All statements other than statements of historical fact included in this report,
including, without limitation, statements in this section, regarding our
financial position, business strategy and the plans and objectives of management
for future operations, are forward-looking statements. When used in this report,
words such as "anticipate," "believe," "estimate," "expect," "intend" and
similar expressions, as they relate to us or our management, identify
forward-looking statements. Such forward-looking statements are based on the
beliefs of our management, as well as assumptions made by, and information
currently available to, our management. Actual results could differ materially
from those contemplated by the forward-looking statements as a result of certain
factors detailed in our filings with the SEC. All subsequent written or oral
forward-looking statements attributable to us or persons acting on our behalf
are qualified in their entirety by this paragraph.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and the notes thereto contained elsewhere in this report. Certain
information contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties.
Overview
We are a blank check company incorporated in Delaware on September 18, 2020. We
were formed for the purpose of effecting an initial business combination. We are
an emerging growth company and, as such, the company is subject to all of the
risks associated with emerging growth companies.
Sponsor and Financing
Our sponsor is 7GC & Co. Holdings LLC, a Delaware limited liability company. The
registration statement for our initial public offering was declared effective on
December 22, 2020. On December 28, 2020, we consummated the initial public
offering of 23,000,000 units, including 3,000,000 additional units to cover
over-allotments, at $10.00 per unit, generating gross proceeds of
$230.0 million, and incurring offering costs of approximately $13.2 million, of
which approximately $8.1 million was for deferred underwriting commissions.
Simultaneously with the closing of our initial public offering, we consummated
the private placement of 7,350,000 private placement warrants at a price of
$1.00 per private placement warrant to our sponsor, generating proceeds of
approximately $7.4 million.
Trust Account
Upon the closing of our initial public offering and the private placement,
$230.0 million ($10.00 per unit) of the net proceeds of our initial public
offering and certain of the proceeds of the private placement was placed in the
trust account, with Continental acting as trustee, and invested in U.S.
government securities, within the meaning set forth in Section 2(a)(16) of the
Investment Company Act, with a maturity of 185 days or less, or in money market
funds meeting certain conditions of Rule 2a-7 of the Investment Company Act,
which invested only in direct U.S, government treasury obligations.
With respect to the regulation of SPACs like our company, on March 30, 2022, the
SEC issued proposed rules relating to, among other items, the circumstances in
which SPACs could become subject to regulation under the Investment Company Act.
To mitigate the risk that we might be deemed to be an investment company for
purposes of the Investment Company Act, in December 2022 we instructed
Continental, the trustee of the trust account, to liquidate the investments held
in the trust account and instead to hold the funds in the trust account in an
interest-bearing demand deposit account until the earlier of consummation of our
initial business combination or liquidation. This may reduce the amount of
interest earned by the funds in the trust account. As of December 31, 2022, the
funds in the trust account are held solely in an interest-bearing demand deposit
account.
Initial Business Combination
If we are unable to complete an initial business combination by June 28, 2023,
or such earlier date as determined by the Board (the "Combination Period"), we
will (i) cease all operations except for the purpose of winding up, (ii) as
promptly as reasonably possible but no 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 us to pay
taxes (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 liquidation distributions, if any), subject to applicable law,
and (iii) as promptly as reasonably possible following such redemption, subject
to the approval of the remaining stockholders and our board of directors,
proceed to commence our voluntary liquidation and thereby our formal
dissolution, subject in each case to our obligations to provide for claims of
creditors and the requirement of applicable law. The representative of the
underwriters has agreed to waive its rights to the deferred underwriting
commission held in the trust account in the event we do not complete an initial
business combination within the Combination Period, and, in such event, such
amounts will be included with the 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 our initial public offering price
per unit ($10.00).
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Stockholders Meeting, Trust Account Redemptions, Extension of Combination Period
and Additional Trust Deposits
At the 2022 Special Meeting held on December 21, 2022, the Company's
stockholders approved the Extension, which extended the date by which we must
consummate our initial business combination from December 28, 2022, or within 24
months from the closing of our initial public offering, to June 28, 2023, or
such earlier date as determined by our board. In connection with the Extension,
stockholders holding 17,923,223 public shares exercised their right to redeem
such shares for a pro rata portion of the funds in our trust account. Following
redemptions, we have 5,076,777 public shares outstanding. After the satisfaction
of such redemptions, the balance of the trust account was approximately
$52.1 million.
In connection with the Extension, our sponsor agreed to deposit into the trust
account an aggregate of $900,000 plus $300,000 for each of the three subsequent
calendar months commencing on March 29, 2023. As of December 31, 2022, $900,000
was deposited into the trust account for the benefit of the public stockholders.
We issued the Extension Note to our sponsor in connection with these fundings.
Proposed Business Combination
On December 8, 2022, the Company entered in to the Banzai Merger Agreement with
Banzai and the Merger Subs. Pursuant to the terms of the Banzai Merger
Agreement, the parties thereto will enter into the Banzai Business Combination
and the other Banzai Transactions, pursuant to which, among other things,
(i) First Merger Sub will merge with and into Banzai, with Banzai surviving as
an indirect wholly owned subsidiary of the company, and (ii) immediately after
the First Merger, Banzai will merge with and into Second Merger Sub, with the
Second Merger Sub surviving as a wholly owned subsidiary of the company. At the
closing of the Banzai Transactions, the company will change its name to Banzai
International, Inc., and its common stock is expected to be listed on Nasdaq.
The Banzai Business Combination is expected to be consummated after the required
approval by the stockholders of the company and the satisfaction of certain
other conditions described in the Banzai Merger Agreement. For more information
about the Banzai Business Combination, see "Item 1. Business."
Liquidity and Going Concern
As of December 31, 2022, we had approximately $1.0 million in cash and a working
capital deficit of approximately $3.2 million (excluding the convertible
promissory note - related party). During the year ended December 31, 2022,
approximately $1.1 million was withdrawn from the Trust Account to pay tax
obligations, and as of December 31, 2022, approximately $111,000 of tax
obligations can be withdrawn from the Trust Account.
Subsequent to the consummation of our initial public offering, our liquidity has
been satisfied through the net proceeds from the consummation of our initial
public offering and the private placement held outside of the trust account and
loans from our sponsor. Additionally, during the year ended December 31, 2022,
approximately $1.1 million of the interest earned on our investments held in the
trust account was requested and released to us in order to pay our tax
obligations. In addition, in order to finance transaction costs in connection
with an initial business combination, our sponsor or an affiliate of our
sponsor, or certain of our officers and directors may, but are not obligated to,
provide us with Working Capital Loans. As of December 31, 2021, there were no
Working Capital Loans outstanding.
On December 21, 2022, we issued the Extension Note to our sponsor, which
provides for borrowings from time to time of up to an aggregate of $2,300,000.
Up to $500,000 of the Extension Note may be drawn and used for Working Capital
Drawdowns and up to $1,800,000 of the Extension Note may be drawn and used for
Extension Drawdowns. As of December 31, 2022, there was $200,000 outstanding as
a Working Capital Drawdown under the Extension Note and $900,000 outstanding as
an Extension Drawdown. The Extension Note does not bear interest and is
repayable in full upon the earlier of the consummation of an initial business
combination or the date the Company liquidates the trust account upon the
failure to consummate an initial business combination within the requisite time
period. Upon the consummation of an initial business combination, our sponsor
shall have the option, but not the obligation, to convert the principal balance
of the Extension Note, in whole or in part, into that number of Converted Shares
equal to the principal amount of the Extension Note so converted divided by
$10.00. The terms of the Converted Shares, if issued, will be identical to the
terms of our public shares, except that the Converted Shares (x) will not be
registered under the Securities Act and (y) will be subject to the terms of that
certain letter agreement, dated as of December 22, 2020, among our Company, our
sponsor, and certain other parties thereto. The Extension Note is subject to
customary events of default, the occurrence of which automatically trigger the
unpaid principal balance of the Extension Note and all other sums payable with
regard to the Extension Note becoming immediately due and payable.
In December 2022, we instructed Continental to liquidate the investments held in
the trust account and instead to hold the funds in the trust account in an
interest-bearing demand deposit account at Morgan Stanley, with Continental
continuing to act as trustee, until the earlier of the consummation of our
initial business combination or our liquidation. As a result, following the
liquidation of investments in the trust account, the remaining proceeds from the
initial public offering and private placement are no longer invested in U.S.
government securities or money market funds.
We have incurred and expect to incur significant costs in pursuit of the Banzai
Business Combination, which resulted in our accrued expenses being greater than
the cash balance in our operating bank account. In connection with our
assessment of going concern considerations in accordance with FASB ASC Topic
205-40, "Presentation of Financial Statements-Going Concern," management has
determined that the working capital deficit and the mandatory liquidation date
and subsequent dissolution raise substantial doubt about our ability to continue
as a going concern. If we are unable to complete an initial business combination
by June 28, 2023, or such earlier date as determined by our board, then we will
cease all operations except for the purpose of liquidating. Management intends
to close an initial business transaction prior to the termination date. No
adjustments have been made to the carrying amounts of assets or liabilities
should we be required to liquidate after June 28, 2023, or such earlier date as
determined by our board.
Various social and political circumstances in the United States and around the
world (including wars and other forms of conflict, including rising trade
tensions between the United States and China, and other uncertainties regarding
actual and potential shifts in the United States and foreign, trade, economic
and other policies with other countries, terrorist acts, security operations and
catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes
and global health epidemics), may also contribute to increased market volatility
and economic uncertainties
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or deterioration in the United States and worldwide. Specifically, the
continuing conflict between Russia and Ukraine and resulting market volatility
could adversely affect the Company's ability to complete an initial business
combination. In response to the conflict between Russia and Ukraine, the United
States and other countries have imposed sanctions or other restrictive actions
against Russia. Any of the above factors, including sanctions, export controls,
tariffs, trade wars and other governmental actions, could have a material
adverse effect on our ability to complete an initial business combination and
the value of the Company's securities.
Management continues to evaluate the impact of these types of risks and has
concluded that while it is reasonably possible that these risks and
uncertainties could have a negative effect on our 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 accompanying
consolidated financial statements. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
On August 16, 2022, the Inflation Reduction Act of 2022 (the "IR Act") was
signed into federal law. The IR Act provides for, among other things, a new U.S.
federal 1% excise tax on certain repurchases of stock by publicly traded U.S.
domestic corporations and certain U.S. domestic subsidiaries of publicly traded
foreign corporations occurring on or after January 1, 2023. The excise tax is
imposed on the repurchasing corporation itself, not its shareholders from which
shares are repurchased. The amount of the excise tax is generally 1% of the fair
market value of the shares repurchased at the time of the repurchase. However,
for purposes of calculating the excise tax, repurchasing corporations are
permitted to net the fair market value of certain new stock issuances against
the fair market value of stock repurchases during the same taxable year. In
addition, certain exceptions apply to the excise tax. The U.S. Department of the
Treasury (the "Treasury") has been given authority to provide regulations and
other guidance to carry out and prevent the abuse or avoidance of the excise
tax. Any share redemption or other share repurchase that occur after
December 31, 2022, in connection with an initial business Combination, extension
vote or otherwise, may be subject to the excise tax. Whether and to what extent
our would be subject to the excise tax in connection with a business
combination, extension vote or otherwise will depend on a number of factors,
including (i) the fair market value of the redemptions and repurchases in
connection with the business combination, extension or otherwise, (ii) the
structure of the business combination, (iii) the nature and amount of any "PIPE"
or other equity issuances in connection with the business combination (or
otherwise issued not in connection with the business combination but issued
within the same taxable year of the business combination) and (iv) the content
of regulations and other guidance from the Treasury. In addition, because the
excise tax would be payable to us and not by the redeeming holder, the mechanics
of any required payment of the excise tax have not been determined. In order to
mitigate the current uncertainty surrounding the implementation of the IR Act,
our sponsor, or a designee, agreed to indemnify us for any excise tax
liabilities with respect to any future redemptions that occur after December 31,
2022 and prior to or in connection with an initial business combination or
liquidation of the Company. The foregoing would mitigate a potential reduction
in the cash available on hand to complete a business combination and in our
ability to complete a business combination.
Results of Operations
Our entire activity since inception up to December 31, 2022 was in preparation
for our formation and our initial public offering and in connection with
identifying a target company for an initial business combination. We will not be
generating any operating revenues until the closing and completion of our
initial business combination.
For the year ended December 31, 2022, we had net income of approximately
$9.4 million, which consisted of approximately $10.3 million in income from the
change in fair value of derivative warrant liabilities, and approximately
$3.2 million in gain on investments held in the trust account, partly offset by
approximately $3.0 million in general and administrative expenses, approximately
$226,000 in franchise tax expense and approximately $766,000 in income tax
expenses.
For the year ended December 31, 2021, we had net income of approximately
$11.6 million, which consisted of approximately $14.3 million in income from the
change in fair value of derivative warrant liabilities, and approximately
$23,000 in gain on investments held in the Trust Account, partly offset by
approximately $2.5 million in general and administrative expenses and
approximately $200,000 in franchise tax expense.
Contractual Obligations
Registration Rights
The holders of the founder shares, private placement warrants and any warrants
that may be issued upon conversion of the Working Capital Loans (and any shares
of Class A common stock issuable upon the exercise of the private placement
warrants and warrants that may be issued upon conversion of Working Capital
Loans and upon conversion of the founder shares) are entitled to registration
rights pursuant to a registration rights agreement signed on the effective date
of the IPO registration statement. The holders of these securities are entitled
to make up to three demands, excluding short form demands, that we register such
securities. In addition, the holders have certain "piggy-back" registration
rights with respect to registration statements filed subsequent to the
consummation of an initial business combination. The registration rights
agreement does not contain liquidating damages or other cash settlement
provisions resulting from delays in registering our securities. We will bear the
expenses incurred in connection with the filing of any such registration
statements.
Underwriting Agreement
The underwriters were entitled to a cash underwriting discount of 2.0% of the
gross proceeds of our initial public offering, or $4.6 million in the aggregate.
In addition, the representative of the underwriters is entitled to a deferred
fee of 3.5% of the gross proceeds of our initial public offering, or
approximately $8.1 million. The deferred fee will become payable to the
representative of the underwriters from the amounts held in the trust account
solely in the event that we complete an initial business combination, subject to
the terms of the underwriting agreement.
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Critical Accounting Policies and Estimates
This management's discussion and analysis of our financial condition and results
of operations is based on our consolidated financial statements, which have been
prepared in accordance with GAAP. The preparation of these consolidated
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities in our consolidated financial
statements. On an ongoing basis, we evaluate our estimates and judgments,
including those related to fair value of financial instruments and accrued
expenses. We base our estimates on historical experience, known trends and
events and various other factors that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. We have identified the following as our critical
accounting policies:
Derivative Warrant Liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. We evaluate all of our financial instruments, including
issued stock purchase warrants, to determine if such instruments are derivatives
or contain features that qualify as embedded derivatives, pursuant to ASC Topic
480 "Distinguishing Liabilities from Equity" ("ASC 480") and ASC Topic 815,
"Derivatives and Hedging" ("ASC 815"). The classification of derivative
instruments, including whether such instruments should be recorded as
liabilities or as equity, is reassessed at the end of each reporting period.
The public warrants and the private placement warrants are recognized as
derivative liabilities in accordance with ASC 815. Accordingly, the company
recognizes the warrant instruments as liabilities at fair value and adjusts the
instruments to fair value at each reporting period. The liabilities are subject
to re-measurement at each consolidated balance sheet date until exercised, and
any change in fair value is recognized in our consolidated statements of
operations. The fair value of the public warrants issued in our initial public
offering and the private placement warrants were initially measured at fair
value using a Monte Carlo simulation model and subsequently, the fair value of
the private placement warrants through September 30, 2022 have been estimated
using a Monte Carlo simulation model at each measurement date and have since
then relied on the quoted listed trading price of the public warrants. The fair
value of the public warrants issued in connection with our initial public
offering have subsequently been measured based on the listed market price of
such warrants. The determination of the fair value of the warrant liability may
be subject to change as more current information becomes available and
accordingly the actual results could differ significantly. Derivative warrant
liabilities are classified as non-current liabilities as their liquidation is
not reasonably expected to require the use of current assets or require the
creation of current liabilities.
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 480. Shares of Class A common stock subject
to mandatory redemption (if any) are classified as liability instruments and are
measured at fair value. Shares of conditionally redeemable Class A common stock
(including Class A common stock that feature redemption rights that are either
within the control of the holder or subject to redemption upon the occurrence of
uncertain events not solely within our control) are classified as temporary
equity. At all other times, shares of Class A common stock are classified as
stockholders' equity. Our Class A common stock features certain redemption
rights that are considered to be outside of our control and subject to the
occurrence of uncertain future events. Accordingly, as of December 31, 2022 and
2021, 5,076,777 and 23,000,000 shares of Class A common stock subject to
possible redemption, respectively, are presented as temporary equity, outside of
the stockholders' deficit section of our consolidated balance sheets.
Under ASC 480-10-S99, we have 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 the reporting period. This method would
view the end of the reporting period as if it were also the redemption date of
the security. Effective with the closing of our initial public offering, we
recognized the accretion from initial book value to redemption amount, which
resulted in charges against additional paid-in capital (to the extent available)
and accumulated deficit. Subsequent changes result from Extension payments
deposited in the Trust Account. The changes in the carrying value of the common
stock, subject to possible redemption, result in charges against additional
paid-in capital (to the extent available) and accumulated deficit.
Net Income Per Common Stock
We comply with accounting and disclosure requirements of FASB ASC Topic 260,
"Earnings Per Share." We have two classes of shares, which are referred to as
Class A common stock and Class B common stock. Income and losses are shared pro
rata between the two classes of shares. This presentation assumes a business
combination as the most likely outcome. Net income per common share is
calculated by dividing net income by the weighted average number of shares of
common stock outstanding for the respective period.
The calculation of diluted net income per common stock does not consider the
effect of the warrants issued in connection with our initial public offering and
the private placement to purchase an aggregate of 18,850,000 shares of Class A
common stock in the calculation of diluted income per share, because their
exercise is contingent upon future events. As a result, diluted net income per
share is the same as basic net income per share for the years ended December 31,
2022 and 2021. Accretion associated with the redeemable Class A common stock is
excluded from earnings per share as the redemption value approximates fair
value.
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Recent Accounting Standards
Our management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material impact on our
consolidated financial statements.
Off-Balance Sheet Arrangements
As of December 31, 2022 and 2021, we did not have any off-balance sheet
arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
JOBS Act
The JOBS Act contains provisions that, among other things, relax certain
reporting requirements for qualifying public companies. We qualify as an
"emerging growth company" and under the JOBS Act are allowed to comply with new
or revised accounting pronouncements based on the effective date for private
(not publicly traded) companies. We are electing to delay the adoption of new or
revised accounting standards, and as a result, we may not comply with new or
revised accounting standards on the relevant dates on which adoption of such
standards is required for non-emerging growth companies. As a result, the
consolidated financial statements may not be comparable to companies that comply
with new or revised accounting pronouncements as of public company effective
dates.
Additionally, we are in the process of evaluating the benefits of relying on the
other reduced reporting requirements provided by the JOBS Act. Subject to
certain conditions set forth in the JOBS Act, if, as an emerging growth company,
we choose to rely on such exemptions we may not be required to, among other
things, (i) provide an auditor's attestation report on our system of internal
controls over financial reporting pursuant to Section 404, (ii) provide all of
the compensation disclosure that may be required of non-emerging growth public
companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act,
(iii) comply with any requirement that may be adopted by the PCAOB regarding
mandatory audit firm rotation or a supplement to the auditor's report providing
additional information about the audit and the consolidated financial statements
(auditor discussion and analysis) and (iv) disclose certain executive
compensation related items such as the correlation between executive
compensation and performance and comparisons of the CEO's compensation to median
employee compensation. These exemptions will apply for a period of five years
following the completion of our initial public offering or until we are no
longer an emerging growth company, whichever is earlier.
Factors That May Adversely Affect Our Results of Operations
Our results of operations and our ability to complete an initial business
combination may be adversely affected by various factors that could cause
economic uncertainty and volatility in the financial markets, many of which are
beyond our control. Our business could be impacted by, among other things,
downturns in the financial markets or in economic conditions, increases in oil
prices, inflation, increases in interest rates, supply chain disruptions,
declines in consumer confidence and spending, the ongoing effects of the
COVID-19 pandemic, including resurgences and the emergence of new variants, and
geopolitical instability, such as the military conflict in Ukraine. We cannot at
this time fully predict the likelihood of one or more of the above events, their
duration or magnitude or the extent to which they may negatively impact our
business and our ability to complete an initial business combination.
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