References to the "Company," "us," "our" or "we" refer to 7GC & Co. Holdings
Inc. The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our audited financial
statements and related notes included elsewhere in this Annual Report on Form
10-K. Certain information contained in the discussion and analysis set forth
below includes forward-looking statements that involve risks and uncertainties.
In this Amendment No. 1, we are restating our audited financial statements as of
December 31, 2020, and for the period from September 18, 2020 (inception) to
December 31, 2020.
On April 12, 2021, the staff of the Securities and Exchange Commission (the "SEC
Staff") issued a public statement entitled "Staff Statement on Accounting and
Reporting Considerations for Warrants issued by Special Purpose Acquisition
Companies ("SPACs")" (the "SEC Staff Statement"). In the SEC Staff Statement,
the SEC Staff expressed its view that certain terms and conditions common to
SPAC warrants may require the warrants to be classified as liabilities on the
SPAC's balance sheet as opposed to equity. Since issuance on December 28, 2020,
our warrants were accounted for as equity within our balance sheet, and after
discussion and evaluation, including with our audit committee, and taking into
consideration the SEC Staff Statement, we have concluded that our warrants
should be presented as liabilities with subsequent fair value remeasurement.
As a result of the foregoing, on May 26, 2021, the Audit Committee of the
Company, in consultation with its management, concluded that its previously
issued financial statements for the Affected Period should be restated because
of a misapplication in the guidance around accounting for our outstanding
warrants to purchase common stock (the "Warrants") and should no longer be
relied upon.
Historically, the Warrants were reflected as a component of equity as opposed to
liabilities on the balance sheets and the statements of operations did not
include the subsequent non-cash changes in estimated fair value of the Warrants,
based on our application of Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") Topic 815-40, Derivatives and Hedging,
Contracts in Entity's Own Equity ("ASC 815-40). The views expressed in the SEC
Staff Statement were not consistent with the Company's historical interpretation
of the specific provisions within its warrant agreements and the Company's
application of ASC 815-40 to the warrant agreements. We reassessed our
accounting for Warrants issued on December 28, 2020, in light of the SEC Staff's
published views. Based on this reassessment, and after consultation with our
audit we determined that the Warrants should be classified as liabilities
measured at fair value upon issuance, with subsequent changes in fair value
reported in our statement of operations each reporting period.
Our accounting for the Warrants as components of equity instead of as derivative
liabilities did not have any effect on our previously reported revenue,
operating expenses, operating income, cash flows or cash.
In connection with the restatement, our management reassessed the effectiveness
of our disclosure controls and procedures for the periods affected by the
restatement. As a result of that reassessment, we determined that our disclosure
controls and procedures for such periods were not effective with respect to the
classification of the Company's warrants as components of equity instead of as
derivative liabilities. For more information, see Item 9A included in this
Amendment No. 1.
The financial information that has been previously filed or otherwise reported
for this period is superseded by the information in this Amendment No. 1, and
the financial statements and related financial information contained in such
previously filed report should no longer be relied upon.
The restatement is more fully described in Note 2 of the notes to the financial
statements included herein.
22
Overview
We are a blank check company incorporated as a Delaware corporation on September
18, 2020. We were formed for the purpose of for the purpose of effecting an
initial business combination with a target business. We are not limited to a
particular industry or sector for purposes effectuating a merger, capital stock
exchange, asset acquisition, stock 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 7GC & Co. Holdings LLC, a Delaware limited liability company (the
"Sponsor"). The registration statement for our Initial Public Offering was
declared effective on December 22, 2020. On December 28, 2020, we consummated
the 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
Shares"), 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 7,350,000 warrants (each, a
"Private Placement Warrant" and collectively, the "Private Placement Warrants")
at a price of $1.00 per Private Placement Warrant to our Sponsor, generating
proceeds of approximately $7.4 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 (the "Trust Account") in the United States, with Continental
Stock Transfer & Trust Company acting as trustee, and invested in 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, or in any money
market funds meeting certain conditions of Rule 2a-7 of the Investment Company
Act of 1940, as amended (the "Investment Company Act"), which invest only in
direct U.S, government treasury obligations until the earlier of: (i) the
consummation of a Business Combination or (ii) the distribution of the funds in
the Trust Account to the Company's stockholders, as described below.
We will only have 24 months from the closing of the Initial Public Offering, or
December 28, 2022, to complete our initial Business Combination (the
"Combination Period"). If we do not complete a Business Combination within this
period of time (and stockholders do not approve an amendment to the amended and
restated certificate of incorporation to extend this date), we will (i) cease
all operations except for the purpose of winding up; (ii) as promptly as
reasonably possible but no 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 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 liquidation distributions, if any), subject to applicable law,
and (iii) as promptly as reasonably possible following such redemption, subject
to the approval of the remaining stockholders and the our board of directors,
proceed to commence a voluntary liquidation and thereby a formal dissolution of
our Company, subject in each case to its obligations to provide for claims of
creditors and the requirement of applicable law. The representative of the
underwriters has agreed to waive its rights to the deferred underwriting
commission held in the Trust Account in the event the Company does not complete
a Business Combination within the Combination Period 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 the Initial Public Offering price
per Unit ($10.00).
23
Liquidity and Capital Resources
As of December 31, 2020, we had approximately $1.7 million in cash in our
operating account and working capital of approximately $2.2 million (excluding
tax obligations of approximately $57,000 that may be paid using investment
income earned in Trust Account).
Prior to the completion of the Initial Public Offering, our liquidity needs were
satisfied through a payment of $25,000 from our Sponsor to purchase Founder
Shares, and loan proceeds from our Sponsor of $150,000 under the Note (Note
5). We repaid the Note in full on December 28, 2020. Subsequent to 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.
Based on the foregoing, management believes that we will have sufficient working
capital and borrowing capacity to meet our needs through the earlier of the
consummation of a Business Combination or one year from the date of this filing.
Over this time period, we will be using these funds 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.
Management continues to evaluate the impact of the COVID-19 pandemic and has
concluded that the specific impact is not readily determinable as of the date of
the balance sheet. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Results of Operations
Our entire activity had been related to our formation, Initial Public Offering,
which was consummated on December 28, 2020, and since the Initial Public
Offering, our activity has been limited to the search for a prospective Initial
Business Combination, and we will not be generating any operating revenues until
the closing and completion of our Initial Business Combination. We expect to
incur increased expenses as a result of being a public company (for legal,
financial reporting, accounting and auditing compliance), as well as for due
diligence expenses.
For the period from September 18, 2020 through December 31, 2020, we had net
loss of approximately $6.1 million, which consisted of approximately $3.8
million loss from changes in fair value of derivative warrant liabilities,
approximately $1.3 million loss on issuance of private placement warrants,
approximately $0.8 million of financing costs, approximately $45,000 in general
and administrative expenses and approximately $57,000 in franchise tax expense,
offset by $189 in gain on investments held in the Trust Account.
As a result of the restatement described in Note 2 of the notes to the financial
statements included herein, we classify the warrants issued in connection with
our Initial Public Offering and Private Placement as liabilities at their fair
value and adjust the warrant instruments to fair value at each reporting period.
These liabilities are 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 periods from September 18, 2020 (inception) through December
31, 2020, the change in fair value of warrants was an increase of approximately
$3.8 million.
Related Party Transactions
Founder Shares
On October 13, 2020, our Sponsor purchased 5,031,250 shares of our Class B
common stock, par value $0.0001 per share, (the "Founder Shares") for an
aggregate purchase price of $25,000, or approximately $0.005 per share. On
December 1, 2020, our Sponsor transferred 25,000 Founder Shares to each of our
four director nominees. In December 2020, we effected a stock dividend of
approximately 0.143 shares for each share of Class B common stock outstanding,
resulting in an aggregate of 5,750,000 Founder Shares outstanding. Certain of
the initial stockholders then retransferred an aggregate of 14,286 shares back
to our Sponsor. Of the 5,750,000 Founder Shares outstanding, up to 750,000
shares were subject to forfeiture by our Sponsor to the extent that the
underwriters' over-allotment was not exercised in full, so that the initial
stockholders would own 20.0% of the Company's issued and outstanding shares
after the Initial Public Offering. The underwriters exercised their
over-allotment option in full on December 28, 2020; thus, the 750,000 Founder
Shares are no longer subject to forfeiture.
The Company's initial stockholders 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 a Business Combination or (B) subsequent to the initial Business
Combination, (x) if the last sale price of the 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 the initial
Business Combination, or (y) the date on which the Company completes a
liquidation, merger, capital stock exchange, reorganization or other similar
transaction that results in all of the stockholders having the right to exchange
their shares of common stock for cash, securities or other property.
24
Private Placement Warrants
Simultaneously with the closing of the Initial Public Offering, we consummated
the Private Placement of 7,350,000 Private Placement Warrants at a price of
$1.00 per Private Placement Warrant to the Sponsor, generating proceeds of
approximately $7.4 million.
Each warrant is exercisable to purchase one share of our Class A common stock at
a price of $11.50 per share. Certain proceeds from the sale of the Private
Placement Warrants were added to the net proceeds from the Initial Public
Offering held in the Trust Account. If we do not complete a Business Combination
within the Combination Period, the proceeds from the sale of the Private
Placement Warrants will be used to fund the redemption of the Public Shares
(subject to the requirement of applicable law) and the Private Placement
Warrants will expire worthless.
Promissory Note - Related Party
On September 18, 2020, our Sponsor agreed to loan us an aggregate of up to
$300,000 to cover expenses related to the Initial Public Offering pursuant to a
promissory note (the "Note"). This loan was non-interest bearing and was due
upon the completion of the Initial Public Offering. We borrowed $150,000 under
the Note and repaid the Note in full on December 28, 2020.
Related Party Loans
In order to fund working capital deficiencies or finance transaction costs in
connection with an intended initial Business Combination, the initial
stockholders, officers and directors and their affiliates may, but are not
obligated to, loan us funds as may be required (the "Working Capital Loans").
Such Working Capital Loans would be evidenced by promissory notes. The notes
would either be repaid upon consummation of a Business Combination, without
interest, or, at the lenders' discretion, up to $1.5 million of notes may be
converted upon consummation of a Business Combination into additional Private
Placement Warrants at a price of $1.00 per Warrant. In the event that a Business
Combination does not close, we may use a portion of the proceeds held outside
the Trust Account to repay the Working Capital Loans but no proceeds held in the
Trust Account would be used to repay the Working Capital Loans. As of December
31, 2020, we had no borrowings under the Working Capital Loans.
Administrative Support Agreement
We agreed to pay $10,000 a month for office space, utilities, and secretarial
and administrative support to the Sponsor. Services commenced on the date the
securities were first listed on the Nasdaq and will terminate upon the earlier
of the consummation by us of a Business Combination or the liquidation of our
Company.
Contractual Obligations
Registration Rights
The holders of the Founder Shares, Private Placement Warrants and any warrants
that may be issued upon conversion of the Working Capital Loans (and any shares
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 and upon conversion of the Founder Shares) are entitled to registration
rights pursuant to a registration rights agreement signed on the effective date
of the registration statement for the Initial Public Offering. The holders of
these securities are entitled to make up to three demands, that the Company
register such securities. In addition, the holders have certain "piggy-back"
registration rights with respect to registration statements filed by the
Company. The registration rights agreement does not contain liquidating damages
or other cash settlement provisions resulting from delays in registering the
Company's securities. The Company will bear the expenses incurred in connection
with the filing of any such registration statements.
Underwriting Agreement
We granted the underwriters a 45-day option to purchase up to 3,000,000
additional Units to cover over-allotments at the Initial Public Offering price,
less the underwriting discounts and commissions. The underwriters exercised
their over-allotment option in full on December 28, 2020.
The underwriters were entitled to a cash underwriting discount of 2.0% of the
gross proceeds of the Initial Public Offering, or $4.6 million in the aggregate.
In addition, the representative of the underwriters is entitled to a deferred
fee of 3.5% of the gross proceeds of the Initial Public Offering, or
approximately $8.1 million. The deferred fee will become payable to the
representative of 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.
25
Critical Accounting Policies and Estimates
Investments Held in the Trust Account
Our portfolio of investments held in the Trust Account is comprised 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, or investments in
money market funds that invest in U.S. government securities, or a combination
thereof. The investments held in the Trust Account are 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 net gain from investments held
in Trust Account in the accompanying statements of operations. The estimated
fair values of investments held in the Trust Account are determined using
available market information.
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 (if any)
are classified as liability instruments and are measured at fair value. Shares
of conditionally redeemable Class A common stock (including Class A common stock
that feature 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,
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 the occurrence of uncertain future
events. Accordingly, at December 31, 2020, 19,322,943 shares of Class A common
stock subject to possible redemption are presented as temporary equity, outside
of the stockholders' equity section of the accompanying balance sheet.
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
and ASC 815-15. The classification of derivative instruments, including whether
such instruments should be recorded as liabilities or as equity, is re-assessed
at the end of each reporting period.
We issued 11,500,000 common stock warrants to investors in our Initial Public
Offering and issued 7,350,000 Private Placement Warrants. All of our outstanding
warrants are recognized as derivative liabilities in accordance with ASC 815-40.
Accordingly, we recognize the warrant instruments as liabilities at fair value
and adjust 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 our statement of
operations. The fair value of warrants issued in connection with the Initial
Public Offering and Private Placement were initially and subsequently measured
at fair value using a Monte Carlo simulation model. 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.
Net Income (Loss) Per Common Share
We comply with accounting and disclosure requirements of FASB ASC Topic 260,
"Earnings Per Share." Net income (loss) per share is computed by dividing net
income (loss) applicable to common stockholders by the weighted average number
of shares of common stock outstanding for the period. We have not considered the
effect of the warrants sold in the Initial Public Offering and Private Placement
to purchase an aggregate of 18,850,000 shares of Class A common stock in the
calculation of diluted earnings per share, since their inclusion would be
anti-dilutive under the treasury stock method. As a result, diluted earnings per
share is the same as basic earnings per share for the period.
Our statement of operations includes a presentation of income per share for
common stock subject to redemption in a manner similar
to the two-class method of income per share. Net income per share, basic and
diluted for Class A common stock is calculated by dividing the investment income
earned on the Trust Account, net of taxes payable, for the period from September
18, 2020 (inception) to December 31, 2020, by the weighted average number of
shares of Class A common stock outstanding for the period. Net loss per share,
basic and diluted for Class B common stock for the period from September 18,
2020 (inception) through December 31, 2020 is calculated by dividing the net
loss of approximately $6.1 million, less net income attributable to Class A
common stock of $0, resulting in a net loss of approximately $6.1 million, by
the weighted average number of Class B common stock outstanding for the period.
Off-Balance Sheet Arrangements and Contractual Obligations
As of December 31, 2020, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments
or contractual obligations.
26
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 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.
Recent Accounting Pronouncements
Our management does not believe there are any other recently issued, but not yet
effective, accounting pronouncements, if currently adopted, that would have a
material effect on our financial statements.
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