References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Epiphany Technology Acquisition Corp. References to our
"management" or our "management team" refer to our officers and directors,
references to the "Sponsor" refer to Epiphany Technology Sponsor LLC. The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the 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.
Special 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 Securities Exchange Act of 1934, as amended (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 in
this "Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's financial position, business strategy and
the plans and objectives of management for future operations, are
forward-looking statements. Words such as "expect," "believe," "anticipate,"
"intend," "estimate," "seek" and variations and similar words and expressions
are intended to identify such forward-looking statements. Such forward-looking
statements relate to future events or future performance, but reflect
management's current beliefs, based on information currently available. A number
of factors could cause actual events, performance or results to differ
materially from the events, performance and results discussed in the
forward-looking statements. For information identifying important factors that
could cause actual results to differ materially from those anticipated in the
forward-looking statements, please refer to the Risk Factors section of the
final prospectus for its initial public offering (the "Initial Public Offering")
filed with the U.S. Securities and Exchange Commission (the "SEC"). The
Company's securities filings can be accessed on the EDGAR section of the SEC's
website at www.sec.gov. Except as expressly required by applicable securities
law, the Company disclaims any intention or obligation to update or revise any
forward-looking statements whether as a result of new information, future events
or otherwise. In connection with the change in presentation for the Class A
common stock subject to redemption, the Company also revised its earnings per
share calculation to allocate net income (loss) evenly to Class A and Class B
common stock. This presentation contemplates a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses (the "Business Combination") as the most
likely outcome, in which case, both classes of common stock share pro rata in
the income (loss) of the Company.
Overview
We are a blank check company formed under the laws of the State of Delaware on
September 28, 2020 for the purpose of effecting a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or similar Business
Combination with one or more target businesses. We intend to effectuate our
initial Business Combination using cash from the proceeds of our Initial Public
Offering and the concurrent private placement, the proceeds of the sale of our
shares in connection with our initial Business Combination, shares issued to the
owners of the target, debt issued to bank or other lenders or the owners of the
target, or a combination of the foregoing.
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.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from inception through June 30, 2022 were organizational
activities, those necessary to prepare for the Initial Public Offering,
described below, and, subsequent to the Initial Public Offering, searching 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 investments held in the Trust Account.
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 three months ended June 30, 2022, we had net income of $3,726,765, which
consists of a change in the fair value warrant liabilities of $3,557,668 and
interest income on investments held in the Trust Account where the proceeds from
our Initial Public Offering were placed (the "Trust Account") of $574,248,
offset by operational costs of $316,473 and a provision for income taxes of
$88,678.
For the six months ended June 30, 2022, we had net income of $9,145,365, which
consists of a change in the fair value warrant liabilities of $9,167,834 and
interest income on investments held in the Trust Account of $641,742, offset by
operational costs of $575,533 and a provision for income taxes of $88,678.
For the three months ended June 30, 2021, we had a net loss of $4,094,328, which
consists of a change in the fair value warrant liabilities of $3,834,000 and
formation and operational costs of $278,283, offset by interest income on
investments held in the Trust Account of $17,955.
For the six months ended June 30, 2021, we had a net income of $2,894,846, which
consists of a change in the fair value warrant liabilities of $4,384,000 and
interest income on investments held in the Trust Account of $55,893, offset by
transaction costs allocable to warrants of $1,029,081 and formation and
operational costs of $515,966.
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Liquidity and Capital Resources
On January 12, 2021, we consummated the Initial Public Offering of 40,250,000
units (the "Units" and, with respect to the Class A common stock included in the
Units sold, the "Public Shares"), which included the full exercise by the
underwriters of their over-allotment option to purchase an additional 5,250,000
Units, at $10.00 per Unit, generating gross proceeds of $402,500,000.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 800,000 units (the "Placement Units") to the Sponsor and Cantor
Fitzgerald & Co. ("Cantor") at a price of $10.00 per Unit, generating gross
proceeds of $8,000,000.
Following the Initial Public Offering, the full exercise of the over-allotment
option and the sale of the Placement Units, a total of $402,500,000 was placed
in the Trust Account. We incurred $21,598,082 in transaction costs, including
$6,000,000 of underwriting fees, net of $1,000,000 reimbursed from the
underwriters, $15,137,500 of deferred underwriting fees and $460,582 of other
offering costs.
For the six months ended June 30, 2022, cash used in operating activities was
$684,090. Net income of $9,145,365 was affected by change in the fair value of
warrant liabilities of $9,167,834 and interest income on investments held in the
Trust Account of $641,742. Changes in operating assets and liabilities used
$19,879 of cash from operating activities.
For the six months ended June 30, 2021, cash used in operating activities was
$832,640. Net income of $2,894,846 was affected by changes in the fair value of
warrant liabilities of $4,384,000, interest earned on investments held in the
Trust Account of $55,893 and transaction costs allocable to warrants of
$1,029,081. Changes in operating assets and liabilities used $316,674 of cash
from operating activities.
As of June 30, 2022, we had cash and investments held in the Trust Account of
$402,975,192. Interest income on the balance in the Trust Account may be used by
us to pay taxes. During the six months ended June 30, 2022, we withdraw $280,136
of interest earned on the Trust Account to pay for our franchise tax
obligations. We intend to use substantially all of the funds held in the Trust
Account, including any amounts representing interest earned on the Trust Account
(less deferred underwriting commissions) to complete our initial Business
Combination. To the extent that our capital stock or debt is used, in whole or
in part, as consideration to complete our initial 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.
As of June 30, 2022, we had $108,599 of cash held outside of 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
would 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 units
identical to the Placement Units, at a price of $10.00 per unit at the option of
the lender. The units would be identical to the Placement Units.
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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 an initial 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 initial Business Combination. Moreover, we may
need to obtain additional financing either to complete our initial Business
Combination or because we become obligated to redeem a significant number of our
public shares upon consummation of our initial Business Combination, in which
case we may issue additional securities or incur debt in connection with such
initial Business Combination. Subject to compliance with applicable securities
laws, we would only complete such financing simultaneously with the completion
of our initial Business Combination. If we are unable to complete our initial
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 initial Business Combination, if cash on hand is insufficient, we
may need to obtain additional financing in order to meet our obligations.
Going Concern
We have until January 12, 2023 to consummate an initial Business Combination. It
is uncertain that we will be able to consummate an initial Business Combination
by this time. If an initial Business Combination is not consummated by this
date, there will be a mandatory liquidation and subsequent dissolution.
Management has determined that the mandatory liquidation, should an initial
Business Combination not occur, and potential subsequent dissolution raises
substantial doubt about our ability to continue as a going concern through the
liquidation date of January 12, 2023. No adjustments have been made to the
carrying amounts of assets or liabilities should we be required to liquidate
after January 12, 2023. In addition, we may need to raise additional capital
through loans or additional investments from its Sponsor, stockholders,
officers, directors or third parties. Our officers, directors and Sponsor may,
but are not obligated to, loan us funds, from time to time or at any time, in
whatever amount they deem reasonable in their sole discretion, to meet our
working capital needs. Accordingly, we may not be able to obtain additional
financing. If we are unable to raise additional capital, we may be required to
take additional measures to conserve liquidity, which could include, but not
necessarily be limited to, curtailing operations, suspending the pursuit of a
potential transaction, and reducing overhead expenses. We cannot provide any
assurance that new financing will be available to it on commercially acceptable
terms, if at all. These conditions raise substantial doubt about our ability to
continue as a going concern through the liquidation date of January 12, 2023.
Off-Balance
Sheet Arrangements
We did not have any
off-balance
sheet arrangements as of June 30, 2022.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay an
affiliate of our Sponsor a monthly fee of $15,000 for office space, utilities
and secretarial and administrative support. We began incurring these fees on
January 12, 2021 and will continue to incur these fees monthly until the earlier
of the completion of the initial Business Combination and our liquidation.
The underwriters are entitled to a deferred fee of (i) 3.5% of the gross
proceeds of the initial 35,000,000 units sold in our Initial Public Offering, or
$12,250,000, and (ii) 5.5% of the gross proceeds from the units sold pursuant to
the over-allotment option, or $2,887,500. 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 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 periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies.
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 Topic 815, "Derivatives and Hedging" ("ASC 815"). We account for our
warrants in accordance with the guidance contained in Accounting Standards
Codification
("ASC")815-40
under which the warrants that do not meet the criteria for equity treatment and
must be recorded as liabilities. Accordingly, we classify our warrants as
liabilities at their fair value and adjust the warrants to fair value at each
reporting period. This liability is subject tore-measurement at each balance
sheets date until exercised, and any change in fair value is recognized in our
statements of operations. The fair value of our private placement warrants was
determined using a binomial lattice model incorporating the
Cox-Ross-Rubenstein
methodology. The public warrants for periods where no observable traded price
was available are valued using a binomial lattice model incorporating the
Cox-Ross-Rubenstein
methodology. For periods subsequent to the detachment of the public warrants
from the Units, the public warrant quoted market price was used as the fair
value as of each relevant date.
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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 the Financial Accounting Standards Board's
("FASB") ASC Topic 480, "Distinguishing Liabilities from Equity." Shares of
Class A common stock subject to mandatory redemption, if any, are classified as
a liability instrument and are measured at fair value. Conditionally redeemable
common stock (including 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) 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' deficit section of our balance sheets. We recognize changes
in redemption value immediately as they occur and adjust 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.
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Net Income (Loss) Per share of Common Stock
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 share of Common Stock is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding for the period. Accretion associated with the redeemable shares of
Class A common stock is excluded from income (loss) Per share of Common Stock as
the redemption value approximates fair value.
Recent Accounting Standards
In August 2020, the FASB issued ASU No.
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):Accounting
for Convertible Instruments and Contracts in an Entity's Own Equity"
("ASU2020-06"),which
simplifies accounting for convertible instruments by removing major separation
models required under current
GAAP.ASU 2020-06
removes certain settlement conditions that are required for equity contracts to
qualify for the derivative scope exception and it also simplifies the diluted
earnings per share calculation in certain
areas. ASU2020-06
is effective for fiscal years beginning after December 15, 2023, including
interim periods within those fiscal years, with early adoption permitted. We are
currently evaluating the impact of adoption of
ASU2020-06.
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 condensed financial statements.
Factors That May Adversely Affect Our Results of Operations
Our results of operations and our ability to complete an initial Business
Combination may be adversely affected by various factors that could cause
economic uncertainty and volatility in the financial markets, many of which are
beyond our control. Our business could be impacted by, among other things,
downturns in the financial markets or in economic conditions, increases in oil
prices, inflation, increases in interest rates, supply chain disruptions,
declines in consumer confidence and spending, the ongoing effects of the
COVID-19 pandemic, including resurgences and the emergence of new variants, and
geopolitical instability, such as the military conflict in the Ukraine. We
cannot at this time fully predict the likelihood of one or more of the above
events, their duration or magnitude or the extent to which they may negatively
impact our business and our ability to complete an initial Business Combination.
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