References to the "Company," "Velocity Acquisition Corp.," "Velocity
Acquisition," "our," "us" or "we" refer to Velocity Acquisition Corp. 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 blank check company incorporated in Delaware on September 24, 2020. We
were formed for the purpose of effecting a merger, share exchange, asset
acquisition, share purchase, reorganization or similar business combination with
one or more businesses (the "Business Combination"). We are an emerging growth
company and, as such, we are subject to all of the risks associated with
emerging growth companies.
Our sponsor is Velocity Sponsor LLC, a Delaware limited liability company (the
"Sponsor"). The registration statement for our Initial Public Offering was
declared effective on February 22, 2021. On February 25, 2021, we consummated
its Initial Public Offering of 23,000,000 units (the "Units" and, with respect
to the Class A common stock included in the Units being offered, the "Public
Stock"), including 3,000,000 additional Units to cover over-allotments (the
"Over-Allotment Units"), at $10.00 per Unit, generating gross proceeds of $230.0
million, and incurring offering costs of approximately $13.2 million, of which
approximately $8.1 million was for deferred underwriting commissions.
Simultaneously with the closing of the Initial Public Offering, we consummated
the private placement ("Private Placement") of 4,400,000 warrants (each, a
"Private Placement Warrant" and collectively, the "Private Placement Warrants")
at a price of $1.50 per Private Placement Warrant to the Sponsor, generating
gross proceeds of $6.6 million.
Upon the closing of the Initial Public Offering and the Private Placement,
$230.0 million ($10.00 per Unit) of the net proceeds of the Initial Public
Offering and certain of the proceeds of the Private Placement was placed in a
trust account ("Trust Account") located in the United States with Continental
Stock Transfer & Trust Company acting as trustee, and was invested only in U.S.
government treasury bills with a maturity of 185 days or less or in money market
funds investing solely in U.S. Treasuries and meeting certain conditions under
Rule 2a-7 under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), as determined by us, until the earlier of: (i) the completion of
a Business Combination and (ii) the distribution of the Trust Account as
described below.
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. There is no
assurance that we will be able to complete a Business Combination successfully.
We must complete one or more initial Business Combinations having an aggregate
fair market value of at least 80% of the net assets held in the Trust Account
(excluding deferred underwriting fees and taxes payable on the income earned on
the trust account) at the time of the agreement to enter into the initial
Business Combination. However, we will only complete a Business Combination if
the post-business combination company owns or acquires 50% or more of the voting
securities of the target or otherwise acquires a controlling interest in the
target sufficient for it not to be required to register as an investment company
under the Investment Company Act.
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If we are unable to complete a Business Combination within 24 months from the
closing of the Initial Public Offering, or February 25, 2023 (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 Stock, 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 its taxes (less up to $100,000 of interest to pay
dissolution expenses), divided by the number of then outstanding Public Stock,
which redemption will completely extinguish Public Stockholders' rights as
stockholders (including the right to receive further liquidating distributions,
if any), and (iii) as promptly as reasonably possible following such redemption,
subject to the approval of the remaining stockholders and the board of
directors, liquidate and dissolve, subject in each case, to our obligations
under Delaware law to provide for claims of creditors and the requirements of
other applicable law.
Terminated Business Combination Agreement
On July 20, 2021, we entered into a business combination agreement (as it may be
amended and/or restated from time to time, the "Business Combination Agreement")
with VBLG Merger Sub, LLC, a wholly-owned subsidiary of Velocity ("Company
Merger Sub"), VBLG Blocker Merger Sub, LLC, a wholly-owned subsidiary of
Velocity ("Blocker Merger Sub"), BBQ Holding, LLC ("BBQ"), BVP BBQ Blocker, LP
("Blocker") and BVP BBQ General Partner, LLC, the general partner of Blocker and
the representative of the equity holders of BBQ and Blocker ("BVP GP"), relating
to the contemplated Business Combination between the Company and BBQ (the
"Proposed Business Combination").
On November 9, 2021, we entered into a Termination of Business Combination
Agreement (the "Termination Agreement") with Company Merger Sub, Blocker Merger
Sub, BBQ, Blocker and BVP GP, pursuant to which the parties agreed to mutually
terminate the Business Combination Agreement effective as of November 9, 2021.
Pursuant to the Termination Agreement, BBQ has agreed to pay the Company
$1,393,750. As a result of the termination of the Business Combination
Agreement, the Business Combination Agreement is void and there is no liability
under the Business Combination Agreement on the part of any party thereto,
except as set forth in the Business Combination Agreement, and each of the
transaction agreements entered into in connection with the Business Combination
Agreement, including, but not limited to, the Sponsor Agreement, dated as of
July 20, 2021, by and among the Sponsor, BBQ and certain of Sponsor's equity
holders, will automatically either be terminated in accordance with their terms
or be of no further force and effect. Pursuant to the Termination Agreement,
subject to certain exceptions, the parties to the Termination Agreement have
also agreed on behalf of themselves and their respective related parties, to a
release of claims relating to the Proposed Business Combination. We intend to
continue to pursue a Business Combination.
Liquidity and Going Concern
As of September 30, 2022, we had approximately $363,000 in operating cash held
outside the Trust Account, approximately $1.1 million of investment income
available in the Trust Account to pay for tax obligations (less up to $100,000
of interest to pay dissolution expenses), and a working capital deficit of
approximately $643,000.
Our liquidity needs prior to the consummation of the Initial Public Offering
were satisfied through the payment of $25,000 from the Sponsor to purchase
Founder Stock (as defined in Note 4), and loan proceeds from the Sponsor of
approximately $91,000 under the Note (Note 4). We repaid a portion of the Note,
leaving a note balance of approximately $187 as of February 25, 2021. On
February 26, 2021, we repaid the remaining loan portion in full. Subsequent from
the consummation of the Initial Public Offering, our liquidity has been
satisfied through the net proceeds from the consummation of the Initial Public
Offering and the Private Placement held outside of the Trust Account. 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 loans in order
to finance transaction costs in connection with a Business Combination ("Working
Capital Loans"). As of September 30, 2022 and December 31, 2021, there were no
amounts outstanding under any Working Capital Loan.
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Based on the foregoing, we believe that we have liquidity and will have access
to additional funding through our Sponsor to meet our needs through the earlier
of the consummation of a Business Combination or one year from this filing. Over
this time period, we will be using the funds held outside of the Trust Account
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.
In connection with our assessment of going concern considerations in accordance
with FASB's ASC Topic 205-40, "Presentation of Financial Statements - Going
Concern," our management has determined that the working capital deficit, as
well as the mandatory liquidation and subsequent dissolution raise substantial
doubt about our ability to continue as a going concern. While our management is
continuing its search for an initial Business Combination prior to the mandatory
liquidation date, on November 9, 2022, we filed a preliminary proxy statement
for a special meeting of our stockholders to be held for the approval of an
amendment to the Company's Amended and Restated Certificate of Incorporation to
change the date by which the Company must consummate a Business Combination from
February 25, 2023 to such other date as shall be determined by the board of
directors of the Company and publicly announced by the Company, provided that
such other date shall be no later than December 30, 2022. No adjustments have
been made to the carrying amounts of assets or liabilities should we be required
to liquidate after February 25, 2023. The unaudited condensed financial
statements do not include any adjustment that might be necessary if we are
unable to continue as a going concern.
Our management team continues to evaluate the impact of the COVID-19 pandemic,
and the emergence of new variant strains of COVID-19, on the industry and has
concluded that while it is reasonably possible that the virus could have a
negative effect on our financial position, results of our operations and/or
search for a target company, the specific impact is not readily determinable as
of the date of the condensed financial statements. The condensed financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
On August 16, 2022, the Inflation Reduction Act of 2022 (the "IR Act") was
signed into federal law. The IR Act provides for, among other things, a new U.S.
federal 1% excise tax on certain repurchases of stock by publicly traded U.S.
domestic corporations and certain U.S. domestic subsidiaries of publicly traded
foreign corporations occurring on or after January 1, 2023. The excise tax is
imposed on the repurchasing corporation itself, not its shareholders from which
shares are repurchased. The amount of the excise tax is generally 1% of the fair
market value of the shares repurchased at the time of the repurchase. However,
for purposes of calculating the excise tax, repurchasing corporations are
permitted to net the fair market value of certain new stock issuances against
the fair market value of stock repurchases during the same taxable year. In
addition, certain exceptions apply to the excise tax. The U.S. Department of the
Treasury (the "Treasury") has been given authority to provide regulations and
other guidance to carry out and prevent the abuse or avoidance of the excise
tax. Any share redemption or other share repurchase that occurs after December
31, 2022, in connection with a Business Combination, extension vote or
otherwise, may be subject to the excise tax. Whether and to what extent we would
be subject to the excise tax in connection with a Business Combination,
extension vote or otherwise will depend on a number of factors, including (i)
the fair market value of the redemptions and repurchases in connection with the
Business Combination, extension or otherwise, (ii) the structure of a Business
Combination, (iii) the nature and amount of any "PIPE" or other equity issuances
in connection with a Business Combination (or otherwise issued not in connection
with a Business Combination but issued within the same taxable year of a
Business Combination) and (iv) the content of regulations and other guidance
from the Treasury. In addition, because the excise tax would be payable by us
and not by the redeeming holder, the mechanics of any required payment of the
excise tax have not been determined. The foregoing could cause a reduction in
the cash available on hand to complete a Business Combination and in our ability
to complete a Business Combination.
Results of Operations
Our entire activity since inception up to September 30, 2022 was in preparation
for our formation, the Initial Public Offering, and since the closing of our
Initial Public Offering a search for business combination candidates. We will
not generate any operating revenues until the closing and completion of our
initial Business Combination.
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For the three months ended September 30, 2022, we had net income of
approximately $1.1 million, which consisted of approximately $515,000 of gain
from change in fair value of derivative warrant liabilities, approximately $1.0
million interest income from investments held in Trust Account, partially offset
by approximately $146,000 in general and administrative expenses, approximately
$45,000 in general and administrative expenses for costs incurred with our
Sponsor, approximately $50,000 for franchise tax expense, and approximately
$206,000 for income tax expense.
For the three months ended September 30, 2021, we had net income of
approximately $614,000, which consisted of approximately $2.1 million gain from
change in fair value of derivative warrant liabilities and approximately $3,000
on interest income from investments held in Trust Account, partially offset by
approximately $1.4 million general and administrative expenses, approximately
$45,000 in general and administrative expenses for costs incurred with our
Sponsor and approximately $50,000 for franchise tax expense.
For the nine months ended September 30, 2022, we had net income of approximately
$5.1 million, which consisted of approximately $5.5 million gain from change in
fair value of derivative warrant liabilities, approximately $1.3 million
interest income from investments held in Trust Account, partially offset by
approximately $1.2 million in general and administrative expenses, $135,000 in
general and administrative expenses for costs incurred with our Sponsor, and
approximately $150,000 for franchise tax expense, and approximately $243,000 for
income tax expense.
For the nine months ended September 30, 2021, we had net income of approximately
$6.0 million, which consisted of approximately $9.1 million gain from change in
fair value of derivative warrant liabilities, approximately $23,000 on interest
income from investments held in Trust Account, partially offset by approximately
$2.2 million general and administrative expenses, approximately $105,000 in
general and administrative expenses for costs incurred with our Sponsor,
approximately $149,000 of franchise tax expense and approximately $657,000 in
financing cost - derivative warrant liabilities.
Contractual Obligations
Administrative Support Agreement
Commencing on the effective date of the prospectus through the earlier of
consummation of the initial Business Combination and our liquidation, we agreed
to pay the Sponsor a total of $15,000 per month for office space, secretarial
and administrative services provided to members of our management team. We
incurred $45,000 for such services for the three months ended September 30, 2022
and 2021, respectively. We incurred $135,000 and $105,000 for such services for
the nine months ended September 30, 2022 and 2021, respectively. As of September
30, 2022 and December 31, 2021, there was no outstanding balance for such
services. As of September 30, 2022, $15,000 was prepaid and is included in
prepaid expenses on the accompanying condensed balance sheets.
Our officers or directors will be reimbursed for any out-of-pocket expenses
incurred in connection with activities on our behalf such as identifying
potential target businesses and performing due diligence on suitable Business
Combinations. Our audit committee will review on a quarterly basis all payments
that were made to our Sponsor, officers or directors, or their affiliates. Any
such payments prior to an initial Business Combination will be made using funds
held outside the Trust Account. Other than quarterly audit committee review of
such payments, we do not expect to have any additional controls in place
governing the reimbursement payments to our directors and officers for their
out-of-pocket expenses incurred in connection with identifying and consummating
an initial Business Combination.
Registration Rights
The holders of Founder Stock, Private Placement Warrants and warrants that may
be issued upon conversion of Working Capital Loans, if any, (and any stock 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) were entitled to registration rights pursuant to a registration rights
agreement signed upon the consummation of the Initial Public Offering. The
holders of these securities are 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. We will bear the expenses incurred in connection with the filing of
any such registration statements.
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Underwriting Agreement
We granted the underwriters a 45-day option from the date of Initial Public
Offering to purchase up to 3,000,000 additional Units to cover over-allotments,
if any, at the Initial Public Offering price less the underwriting discounts and
commissions. The underwriter exercised its over-allotment option in full on
February 25, 2021.
The underwriters were entitled to an underwriting discount of $0.20 per Unit, or
$4.6 million in the aggregate, paid upon the closing of the Initial Public
Offering. In addition, the underwriters were entitled to a deferred fee of $0.35
per Unit, approximately $8.1 million in the aggregate. The deferred fee will
become payable to the underwriters from the amounts held in the Trust Account
solely in the event that the Company completes a Business Combination, subject
to the terms of the underwriting agreement.
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." Class A common stock subject to mandatory redemption (if any) is
classified as liability instruments and are measured at fair value.
Conditionally redeemable Class A common stock (including Class A 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) are classified as temporary equity. At all other times,
Class A 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 the occurrence of uncertain future events. Accordingly,
as of September 30, 2022 and December 31, 2021, 23,000,000 shares of Class A
common stock subject to possible redemption are presented at redemption value as
temporary equity, outside of the stockholders' equity section of the Company's
balance sheets.
The Company recognizes changes in redemption value immediately as they occur and
adjusts the carrying value of the Class A common stock subject to possible
redemption to equal the redemption value at the end of each reporting period.
This method would view the end of the reporting period as if it were also the
redemption date for the security. Immediately upon the closing of the Initial
Public Offering, we recognized the accretion from initial book value to
redemption amount, which resulted in charges against additional paid-in capital
(to the extent available) and accumulated deficit.
Net Income (Loss) Per Share of Common Stock
We comply with accounting and disclosure requirements of FASB ASC Topic 260,
"Earnings Per Share." We have two classes of shares, which are referred to as
Class A common stock and Class B common stock. Income and losses are shared pro
rata between the two classes of shares. Net income (loss) per common share is
calculated by dividing the net income (loss) by the weighted average shares of
common stock outstanding for the respective period.
The calculation of diluted net income (loss) per common stock does not consider
the effect of the warrants issued in connection with the Initial Public Offering
and the Private Placement to purchase an aggregate of 12,066,666 shares of
common stock since their exercise is contingent upon future events. Accretion
associated with the redeemable Class A common stock is excluded from earnings
per share as the redemption value approximates fair value.
Derivative Warrant Liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. We evaluate all of our financial instruments, including
issued stock purchase warrants, to determine if such instruments are derivatives
or contain features that qualify as embedded derivatives, pursuant to ASC 480
ASC Topic 815, "Derivatives and Hedging" ("ASC 815"). The classification of
derivative instruments, including whether such instruments should be recorded as
liabilities or as equity, is reassessed at the end of each reporting period.
Our accounts for the warrants issued in connection with its Initial Public
Offering and the Private Placement Warrants as derivative warrant liabilities in
accordance with ASC 815. Accordingly, we recognize the warrant instruments as
liabilities at fair value and adjusts the instruments to fair value at each
reporting period. The liabilities are subject to re-measurement at each balance
sheet date until exercised, and any change in fair value is recognized in the
unaudited condensed statements of operations. The fair value of the Public
Warrants issued in connection with the Public Offering and Private Placement
Warrants were initially measured at fair value using a Monte Carlo simulation
model and subsequently, the fair value of the Private Placement Warrants was
estimated using a Monte Carlo simulation model each measurement date, and as of
September 30, 2022, a Black-Scholes Merton model and Monte Carlo Simulation
analysis have been employed. The fair value of Public Warrants issued in
connection with the Initial Public Offering have subsequently been measured
based on the listed market price of such warrants. The determination of the fair
value of the warrant liability may be subject to change as more current
information becomes available and accordingly the actual results could differ
significantly. Derivative warrant liabilities are classified as non-current
liabilities as their liquidation is not reasonably expected to require the use
of current assets or require the creation of current liabilities.
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Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying condensed financial statements.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (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 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, the condensed financial
statements may not be comparable to companies that comply with new or revised
accounting pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the
other reduced reporting requirements provided by the JOBS Act. Subject to
certain conditions set forth in the JOBS Act, if, as an "emerging growth
company," we choose to rely on such exemptions we may not be required to, among
other things, (i) provide an auditor's attestation report on our system of
internal controls over financial reporting pursuant to Section 404, (ii) provide
all of the compensation disclosure that may be required of non-emerging growth
public companies under the Dodd-Frank Wall Street Reform and Consumer Protection
Act, (iii) comply with any requirement that may be adopted by the PCAOB
regarding mandatory audit firm rotation or a supplement to the auditor's report
providing additional information about the audit and the financial statements
(auditor discussion and analysis) and (iv) disclose certain executive
compensation related items such as the correlation between executive
compensation and performance and comparisons of the CEO's compensation to median
employee compensation. These exemptions will apply for a period of five years
following the completion of our Initial Public Offering or until we are no
longer an "emerging growth company," whichever is earlier.
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