SEC Form 10-Q/A filed by E.Merge Technology Acquisition Corp. (Amendment)
$ETAC
Consumer Electronics/Appliances
Industrials
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File
No. 001-39416
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices, including zip code)
(619 )736-6885
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
one-third of one Redeemable Warrant |
||||
| Warrants, each exercisable for one share Class A Common Stock for $11.50 per share |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 Yes ☒ No ☐
days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large, accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large, accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in
Rule 12b-2of
the Exchange Act. | Large, accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer |
☒ | Smaller reporting company | ||||
| Emerging growth company | ||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act): Yes
☐
As of January 18, 2022, there were
E.MERGE TECHNOLOGY ACQUISITION CORP.
Quarterly Report on
Form 10-Q
TABLE OF CONTENTS
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i
EXPLANATORY NOTE
10-Q/A
for the quarterly period ended September 30, 2021 (this “Quarterly Report”) to amend and restate certain terms in its Quarterly Report on Form 10-Q
for the quarterly period September 30, 2021 originally filed with the Securities and Exchange Commission (the “SEC”) on November 5, 2021 (the “Original Quarterly Report”).Background of Restatement
All of the shares held by the Company’s public stockholders (the “Public Shares”) contain a redemption feature which provides each holder of such shares with the opportunity to have their shares redeemed, and management has no control over which Public Shares will be redeemed. Accounting Standards Codification (“ASC”) provides that redemption provisions not solely within the control of the issuer require shares subject to redemption to be classified outside of permanent equity. Furthermore, ASC provides guidance stating that in determining if an instrument is mandatorily redeemable, a provision that defers redemption until a specified liquidity level is reached would not affect classification of the instrument. As such, management has identified errors made in the historical financial statements where, at the closing of the Company’s initial public offering, the Company improperly valued its Class A common stock subject to possible redemption. The Company previously determined the Class A common stock subject to possible redemption to be equal to the redemption value, while also taking into consideration a redemption cannot result in net tangible assets being less than $5,000,001. Management determined that the Public Shares can be redeemed or become redeemable subject to the occurrence of future events considered outside the Company’s control. Therefore, management concluded that the redemption value should include all Class A common stock subject to possible redemption, resulting in the Class A commons stock subject to possible redemption being equal to their redemption value. As a result, management has noted a reclassification adjustment related to temporary equity and permanent equity as of the initial public offering date and all subsequent reporting periods.
480-10-S99-3A
480-10-25-6(b)
In addition, in connection with the change in presentation for the Public Shares, the Company determined it should restate its earnings per share calculation to allocate income and losses shared pro rata between the two classes of common stock. This presentation contemplates a Business Combination as the most likely outcome, in which case, both classes of common stock share pro rata in the income and losses of the Company.
As a result, the Company’s management, together with the audit committee of the Company, determined that the Company’s financial statements and other financial data as of and for the three months ended March 31, 2021 and for the three and six months ended June 30, 2021 should be restated in the Form
10-Q/A
as a result of this error. The three months ended March 31, 2021 and the three and six months ended June 30, 2021 will be restated in Note 2 of this Form 10-Q/A.
These restatements result in a change in the initial carrying value of the Class A common stock subject to possible redemption with the offset recorded to additional paid-in
capital (to the extent available), accumulated deficit and Class A common stock. Further, there is no impact to the reported amounts for total assets, total liabilities, cash flows, or net income (loss) but earnings per share was impacted due to a change in presentation relating to the restatements. The financial information that has been previously filed or otherwise reported for this period is superseded by the information in this Form
10-Q/A,
and the financial statements and related financial information contained in the Original Quarterly Report should no longer be relied upon. On December 28, 2021, the Company filed a Current Report on Form 8-K
disclosing the non-reliance
on the financial statements included in the Original Quarterly Report. Internal Control Considerations
In connection with the restatement, management has
re-evaluated
the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting as of September 30, 2021. The Company’s management has concluded that, in light of the errors described above, and the filing of the Form 10-Q,
a material weakness exists in the Company’s internal control over financial reporting and that the Company’s disclosure controls and procedures were not effective. Management plans to enhance the system of evaluating and implementing the accounting standards that apply to our financial statements, including enhanced training of our personnel and increased communication among our personnel and third-party professionals with whom we consult regarding application of complex financial instruments. For a discussion of management’s consideration of our disclosure controls and procedures, internal controls over financial reporting, and the material weaknesses identified, see Part I, Item 4, “Controls and Procedures” of this Form 10-Q/A.
PART I – FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
E.MERGE TECHNOLOGY ACQUISITION CORP.
CONDENSED BALANCE SHEETS
September 30, 2021 |
December 31, 2020 |
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(Unaudited) |
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ASSETS |
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Current Assets |
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Cash |
$ | $ | ||||||
Prepaid expenses |
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Total Current Assets |
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Cash and investments held in Trust Account |
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TOTAL ASSETS |
$ |
$ |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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Current liabilities |
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Accounts payable and accrued expenses |
$ | $ | ||||||
Income taxes payable |
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Total Current Liabilities |
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Warrant liabilities |
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Deferred underwriting fee payable |
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Total Liabilities |
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Commitments and Contingencies |
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Class A common stock subject to possible redemption, $ $ par value; per share at redemption value as of September 30, 2021 and December 31, 2020 |
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Stockholders’ Deficit |
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Preferred Stock, $ |
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Class A common stock, $ |
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Class B common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
( |
) | ( |
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Total Stockholders’ Deficit |
( |
) |
( |
) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT |
$ |
$ |
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The accompanying notes are an integral part of the condensed financial statements.
1
E.MERGE TECHNOLOGY ACQUISITION CORP.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
For The Three Months Ended September 30, |
Nine months Ended September 30, |
For the Period from May 22, 2020 (Inception) through September 30, |
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2021 |
2020 |
2021 |
2020 |
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| General and administrative expenses |
$ | $ | $ | $ | ||||||||||||
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| Loss from operations |
( |
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| Other income (loss): |
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| Interest earned on investments held in Trust Account |
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| Change in fair value of warrant liabilitie s |
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| Transaction cost related to warrant liability |
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| Other income (loss), net |
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| Income before provision for income taxes |
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| Provision for income taxes |
( |
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) | ( |
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| Net income |
$ |
$ |
$ |
$ |
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| Weighted average shares outstanding of Class A common stock |
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| Basic and diluted net income per share, Class A common stock |
$ | $ | $ | $ | ||||||||||||
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| Weighted average shares outstanding of Class B common stock |
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| Basic and diluted net income per share, Class B common stock |
$ | $ | $ | $ | ||||||||||||
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The accompanying notes are an integral part of the condensed financial statements.
2
E.MERGE TECHNOLOGY ACQUISITION CORP.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(Unaudited) RESTATED
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
Class A Common Stock |
Class B Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Total Stockholders’ Deficit |
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Shares |
Amount |
Shares |
Amount |
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| Balance – January 1, 2021 |
$ |
$ |
$ |
— |
$ |
( |
) |
$ |
( |
) | ||||||||||||||||||
| Net income |
— | — | — | — | — |
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| Balance – March 31, 2021 (unaudited) – See Note 2 as restated |
$ |
$ |
$ |
— |
$ |
( |
) |
$ |
( |
) | ||||||||||||||||||
| Net (loss) |
— | — | — | — | — | ( |
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| Balance – June 30, 2021 (unaudited) – See Note 2 as restated |
$ |
$ |
$ |
— |
$ |
( |
) |
$ |
( |
) | ||||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
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| Balance – September 30, 2021 (unaudited) |
$ |
$ |
$ |
— |
$ |
( |
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$ |
( |
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FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020 AND FOR THE PERIOD FROM MAY 22, 2020 (INCEPTION) THROUGH SEPTEMBER 30, 2020 RESTATED
Class A Common Stock |
Class B Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Total Stockholders’ Equity (Deficit) |
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Shares |
Amount |
Shares |
Amount |
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| Balance – May 22, 2020 (Inception) |
$ | $ | $ | $ | $ | |||||||||||||||||||||||
| Issuance of Founder Shares to Sponsor |
— | — | — | |||||||||||||||||||||||||
| Net loss |
— | — | — | — | — | ( |
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| Balance – June 30, 2020 (unaudited) |
$ |
$ |
$ |
$ |
( |
) |
$ |
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| Sale of |
— | — | — | |||||||||||||||||||||||||
| Accretion for Class A co m mon stock to redemption amount |
— | — | — | — | ( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Forfeiture of Founder Shares |
— | — | ( |
) | ( |
) | — | — | ||||||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
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| Balance – September 30, 2020 (unaudited),—See Note 2 as restated |
$ |
$ |
$ |
$ |
( |
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$ |
( |
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The accompanying notes are an integral part of the condensed financial statements.
3
E.MERGE TECHNOLOGY ACQUISITION CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months Ended September 30, |
For the Period from May 22, 2020 (Inception) Through September 30, |
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2021 |
2020 |
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| Cash Flows from Operating Activities: |
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| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: |
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| Change in fair value of warrant liabilities |
( |
) | ( |
) | ||||
| Interest earned on investments held in Trust Account |
( |
) | ( |
) | ||||
| Transaction costs allocated to warrants |
— | |||||||
| Changes in operating assets and liabilities: |
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| Prepaid expenses |
( |
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| Accounts payable and accrued expenses |
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| Income taxes payable |
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| Net cash used in operating activities |
( |
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| Cash Flows from Investing Activities: |
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| Cash withdrawn from Trust Account to pay franchise and income taxes |
— | |||||||
| Investment of cash into trust Account |
— | ( |
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| Net cash provided by (used in) investing activities |
( |
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| Cash Flows from Financing Activities: |
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| Proceeds from promissory note—related party |
— | |||||||
| Payment of offering costs |
— | ( |
) | |||||
| Proceeds from sale of Units, net of underwriting discount paid |
— | |||||||
| Proceeds from sale of Placement Units |
— | |||||||
| Repayment of promissory note – related party |
( |
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| Net cash provided by Financing Activities |
— | |||||||
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| Net Change in Cash |
( |
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| Cash – Beginning of period |
— | |||||||
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| Cash – End of period |
$ |
$ |
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| Non-Cash Investing and Financing Activities: |
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| Offering costs paid by Sponsor in exchange for issuance of founder shares |
$ | — | $ | |||||
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| Deferred underwriting fee payable |
$ | — | $ | |||||
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The accompanying notes are an integral part of the condensed financial statements.
4
E.MERGE TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
E.Merge Technology Acquisition Corp. (the “Company”) was incorporated in Delaware on May 22, 2020. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”).
Although the Company is not limited to a particular industry or sector for purposes of consummating a Business Combination, the Company intends to focus its search on companies in the software and internet technology industries. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of September 30, 2021, the Company had not commenced any operations. All activity through September 30, 2021 relates to the Company’s formation, the initial public offering (“Initial Public Offering”), which is described below, and, subsequent to the Initial Public Offering, searching and identifying a target company for a Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company generates
non-operating
income in the form of interest income from the proceeds derived from the Initial Public Offering. The registration statement for the Company’s Initial Public Offering was declared effective on July 30, 2020. On August 4, 2020, the Company consummated the Initial Public Offering of 52,200,000 units (the “Units” and, with respect to the shares of Class A common stock included in the Units sold, the “Public Shares”), at $10.00 per Unit, generating gross proceeds of $522,000,000 , which is described in Note 4.
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 1,200,000 units (each, a “Placement Unit” and collectively, the “Placement Units”) at a price of $10.00 per Placement Unit in a private placement to E.Merge Technology Sponsor LLC, a Delaware limited liability company (the “Sponsor”), generating gross proceeds of $12,000,000 , which is described in Note 5.
On September 4, 2020, in connection with the underwriters’ election to partially exercise their option to purchase additional Units, the Company sold an additional 7,800,000 Units at $10.00 per Unit, generating total gross proceeds of $78,000,000 .
Transaction costs amounted to $33,039,544 , consisting of $9,840,000 of underwriting fees, $22,560,000 of deferred underwriting fees and $639,544 of other offering costs
Following the closing of the Initial Public Offering on August 4, 2020 and the underwriters partial exercise of its over-allotment option on September 4, 2020, an aggregate amount of $600,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Placement Units was placed in a trust account (the “Trust Account”) located in the United States and invested only in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 185 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of
Rule 2a-7of
the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the Trust Account, as described below. The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of Placement Units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There is no assurance that the Company will be able to complete a Business Combination successfully. The Company must complete one or more initial Business Combinations having an aggregate fair market value of at least 80 % of the assets held in the Trust Account (excluding the deferred underwriting commissions and taxes payable on interest earned on the Trust Account) at the time of the agreement to enter into the initial Business Combination. The Company 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.
5
E.MERGE TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
The Company will provide its holders of the outstanding Public Shares (the “public stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The public stockholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially anticipated to be $10.00 per Public Share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations). The
per-share
amount to be distributed to public stockholders who redeem their Public Shares will not be reduced by the deferred underwriting commissions the Company will pay to the underwriters (as discussed in Note 7). There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants. The Company will proceed with a Business Combination if the Company has net tangible assets of at least $5,000,001 immediately prior to or upon consummation of a Business Combination and, if the Company seeks stockholder approval, a majority of the shares voted are voted in favor of the Business Combination. If a stockholder vote is not required by law and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation (the “Amended and Restated Certificate of Incorporation”), conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”) and file tender offer documents with the SEC prior to completing a Business Combination. If, however, stockholder approval of the transaction is required by law, or the Company decides to obtain stockholder approval for business or legal reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with a Business Combination, the Company’s Sponsor has agreed to vote its Founder Shares (as defined in Note 6), Placement Shares (as defined in Note 5) and any Public Shares purchased during or after the Initial Public Offering in favor of approving a Business Combination. Additionally, each public stockholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction.
If the Company seeks stockholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Amended and Restated Certificate of Incorporation provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate of 15 % or more of the Public Shares, without the prior consent of the Company.
The Sponsor has agreed (a) to waive its redemption rights with respect to its Founder Shares, Placement Shares and Public Shares, if any, held by it in connection with the completion of a Business Combination and (b) not to propose an amendment to the Amended and Restated Certificate of Incorporation (i) that would affect the substance or timing of the Company’s obligation to allow redemption in connection with a Business Combination or to redeem 100 % of its Public Shares if the Company does not complete a Business Combination or (ii) with respect to any other provision relating to stockholders’ rights or
pre-business
combination activity, unless the Company provides the public stockholders with the opportunity to redeem their Public Shares in conjunction with any such amendment. The Company will have until August 4, 2022 to complete a Business Combination (the “Combination Period”). If the Company has not completed a Business Combination within the Combination Period, the Company 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 the Company to pay its tax obligations (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in the case of clauses (ii) and (iii) above to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to complete a Business Combination within the Combination
Period.
6
E.MERGE TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
The Sponsor has agreed to waive its liquidation rights with respect to the Founder Shares and Placement Shares if the Company fails to complete a Business Combination within the Combination Period. However, if the Sponsor acquires Public Shares in or after the Initial Public Offering, such Public Shares will be entitled to liquidating distributions from the Trust Account if the Company fails to complete a Business Combination within the Combination Period. The underwriters have agreed to waive their rights to their deferred underwriting commission (see Note 7) held in the Trust Account in the event the Company does not complete a Business Combination within in the Combination Period and, in such event, such amounts will be included with the other funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution will be less than the Initial Public Offering price per Unit ($10.00
)
.
Liquidity and Capital Resources
As of September 30, 2021, the Company had $445,319 in its operating bank accounts and working capital of $238,409 . In order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, provide the Company Working Capital Loans up to $1,500,000 (see Note 6). As of September 30, 2021, there were no amounts outstanding under any Working Capital Loan.
Based on the foregoing, management believes that the Company will have sufficient working capital and borrowing capacity to meet its needs through the earlier of the consummation of a Business Combination or one year from this filing. Over this time period, the Company will be using these funds for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.
Going Concern
In connection with the Company’s assessment of going concern considerations in accordance with FASB’s Accounting Standards Update (“ASU”)
2014-15,
“Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that if the Company is unable to raise additional funds to alleviate liquidity needs, obtain approval for an extension of the deadline or complete a Business Combination by August 4, 2022, then the Company will cease all operations except for the purpose of liquidating. The liquidity condition and date for mandatory liquidation and subsequent dissolution raise substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after August 4, 2022. The Company intends to complete a Business Combination before the mandatory liquidation date or obtain approval for an extension. NOTE 2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
I
n connection with the preparation of the Company’s financial statements as of September 30, 2021, management determined it should restate its previously reported financial statements. During the quarter ended September 30, 2021, the Company determined that at the closing of the Company’s Initial Public Offering (including the sale of the shares issued pursuant to the exercise of the underwriters’ overallotment) it had improperly valued its Class A common stock subject to possible redemption at the closing of the Company’s Initial Public Offering and the closing of the sale of common stock pursuant to the exercise of the underwriters’ overallotment, it had improperly classified certain of its Class A common stock subject to possible redemption. The Company previously determined the Class A common stock subject to possible redemption to be equal to the redemption value of . Management determined that the Class A common stock issued during the Initial Public Offering and pursuant to the exercise of the underwriters’ overallotment can be redeemed or become redeemable subject to the occurrence of future events considered outside the Company’s control. Therefore, management concluded that temporary equity should include all Class A common stock subject to possible redemption, resulting in the Class A common stock subject to possible redemption being equal to their redemption value. As a result, management has noted a reclassification adjustment related to temporary equity and permanent equity. This resulted in an adjustment to the initial carrying value of the Class A common stock subject to possible redemption with the offset recorded to additional
paid-in
capital (to the extent available), accumulated deficit and Class A common stock. 7
E.MERGE TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
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 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.
There has been no change in the Company’s total assets, liabilities or operating results.
The impact of the restatement on the Company’s financial statements is reflected in the following table.
As Previously Reported |
Adjustment |
As Restated |
||||||||||
Balance Sheet as of March 31, 2021 (unaudited) |
||||||||||||
Class A common stock subject to possible redemption |
$ | $ | $ | |||||||||
Class A common stock |
$ | $ | ( |
) | $ | |||||||
Additional paid-in capital |
$ | $ | ( |
) | $ | — | ||||||
Accumulated deficit |
$ | $ | ( |
) | $ | ( |
) | |||||
Total stockholders’ equity (deficit) |
$ |
$ |
( |
) |
$ |
( |
) | |||||
Balance Sheet as of June 30, 2021 (unaudited) |
||||||||||||
Class A common stock subject to possible redemption |
$ |
$ |
$ |
|||||||||
Class A common stock |
$ |
$ |
( |
) |
$ |
|||||||
Additional paid-in capital |
$ |
$ |
( |
) |
$ |
— |
||||||
Accumulated deficit |
$ |
$ |
( |
) |
$ |
( |
) | |||||
Total stockholders’ equity (deficit) |
$ | $ | ( |
) | $ | ( |
) | |||||
Statement of Cash Flows for the Three Months Ended March 31, 2021 (unaudited) |
||||||||||||
Change in value of Class A common stock subject to possible redemption |
$ | $ | ( |
) | $ | — | ||||||
Statement of Cash Flows for the Three Months Ended June 30, 2021 (unaudited) |
||||||||||||
Change in value of Class A common stock subject to possible redemption |
$ | $ | ( |
) | $ | — | ||||||
Statement of Operations for the three months ended March 31, 2021 (unaudited) |
||||||||||||
Weighted average shares outstanding of Class A common stock |
||||||||||||
Basic and diluted net income per common share, Class A common stock |
$ |
— |
$ |
$ |
||||||||
Weighted average shares outstanding of Class B common stock |
( |
) |
||||||||||
Basic and diluted net income (loss) per common share, Class B common stock |
$ |
$ |
( |
) |
$ |
|||||||
Statement of Operations for the three months ended June 30, 2021 (unaudited) |
||||||||||||
Weighted average shares outstanding of Class A common stock |
||||||||||||
Basic and diluted net loss per common share, Class A common stock |
$ |
— |
$ |
( |
) |
$ |
( |
) | ||||
Weighted average shares outstanding of Class B common stock |
( |
) |
||||||||||
Basic and diluted net loss per common share, Class B common stock |
$ |
( |
) |
$ |
$ |
( |
) | |||||
Statement of Operations for the six months ended June 30, 2021 (unaudited) |
||||||||||||
Weighted average shares outstanding of Class A common stock |
||||||||||||
Basic and diluted net income per common share, Class A common stock |
$ |
— |
$ |
$ |
||||||||
Weighted average shares outstanding of Class B common stock |
( |
) |
||||||||||
Basic and diluted net income (loss) per common share, Class B common stock |
$ |
$ |
( |
) |
$ |
|||||||
8
E.MERGE TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to
Form 10-Q and
Regulation S-X
of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. 9
E.MERGE TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Annual Report on
Form10-K/A
for the year ended December 31, 2020 as filed with the SEC on July 2, 2021, which contains the audited financial statements and notes thereto. The financial information as of December 31, 2020 is derived from the audited financial statements presented in the Company’s Annual Report on Form10-K/A
for the year ended December 31, 2020. The interim results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any future interim periods.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to
non-emerging
growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. Use of Estimates
The preparation of unaudited condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future events. One of the more significant accounting estimates included in these financial statements is the determination of the fair value of the warrant liability. Such estimates may be subject to change as more current information becomes available and accordingly the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did no
Marketable Securities Held in Trust Account
At September 30, 2021, substantially all of the assets held in the Trust Account were held in U.S. Treasury securities and money market funds, which primarily invest in U.S. Treasury securities.
10
E.MERGE TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
Class A Common Stock Subject to Possible Redemption
The Company accounts for its Class A common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Class A common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that feature redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s Class A common stock features certain redemption rights that are considered to be outside of the Company’s 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’ equity section of the Company’s balance sheets.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. Immediately upon the closing of the Initial Public Offering, the Company recognized the accretion from initial book value to redemption amount value. The change in the carrying value of redeemable Class A common stock resulted in charges against additional
paid-in
capital and accumulated deficit. At September 30, 2021 and December 31, 2020, the Class A common stock reflected in the condensed balance sheets are reconciled in the following table:
| Gross proceeds |
$ | |||
| Less: |
||||
| Proceeds allocated to Public Warrants |
( |
) | ||
| Class A common stock issuance costs |
( |
) | ||
| Plus: |
||||
| Accretion of carrying value to redemption value |
||||
| |
|
|||
| Class A common stock subject to possible redemption |
$ |
|||
| |
|
Offering Costs
Offering costs consisted of legal, accounting and other expenses incurred through the Initial Public Offering that were directly related to the Initial Public Offering. Offering costs were allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared to total proceeds received. Offering costs allocated to warrant liabilities were expensed as incurred in the statements of operations. Offering costs associated with the Class A common stock issued were initially charged to temporary equity and then accreted to common stock subject to redemption upon the completion of the Initial Public Offering
. Offering costs amounted to $were charged to temporary equity upon the completion of the Initial Public Offering and
$1,299,560 were expensed to the statements of operations.
Warrant Liability
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its 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”).
The Company accounts for the Warrants in accordance with the guidance contained in ASC815-40under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the Warrants as liabilities at their fair value and adjusts the Warrants to fair value at each reporting period. This liability is subject to
re-measurement
at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s statement of operations. The fair value of the Placement Warrants (as defined in Not 5) was determined using a Black-Scholes option pricing model. The Public Warrants (as defined in Note 4) for periods where no observable traded price was available are valued using a Monte Carlo simulation model. 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. Income Taxes
The Company follows the asset and liability method of accounting for income taxes under ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. As of September 30, 2021 and December 31, 2020, the Company had a deferred tax asset of approximately $207,000 and $106,000 , respectively, which had a full valuation allowance recorded against it of approximately $207,000 and $106,000 , respectively.
11
E.MERGE TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
The Company’s taxable
start-up
costs and are not currently deductible. The Company recorded an income tax provision of $start-up
costs (discussed above), which are not currently deductible, and to permanent differences mainly attributable to the change in the fair value of the warrant liabilities. ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no no
12
E.MERGE TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
Net Income (Loss) Per Common Share
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” The Company has 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 common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. The Company has not considered the effect of warrants sold in the Initial Public Offering and private placement to purchase
shares of Class A common stock in the calculation of diluted income (loss) per share, since the exercise price of the warrants is greater than the average market price for the period and therefore, the inclusion of such warrants under the treasury stock method would be anti-dilutive. As a result, diluted net income (loss) per share is the same as basic net income (loss) per share for the periods presented.
The following table reflects the calculation of basic and diluted net income (loss) per common share (in dollars, except per share amounts):
Three Months Ended September 30, 2021 |
Three Months Ended September 30, |
Nine Months Ended September 30, 2021 |
For the Period from May 22 ,2020 (Inception) Through September 30, 2020 |
|||||||||||||||||||||||||||||
Class A |
Class B |
Class A |
Class B |
Class A |
Class B |
Class A |
Class B |
|||||||||||||||||||||||||
| Basic and diluted net income (loss) per common stock |
||||||||||||||||||||||||||||||||
| Numerator: |
||||||||||||||||||||||||||||||||
| Allocation of net income (loss), as adjusted |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Denominator: |
||||||||||||||||||||||||||||||||
| Basic and diluted weighted average stock outstanding |
||||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Basic and diluted net income (loss) per common stock |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Note: As of September 30, 2021, basic and diluted shares are the same as there are no
non-redeemable
securities that are dilutive to the stockholders. (1) |
The weighted average non-redeemable common stock for the three and nine months ended September 30, 2021 includes the effect of Initial Public Offering on August 4, 2020. |
1
3
E.MERGE TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Depository Insurance Corporation Coverage of $250,000 . The Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying condensed balance sheets, primarily due to their short-term nature.
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 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. 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 effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. We adopted ASU 2020-06 effective January 1, 2021. The adoption of ASU 2020-06 did not have an impact 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 the Company’s unaudited condensed financial statements.
NOTE 4. INITIAL PUBLIC OFFERING
Pursuant to the Initial Public Offering, the Company sold 60,000,000 Units, inclusive of 7,800,000 Units sold to the underwriters on September 4, 2020 upon the underwriters’ election to partially exercise their option to purchase additional Units, at a purchase price of $10.00 Each whole Public Warrant entitles the holder to purchase one share of Class A common stock at a price of $11.50 per share, subject to adjustment (see Note 8).
one-third
of one redeemable warrant (“Public Warrant”). NOTE 5. PRIVATE PLACEMENT
Simultaneously with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of 1,200,000 Placement Units at a price of $10.00 per Placement Unit, for an aggregate purchase price of $12,000,000 . Each Placement Unit consists of one share of Class A common stock (“Placement Share”) and 11.50 per share. The proceeds from the Placement Units were added to the proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Placement Units will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law), and the Placement Units and all underlying securities will expire worthless.
one-third
of one redeemable warrant (each, a “Placement Warrant”). Each whole Placement Warrant is exercisable to purchase one share of Class A common stock at a price of $1
4
E.MERGE TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
NOTE 6. RELATED PARTY TRANSACTIONS
Founder Shares
On June 8, 2020, the Sponsor paid an aggregate of $25,000 to cover certain offering costs of the Company in consideration for 10,062,500 shares of the Company’s Class B common stock (the “Founder Shares”). In July 2020, the Company effected a 0.428571 for 1 stock dividend for each share of Class B common stock outstanding, and in July 2020, it further effected a 0.044 for 1 stock dividend for each share of Class B common stock outstanding, resulting in the Sponsor holding an aggregate of 15,007,500 Founder Shares. The Founder Shares include an aggregate of up to 1,957,500 Class B shares subject to forfeiture to the extent that the underwriters’ over-allotment option is not exercised in full or in part, so that the Sponsor will own, on an 20 % of the Company’s issued and outstanding shares after the Initial Public Offering (assuming the Sponsor does not purchase any Public Shares in the Initial Public Offering and excluding the Placement Units). On September 4, 2020, as a result of the underwriters’ election to partially exercise their option to purchase additional Units, 7,500 Founder Shares were forfeited and 1,950,000 Founder Shares are no longer subject to forfeiture, resulting in an aggregate of 15,000,000 Founder Shares issued and outstanding.
as-converted
basis, Administrative Support Agreement
The Company entered into an agreement, commencing on July 30, 2020 through the earlier of the Company’s consummation of a Business Combination and its liquidation, to pay an affiliate of the Sponsor a total of $15,000 per month for office space, utilities and secretarial and administrative support. During the three and nine months ended September 30, 2021 the Company incurred and paid $45,000 and $135,000 in fees for such services, respectively. For the three months ended September 30, 2020 and for the period from May 22, 2020 (inception) through September 30, 2020 the Company incurred and paid $30,000
Related Party Loans
In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into units upon consummation of the Business Combination at a price of $10.00 per unit. The units would be identical to the Placement Units. As of September 30, 2021 and December 31, 2020, there were no amounts outstanding under the Working Capital Loans.
1
5
E.MERGE TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
NOTE 7. COMMITMENTS AND CONTINGENCIES
Risks and Uncertainties
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 the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.Legal Proceedings
On August 20, 2021, a purported stockholder of the Company filed a putative class action and derivative complaint in the United States District Court for the Southern District of New York (the “Complaint”) against the Company (as a nominal defendant), the Sponsor, the Company’s directors, executive officers and advisors (collectively, the “Defendants”), captioned Assad v. E.Merge Technology Acquisition Corp., et al., No. (S.D.N.Y.), alleging breach of certain provisions of the Investment Company Act of 1940 (the “Investment Company Act”) and the Investment Advisers Act of 1940 (the “Investment Advisors Act”). The Complaint generally asserts that the Company is subject to the Investment Company Act because, among other allegations, the Company invested the proceeds of its initial public offering in securities of the United States government and shares of money market mutual funds. Stemming from this assertion, the Complaint alleges that the contracts pursuant to which certain Defendants purchased the Company’s securities and the Company’s Second Amended and Restated Certificate of Incorporation that creates the rights of the Class B common stock violate the Investment Company Act, and that certain of the Defendants breached their fiduciary duties under the Investment Company Act by paying themselves disproportionate “compensation.” The Complaint also asserts that the Company’s advisors breached certain provisions of the IAA. The Complaint generally seeks, among other things, a declaratory judgment stating that the Company is an investment company under the Investment Company Act and that the Company’s advisors are investment advisers within the meaning of the Investment Advisors Act and the Investment Company Act, rescission of contracts whose formation and performance are alleged to violate the Investment Company Act or Investment Advisor Act, enjoining the conversion of any Class B common stock into Class A common stock, and voiding and requiring the return of all Class B common stock, awarding the Company damages for all compensation paid to the Defendants and awarding costs and expenses incurred in connection with the action. The Defendants believe the claims asserted in the Complaint are without merit and intend to vigorously defend this action.
1:21-cv-07072
Registration Rights
Pursuant to a registration rights agreement entered into on August 4, 2020, the holders of the Founder Shares, Placement Units (including securities contained therein) and units (including securities contained therein) that may be issued upon conversion of any Working Capital Loans, and any shares of Class A common stock issuable upon the exercise of the Placement Warrants and any shares of Class A common stock and warrants (and underlying Class A common stock) that may be issued upon conversion of units issued as part of the Working Capital Loans and Class A common stock issuable upon conversion of the Founder Shares, will be entitled to registration rights requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion to Class A common stock). The holders of the majority of these securities are entitled to make up to three demands, excluding short form 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 the completion of a Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. The registration rights agreement does not contain liquidating damages or other cash settlement provisions resulting from delays in registering the Company’s securities. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The underwriters are entitled a deferred fee of $22,560,000 in the aggregate. 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.
NOTE 8. STOCKHOLDERS’ EQUITY
Preferred Stock
Class
A Common Stock
Class
B Common Stock
1
6
E.MERGE TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
Holders of
one-for-one
NOTE 9. WARRANTS
As of September 30, 2021 and December 31, 2020, there were 20,000,000 400,000
Public Warrants may only be exercised for a whole number of shares. No fractional warrants will be issued upon separation of the Units and only whole warrants will trade. The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the shares of Class A common stock underlying the warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration. No warrant will be exercisable and the Company will not be obligated to issue shares of Class A common stock upon exercise of a warrant unless Class A common stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants.
The Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of a Business Combination, the Company will use its best efforts to file with the SEC a registration statement covering the shares of Class A common stock issuable upon exercise of the warrants, to cause such registration statement to become effective and to maintain a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed, as specified in the warrant agreement. If a registration statement covering the shares of Class A common stock issuable upon exercise of the warrants is not effective by the 60th business day after the closing of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the foregoing, if a registration statement covering the Class A common stock issuable upon exercise of the warrants is not effective within a specified period following the consummation of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities Act, provided that such exemption is available. If that exemption, or another exemption, is not available, holders will not be able to exercise their warrants on a cashless basis.
Redemption of warrants when the price per share of Class
A common stock equals or exceeds $18.00:
• |
in whole and not in part; |
• |
at a price of $0.01 per warrant; |
• |
upon not less than 30 days’ prior written notice of redemption given after the warrants become exercisable; and |
• |
if, and only if, the reported last sale price of the Company’s Class A common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period commencing once the warrants become exercisable and ending three business days before the Company sends the notice of redemption to the warrant holders. |
If and when the warrants become redeemable by the Company, the Company may not exercise its redemption right if the issuance of shares of common stock upon exercise of the warrants is not exempt from registration or qualification under applicable state blue sky laws or the Company is unable to effect such registration or qualification.
1
7
E.MERGE TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Class A common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of Class A common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
The Placement Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Placement Warrants and the Class A common stock issuable upon the exercise of the Placement Warrants will not be transferable, assignable or saleable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Placement Warrants will be exercisable on a cashless basis and be
non-redeemable
so long as they are held by the initial purchasers or their permitted transferees. If the Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants. NOTE 10. FAIR VALUE MEASUREMENTS
The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1: |
Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
1
8
E.MERGE TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
Level 2: |
Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. | |
Level 3: |
Unobservable inputs based on an assessment of the assumptions that market participants would use in pricing the asset or liability. | |
The Company classifies its U.S. Treasury and equivalent securities as in accordance with ASC 320 “Investments—Debt and Equity Securities.” securities are those securities which the Company has the ability and intent to hold until maturity. treasury securities are recorded at amortized cost on the accompanying condensed balance sheets and adjusted for the amortization or accretion of premiums or discounts.
held-to-maturity
Held-to-maturity
Held-to-maturity
At September 30, 2021, assets held in the Trust Account were comprised of $656 in cash, $300,068,414 in U.S. Treasury Bills at amortized cost and $300,034,327 money market funds that primarily invest in U.S. Treasury securities at fair market value. During the three and nine months ended September 30, 2021, the Company withdrew $118,816 399 in cash, $300,107,026 in U.S. Treasury Bills at amortized cost and $300,011,884 in money market funds that primarily invest in U.S. Treasury securities at fair market value.
The following tables present information about the Company’s assets that are measured at fair value on a recurring basis at September 30, 2021 and December 31, 2020 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value. The gross holding gains and fair value of held-to-maturity securities at September 30, 2021 and December 31, 2020 are as follows:
| Held-To-Maturity |
Level |
Amortized Cost |
Gross Holding Gain (Loss) |
Fair Value |
||||||||||||||
| September 30, 2021 |
1 | $ | $ | $ | ||||||||||||||
| |
|
|
|
|
|
|||||||||||||
| December 31, 2020 |
1 | |||||||||||||||||
| |
|
|
|
|
|
|||||||||||||
The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at September 30, 2021 and December 31, 2020 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| |
Description |
|
Level |
September 30, 2021 |
December 31, 2020 |
|||||||||||
| Assets: |
|
|
|
|
||||||||||||
| Investments – U.S. Treasury Securities |
|
|
|
|
1 | $ | $ | |||||||||
| Investments – U.S. Treasury Securities Money Market Fund |
|
|
|
|
1 | |||||||||||
| Liabilities: |
|
|
|
|
||||||||||||
| Warrant Liability – Public Warrants |
|
|
|
|
1 | |||||||||||
| Warrant Liability – Placement Warrants |
|
|
|
|
3 | |||||||||||
1
9
E.MERGE TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
The Warrants were accounted for as liabilities in accordance
with ASC 815-40 and
a
re presented within warrant liabilities on the accompanying condensed balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented in the condensed statements of operations. The Placement Warrants were valued using a Binomial Lattice Model, which is considered to be a Level 3 fair value measurement. The primary unobservable input utilized in determining the fair value of the Warrants is the expected volatility of the common stock. The expected volatility was initially derived from observable public warrant pricing on comparable ‘blank-check’ companies without an identified target. The subsequent measurements of the Public Warrants after the detachment of the Public Warrants from the Units was classified as Level 1 due to the use of an observable market quote in an active market. For periods subsequent to the detachment of the Public Warrants from the Units, the close price of the Public Warrant price was used as the fair value as of each relevant date.
The following table presents the quantitative information regarding Level 3 fair value measurements:
| |
September 30, 2021 |
December 31, 2020 |
||||||
| Risk-free interest rate |
% | % | ||||||
| Expected term (years) |
||||||||
| Expected volatility |
% | % | ||||||
| Exercise price |
$ | $ | ||||||
| Stock price |
$ | $ | ||||||
The following table presents the changes in the fair value of Level 3 warrant liabilities:
Private Placement |
||||
| Fair value as of January 1, 2021 |
$ | |||
| Change in fair value |
( |
) | ||
| Fair value as of March 1, 202 1 |
|
$ |
|
|
| Change in fair valu e |
|
|
|
|
| Fair value as of June 30, 202 1 |
|
$ |
|
|
| Change in fair valu e |
|
|
( |
) |
| |
|
|||
| Fair value as of September 30, 2021 |
$ | |||
| |
|
|||
Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period in which a change in valuation technique or methodology occurs. There were no transfers in or out of Level 3 from other levels in the fair value hierarchy for the period ended September 30, 2021.
NOTE 11. SUBSEQUENT EVENTS
The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the condensed financial statements were issued. Based upon this review, the Company did not identify subsequent events that would have required recognition or disclosure in the condensed financial statements, other than the restatement discussed in Note 2.
20
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to E.Merge Technology Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors, references to the “Sponsor” refer to E.Merge Technology Sponsor LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed 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” 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 Factor’s section of the Company’s Annual Report on
Form10-K/A
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. This Management’s Discussion and Analysis of Financial Condition and Results of Operations has been amended and restated to give effect to the restatement of our financial statements as of March 31, 2021 and June 30, 2021. Management identified errors made in its historical financial statements where, at the closing of our Initial Public Offering, we improperly valued our Class A common stock subject to possible redemption. We previously determined the Class A common stock subject to possible redemption to be equal to the redemption value of $10.00 per Class A common stock while also taking into consideration a redemption cannot result in net tangible assets being less than $5,000,001. Management determined that the Class A common stock issued during the Initial Public Offering can be redeemed or become redeemable subject to the occurrence of future events considered outside of the Company’s control. Therefore, management concluded that the redemption value should include all Class A common stock subject to possible redemption, resulting in the Class A common stock subject to possible redemption being equal to their redemption value. As a result, management has noted a reclassification error related to temporary equity and permanent equity. This resulted in a restatement to the initial carrying value of the Class A common stock subject to possible redemption with the offset recorded to additional
paid-in
capital (to the extent available), accumulated deficit and Class A common stock. Overview
We are a blank check company incorporated on May 22, 2020 as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar Business Combination with one or more businesses. While our efforts to identify a target business may span many industries and regions worldwide, we focus our search for prospects within the software and internet technology industries. We intend to effectuate our initial Business Combination using cash from the proceeds of our Initial Public Offering and the private placement of the Private Units, 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 initial Business Combination. We cannot assure you that our plans 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 from inception through September 30, 2021 were organizational activities, those necessary to prepare for our Initial Public Offering, described below, and, after our Initial Public Offering, identifying a target company for an initial 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 marketable securities 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 September 30, 2021, we had a net income of $5,141,392, which consists of a change in the fair value of the warrant liabilities $5,512,000 and interest income on marketable securities held in the Trust Account of $25,475, offset by general and administrative expenses of $396,083.
For the nine months ended September 30, 2021, we had a net income of $15,812,132, which consists of a change in the fair value of the warrant liabilities $16,540,000 and interest income on marketable securities held in the Trust Account of $102,903, offset by general and administrative expenses of $830,384.
For the three months ended September 30, 2020, we had a net income of $3,283,486, which consists of interest earned on marketable securities held in Trust Account of $42,647 and change in fair value of warrant liability of $4,896,000, offset by formation and operational costs of $353,645, transaction cost related to warrant liability of $1,299,560 and provision for income taxes of $1,956.
21
For the period from May 22, 2020 (Inception) through September 30, 2020, we had a net income of $3,282,486, which consists of interest earned on marketable securities held in Trust Account of $42,647 and change in fair value of warrant liability of $4,896,000, offset by formation and operational costs of $354,645, transaction cost related to warrant liability of $1,299,560 and provision for income taxes of $1,956.
Liquidity and Capital Resources
On August 4, 2020, we consummated our Initial Public Offering of 52,200,000 units (the “Units” and, with respect to the shares of Class A common stock included in the units sold, the “Public Shares”) at a price of $10.00 per Unit, at $10.00 per Unit, generating gross proceeds of $522,000,000. Simultaneously with the closing of our Initial Public Offering, we consummated the sale of 1,200,000 units (each, a “Placement Unit” and collectively, the “Placement Units”) to E.Merge Technology Sponsor LLC, a Delaware limited liability company (the “Sponsor”), at a price of $10.00 per Placement Unit, generating gross proceeds of $12,000,000.
On September 4, 2020, in connection with the underwriters’ election to partially exercise of their option to purchase additional Units, we consummated the sale of an additional 7,800,000 Units, generating total gross proceeds of $78,000,000.
Following our Initial Public Offering, the partial exercise of the over-allotment option and the sale of the Placement Units, a total of $600,000,000 was placed in the Trust Account. We incurred $33,039,544 in transaction costs, including $9,840,000 of underwriting fees, $22,560,000 of deferred underwriting fees and $639,544 of other offering costs.
For the nine months ended September 30, 2021, cash used in operating activities was $623,341. Net income of $15,812,132 was offset by a change in fair value of warrant liabilities $16,540,000, interest earned on marketable securities held in the Trust Account of $102,896 and changes in operating assets and liabilities, which provided $207,422 of cash from operating activities.
For the period from May 22, 2020 (inception) through September 30, 2020, cash used in operating activities was $470,679. Net income of $3,282,486 was offset by a change in fair value of warrant liabilities $4,896,000, interest earned on marketable securities held in the Trust Account of $42,647, transaction cost related to warrant liability of $1,299,560 and changes in operating assets and liabilities, which used $114,078 of cash from operating activities.
As of September 30, 2021, we had investments of $600,103,396 held in the Trust Account. 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 taxes paid and deferred underwriting commissions) to complete our initial Business Combination. We may withdraw interest to pay taxes. Through September 30, 2021, we have withdrawn $118,816 of interest earned on the Trust Account for the payment of franchise and 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.
As of September 30, 2021, we had cash of $445,319 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 our initial Business Combination.
In order to fund working capital deficiencies or finance transaction costs in connection with our 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 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.
We do not currently 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 our 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 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
In connection with the Company’s assessment of going concern considerations in accordance with FASB’s Accounting Standards Update (“ASU”)
2014-15,
“Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that if the Company is unable to raise additional funds to alleviate liquidity needs, obtain approval for an extension of the deadline or complete a Business Combination by August 4, 2022, then the Company will cease all operations except for the purpose of liquidating. The liquidity condition and date for mandatory liquidation and subsequent dissolution raise substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after August 4, 2022. The Company intends to complete a Business Combination before the mandatory liquidation date or obtain approval for an extension. 22
Off-Balance
Sheet Financing Arrangements We have no obligations, assets or liabilities, which would be considered
off-balance
sheet arrangements as of September 30, 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 liabilities, other than an agreement to pay an affiliate of the Sponsor a monthly fee up to $15,000 for office space, utilities and secretarial and administrative support services. We began incurring these fees on July 30, 2020 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation.
The underwriters are entitled to a deferred fee of $22,560,000 in the aggregate. 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.
Critical Accounting Policies
The preparation of unaudited 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 Liability
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 to re-measurement
at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations. The fair value of our placement warrants was determined using a Black-Scholes option pricing model. The public warrants for periods where no observable traded price was available are valued using a Monte Carlo simulation model. 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. Class A Common Stock Subject to Possible Redemption
We account for our Class A common stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Class A common stock subject to mandatory redemption is classified as a liability instrument and is 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 common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, the Class A common stock subject to possible redemption is presented as temporary equity, outside of the stockholders’ equity section of our unaudited condensed balance sheets.
Net Loss per Common Share
Net loss per common stock is computed by dividing net loss by the weighted average number of common stock outstanding during the period. We apply the
two-class
method in calculating earnings per share. Accretion associated with the redeemable shares of Class A common stock is excluded from earnings per share as the redemption value approximates fair value. 23
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 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. 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 effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. We adopted ASU 2020-06
effective January 1, 2021. The adoption of ASU 2020-06
did not have an impact 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 unaudited condensed financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable for smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
As required by Rules
13a-15
and 15d-15
under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2021. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e)
under the Exchange Act) were not effective, due solely to the material weakness in our internal control over financial reporting related to the Company’s accounting for complex financial instruments. As a result, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Quarterly Report present fairly in all material respects our financial position, results of operations and cash flows for the period presented. Management has implemented remediation steps to improve our internal control over financial reporting. Specifically, we expanded and improved our review process for complex securities and related accounting standards. We plan to further improve this process by enhancing access to accounting literature, identification of third-party professionals with whom to consult regarding complex accounting applications and consideration of additional staff with the requisite experience and training to supplement existing accounting professionals.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules
13a-15(f)
and 15d-15(f)
of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 24
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On August 20, 2021, a purported stockholder of the Company filed a putative class action and derivative complaint in the United States District Court for the Southern District of New York (the “Complaint”) against the Company (as a nominal defendant), the Sponsor, the Company’s directors, executive officers and advisors (collectively, the “Defendants”), captioned Assad v. E.Merge Technology Acquisition Corp., et al., No. (S.D.N.Y.), alleging breach of certain provisions of the Investment Company Act of 1940 (the “Investment Company Act”) and the Investment Advisers Act of 1940 (the “Investment Advisors Act”). The Complaint generally asserts that the Company is subject to the Investment Company Act because, among other allegations, the Company invested the proceeds of its initial public offering in securities of the United States government and shares of money market mutual funds. Stemming from this assertion, the Complaint alleges that the contracts pursuant to which certain Defendants purchased the Company’s securities and the Company’s Second Amended and Restated Certificate of Incorporation that creates the rights of the Class B common stock violate the Investment Company Act, and that certain of the Defendants breached their fiduciary duties under the Investment Company Act by paying themselves disproportionate “compensation.” The Complaint also asserts that the Company’s advisors breached certain provisions of the Investment Advisors Act. The Complaint generally seeks, among other things, a declaratory judgment stating that the Company is an investment company under the Investment Company Act and that the Company’s advisors are investment advisers within the meaning of the Investment Advisors Act and the Investment Company Act, rescission of contracts whose formation and performance are alleged to violate the Investment Company Act or Investment Advisor Act, enjoining the conversion of any Class B common stock into Class A common stock, and voiding and requiring the return of all Class B common stock, awarding the Company damages for all compensation paid to the Defendants and awarding costs and expenses incurred in connection with the action. The Defendants believe the claims asserted in the Complaint are without merit and intend to vigorously defend this action.
1:21-cv-07072
ITEM 1A. RISK FACTORS.
Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in our final prospectus filed with the SEC on August 3, 2020 and Annual Report on
Form10-K/A
for the year ended December 31, 2020 as filed with the SEC on July 2, 2021. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report, except for the risk described below, there have been no material changes to the risk factors disclosed in our final prospectus filed with the SEC on August 3, 2020 and Annual Report on Form10-K/A
for the year ended December 31, 2020 as filed with the SEC on July 2, 2021. From time to time, we and members of our management team may be subject to legal proceedings, regulatory disputes, and governmental inquiries that could cause us to incur significant expenses, divert our management’s attention, and materially harm our financial condition.
We and members of our management team are currently subject to a lawsuit and, from time to time, we and members of our management team may be subject to additional claims, lawsuits, government investigations, and other proceedings involving competition and antitrust, securities, tax, commercial disputes, and other matters that could adversely affect our financial condition. Litigation and regulatory proceedings may be protracted and expensive, and the results are difficult to predict. Additionally, such litigation and regulatory proceedings require a great deal of financial resources and attention from us and our management team. Adverse outcomes with respect to litigation or any of these legal proceedings may result in significant settlement costs or judgments, or penalties and fines, and could negatively affect our ability to identify and complete an initial business combination and may have an adverse effect on the price of our securities.
We have identified a material weakness in our internal control over financial reporting as of September 30, 2021. If we are unable to develop and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our business and operating results.
Under the supervision and with the participation of our management, our audit committee identified, in light of the prior reclassification of warrants from equity to liability, as well as the reclassification of our redeemable Class A common stock as temporary equity, a material weakness in our internal controls over financial reporting relating to our accounting for complex financial instruments. See “Part I. Financial Information – Item 4. Controls and Procedures - Evaluation of Disclosure Controls and Procedures.” As a result of such material weakness, the change in accounting for our warrants and redeemable Class A common stock, and other matters raised or that may in the future be raised by the SEC, we may face for the prospect of litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the material weaknesses in our internal control over financial reporting and the preparation of our financial statements, any of which claims could result in adverse effects to our business. As of the date hereof, we have no knowledge of any such litigation or dispute.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Use of Proceeds
In August 2020, we consummated our initial public offering of 52,200,000 Units. Each Unit consists of one public share and
one-third
of one redeemable warrant (the “Public Warrant”), with each whole Public Warrant entitling the holder thereof to purchase one Public Share for $11.50 per share. The Units were sold at a price of $10.00 per Unit, generating gross proceeds to us of $522,000,000. Simultaneously with the closing of the initial public offering, we completed the private sale of an aggregate of 1,200,000 Placement Units to our Sponsor at a purchase price of $10.00 per Placement Unit, generating gross proceeds of $12,000,000.
In September 2020, we consummated the sale of an additional 7,800,000 Units that were subject to the underwriters’ over-allotment option at $10.00 per Unit, generating gross proceeds of $78,000,000.
A total of $600,000,000 of the proceeds from the initial public offering (which amount includes $21,000,000 of the underwriters’ deferred discount) and the sale of the Public Unit was placed in a U.S.-based trust account maintained by Continental Stock Transfer & Trust Company, acting as trustee. The proceeds held in the trust account may be invested by the trustee only in U.S. government securities with a maturity of 185 days or less or in money market funds investing solely in U.S. government treasury obligations and meeting certain conditions under Rule2a-7under the Investment Company Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
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ITEM 6. EXHIBITS.
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on
Form 10-Q.
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| E.MERGE TECHNOLOGY ACQUISITION CORP. | ||||||
| Date: January 18, 2022 | /s/ Jeff Clarke | |||||
| Name: | Jeff Clarke | |||||
| Title: | Co-Chief Executive Officer andChief Financial Officer | |||||
| ( Principal Executive Officer and Principal Financial and Accounting Officer | ||||||
| Date: January 18, 2022 | /s/ Guy Gecht | |||||
| Name: | Guy Gecht | |||||
| Title: | Co-Chief Executive Officer | |||||
(Principal Executive Officer) | ||||||
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