company's tax
obligations.
We may raise additional capital through loans or additional investments from the
Sponsor or our stockholders, officers, directors, or third parties. Our officers
and directors, the Sponsor or their affiliates may but are not obligated to loan
us funds, from time to time, in whatever amount they deem reasonable in their
sole discretion, to meet our working capital needs. Based on the foregoing, we
do not believe we will have sufficient cash to meet our needs through the
earlier of consummation of a Business Combination or October 13, 2023, or such
earlier date as determine by our board of directors, the deadline to complete a
Business Combination pursuant to our Amended and Restated Certificate of
Incorporation (unless otherwise amended by stockholders).
As a result, we will need to obtain additional financing either to complete our
initial Business Combination 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. Subject to compliance with applicable
securities laws, we would only complete such financing simultaneously with the
completion of our initial Business Combination. If we do not 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.
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If we do not consummate an initial Business Combination, or seek and extension,
by October 13, 2023, there will be a mandatory liquidation and subsequent
dissolution of the Company. In connection with the Company's assessment of going
concern considerations in accordance with Financial Accounting Standards Board's
("FASB") Accounting Standards Codification ("ASC") Topic 205-40, "Presentation
of Financial Statements - Going Concern," we have determined that the liquidity
condition due to insufficient working capital and mandatory liquidation, should
an initial Business Combination not occur, and potential subsequent dissolution
raises substantial doubt about our ability to continue as a going concern for at
least one year from the date that these financial statements are issued. No
adjustments have been made to the carrying amounts of assets or liabilities
should we be required to liquidate after October 13, 2023. The financial
statements do not include any adjustment that might be necessary if we are
unable to continue as a going concern.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of March 31, 2023.
Contractual Obligations
We do not have any long-term debt obligations, capital lease obligations,
operating lease obligations, purchase obligations or other long-term
liabilities, other than an agreement to pay the Sponsor a monthly fee of $25,000
for general and administrative services, including office space, utilities and
administrative support. We began incurring these fees on October 7, 2021, and
will continue to incur these fees monthly until the earlier of the completion of
our initial Business Combination and our liquidation.
The underwriters of our Initial Public Offering are entitled to a deferred fee
of $0.40 per Unit sold in our Initial Public Offering, or $6,600,000 in the
aggregate. Subject to the terms of the underwriting agreement, the deferred fee
(i) will become payable to the underwriters from the amounts held in the Trust
Account solely in the event that we complete our initial Business Combination
and (ii) will be waived by the underwriters in the event that we do not complete
our initial Business Combination.
Critical Accounting Policies and Estimates
The preparation of 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 period reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies:
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 ASC Topic 480 "Distinguishing Liabilities from
Equity." Shares of Class A common stock subject to mandatory redemption are
classified as a liability instrument and are measured at fair value.
Conditionally redeemable shares of Class A common stock (including Class A
common stock that features redemption rights that is 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 Class A common stock are classified as stockholders' equity.
Our Class A common stock features certain redemption rights that are considered
to be outside of our control and subject to occurrence of uncertain future
events. Accordingly, Class A common stock subject to possible redemption is
presented at redemption value as temporary equity, outside of the stockholders'
deficit section of our balance sheets.
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Share-Based Payment Arrangements
We measure and recognize compensation expense for all share-based payments on
their estimated fair values measured as of the grant date. These costs are
recognized as an expense in the statements of operations upon vesting, once the
applicable performance conditions are met, with an offsetting increase to
additional paid-in capital. Forfeitures are recognized as they occur.
Net Income (Loss) per Common Share
Net income (loss) per common share of common stock is computed by dividing net
income (loss) by the weighted average number of common shares issued and
outstanding during the period. Subsequent measurement of the redeemable shares
of Class A common stock is excluded from income (loss) per ordinary share as the
redemption value approximates fair value. We calculate our earnings per share to
allocate net income (loss) pro rata to shares of Class A and Class B common
stock. This presentation contemplates a Business Combination as the most likely
outcome, in which case, both classes of common stock share pro rata in the
income (losses) of our Company.
Income Taxes
We account for income taxes under ASC 740, "Income Taxes." ASC 740, Income
Taxes, requires the recognition of deferred tax assets and liabilities for both
the expected impact of differences between the financial statements and tax
basis of assets and liabilities and for the expected future tax benefit to be
derived from tax loss and tax credit carry forwards. ASC 740 additionally
requires a valuation allowance to be established when it is more likely than not
that all or a portion of deferred tax assets will not be realized. We also
recognized accrued interest and penalties related to unrecognized tax benefits
as income tax expense. We have identified the United States as our only "major"
tax jurisdiction. We are subject to income taxation by major taxing authorities
since inception. These examinations may include questioning the timing and
amount of deductions, the nexus of income among various tax jurisdictions and
compliance with federal and state tax laws. We do not expect that the total
amount of unrecognized tax benefits will materially change over the next twelve
months.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
financial statements.
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