The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our audited financial statements
and the notes related thereto which are included in "Item 8. Financial
Statements and Supplementary Data" of this Report. Certain information contained
in the discussion and analysis set forth below includes forward-looking
statements. Our actual results may differ materially from those anticipated in
these forward-looking statements as a result of many factors, including those
set forth under "Special Note Regarding Forward-Looking Statements," "Item 1A.
Risk Factors" and elsewhere in this Report.
Overview
We are a blank check company formed under the laws of the State of Delaware on
October 19, 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 a business
combination utilizing cash from the proceeds of the Initial Public Offering (as
defined below), the partial exercise of the Over-Allotment Option (as defined
below) and the sale of the Private Placement Warrants (as defined below), our
capital stock, debt or a combination of cash, stock and debt. Although we are
not limited to a particular industry or sector for purposes of consummating a
business combination, we intend to initially focus our search on identifying a
prospective target business in the technology, media and telecommunications
industries ("TMT") in the United States and other developed countries. We are an
emerging growth company and, as such, we are subject to all of the risks
associated with emerging growth companies.
52
Initial Public Offering
Our registration statement for the Initial Public Offering was declared
effective on February 23, 2021. On February 26, 2021, we consummated the Initial
Public Offering of 34,500,000 units (the "Units" and the shares of Class A
common stock included in the Units, the "Public Shares"), including the
underwriters' exercise of their full over-allotment option of 4,500,000 units,
at $10.00 per Unit ("Over-Allotment Option"), generating gross proceeds
of $345.0 million (the "Initial Public Offering"), and incurring offering costs
of approximately $18.8 million, inclusive of approximately $11.8 million in
deferred underwriting commissions.
Simultaneously with the closing of the Initial Public Offering, we completed the
private sale (the "Private Placement") of an aggregate of 5,933,333 warrants
(the "Private Placement Warrants") to our sponsor, X-icity Holdings Corporation,
at a purchase price of $1.50 per Private Placement Warrant, generating gross
proceeds of $8.9 million.
Upon the closing of the Initial Public Offering and the Private Placement, a
total of $345.0 million was placed in a trust account ("Trust Account") and we
had $2.0 million of cash held outside of the Trust Account, after payment of
costs related to the Initial Public Offering, and available for working capital
purposes. We incurred $18.9 million in transaction costs, including $6.7 million
of underwriting fees, $11.8 million of deferred underwriting fees and $0.3
million of other costs.
Our management has broad discretion with respect to the specific application of
the net proceeds of the Initial Public Offering and the sale of Private
Placement Warrants, although substantially all of the net proceeds are intended
to be applied generally toward consummating a business combination.
If we are unable to complete a business combination within 24 months from the
closing of the Initial Public Offering, or February 26, 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 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 (less taxes payable and 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) and (iii) as promptly as reasonably possible following such redemption,
subject to the approval of our remaining stockholders and our board of
directors, liquidate and dissolve, subject, in the case of clauses (ii) and
(iii), to our obligations under Delaware law to provide for claims of creditors
and in all cases subject to the other requirements of applicable law.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from October 19, 2020 (inception) through December 31, 2021,
were organizational activities, those necessary to prepare for the Initial
Public Offering and, after our Initial Public Offering, identifying a target
company for a business combination. We do not expect to generate any operating
revenues until after the completion of a business combination. We expect to
generate non-operating income in the form of interest income on marketable
securities held after the Initial Public 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.
For the year ended December 31, 2021, we had net income of $5.6 million which
primarily consists of $7.3 million of changes in fair value of warrant
liabilities and interest income on marketable securities held in the Trust
Account of $31,165, partially offset by operating costs of $1.2 million and
warrant offering costs of $0.5 million.
For the period from October 19, 2020 (inception) through December 31, 2020, we
had a net loss of $5,636, which is attributed to operating costs incurred.
53
Liquidity and Capital Resources
As of December 31, 2021, we had $0.7 million of cash and working capital of $0.8
million.
Prior to the completion of the Initial Public Offering, our liquidity needs had
been satisfied through the sponsor's payment of $25,000 of our liabilities in
exchange for issuance of 7,187,500 shares of our Class B common stock, par value
$0.0001 per share, (the "Founder Shares"), and a promissory note (the "Note")
issued by our sponsor. We repaid the Note on February 26, 2021.
On February 26, 2021, we consummated the Initial Public Offering of 34,500,000
Units, including the underwriters' exercise of their full Over-Allotment Option,
generating gross proceeds of $345.0 million. Simultaneously with the closing of
the Initial Public Offering, we consummated the sale of 5,933,333 Private
Placement Warrants to our sponsor at a purchase price of $1.50 per Private
Placement Warrant, generating gross proceeds of $8.9 million.
Upon the closing of the Initial Public Offering and the Private Placement, a
total of $345.0 million was placed in the Trust Account and we had $2.0 million
of cash held outside of the Trust Account, after payment of costs related to the
Initial Public Offering, and available for working capital purposes. We incurred
$18.9 million in transaction costs, including $6.7 million of underwriting fees,
$11.8 million of deferred underwriting fees and $0.3 million of other costs.
As of December 31, 2021, we had marketable securities held in the Trust Account
of $345,031,165. We intend to utilize substantially all of the funds held in the
Trust Account, including any amounts representing interest earned on funds in
the Trust Account (less deferred underwriting commissions and income taxes
payable), to complete a business combination. To the extent that our capital
stock or debt is used, in whole or in part, as consideration to complete a
business combination, the remaining proceeds held in the Trust Account will be
used as working capital to finance the operations of the target business or
businesses, make other acquisitions and pursue our growth strategies.
For the year ended December 31, 2021, cash used in operating activities was $1.3
million. Net income of $5.8 million was primarily impacted by the change in fair
value of warrant liabilities of $7.3 million, interest earned on marketable
securities held in the Trust Account of $31,165 and changes in operating assets
and liabilities which used $0.1 million of cash from operating activities,
partially offset by deferred warrant offering costs charged to expense of $0.3
million.
For the period from October 19, 2020 (inception) through December 31, 2020, cash
used in operating activities was $5,407, funded by the Note from our sponsor.
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, 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 $1.5
million 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.
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 a business combination. Moreover, we may need to obtain additional financing
either to complete a business combination or because we become obligated to
redeem a significant number of our Public Shares upon consummation of a 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 a business combination. If we are unable to complete a 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 a business combination, if cash on hand is insufficient, we may need
to obtain additional financing in order to meet our obligations.
54
Off-balance sheet financing arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of December 31, 2021. 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.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term cash obligations, other than the deferred underwriting
commissions described below and an agreement to pay our sponsor a monthly fee of
$10,000 for office space, administrative and support services. We began
incurring these fees on February 23, 2021 and will continue to incur these fees
monthly until the earlier of the completion of a business combination or our
liquidation.
Registration Rights
The holders of Founder Shares, Private Placement Warrants, and securities that
may be issued upon conversion of Working Capital Loans (as defined below), if
any, will be entitled to registration rights pursuant to a registration rights
agreement dated as of August 4, 2020. These holders are entitled to certain
demand and "piggyback" registration rights. However, the registration rights
agreement provides that we will not permit any registration statement filed
under the Securities Act to become effective until the termination of the
applicable lock-up period for the securities to be registered. We will bear the
expenses incurred in connection with the filing of any such registration
statements.
Underwriting Agreement
The underwriters were granted a 45-day option from the date of the final
prospectus relating to the Initial Public Offering to purchase up to 4,500,000
additional Units to cover over-allotments, if any, at $10.00 per Unit. The
underwriters exercised their full Over-Allotment Option concurrent with the
consummation of the Initial Public Offering on February 26, 2021.
The underwriters were paid an underwriting discount of $0.20 per unit (excluding
the 400,000 units purchased by Pendrell and an affiliate of Craig McCaw as well
as 517,500 shares purchased by certain other parties (total of 917,500 shares)
with respect to which no underwriting discount is payable), or $6,716,500 in the
aggregate, upon the closing of the Initial Public Offering. $0.35 per unit
(excluding the 400,000 units purchased by Pendrell and an affiliate of Craig
McCaw as well as 517,500 shares purchased by certain other parties (total of
917,500 shares) with respect to which no underwriting discount is payable), or
$11,753,875 in the aggregate will be payable to the underwriters for deferred
underwriting commissions. 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.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates We have identified the following as critical accounting policies:
55
Class A Common Stock Subject to Possible Redemption
All of the 34,500,000 shares of Class A common stock included in the Units sold
as part of the Initial Public Offering contain a redemption feature as described
in the prospectus for the public offering. In accordance with the Financial
Accounting Standards Board's ("FASB") Accounting Standards Codification Topic
480, Distinguishing Liabilities from Equity, redemption provisions not solely
within the control of Colicity Inc. require the security to be classified
outside of permanent equity. As a result, all of our Class A common stock is
classified as temporary equity.
Our amended and restated certificate of incorporation provides a minimum net
tangible asset threshold of $5,000,001. However, we believe classifying all of
our common stock subject to possible redemption as temporary equity does not
invalidate the $5 million requirement as we will not redeem our Class A common
stock in an amount that would cause our net tangible assets to be less than
$5,000,001.
Public and Private Placement Warrants
We account for the warrants issued in connection with our Initial Public
Offering in accordance with ASC Topic 815-40, Derivatives and Hedging-Contracts
in Entity's Own Equity ("ASC 815"), under which we have determined that the
warrants do not meet the criteria for equity classification and must be recorded
as liabilities. As the warrants meet the definition of derivatives as
contemplated in ASC 815, the warrants are measured at fair value at inception
and at each reporting date, with changes in fair value recognized in the
statement of operations in the period of the change.
Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update 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 and amends the diluted earnings per share guidance,
including the requirement to use the if-converted method for all convertible
instruments. As an emerging growth company under the Jumpstart Our Business
Startups Act of 2012, the provisions of ASU 2020-06 are effective for Colicity
beginning on January 1, 2024 and should be applied on a full or modified
retrospective basis, with early adoption permitted beginning on January 1, 2021.
We are currently evaluating the impact of this standard on our financial
statements but do not expect the adoption of ASU 2020-06 to have a material
effect on our financial statements.
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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