The following discussion and analysis of the Company's financial condition and
results of operations of Signal Hill Acquisition Corp. (the "Company") should be
read in conjunction with the financial statements and the notes thereto
contained elsewhere in this report (the "Quarterly Report"). Certain information
contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report includes forward-looking statements. 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. 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. We have
based these forward-looking statements on our current expectations and
projections about future events. 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. Factors
that might cause or contribute to such a discrepancy include, but are not
limited to, those described in the Risk Factors section of our final prospectus
for our IPO (as defined below) and in our other Securities and Exchange
Commission ("SEC") filings. Except as expressly required by applicable
securities law, we disclaim any intention or obligation to update or revise any
forward-looking statements whether as a result of new information, future events
or otherwise.
Overview
We are a blank check company recently incorporated as a Delaware corporation
whose business purpose is to effect a merger, capital stock exchange, asset
acquisition, stock purchase, reorganization or other similar business
combination with one or more businesses, which we refer to throughout this
Annual Report as our initial business combination. We have not selected any
specific business combination target and we have not, nor has anyone on our
behalf, initiated any substantive discussions, directly or indirectly, with any
business combination target with respect to an initial business combination with
us.
On February 15, 2022, we consummated our initial public offering (the "IPO") of
10,000,000 units (the "Units"). Each Unit consists of one share of the Company's
Class A common stock, par value $0.0001 per share, and one-half of one
redeemable public warrant of the Company, with each whole public warrant
entitling the holder thereof to purchase one whole share of Class A common stock
at a price of $11.50 per share, subject to adjustment as provided in our
registration statement on Form S-1, initially filed with the Securities and
Exchange Commission on January 6, 2022, as later amended (File No. 333-262042).
The Units were sold at a price of $10.00 per unit, generating gross proceeds to
the Company of $100,000,000.
Simultaneously with the closing of the IPO and in a second closing on
February 28, 2022, we completed the private sale of an aggregate of 6,000,000
private placement warrants to the sponsor and certain initial stockholders,
generating gross proceeds to the Company of $6,000,000.
The net proceeds from the IPO, together with certain of the proceeds from the
private sale of the private placement warrants, $102,000,000 in the aggregate,
were placed in a U.S.-based trust account maintained by Continental Stock
Transfer & Trust Company, acting as trustee.
None of the funds held in trust will be released from the trust account, other
than interest income to pay any tax obligations until the earlier of (i) our
consummation of our initial business combination, and then only in connection
with those shares of common stock that such stockholder properly elected to
redeem, subject to the limitations described herein, (ii) the redemption of our
public shares if we are unable to consummate our initial business combination
within 15 months, or up to 21 months if an extension is properly effected, as
described below, after the closing of the IPO, or (iii) if we seek to amend our
certificate of incorporation to affect the substance or timing of our obligation
to redeem all public shares if we cannot complete an initial business
combination within 15 months, or up to 21 months if an extension is properly
effected, as described below, after the closing of the IPO, and such amendment
is duly approved.
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If the Company is unable to complete a Business Combination within 15 months
from the closing of the IPO, the Company may, by resolution of its board if
requested by its sponsor, extend the period of time to consummate a Business
Combination up to two times, each by an additional three months (for a total of
up to 21 months from the closing of the IPO), subject to the sponsor depositing
additional funds into the Trust Account as set out below. Public stockholders,
in this situation, will not be offered the opportunity to vote on or redeem
their shares in connection with such extensions. Pursuant to the terms of the
Company's second amended and restated certificate of incorporation and the trust
agreement, in order for the time available for the Company to consummate the
Business Combination to be extended, the sponsor or its affiliates or designees,
upon five business days advance notice prior to the applicable deadline, must
deposit into the trust account $1,000,000 ($0.10 per public share), on or prior
to the date of the applicable deadline, for each of the available three-month
extensions, providing a total possible Business Combination period of up to 21
months at a total payment value of $2,000,000 ($0.20 per share). Any such
payments would be made in the form of non-interest bearing loans. If the Company
completes a Business Combination, it will, at the option of the sponsor, repay
such loaned amounts out of the proceeds of the Trust Account released to the
Company or convert a portion or all of the total loan amount into warrants at a
price of $1.00 per warrant, which warrants will be identical to the private
placement warrants. If the Company does not complete a Business Combination, it
will repay such loans only from funds held outside of the Trust Account.
Furthermore, the letter agreement with the Company's initial stockholders
contains a provision pursuant to which the sponsor has agreed to waive its right
to be repaid for such loans to the extent there is insufficient funds held
outside of the Trust Account in the event that the Company does not complete a
Business Combination. The sponsor and its affiliates or designees are not
obligated to fund the Trust Account to extend the time for the Company to
complete a Business Combination. In the event the Company receives notice from
the sponsor five days prior to the applicable deadline of their intent to effect
an extension, the Company intends to issue a press release announcing such
intention at least three days prior to the applicable deadline. In addition, the
Company intends to issue a press release the day after the applicable deadline
announcing whether or not the funds had been timely deposited.
While we may pursue an initial business combination target in any industry or
geographic region, we intend to focus on direct-to-consumer media, technology,
emerging digital enterprise sectors focused businesses that have an aggregate
enterprise value of approximately $550 million to $1.2 billion and would benefit
from access to public markets and the operational and strategic expertise of our
management team and board of directors. We will seek to capitalize on the
significant experience of our management team in consummating an initial
business combination with the ultimate goal of pursuing attractive returns for
our stockholders.
As indicated in the accompanying financial statements, at June 30, 2022, we had
$663,859 in cash and working capital of $975,576. Further, we expect to continue
to incur significant costs in the pursuit of our initial business combination
plans. We cannot assure you that our plans to raise capital or to complete our
initial business combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities since inception have been organizational activities and
those necessary to prepare for our IPO. Following this the IPO, we will not
generate any operating revenues until after completion of our initial business
combination. We will generate non-operating income in the form of interest
income on cash and cash equivalents after the IPO. There has been no significant
change in our financial or trading position and no material adverse change has
occurred since the date of our financial statements. After the IPO, 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 expenses as
we conduct due diligence on prospective business combination candidates. We
expect our expenses to increase substantially after the closing of the IPO.
For the three months ended June 30, 2022, we had net income of $493,554, which
consisted of formation and operating costs of $142,738, franchise taxes of
$50,000, offset by other income of $686,292 which was primarily comprised of a
gain of $603,284 related to the change in fair value of the overallotment
liability and $83,057 of interest income on investments held in trust account.
For the six months ended June 30, 2022, we had net income of $309,105, which
consisted of formation and operating costs of $310,857, franchise taxes of
$100,000, offset by other income of $719,962 which was primarily comprised of a
gain of $603,284 related to the change in fair value of the overallotment
liability and $133,707 of interest income on investments held in trust account.
Liquidity and Capital Resources
At June 30, 2022, the Company had $663,859 of cash and working capital of
$975,576.
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Management has determined that the possibility that the Company may be
unsuccessful in consummating an initial Business Combination within 15 months
(or up to 21 months if the Company extends the period of time to consummate a
business combination for total payment value of $2,000,000) from the closing of
the IPO, and thereby be required to cease all operations, redeem the public
shares and thereafter liquidate and dissolve, raises substantial doubt about the
ability to continue as a going concern for at least one year from the date these
financial statements are issued. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty. Management
has determined that the Company has funds that are sufficient to fund the
working capital needs of the Company until the consummation of an initial
Business Combination or the winding up of the Company as stipulated in the
Company's second amended and restated certificate of incorporation. The
accompanying financial statements have been prepared in conformity with U.S.
GAAP, which contemplate continuation of the Company as a going concern and the
realization of assets and satisfaction of liabilities in the normal course of
business. The carrying amounts of assets and liabilities presented in the
financial statements do not necessarily purport to represent realizable or
settlement values. The financial statements do not include any adjustment that
might result from the outcome of this uncertainty.
For the six months ended June 30, 2022, cash used in operating activities was
$623,914, which was attributable to cash used to fund the net income of
$309,105, adjusted for net non-cash income of $720,480, and $212,539 of cash
used to fund changes in the levels of operating assets and liabilities. For the
period from February 18, 2021 (inception) through June 30, 2021, which was
attributable to cash used to fund the net loss of $395, partially offset by $370
of cash provided by changes in the levels of operating assets and liabilities.
For the six months ended June 30, 2022, cash used in investing activities was
$102,000,000, which was attributable to the investment of cash in the Trust
Account. For the period from February 18, 2021 (inception) through June 30,
2021, there was no net cash provided by investing activities.
For the six months ended June 30, 2022, cash provided by financing activities
was $103,286,603, which was primarily attributable to proceeds of $106,000,000
from the IPO and private placement, partially offset by the payment of offering
costs of $2,678,397 and the net repayment of a note payable to the Company's
chief financial officer in the amount of $35,000. For the period from
February 18, 2021 (inception) through June 30, 2021, there was $9,550 of cash
provided by financing activities, which was attributable to $25,000 of proceeds
from the issuance of founder shares to the sponsor, partially offset by the
payment of offering costs of $15,450.
On February 15, 2022, we consummated our initial public offering (the "IPO") of
10,000,000 units (the "Units"). Each Unit consists of one share of the Company's
Class A common stock, par value $0.0001 per share, and one-half of one
redeemable public warrant of the Company, with each whole public warrant
entitling the holder thereof to purchase one whole share of Class A common stock
at a price of $11.50 per share, subject to adjustment as provided in our
registration statement on Form S-1, initially filed with the Securities and
Exchange Commission on January 6, 2022, as later amended (File No. 333-262042).
The Units were sold at a price of $10.00 per unit, generating gross proceeds to
the Company of $100,000,000.
Simultaneously with the closing of the IPO and in a second closing on
February 28, 2022, we completed the private sale of an aggregate of 6,000,000
private placement warrants to the sponsor and certain initial stockholders,
generating gross proceeds to the Company of $6,000,000.
The net proceeds from the IPO, together with certain of the proceeds from the
private sale of the private placement warrants, $102,000,000 in the aggregate,
were placed in a U.S.-based trust account maintained by Continental Stock
Transfer & Trust Company, acting as trustee. We intend to use substantially all
of the funds held in the trust account, including any amounts representing
interest earned on the trust account to complete our initial business
combination. We may withdraw interest to pay franchise and income taxes. We
estimate our annual franchise tax obligations, based on the number of shares of
our common stock authorized and outstanding after the completion of the
offering, to be $200,000, which is the maximum amount of annual franchise taxes
payable by us as a Delaware corporation per annum, which we may pay from funds
from the offering held outside of the trust account or from interest earned on
the funds held in our trust account and released to us for this purpose. Our
annual income tax obligations will depend on the amount of interest and other
income earned on the amounts held in the trust account. We expect the interest
earned on the amount in the trust account will be sufficient to pay our income
taxes. 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. Further, we have incurred and
expect to continue to incur significant costs in pursuit of our acquisition
plans. We cannot assure you that our plans to raise capital or to consummate an
initial business combination will be successful.
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Our operating needs include funds 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 an initial business combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with an intended initial 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 our initial
business combination, we would repay such loaned amounts. In the event that our
initial 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 working capital loans may be convertible into private
placement-equivalent warrants at a price of $1.00 per warrant, at the option of
the lender. Such warrants would be identical to the private placement warrants,
including as to exercise price, exercisability and exercise period. The terms of
such working capital loans by our sponsor or its affiliates, or our officers and
directors, if any, have not been determined and no written agreements exist with
respect to such loans. We do not expect to seek loans from parties other than
our sponsor or an affiliate of our sponsor as we do not believe third parties
will be willing to loan such funds and provide a waiver against any and all
rights to seek access to funds in our trust account.
We do not believe we will need to raise additional funds following this offering
in order to meet the expenditures required for operating our business. However,
if our estimates 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 completion of our initial business
combination, in which case we may issue additional securities or incur debt in
connection with such business combination. In addition, we intend to target
businesses larger than we could acquire with the net proceeds of this offering
and the sale of the private placement warrants, and may as a result be required
to seek additional financing to complete such proposed 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.
Off-Balance Sheet Arrangements
As of June 30, 2022, we did not have any off-balance sheet arrangements.
Contractual Obligations
At June 30, 2022, we did not have any long-term debt, capital lease obligations,
operating lease obligations, long-term liabilities, commitments or contractual
obligations.
Administrative Support Agreement
Commencing on February 10, 2022, we have agreed to pay an affiliate of our
sponsor a total of $10,000 per month for office space, utilities and secretarial
and administrative support. Upon completion of our initial business combination
or our liquidation, we will cease paying these monthly fees.
Registration Rights
The holders of our founder shares, private placement warrants and warrants that
may be issued upon conversion of working capital loans (and any shares of common
stock 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
rights agreement signed on the effective date of the IPO requiring the Company
to register such securities for resale (in the case of the Founder Shares, only
after conversion to shares of Class A common stock). The holders of these
securities will be entitled to make up to three demands, excluding short form
registration demands, that the Company register such securities. In addition,
the holders have certain "piggy-back" registration rights with respect to
registration statements filed subsequent to completion of our initial business
combination
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and rights to require the Company to register for resale such securities
pursuant to Rule 415 under the Securities Act. However, the registration rights
agreement provides that the Company will not be required to effect or permit any
registration or cause any registration statement to become effective until the
securities covered thereby are released from their lock-up restrictions. The
Company will bear the expenses incurred in connection with the filing of any
such registration statements.
Underwriting Agreement
The Company granted the underwriter a 45-day option from the date of the IPO to
purchase up to 1,500,000 additional Units to cover over-allotments, if any, at
the IPO price less the underwriting discounts and commissions. On April 2, 2022,
the overallotment option expired unexercised.
Business Combination Marketing Agreement
The Company will engage B. Riley as advisors in connection with its initial
business combination to assist it in arranging meetings with its stockholders to
discuss a potential business combination and the target business' attributes,
introduce it to potential investors that may be interested in purchasing its
securities, assist it in obtaining stockholder approval for its initial business
combination and assist it with the preparation of press releases and public
filings in connection with the initial business combination. The Company will
pay B. Riley for such services upon the consummation of the Company's initial
business combination a cash fee in an amount equal to 3.5% of the gross proceeds
of the IPO (exclusive of any applicable finders' fees which might become
payable), or $3,500,000. Pursuant to the terms of the business combination
marketing agreement, no fee will be due if the Company does not complete an
initial business combination. The Company determined in accordance with ASC
450-20 that the fee shall be accrued in full at the time of the consummation of
the initial business combination as it determined that, at that point in time,
the fee is probable and estimable, there is no material future service
requirement nor is there any risk of forfeiture.
Critical Accounting Estimates
The preparation of financial statements and related disclosures must be in
conformity with U.S. GAAP. These accounting principles require us to make
estimates and judgments that can affect the reported amounts of assets and
liabilities as of the date of the financial statements as well as the reported
amounts of revenue and expense during the periods presented. We believe that the
estimates and judgments upon which it relies are reasonably based upon
information available to us at the time that it makes these estimates and
judgments. To the extent that there are material differences between these
estimates and actual results, our financial results will be affected. The
accounting policies that reflect our more significant estimates and judgments
and which we believe are the most critical to aid in fully understanding and
evaluating our reported financial results are described below.
The following is not intended to be a comprehensive list of all of our
accounting policies or estimates. Our accounting policies are more fully
described in Note 2 - Summary of Significant Accounting Policies, in our
financial statements included in this Quarterly Report.
Shares Subject to Possible Redemption
The Company accounts for shares subject to possible redemption in accordance
with the guidance in ASC 480, Distinguishing Liabilities from Equity. Shares
subject to mandatory redemption are classified as liability instruments and are
measured at fair value. Conditionally redeemable shares (including 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
the Company's control) are classified within temporary equity. Changes in
redemption value are reflected in additional paid in capital or, in the absence
of additional capital, in accumulated deficit. At all other times, shares are
classified within shareholders' equity. Accordingly, at June 30, 2022, Class A
Common Stock subject to possible redemption are presented at redemption value as
temporary equity, outside of stockholders' deficiency on the Company's balance
sheet.
Under ASC 480-10-S99, the Company recognizes changes in the redemption value
immediately as they occur and adjusts the carrying value of the security to
equal the redemption value at the end of each reporting period. This method
views the end of the reporting period as if it were also the redemption date for
the security.
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Offering Costs
The Company's accounting for offering costs complies with the requirements of
the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin ("SAB") Topic
5A-"Expenses of Offering." Offering costs consist of underwriting, legal,
accounting and other cash expenses incurred through the closing of the IPO that
are directly related to the IPO. In addition, the fair value of shares of Class
B common stock that were issued to investors in the private placement were
determined to be offering costs, which is described in Note 4. Offering costs
are allocated to the separable financial instruments on a relative fair value
basis compared to total proceeds received. Offering costs related to the IPO
amounted to $2,736,847 which were allocated to the Class A Common Stock
(temporary equity), overallotment liability (recognized as expense immediately)
and public warrants (stockholders' equity) and recognized upon the completion of
the IPO. Offering costs related to the private placement amounted to $7,483,893
which represented the estimated fair value of Class B common stock to be
transferred to investors in the offering and, accordingly, the offering costs
were recognized by debiting and crediting additional paid-in capital upon the
completion of the offering.
Warrants and Overallotment Liability
The Company evaluates the public warrants, private placement warrants and
overallotment option as either equity-classified or liability-classified
instruments based on an assessment of the specific terms of the instrument and
applicable authoritative guidance in ASC 480, Distinguishing Liabilities from
Equity ("ASC 480") and ASC 815, Derivatives and Hedging ("ASC 815"). The
assessment considers whether the instrument is freestanding financial
instruments pursuant to ASC 480, meets the definition of a liability pursuant to
ASC 480, and whether the instrument meets all of the requirements for equity
classification under ASC 815, including whether the instrument is indexed to the
Company's own common stock, among other conditions for equity classification.
Pursuant to such evaluation, both public and private placement warrants are
classified in stockholders' equity and the overallotment option is classified as
a current liability and, accordingly, was measured at fair value upon issuance
and will be remeasured at each balance sheet date thereafter, with changes in
the estimated fair value recognized through earnings.
Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 2020-06, Debt - Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in
Entity's Own Equity (Subtopic 815-40) ("ASU 2020-06") to simplify certain
financial instruments. ASU 2020-06 eliminates the current models that require
separation of beneficial conversion and cash conversion features from
convertible instruments and simplifies the derivative scope exception guidance
pertaining to equity classification of contracts in an entity's own equity. The
new standard also introduces additional disclosures for convertible debt and
freestanding instruments that are indexed to and settled in an entity's own
equity. ASU 2020-06 amends the diluted earnings per share guidance, including
the requirement to use the if-converted method for all convertible instruments.
ASU 2020-06 is for fiscal years beginning after December 15, 2021 and should be
applied on a full or modified retrospective basis. Early adoption is permitted,
but no earlier than fiscal years beginning after December 15, 2020, including
interim periods within those fiscal years. The Company adopted
ASU 2020-06 effective January 1, 2022. The adoption of ASU 2020-06 did not have
a material impact on the Company's condensed financial statements.
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on the
Company's financial statements.
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SIGNAL HILL ACQUISITION CORP. 