ANZU SPECIAL ACQUISITION CORP I Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-K) – Marketscreener.com

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and related notes thereto and other financial information included elsewhere in this Annual Report. This section of the Annual Report discusses activity as of and for the years ended December 31, 2022 and 2021. For discussion on activity for the period from December 28, 2020 (inception) through December 31, 2020 and period-over-period analysis on results for the year ended December 31, 2021 to the period from December 28, 2020 (inception) through December 31, 2020, refer to Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the year ended December 31, 2021. In addition to historical financial information, some of the information contained in the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. You should
review the “Risk Factors” section of this Annual Report for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a blank check company incorporated as a Delaware corporation on December 28, 2020 for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses, which we refer to as a business combination. We completed our initial public offering on March 4, 2021, which is described below under “Liquidity and Capital Resources.”
While we may pursue a business combination target in any industry, we currently intend to concentrate our efforts in identifying high-quality businesses with transformative technologies. Within this focus, we seek to pursue opportunities with market-leading companies, including from corporate spinouts, closely-held companies, and institutionally-backed businesses. We believe we will be able to provide significant value due to our ability to drive growth, global scaling and profitability in companies, along with our flexibility in understanding and addressing complex business situations and structures.
Since completing our initial public offering, we have reviewed, and continue to review, a number of opportunities to enter into a business combination with an operating business, but we are not able to determine at this time whether we will complete the Proposed Business Combination (as defined below) or another business combination with any of the target businesses that we have reviewed or with any other target business. We intend to effectuate a business combination using cash from the remaining proceeds of our initial public offering and the sale of the Private Placement Warrants (as defined below), our capital stock, debt, or a combination of cash, stock and debt.
Recent Developments
Extension
As previously disclosed, we reconvened our special meeting of stockholders on February 28, 2023, which was originally scheduled for February 9, 2023, adjourned until February 21, 2023 and further adjourned until February 28, 2023 (the “Special Meeting”). At the Special Meeting, our stockholders approved a proposal to amend our amended and restated certificate of incorporation to extend the date by which we have to consummate a business combination from March 4, 2023 to September 30, 2023 or such earlier date as determined by our board of directors (the “Extension”). Following the approval of the Extension, we waived our right under the amended and restated certificate of incorporation to withdraw up to $100,000 of interest from the trust account to pay dissolution expenses in the event of our liquidation.
In connection with the Special Meeting, stockholders holding 38,187,226 shares of Class A common stock exercised their right to redeem their shares for a pro rata portion of the funds in the trust account. As a result, approximately $387.6 million (approximately $10.15 per share of Class A common stock) was removed from the trust account to pay such holders and approximately $45.1 million remained in the trust account. Following the redemptions, the Company has 4,312,774 shares of Class A common stock outstanding.
In connection with the Special Meeting, the Company and the sponsor entered into extension support agreements with several unaffiliated third parties, pursuant to which each third party agreed to (i) notify the sponsor at least three business days prior to the Special Meeting regarding the number of shares of the Company’s Class A common stock that such third party intended to redeem and the number of shares of Class A common stock that such third party intended to retain in connection with the Special Meeting and (ii) vote (and to cause its controlled affiliates to vote) all shares of Class A common stock beneficially owned them on the record date for the Special Meeting in favor of the Extension. In exchange, the sponsor agreed to transfer, immediately following consummation of a business combination, 20,000 shares of the Company’s Class B common stock to each third party for every 100,000 shares Class A common stock held by such third party immediately following the Special Meeting, up to a maximum of 100,000 shares of Class B common stock to each third party.
As previously disclosed, we have entered into a letter of intent (the “Letter of Intent”) regarding a potential business combination (the “Proposed Business Combination”) with Envoy Medical Corporation (“Envoy”), a U.S.-based medical device company that has developed and is in early clinical testing of an implanted device that already received “Breakthrough Device Designation” from the Food and Drug Administration. We currently expect to execute the definitive documents in April 2023 and close late in the second quarter or early in the third quarter of 2023. The Letter of Intent contains certain conditions to the closing of the Proposed Business Combination, including but not limited to the Company having more than $40.0 million in the trust account immediately prior to any redemptions at the closing of the Proposed Business Combination. There can be no assurance we will execute definitive agreements or close on the timeline currently expected or at all.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities from inception through December 31, 2022 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and those in connection with our search for a business combination. We do not expect to generate any operating revenues until after the completion of our initial business combination. We expect to generate non-operating income in the form of interest income on marketable securities held after our initial public offering. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
For the year ended December 31, 2022, we had a net income of $19,233,710, which consists of an increase in fair value of warrant liabilities of $19,997,306 and interest income earned on marketable securities held in the trust account of $6,125,038, and forgiveness of deferred offering costs of $150,262 and income tax expense of $1,501,714, offset by operating costs of $4,888,124 and a decrease in fair value of the FPAs of $649,058.
For the year ended December 31, 2021, we had a net loss of $251,633, which consists of operating costs of $5,204,970, further contributed by offering costs allocated to warrant liabilities of $782,812, offset by a change in fair value of warrant liabilities of $5,465,695, change in fair value of the FPAs of $232,789 and interest income earned on marketable securities held in the trust account of $37,665.
Liquidity and Capital Resources
As of December 31, 2022, we had $107,773 in our operating bank account and negative working capital of $7,089,334, which was composed primarily of accrued expenses in connection with searching for target businesses, performing business due diligence and negotiating business combination agreements, including in connection with the Proposed Business Combination.
Our liquidity needs up to the completion of our initial public offering on March 4, 2021 had been satisfied through a payment from our sponsor of $25,000 for 7,187,500 shares (the “Founder Shares”) of our Class B common stock and an aggregate of $212,487 in advances from a related party. These advances were repaid and are no longer available.
On March 4, 2021, we consummated our initial public offering of 42,000,000 units (the “Units”) and, on April 14, 2021, we issued an additional 500,000 Units in connection with the underwriters’ partial exercise of their over-allotment option. The Units were sold at a price of $10.00 per Unit, generating aggregate gross proceeds of $425,000,000. Simultaneously with the closing of our IPO, we consummated the sale of 12,400,000 warrants (the “Private Placement Warrants”) to our sponsor and, on April 14, 2021, simultaneously with the closing of the underwriters’ over-allotment option, we issued an additional 100,000 Private Placement Warrants to our sponsor. The Private Placement Warrants were sold at a price of $1.00 per Private Placement Warrant, generating aggregate gross proceeds of $12,500,000.
Following the initial public offering, the partial exercise of the over-allotment option and the sale of the Private Placement Warrants, a total of $425,000,000 of the net proceeds from the sale of the Units and Private Placement Warrants was deposited in a U.S.-based trust account established for the benefit of the Company’s public stockholders maintained by American Stock Transfer & Trust Company, acting as trustee. Transaction costs of the initial public offering (including costs related to the closing of the underwriters’ over-allotment option) amounted to $24,012,335, consisting of $8,500,000 of underwriting discounts and commissions, $14,875,000 of deferred underwriting discounts and commissions and $637,335 of other offering costs. In September 2022, we
reversed $4,462,500 of deferred underwriting fees, as certain underwriters resigned from their role in any potential future business combination and thereby waived their entitlement to these fees. In February 2023, the remaining underwriter resigned from its role in the Proposed Business Combination and thereby waived its entitlement to $10,412,500 in deferred underwriting fees solely with respect to the Proposed Business Combination. In addition, as of March 24, 2023, $31,944 of cash was held outside the trust account and is available for working capital purposes.
We intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on the trust account, which interest shall be net of taxes payable, to complete our business combination. We may make permitted withdrawals from the trust account to pay our taxes, including franchise taxes and income taxes. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our 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.
We intend to use 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, structure, negotiate and complete a business combination, and to pay taxes to the extent the interest earned on the trust account is not sufficient to pay our taxes.
In order to fund working capital deficiencies or finance transaction costs in connection with an intended business combination, our sponsor or an affiliate of our sponsor or certain of our directors and officers may, but are not obligated to, loan us funds as may be required. If we complete our business combination, we may repay such loaned amounts out of the proceeds of the trust account released to us. Otherwise, such loans may be repaid only out of funds held outside the trust account. In the event that our 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 to repay such loaned amounts. Up to $1,500,000 of such loans may be convertible into warrants at a price of $1.00 per warrant at the option of the lender. The warrants would be identical to the Private Placement Warrants issued to our sponsor. As of December 31, 2022 and 2021, there were amounts of $1,500,000 and $0 outstanding under such working capital loans, respectively.
On March 29, 2022, we issued an unsecured promissory note (as amended, the “2022 Promissory Note”) to the sponsor, pursuant to which the sponsor may provide up to $1,500,000 to us as a working capital loan (the “2022 Working Capital Loan”). The 2022 Working Capital Loan does not bear interest and was repayable in full upon on the earlier of (i) March 29, 2023 or (ii) the consummation of our initial business combination. On March 21, 2023, we and the sponsor amended the 2022 Promissory Note to extend the maturity date of the 2022 Working Capital Loan to the earlier of (i) December 31, 2023 or (ii) the consummation of our initial business combination. Upon the consummation of a business combination, the sponsor shall have the option, but not the obligation, to convert the principal balance of the 2022 Working Capital Loan, in whole or in part, into warrants at a price of $1.00 per warrant. The 2022 Working Capital Loan is subject to customary events of default, the occurrence of which automatically trigger the unpaid principal balance of the 2022 Working Capital Loan and all other sums payable with regard to the 2022 Working Capital Loan becoming immediately due and payable.
On March 21, 2023, we issued an additional unsecured promissory note (the “2023 Promissory Note”) to the sponsor, pursuant to which the sponsor may provide up to $1,190,000 to us as a working capital loan (the “2023 Working Capital Loan”). The 2023 Working Capital Loan does not bear interest and is repayable in full upon on the earlier of (i) December 31, 2023 or (ii) the consummation of our initial business combination. The 2023 Working Capital Loan is subject to customary events of default, the occurrence of which automatically trigger the unpaid principal balance of the 2023 Working Capital Loan and all other sums payable with regard to the 2023 Working Capital Loan becoming immediately due and payable.
We may need to obtain additional financing to complete our business combination, in which case we may issue additional securities or incur debt in connection with such business combination, including pursuant to the Forward Purchase Agreements described below.
On December 6, 2021, we entered into the Forward Purchase Agreements with the Forward Purchasers, pursuant to which the Forward Purchasers have agreed, subject to certain conditions, to purchase the following:
up to an aggregate of $80,000,000 of unsecured convertible notes of the Company
(“Convertible Notes”) immediately prior to the closing of our initial business
combination (the “Business Combination Closing”). The terms of the Convertible
Notes, including the terms on which the Convertible Notes will convert into
? shares of our Class A common stock, will be negotiated by us and the Forward
Purchasers, each acting in their sole discretion, prior to the issuance of the
Convertible Notes. The aggregate total of up to $80,000,000 from the issuance
of the Convertible Notes would be received by us upon the Business Combination
Closing.
up to an aggregate of 4,000,000 forward purchase securities of the Company (the
Forward Purchase Securities“) for $10.00 per Forward Purchase Security, or an
aggregate total of up to $40,000,000, immediately prior to the Business
Combination Closing. Each Forward Purchase Security would consist of one share
? of our Class A common stock issued and sold by us and one-sixth of one warrant
transferred by the sponsor for no value, with each whole redeemable warrant
exercisable to purchase one share of our Class A common stock for $11.50 per
share. The aggregate total of up to $40,000,000 from the issuance of the
Forward Purchase Securities would be received by us upon the Business
Combination Closing.
The shares of our Class A common stock included in the Forward Purchase Securities would have the same terms as our publicly traded shares of Class A common stock. The warrants included in the Forward Purchase Securities would have the same terms as the Private Placement Warrants.
In addition, under the Forward Purchase Agreements, if we determine to raise capital by the private placement of equity securities in connection with the Business Combination Closing (the “New Equity Securities“), we shall first make an offer to the Forward Purchasers to purchase the securities then offered on the same terms as such New Equity Securities, in an aggregate amount of up to $120,000,000. Any commitment by any Forward Purchaser under any of the Forward Purchase Agreements to purchase New Equity Securities is subject to and conditioned upon the acceptance of our offer by such Forward Purchaser, following our notification to such Forward Purchaser of our intention to offer the New Equity Securities.
Pursuant to the Forward Purchase Agreements, the Forward Purchasers will be entitled to registration rights with respect to shares of our Class A common stock underlying the Convertible Notes, the shares of our Class A common stock and warrants included in the Forward Purchase Securities, and the New Equity Securities.
Each Forward Purchase Agreement contains representations and warranties by each party and conditions to closing, including the approval of the Forward Purchasers’ respective Investment Committees to consummate the purchase of the Convertible Notes and the Forward Purchase Securities, as applicable, in connection with a potential future business combination. Such Investment Committees are under no obligation to ultimately agree to purchase the securities issuable under the Forward Purchase Agreements. The terms of each Forward Purchase Agreement for the Convertible Notes and the terms of each Forward Purchase Agreement for the Forward Purchase Securities are substantively the same.
Contractual Obligations
As of December 31, 2022, we did not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay an affiliate of our sponsor a monthly fee of $40,521 for office space, administrative and support services, provided to the Company. We began incurring these fees on March 1, 2021 and will continue to incur these fees monthly until the earlier of the completion of a business combination and the Company’s liquidation.
The underwriters were entitled to a deferred discount of $0.35 per unit, or $14,875,000 in the aggregate. The deferred discount would become payable to the underwriters from the amounts held in the Trust Account solely in the event that we complete a Business Combination, subject to the terms of the underwriting agreement. On September 30, 2022, $4,462,500 of the $14,875,000 deferred underwriter discount was forgiven. In February 2023, the remaining underwriter resigned from its role in the Proposed Business Combination and thereby waived its entitlement to $10,412,500 in deferred underwriting fees solely with respect to the Proposed Business Combination.
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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:
i) Warrant Liabilities
We account for the warrants issued in connection with our Initial Public Offering in accordance with the guidance contained in Accounting Standards Codification (“ASC”) 815 under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, we classify the 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 statements of operations. 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 of the Public Warrants as of each relevant date.
ii) 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. 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, Class A common stock subject to possible redemption is presented as temporary equity, outside of the stockholders’ deficit section of our balance sheets. The Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying value of the security to equal the redemption value at the end of each reporting period. This method would view the end of the reporting period as if it were also the redemption date for the security.
iii) Net Income (Loss) per Common Share
Net loss per common share is computed by dividing net loss by the weighted average number of common stock outstanding during the year. 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.
iv) Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board issued Accounting Standard Update (“ASU”) No. 2020-06, “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity” (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU 2020-06 also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations or cash flows.
The Company’s management does not believe that any other recently issued, but not yet effective, accounting standards updates, if currently adopted, would have a material effect on the Company’s financial statements.
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