References to "we", "us", "our" or the "Company" are to NextGen Acquisition
Corp. II, except where the context requires otherwise. The following discussion
should be read in conjunction with our unaudited condensed consolidated
financial statements and related notes thereto included elsewhere in this
report.
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 (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (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. Such statements include, but are not limited
to, possible business combinations, including our proposed Virgin Orbit Business
Combination, and the financing thereof, and related matters, as well as all
other statements other than statements of historical fact included in this
Quarterly Report on Form 10-Q. Factors that might cause or contribute to such a
discrepancy include, but are not limited to, those described in our other
Securities and Exchange Commission ("SEC") filings.
Overview
We are a blank check company incorporated as a Cayman Islands exempted company
on January 11, 2021. We were incorporated for the purpose of effecting a merger,
share exchange, asset acquisition, share purchase, reorganization or similar
business combination with one or more businesses ("Business Combination").
Our sponsor is NextGen Sponsor II LLC, a Cayman Islands limited liability
company (the "Sponsor"). The registration statement for our Initial Public
Offering was declared effective on March 22, 2021. On March 25, 2021, we
consummated its Initial Public Offering of 35,000,000 units (the "Units" and,
with respect to the Class A ordinary shares included in the Units being offered,
the "Public Shares"), at $10.00 per Unit, generating gross proceeds of $350.0
million, and incurring offering costs of approximately $19.7 million, of which
approximately $12.3 million was for deferred underwriting commissions. We
granted the underwriter a 45-day option to purchase up to an additional
5,250,000 Units at the Initial Public Offering price to cover over-allotments,
if any. On April 9, 2021, the Underwriters partially exercised the
over-allotment option and on April 13, 2021, purchased an additional 3,259,457
Units (the "Over-Allotment Units"), generating gross proceeds of $32,594,570,
and forfeited the remainder of the option.
Simultaneously with the closing of the Initial Public Offering, we consummated
the private placement ("Private Placement") of 6,333,333 warrants (each, a
"Private Placement Warrant" and collectively, the "Private Placement Warrants"),
at a price of $1.50 per Private Placement Warrant with the Sponsor, generating
gross proceeds of $9.5 million. In connection with the Underwriters' partial
exercise of their over-allotment option, the Sponsor purchased an additional
434,594 Private Placement Warrants (the "Additional Private Placement
Warrants"), generating gross proceeds to the Company of approximately $651,891.
Upon the closing of the Initial Public Offering and the Private Placement,
$350.0 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") with Continental Stock Transfer & Trust Company
acting as trustee and invested in United States 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. In connection with the
closing and sale of the Over-Allotment Units and the Additional Private
Placement Warrants (together, the "Over-Allotment Closing"), a total of
$32,594,570 in proceeds from the Over-Allotment Closing (which amount includes
$1,140,810 of the Underwriters' deferred discount) was placed in the Trust
Account.
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Our management has broad discretion with respect to the specific application of
the net proceeds of its 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. Our initial
Business Combination must be with one or more operating businesses or assets
with a fair market value equal to at least 80% of the net assets held in the
Trust Account (excluding the amount of any deferred underwriting commissions and
taxes payable on the income earned on the Trust Account) at the time we sign a
definitive agreement in connection with the initial Business Combination.
However, we will only complete a Business Combination if the post-transaction
company owns or acquires 50% or more of the outstanding 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.
If we are unable to complete a Business Combination within 24 months from the
closing of the Initial Public Offering, or March 25, 2023, we will (i) cease all
operations except for the purpose of winding up; (2) as promptly as reasonably
possible but not more than 10 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 (less up to $100,000 of
interest to pay dissolution expenses and which interest shall be net of taxes
payable), divided by the number of then issued and outstanding Public Shares,
which redemption will completely extinguish Public Shareholders' rights as
shareholders (including the right to receive further liquidating distributions,
if any); and (3) as promptly as reasonably possible following such redemption,
subject to the approval of the remaining shareholders and the board of
directors, liquidate and dissolve, subject in each case to our obligations under
Cayman Islands law to provide for claims of creditors and the requirements of
other applicable law.
Restatement of Previously Issued Financial Statements
In preparation of our unaudited condensed consolidated financial statements as
of and for quarterly period ended September 30, 2021, we concluded we should
restate our previously issued financial statements to classify all Class A
ordinary shares subject to possible redemption in temporary equity. In
accordance with the SEC and its staff's guidance on redeemable equity
instruments, ASC 480-10-S99, redemption provisions not solely within our control
require ordinary shares subject to redemption to be classified outside of
permanent equity. We had previously classified a portion of its Class A ordinary
shares in permanent equity. Although we did not specify maximum redemption
threshold, our amended and stated memorandum and articles of association
currently provides that, we will not redeem our public shares in an amount that
would cause our net tangible assets to be less than $5,000,001. As a result, we
restated our previously filed financial statements to present all redeemable
Class A ordinary shares as temporary equity and to recognize accretion from the
initial book value to redemption value at the time of our Initial Public
Offering (including exercise of the over-allotment option). Our previously filed
financial statements that contained the error were reported in the Form 8-K
filed with the SEC on March 31, 2021 (the "Post-IPO Balance Sheet") and the Form
10-Qs for the quarterly periods ended March 31, 2021 and June 30, 2021 (the
"Affected Quarterly Periods").
Liquidity and Going Concern
As of September 30, 2021, the Company had approximately $3,000 in its operating
bank account and a working capital deficit of approximately $372,000.
To date, the Company's liquidity needs were satisfied through a payment of
$25,000 from the Sponsor in exchange for the issuance of the Founder Shares (as
defined below), the loan under the promissory note from the Sponsor of $300,000
(see Note 5) to the Company and the net proceeds from the consummation of the
Private Placement not held in the Trust Account. The Company fully repaid the
promissory note upon closing of the Initial Public Offering. In addition, in
order to finance transaction costs in connection with a Business Combination,
the Company's officers, directors and Initial Shareholders may, but are not
obligated to, provide the Company Working Capital Loans (see Note 5).
On August 12, 2021, the Company issued a promissory note, pursuant to which the
Company may borrow up to an aggregate principal amount of $1,500,000. The
promissory note is non-interest bearing and payable on the earlier of (i) March
25, 2023 and (ii) the effective date of a merger, amalgamation, share exchange,
asset acquisition, share purchase, reorganization or similar business
combination. As of September 30, 2021, there was $770,000 outstanding under the
promissory note.
In connection with the Company's assessment of going concern considerations in
accordance with Financial Accounting Standard Board's Accounting Standards
Updated ("ASU") 2014-15, "Disclosure of Uncertainties about an Entity's Ability
to Continue as a Going Concern", management has determined that the Company does
not have sufficient liquidity to meet its obligations in the next fourteen
months. However, management has determined that it has access to funds from the
Company's Sponsor that are sufficient to fund our working capital needs until
the earlier of the consummation of a Business Combination or a minimum one year
from the date of issuance of these financial statements.
Management continues to evaluate the impact of the COVID-19 pandemic 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 these financial statement. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Proposed Virgin Orbit Business Combination
On August 22, 2021, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement"), with Pulsar Merger Sub, Inc., a Delaware corporation
and a direct wholly owned subsidiary of the Company ("Merger Sub"), and Vieco
USA, Inc., a Delaware corporation ("Vieco USA").
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The Merger Agreement provides that, among other things and upon the terms and
subject to the conditions thereof, the following transactions will occur
(together with the other agreements and transactions contemplated by the Merger
Agreement, the "Virgin Orbit Business Combination"):
(i) at the closing of the transactions contemplated by the Merger Agreement (the
"Closing"), upon the terms and subject to the conditions of the Merger Agreement
and in accordance with the Delaware General Corporation Law, Merger Sub will
merge with and into Vieco USA, the separate corporate existence of Merger Sub
will cease and Vieco USA will be the surviving corporation and a wholly owned
subsidiary of the Company (the "Merger");
(ii) in the event that the Vieco Cash Election (as defined below) is not
exercised, as a result of the Merger, among other things, each share of common
stock of Vieco USA that is issued and outstanding immediately prior to the
effective time of the Merger (the "Effective Time") (other than in respect of
Excluded Shares (as defined in the Merger Agreement)) will be cancelled and
converted into the right to receive a number of shares of common stock, par
value $0.0001 per share, of Virgin Orbit Holdings, Inc. ("Virgin Orbit Common
Stock") equal to the Exchange Ratio (as defined in the Merger Agreement) (the
"Stock Consideration");
(iii) in the event the amount of cash available in the Trust Account (as defined
below), after deducting any redemptions by the Company's shareholders, plus the
PIPE Investment Amount (as defined in the Merger Agreement) exceeds $500,000,000
(such excess amount, the "Available Cash Consideration Amount"), then Vieco USA
may, prior to the Election Deadline (as defined in the Merger Agreement), elect
that holders of common stock of Vieco USA receive in exchange for shares of
common stock of Vieco USA a portion of the consideration payable under the
Merger Agreement in cash, in lieu of shares of Virgin Orbit Common Stock, up to
the amount of the Available Cash Consideration Amount (the "Vieco Cash Election"
and, such amount of cash consideration, the "Cash Consideration"). If the Vieco
Cash Election is exercised by Vieco USA prior to the Election Deadline, then at
the Effective Time, each share of common stock of Vieco USA that is issued and
outstanding immediately prior to the Effective Time (other than in respect of
Excluded Shares) will be cancelled and converted into the right to receive (a)
the applicable portion of the Cash Consideration and (b) the applicable portion
of the Stock Consideration, as reduced to account for the Cash Consideration;
(iv) the Company will change its jurisdiction of incorporation by deregistering
as an exempted company in the Cayman Islands and continuing and domesticating as
a corporation incorporated under the laws of the State of Delaware and change
its name to "Virgin Orbit Holdings, Inc."
The board of directors of the Company has unanimously (i) approved and declared
advisable the Merger Agreement, the Virgin Orbit Business Combination and the
other transactions contemplated thereby and (ii) resolved to recommend approval
of the Merger Agreement and related matters by the shareholders of the Company.
Concurrently with the execution of the Merger Agreement, the Company entered
into initial subscription agreements (the "Initial Subscription Agreements")
with certain investors (collectively, the "Initial PIPE Investors"), pursuant
to, and on the terms and subject to the conditions of which, the PIPE Investors
have collectively subscribed for 10,000,000 shares of the Virgin Orbit Common
Stock for an aggregate purchase price equal to $100,000,000 (the "Initial PIPE
Investment"), a portion of which is expected to be funded by one or more
affiliates of the Sponsor and certain additional investors (which may include
mutual funds and existing shareholders of the Company). Under the Merger
Agreement, the Company may enter into subsequent subscription agreements
(together with the Initial Subscription Agreements, the "Subscription
Agreements") with certain investors (collectively with the Initial PIPE
Investors, the "PIPE Investors") on substantially similar terms to the Initial
Subscription Agreements, subject to the consent of Vieco USA (any such
subsequent investments, together with the Initial PIPE Investment, the "PIPE
Investment"). The PIPE Investment will be consummated substantially concurrently
with the Closing.
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The consummation of the proposed Virgin Orbit Business Combination is subject to
certain conditions as further described in the Merger Agreement.
For further details on the contemplated merger, please see the Form 8-K filed
with the SEC on August 23, 2021, and the prospectus/proxy statement included in
the Registration Statement on Form S-4 that the Company has filed with the SEC
relating to the proposed Virgin Orbit Business Combination (the "Virgin Orbit
Disclosure Statement"). Unless specifically stated, this Quarterly Report does
not give effect to the proposed Virgin Orbit Business Combination and does not
contain the risks associated with the proposed Virgin Orbit Business
Combination. Such risks and effects relating to the proposed Virgin Orbit
Business Combination is included in the Virgin Orbit Disclosure Statement.
Results of Operations
Our entire activity from January 11, 2021 (inception) through March 22, 2021,
was in preparation for the Initial Public Offering, and since our Initial Public
Offering, our activity has been limited to the search for a prospective initial
Business Combination. We will not generate any operating revenues until the
closing and completion of our initial Business Combination.
For the three months ended September 30, 2021, we had a net gain of
approximately $11.3 million which consisted of approximately $12.5 million from
change in fair value of warrant liabilities, approximately $5,000 gain on
investment held in Trust Account, which was offset by approximately $1.2 million
general and administrative expense and $60,000 of related party administrative
fees.
For the period from January 11, 2021 (inception) through September 30, 2021, we
had a net loss of approximately $6.8 million which consisted of approximately
$2.5 million general and administrative expense and approximately $140,000 of
related party administrative fees, approximately $9,000 of loss upon issuance of
private placement warrants, approximately $3.5 million loss from change in fair
value of warrant liabilities and approximately $606,000 of offering costs -
derivative warrant liabilities, which was partially offset by approximately
$20,000 gain on investment held in Trust Account.
Contractual Obligations
Registration and Shareholder Rights
The holders of the Founder Shares, Private Placement Warrants and any warrants
that may be issued upon conversion of Working Capital Loans (and any Class A
ordinary shares issuable upon the exercise of the Private Placement Warrants or
warrants issued upon conversion of the Working Capital Loans and upon conversion
of the Founder Shares) are entitled to registration rights pursuant to a
registration and shareholder rights agreement signed upon the effective date 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.
Underwriting Agreement
The underwriters were entitled to an underwriting discount of $0.20 per unit, or
$7.0 million in the aggregate, paid upon the closing of the Initial Public
Offering. In addition, $0.35 per unit, or approximately $12.3 million 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 the Company completes
a Business Combination, subject to the terms of the underwriting agreement.
In connection with the Over-Allotment Closing on April 13, 2021, the
underwriters were entitled to an additional fee of $651,891 paid upon closing,
and $1,140,810 in deferred underwriting commissions.
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Critical Accounting Policies and Estimates
This management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
accordance with U.S. GAAP. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and the disclosure of contingent
assets and liabilities in our financial statements. On an ongoing basis, we
evaluate our estimates and judgments, including those related to fair value of
financial instruments and accrued expenses. We base our estimates on historical
experience, known trends and events and various other factors that we believe to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. We have identified the
following as our critical accounting policies:
Class A Ordinary Shares subject to possible redemption
We account for our Class A ordinary shares subject to possible redemption in
accordance with the guidance in ASC Topic 480 "Distinguishing Liabilities from
Equity." Class A ordinary shares subject to mandatory redemption (if any) are
classified as liability instruments and are measured at fair value.
Conditionally redeemable Class A ordinary shares (including Class A ordinary
shares 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, Class A ordinary shares are classified as shareholders' equity. Our Class
A ordinary shares 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 the Initial Public Offering (including exercise of the
over-allotment option), 38,259,457 Class A ordinary shares subject to possible
redemption are presented as temporary equity, outside of the shareholders'
equity section of our condensed consolidated balance sheet.
Effective with the closing of the Initial Public Offering (including exercise of
the over-allotment option), 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.
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 7,651,891 warrants to purchase Class A ordinary shares to investors in
our Initial Public Offering and issued 6,767,927 Private Placement Warrants
including over-allotment. All of our outstanding warrants are recognized as
derivative liabilities in accordance with ASC 815-40. Accordingly, we recognized
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 our statements of operations. The fair value of
warrants issued by us in connection with the Initial Public Offering and Private
Placement has been estimated using Monte-Carlo simulations at each measurement
date.
Recent Accounting Pronouncements
Our management does not believe that any other recently issued, but not yet
effective, accounting standards if currently adopted would have a material
effect on the accompanying financial statements.
Off-Balance Sheet Arrangements
As of September 30, 2021, 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.
JOBS Act
On April 5, 2012, the JOBS Act was signed into law. 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 such, our financial statements may not be
comparable to companies that comply with public company effective dates.
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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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