References in this Quarterly Report on Form 10-Q (the "Quarterly Report") to the
"Company," "Z-Work," "our," "us" or "we" refer to Z-Work Acquisition Corp.
References to our "management" or our "management team" refer to our officers
and directors and references to "Sponsor" refer to Z-Work Acquisition, LLC. The
following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the unaudited condensed
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.
Cautionary 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 Quarterly Report including, without limitation,
statements under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" regarding our financial position, business strategy
and the plans and objectives of management for future operations, are forward
looking statements. When used in this Quarterly Report, words such as "may,"
"should," "could," "would," "expect," "plan," "anticipate," "believe,"
"estimate," "continue," or the negative of such terms or other similar
expressions, as they relate to us or our management, identify forward looking
statements. Such forward looking statements are based on the beliefs of
management, as well as assumptions made by, and information currently available
to, our management. No assurance can be given that results in any
forward-looking statement will be achieved and actual results could be affected
by one or more factors, which could cause them to differ materially. The
cautionary statements made in this Quarterly Report should be read as being
applicable to all forward-looking statements whenever they appear in this
Quarterly Report, For these statements, we claim the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act. Actual results could differ materially from those
contemplated by the forward-looking statements as a result of certain factors,
including but not limited to, those detailed in Part I, Item 1A. Risk Factors,
of our Annual Report on Form 10-K filed with the SEC as updated by this
Quarterly Report and our subsequent filings with the SEC. All subsequent written
or oral forward-looking statements attributable to us or persons acting on our
behalf are qualified in their entirety by this paragraph. Forward-looking
statements speak only as of the date they are made. Readers are cautioned not to
put undue reliance on forward-looking statements, and we assume no obligation
and do not intend to update or revise these forward-looking statements, whether
as a result of new information, future events, or otherwise, unless required by
applicable law.
Overview
We are a blank check company formed under the laws of the State of Delaware on
September 30, 2020, for the purpose of effecting a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or other similar
business combination with one or more businesses. We intend to effectuate our
business combination using cash from the proceeds of the offering and the sale
of the Private Placement Warrants, 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 a business
combination will be successful.
Recent Developments
Special Meeting to Allow Early Redemption and Liquidation
On November 10, 2022, the Company filed a definitive proxy statement relating to
a special meeting of stockholders to approve (i) an amendment to the Company's
amended and restated certificate of incorporation (the "Charter Amendment
Proposal") and (ii), an amendment to the Investment Management Trust Agreement,
dated January 28, 2021, by and between the Company and Continental Stock
Transfer & Trust Company, as trustee (the "Trust Amendment Proposal" and
together with the Charter Amendment Proposal, the "Proposals"), which would, if
implemented, allow the Company to redeem all of its outstanding Public Shares in
advance of the Company's contractual expiration date of February 2, 2023 by
changing the date by which the Company must cease all operations except for the
purpose of winding up if it fails to complete a business combination from
February 2, 2023, to the later of (x) December 8, 2022 or (y) the date of
effectiveness of the second amended and restated charter (the "Amended
Termination Date").
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If the Proposals are approved, and because the Company will not be able to
complete a Business Combination by the Amended Termination Date, the Company
will immediately after the special meeting, cease all operations, except for the
purpose of winding up and as promptly as reasonably possible, but not more than
ten business days thereafter subject to lawfully available funds therefore,
redeem all Public Shares (the "Mandatory Redemption"). The Company expects to
complete the Mandatory Redemption on or around December 8, 2022, if stockholders
approve the Proposals. As promptly as reasonably possible following such
Mandatory Redemption, and subject to the approval of the Company's then
remaining stockholders and the Board, in accordance with applicable law, the
Company will dissolve and liquidate, subject in each case to the Company's
obligations under the General Corporation Law of the State of Delaware to
provide for claims of creditors and the requirements of other applicable law.
The virtual special meeting will be held on December 8, 2022 at 12 p.m. Eastern
Time, and the record date for the meeting is the close of business (New York
time) on November 3, 2022.
Pursuant to the amended and restated certificate, a Public Stockholder may
request that the Company redeem all or a portion of its Public Shares for cash
if the Charter Amendment Proposal is approved. Notwithstanding the foregoing, if
the Charter Amendment Proposal is approved, and because the Company will not be
able to complete a Business Combination by the Amended Termination Date, the
Company will be obligated to redeem all Public Shares as promptly as reasonably
possible after the Amended Termination Date. Therefore, no action is required by
our Public Stockholders to redeem their Public Shares. If the Proposals are
approved, the Public Shares will be automatically redeemed as part of the
Mandatory Redemption. See the Company's Risk Factors in its Annual Report on
Form 10-K for the fiscal year ended December 31, 2021, as updated by the risk
factors included in this Quarterly Report for more information relating to the
risks related to redemptions and liquidation of the Company.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues
to date. Our only activities for the period ended September 30, 2022, were
organizational activities and those necessary to prepare for the offering,
described below, and identifying a target company for a business combination. We
do not expect to generate any operating revenues until after the completion of
our initial business combination. We generate non-operating income in the form
of interest income on marketable securities held after the offering. 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, a business combination.
Additionally, we recognize non-cash gains and losses with other income (expense)
related to changes in recurring fair value measurement of our warrant
liabilities at each reporting period.
For the three months ended September 30, 2022, we had net income of $806,535,
which consisted of change in fair value of warrant liabilities of $1,054,000 and
interest earned on investments held in Trust Account of $ 1,151,721, offset by
operating costs of $1,200,581 and tax expense of $198,605.
For the nine months ended September 30, 2022, we had net income of $5,593,387,
which consisted of change in fair value of warrant liabilities of $7,673,334 and
interest earned on investments held in Trust Account of $1,261,625, offset by
operating costs of $3,142,967 and tax expense of $198,605.
For the three months ended September 30, 2021, we had a net income of
$2,147,156, which consisted of the change in fair value of warrants of
$3,271,333 and income on investments held in the Trust Account of $4,916, offset
by operating costs of $1,129,093.
For the nine months ended September 30, 2021, we had a net income of $3,316,995,
which consisted of the change in fair value of warrants of $5,893,334 and income
on investments held in the Trust Account of $29,159, offset by operating costs
of $2,116,139 and transaction costs of $489,399 incurred in connection with
warrant liabilities.
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Liquidity and Going Concern
On February 2, 2021, we consummated the offering of 23,000,000 units (the
"Units" and, with respect to the Class A common stock included in the Units
sold, the "Public Shares"), at a price of $10.00 per Unit, which included the
full exercise by the underwriters of their over-allotment option in the amount
of 3,000,000 Units, generating gross proceeds of $230,000,000. Simultaneously
with the closing of the offering, we consummated the sale of 4,733,333 warrants
(the "Private Placement Warrants") to the Sponsor and Jefferies LLC
("Jefferies") at a price of $1.50 per Private Placement Warrant generating gross
proceeds of $7,100,000.
Following the offering, the full exercise of the over-allotment option, and the
sale of the Private Placement Warrants, a total of $230,000,000 was placed in
the Trust Account. We incurred $13,088,318 in transaction costs, including
$4,600,000 of underwriting fees, net of reimbursement, $8,050,000 of deferred
underwriting fees and $438,318 of other offering costs.
For the nine months ended September 30, 2022, net cash used in operating
activities was $958,557, which consisted of our net income of $5,593,387, offset
by change in fair value of warrant liabilities of $7,673,334 and interest earned
on investments held in the Trust Account of $1,261,625. Changes in operating
assets and liabilities provided $2,383,015 of cash from operating activities.
For the nine months ended September 30, 2021, net cash used in operating
activities was $1,136,204, which consisted of our net income of $3,316,955 and
transaction costs allocated to warrant liabilities of $489,399, offset by change
in fair value of warrant liabilities of $5,893,334 and income on investments
held in the Trust Account of $29,159. Changes in operating assets and
liabilities provided $979,935 of cash from operating activities.
As of September 30, 2022, we had cash of $359,534 held outside 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 a business combination.
In order to fund working capital deficiencies or 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,
loan us funds as may be required. If we complete a business combination, we may
repay such loaned amounts out of the proceeds of the Trust Account released to
us. 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, at a
price of $1.50 per warrant, at the option of the lender. The warrants would be
identical to the Private Placement Warrants.
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. Subject to compliance
with applicable securities laws, we would only complete such financing
simultaneously with the completion of our business combination. If we are unable
to complete our 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 business combination, if cash on hand is
insufficient, we may need to obtain additional financing in order to meet our
obligations.
Going Concern
As of September 30, 2022, the Company had $359,534 in its operating bank
accounts, $230,975,701 in securities held in the Trust Account to be used for a
Business Combination or to repurchase or redeem its common stock in connection
therewith and a working capital deficit of $2,812,680.
In the event the Proposals are not approved and we are unable to complete a
Business Combination by February 2, 2023, we will cease all operations except
for the purpose of winding up. In connection with the Company's assessment of
going concern considerations in accordance with FASB's Accounting Standards
Update ("ASU") 2014-15, "Disclosures of Uncertainties about an Entity's Ability
to Continue as a Going Concern," management has determined that if the Company
is unable to complete a Business Combination by February 2, 2023, then the
Company will cease all operations except for the purpose of liquidating. The
liquidity condition and date for mandatory liquidation and subsequent
dissolution raise substantial doubt about the Company's ability to continue as a
going concern. No adjustments have been made to the carrying amounts of assets
or liabilities should the Company be required to liquidate after February 2,
2023.
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Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 2022.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than the administrative support
agreement with our Sponsor, under which we began to incur monthly fees in
connection with our initial public offering.
Administrative Services Agreement
Pursuant to the agreement, we pay our Sponsor a monthly fee of $12,500 until the
earlier of the consummation of an initial business combination or the Company's
liquidation (or its earlier termination), or $150,000 per year, $100,000 of
which will be paid to our President, Chief Financial Officer, as an annual cash
salary and $50,000 of which will be paid for additional support services
expected to be sourced from Communitas Capital, a venture firm of which our
Executive Co-Chairman is Managing Partner. We will continue to incur these fees
monthly until the earlier of the completion of the business combination and our
liquidation.
Deferred Underwriters Fees
Additionally, the underwriters of our initial public offering are entitled to a
deferred fee of $0.35 per share, or $8,050,000 in the aggregate of which $6.9
million is deferred and held in the Trust Account and $1.15 million was used to
purchase warrants in connection with our initial public offering. The deferred
fee will become payable to the underwriters from the amounts held in the Trust
Account solely in the event that we complete a business combination, subject to
the terms of the underwriting agreement.
If the Proposals are approved, and because the Company will not be able to
complete a business combination by the Amended Termination Date, the deferred
underwriting commission will be included in the distribution of the proceeds
held in the Trust Account made to the Public Stockholders upon liquidation in
accordance with the terms of the underwriting agreement entered into in
connection with our initial public offering. In connection with the liquidation,
the underwriters will forfeit any rights or claims to the deferred underwriting
commission.
Registration Rights
The holders of Founders Shares, Private Placement Warrants issued in connection
with the offering and Private Placement warrants that may be issued upon
conversion of working capital loans (and the securities underlying such
securities) have registration rights to require us to register a sale of any of
our securities held by them. These holders may make up to three demands,
excluding short form registration demands, that we register such securities for
sale under the Securities Act. In addition, these holders will have "piggy-back"
registration rights to include their securities in other registration statements
filed by us, subject to certain limitations. We will bear the expenses incurred
in connection with the filing of any such registration statements.
Critical Accounting Estimates
The preparation of condensed 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 not identified any critical accounting policies.
Warrant Liabilities
We account for the Warrants (as defined herein) in accordance with the guidance
contained in Accounting Standards Codification ("ASC") 815-40, Derivatives and
Hedging - Contracts in Entity's Own Equity ("ASC 815-40"), under which the
Warrants do not meet the criteria for equity treatment and must be recorded as
liabilities. Accordingly, we classify the Warrants as liabilities at their fair
value and adjust the Warrants 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 periods prior to September 30, 2022, the Private Placement
Warrants are valued using a Black Scholes Option Pricing Model. For September
30, 2022, the fair value of the Private Placement Warrants is measured based on
the listed market price of the public warrants. The Public Warrants were
initially valued using a Monte Carlo simulation approach. For periods subsequent
to the detachment of the warrants from the Units, the closing trading price for
the public warrants was used as the fair value of the Public Warrants.
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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 is
classified as a liability instrument and is measured at fair value.
Conditionally redeemable common stock (including common stock that feature
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) is classified as temporary equity. At all other times, common stock is
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, shares of Class A common
stock subject to possible redemption are presented as temporary equity, outside
of the stockholders' equity (deficit) section of our condensed balance sheets.
Net Income (Loss) Per Common Share
Net income (loss) per common share is computed by dividing net income (loss) by
the weighted average number of common stock outstanding for the period.
Accretion associated with the redeemable shares of Class A common stock is
excluded from earnings per share as the redemption value approximates fair
value.
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, 2023 and should be applied on a full or
modified retrospective basis, with early adoption permitted beginning on January
1, 2021. The Company is currently assessing the impact, if any, that ASU 2020-06
would have on its financial position, results of operation or cash flows.
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 financial statements.
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