References to "we," "us," "our" or the "Company" are to Seaport Global
Acquisition II Corp., except where the context requires otherwise. References to
our "management" or our "management team" are to our officers and directors, and
references to the "sponsor" are to Seaport Global SPAC II, LLC. The following
discussion and analysis of our financial condition and results of
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operations should be read in conjunction with the 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.
Overview
We are a blank check company incorporated 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. We intend to effectuate our initial business combination
using cash from the proceeds of our IPO and the Private Placement, 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), 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.
The issuance of additional shares in connection with an initial business
combination to the owners of the target or other investors:
may significantly dilute the equity interest of investors in our initial public
? offering, which dilution would increase if the anti-dilution provisions in the
Class B common stock resulted in the issuance of Class A shares on a greater
than one-to-one basis upon conversion of the Class B common stock;
? may subordinate the rights of holders of our common stock if preferred stock is
issued with rights senior to those afforded our common stock;
could cause a change in control if a substantial number of shares of our common
? stock is issued, which may affect, among other things, our ability to use our
net operating loss carry forwards, if any, and could result in the resignation
or removal of our present officers and directors;
may have the effect of delaying or preventing a change of control of us by
? diluting the stock ownership or voting rights of a person seeking to obtain
control of us; and
? may adversely affect prevailing market prices for our Class A common stock
and/or warrants.
Similarly, if we issue debt securities or otherwise incur significant debt to
bank or other lenders or the owners of a target, it could result in:
? default and foreclosure on our assets if our operating revenues after an
initial business combination are insufficient to repay our debt obligations;
acceleration of our obligations to repay the indebtedness even if we make all
? principal and interest payments when due if we breach certain covenants that
require the maintenance of certain financial ratios or reserves 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;
our inability to obtain necessary additional financing if the debt security
? contains covenants restricting our ability to obtain such financing while the
debt security is outstanding;
? our inability to pay dividends on our common stock;
using a substantial portion of our cash flow to pay principal and interest on
? our debt, which will reduce the funds available for dividends on our common
stock if declared, our ability to pay expenses, make capital expenditures and
acquisitions, and fund other general corporate purposes;
? limitations on our flexibility in planning for and reacting to changes in our
business and in the industry in which we operate;
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? increased vulnerability to adverse changes in general economic, industry and
competitive conditions and adverse changes in government regulation;
limitations on our ability to borrow additional amounts for expenses, capital
? expenditures, acquisitions, debt service requirements, and execution of our
strategy; and
? other purposes and other disadvantages compared to our competitors who have
less debt.
We expect to continue to incur significant costs in the pursuit of our initial
business combination plans. We cannot assure you that our plans to raise capital
or to complete our initial business combination will be successful.
On November 19, 2021, we completed our initial public offering of 14,375,000
units, including 1,875,000 units that were issued pursuant to the underwriter's
full exercise of their over-allotment option. The units were sold at a price of
$10.00 per unit, generating gross proceeds to us of $145,906,250. We incurred
offering costs of approximately $8.6 million, inclusive of approximately $5.0
million in deferred underwriting commissions.
On November 19, 2021, simultaneously with the consummation of the IPO, we
completed the private sale of 7,531,250 private placement warrants at a purchase
price of $1.00 per warrant to our sponsor, generating gross proceeds to us of
$7.5 million.
Upon the closing of our initial public offering, an aggregate of $145.9 million
of the net proceeds from our initial public offering and the private placement
was deposited in a trust account established for the benefit of our public
stockholders .
If we are unable to complete our initial business combination by February 19,
2023, 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 our 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 our 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 our warrants, which will expire
worthless if we fail to complete our initial business combination by
February 19, 2023. The underwriter has agreed to waive its rights to the
deferred underwriting commission held in the trust account in the event we do
not complete our initial business combination by February 19, 2023 and, in such
event, such amounts will be included with the funds held in the trust account
that will be available to fund the redemption of the public shares. In the event
of such distribution, it is possible that the per share value of the assets
remaining available for distribution will be less than $10.15.
Our amended and restated certificate of incorporation provides that we will have
only 15 months from the closing of our initial public offering (or until
February 19, 2023) to complete our initial business combination. If we are
unable to complete our initial business combination by February 19, 2023, 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
our 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 our 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 our warrants, which will expire worthless if we
fail to complete our initial business combination by February 19, 2023.
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Results of Operations and Known Trends or Future Trends
We have neither engaged in any significant operations nor generated any
operating revenue to date. Our only activities from inception related to our
formation and our IPO, and since the closing of our initial public offering, the
search for a prospective initial business combination. Although we have not
generated operating revenue, we have generated non-operating income in the form
of investment income from investments held in the trust account. We expect to
incur increased expenses as a result of being a public company, as well as costs
in the pursuit of an initial business combination.
We classify the warrants issued in connection with our Initial Public Offering
as liabilities at their fair value and adjust the warrant instrument to fair
value at each reporting period. This liability is subject to re-measurement at
each balance sheet date until exercised, and any change in fair value is
recognized in our statement of operations.
For the period from June 21, 2021 (inception) through December 31, 2021, we had
net income of $3,967,305, which consisted of $6,972 in investment income and
$4,517,137 change in fair value of the warrants, offset by warrant issuance
costs of $378,462, $152,780 in general and administrative expenses and $25,561
in franchise tax obligations.
Liquidity and Capital Resources
As of December 31, 2021, the Company had $954,598 in its operating bank accounts
and working capital of approximately $1.4 million. Until the consummation of a
Business Combination, the Company will be using the funds not held in the Trust
Account for identifying and evaluating prospective acquisition candidates,
performing due diligence on prospective target businesses, paying for travel
expenditures, selecting the target business to acquire, and structuring,
negotiating and consummating the Business Combination. Further, the Company has
incurred and expects to continue to incur significant costs in pursuit of its
acquisition plans.
The possibility exists that within the coming 12 months the Company will need to
raise additional capital through loans or additional investments from its
Sponsor, stockholders, officers, directors, or third parties. In order to fund
working capital deficiencies or finance transaction costs in connection with a
Business Combination, the initial stockholders 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 $1,500,000 of such loans
may be convertible into warrants identical to the Private Placement Warrants, at
a price of $1.00 per warrant at the option of the lender.
Accordingly, the Company may not be able to obtain additional financing if and
when needed. If the Company is unable to raise additional capital, it may be
required to take additional measures to conserve liquidity, which could include,
but not necessarily be limited to, curtailing operations, suspending the pursuit
of a potential transaction, and reducing overhead expenses. The Company cannot
provide any assurance that new financing will be available to it on commercially
acceptable terms, if at all. These conditions raise substantial doubt about the
Company's ability to continue as a going concern through one year and one day
from the date of issuance of these financial statements. These conditions raise
substantial doubt about our ability to continue as a going concern. These
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 the Company be unable to continue as a going concern.
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Going Concern
In connection with our assessment of going concern considerations in accordance
with the authoritative guidance in Financial Accounting Standard Board ("FASB")
Accounting Standards Update ("ASU") 2014-15, "Disclosures of Uncertainties about
an Entity's Ability to Continue as a Going Concern," management has determined
that the mandatory liquidation and subsequent dissolution, should we be unable
to complete a business combination, raises substantial doubt about the our
ability to continue as a going concern. We have until February 19, 2023 to
consummate a Business Combination. It is uncertain that we will be able to
consummate a Business Combination by this time. If a Business Combination is not
consummated by this date, there will be a mandatory liquidation and subsequent
dissolution. No adjustments have been made to the carrying amounts of assets or
liabilities should the Company be required to liquidate after February 19, 2023.
Related Party Transactions
Founder Shares
In June 2021, our sponsor purchased 4,312,500 founder shares for an aggregate
purchase price of $25,000, or approximately $0.006 per share. Subsequently, in
August 2021, our sponsor forfeited an aggregate of 718,750 shares for no
consideration, thereby resulting in 3,593,750 remaining founder shares. Prior to
the initial investment in the company of $25,000 by our sponsor, the company had
no assets, tangible or intangible. The per share purchase price of the founder
shares was determined by dividing the amount of cash contributed to the company
by the aggregate number of founder shares issued. The number of founder shares
issued was determined based on the expectation that the founder shares would
represent 20% of the outstanding shares after the IPO. As such, our initial
stockholders collectively own 20% of our issued and outstanding shares after the
IPO.
Our initial stockholders have agreed not to transfer, assign or sell any of
their founder shares until the earlier to occur of (A) one year after the
completion of our initial business combination or (B) subsequent to our initial
business combination, (x) if the last reported sale price of our Class A common
stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock
dividends, reorganizations, recapitalizations and the like) for any 20
trading days within any 30-trading day period commencing at least 150 days after
our initial business combination, or (y) the date on which we complete a
liquidation, merger, capital stock exchange, reorganization or other similar
transaction that results in all of our stockholders having the right to exchange
their shares of common stock for cash, securities or other property. Any
permitted transferees will be subject to the same restrictions and other
agreements of our initial stockholders with respect to any founder shares.
Private Placement Warrants
Simultaneously with the consummation of our initial public offering, we
completed the private placement of warrants to our sponsor, generating gross
proceeds of $7,531,250. Each Private Placement Warrant is exercisable for one
share of our Class A common stock at an exercise price of $11.50 per share. A
portion of the purchase price of the Private Placement Warrants was added to the
proceeds from our initial public offering held in the trust account. If our
initial business combination is not completed by February 19, 2023, the proceeds
from the sale of the Private Placement Warrants held in the trust account 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. The
Private Placement Warrants will be non-redeemable for cash and exercisable on a
cashless basis so long as they are held by the sponsor or its permitted
transferees.
Our sponsor agreed, subject to limited exceptions, not to transfer, assign or
sell any of its Private Placement Warrants until 30 days after the completion of
our initial business combination.
Promissory Note - Related Party
In June 2021, the Sponsor agreed to loan the Company an aggregate of up to
$400,000 to cover expenses related to the IPO pursuant to a promissory note (the
"Note"). The non-interest bearing Note was repaid upon completion of the IPO on
November 19, 2021.
Administrative Support Agreement
We agreed to pay $10,000 a month for office space, utilities, and secretarial
and administrative support to our sponsor. Services commenced on the date the
securities were first listed on the Nasdaq and will terminate upon the earlier
of our initial business
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combination or our liquidation. We incurred approximately $20,000 for expenses
in connection with such services for the period from June 21, 2021 (inception)
through December 31, 2021, which is reflected in the accompanying statement of
operations.
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, disclosures 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 these
estimates. We have identified the following critical accounting policies:
Investments Held in Trust Account
Our portfolio of investments held in trust account are comprised mainly of U.S.
government securities, within the meaning set forth in Section 2(a)(16) of the
Investment Company Act, with a maturity of 185 days or less, classified as
trading securities. Trading securities are presented on the balance sheets at
fair value at the end of each reporting period. Gains and losses resulting from
the change in fair value of these securities is included in investment income
from investments held in trust account in our statement of operations. The fair
value for trading securities is determined using quoted market prices in active
markets.
Class A Common Stock Subject to Possible Redemption
The Company accounts for its common stock subject to possible redemption in
accordance with the guidance in Accounting Standards Codification ("ASC") Topic
480 "Distinguishing Liabilities from Equity." Conditionally redeemable common
stock (including 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 the Company's control) is classified as
temporary equity. At all other times, common stock is classified as
stockholders' deficit. The Company's common stock feature certain redemption
rights that are considered to be outside of the Company's control and subject to
occurrence of uncertain future events. Accordingly, at December 31, 2021, common
stock subject to possible redemption is presented at redemption value as
temporary equity, outside of the stockholders' deficit section of the Company's
balance sheet.
Warrant Liability
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 Financial Accounting
Standards Board ("FASB") Accounting Standards Codification ("ASC") 480,
Distinguishing Liabilities from Equity ("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 shares and whether the warrant
holders could potentially require "net cash settlement" in a circumstance
outside of the Company's control, 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.
For issued or modified warrants that meet all of the criteria for equity
classification, the warrants are required to be recorded as a component of
additional paid-in capital at the time of issuance. For issued or modified
warrants that do not meet all the criteria for equity classification, the
warrants are required to be treated as liabilities, and recorded at their
initial fair value on the date of issuance, and each balance sheet date
thereafter. Changes in the estimated fair value of the warrants are recognized
as a non-cash gain or loss on the statements of operations.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which is intended
to simplify various aspects related to accounting for income taxes. ASU 2019-12
removes certain exceptions to the general principles in Topic 740 and also
clarifies and amends existing guidance to improve consistent application. This
guidance is effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2021, with early adoption permitted.
We are currently evaluating the impact of this standard on its financial
statements and related disclosures.
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We do not believe that any other recently issued, but not yet effective,
accounting pronouncements, if currently adopted, would have a material impact on
our financial statements.
Off-Balance Sheet Arrangements; Commitments and Contractual Obligations
We did not have any off-balance sheet arrangements as defined in
Item 303(a)(4)(ii) of Regulation S-K, as of December 31, 2019. We do not
participate in transactions that create relationships with unconsolidated
entities or financial partnerships, often referred to as variable interest
entities, which would have been established for the purpose of facilitating
off-balance sheet arrangements. We have not entered into any off-balance sheet
financing arrangements, established any special purpose entities, guaranteed any
debt or commitments of other entities, or purchased any non-financial assets.
JOBS Act
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains
provisions that, among other things, relax certain reporting requirements for
qualifying public companies. We qualify as an "emerging growth company" and
under the JOBS Act and are allowed to comply with new or revised accounting
pronouncements based on the effective date for private (not publicly traded)
companies. We are electing to delay the adoption of new or revised accounting
standards, and as a result, we may not comply with new or revised accounting
standards on the relevant dates on which adoption of such standards is required
for non-emerging growth companies. As a result, our financial statements may not
be comparable to those of companies that comply with new or revised accounting
pronouncements as of public company effective dates.
In addition, Section 107 of the JOBS Act also provides that an "emerging growth
company" can take advantage of the extended transition period provided in
Section 7(a)(2)(B) of the Securities Act for complying with new or revised
accounting standards. In other words, an "emerging growth company" can delay the
adoption of certain accounting standards until those standards would otherwise
apply to private companies. We intend to take advantage of the benefits of this
extended transition period. We will remain an emerging growth company until the
earlier of (1) the last day of the fiscal year (a) following November 26, 2024,
(b) in which we have total annual gross revenue of at least $1.07 billion, or
(c) in which we are deemed to be a large accelerated filer, which means the
market value of our Class A common stock that is held by non-affiliates exceeds
$700 million as of the prior June 30th, and (2) the date on which we have issued
more than $1.0 billion in non-convertible debt securities during the prior
three-year period.
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