References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Epiphany Technology Acquisition Corp. References to our
"management" or our "management team" refer to our officers and directors,
references to the "Sponsor" refer to Epiphany Technology Sponsor LLC. The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the 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" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") 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 Factors section of the
final prospectus for its initial public offering (the "Initial Public Offering")
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. 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 merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses (the "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.
Overview
We are a blank check company formed under the laws of the State of Delaware on
September 28, 2020 for the purpose of effecting a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or similar Business
Combination with one or more target businesses. We intend to effectuate our
Business Combination using cash from the proceeds of our Initial Public Offering
and the concurrent private placement, the proceeds of the sale of our shares in
connection with our 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
acquisition plans. We cannot assure you that our plans to complete a 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, 2022 were
organizational activities, those necessary to prepare for the Initial Public
Offering, described below, and, subsequent to the Initial Public Offering,
searching and identifying a target company for a Business Combination. We do not
expect to generate any operating revenues until after the completion of our
Business Combination. We generate non-operating income in the form of interest
income on investments 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, 2022, we had net income of $1,413,693,
which consists of a change in the fair value warrant liabilities of $273,666 and
interest income on investments held in the Trust Account where the proceeds from
our Initial Public Offering were placed (the "Trust Account") of $1,907,275,
offset by operational costs of $209,723 and a provision for income taxes of
$557,525.
For the nine months ended September 30, 2022, we had net income of $10,559,058,
which consists of a change in the fair value warrant liabilities of $9,441,500
and interest income on investments held in the Trust Account of $2,549,017,
offset by operational costs of $785,256 and a provision for income taxes of
$646,203.
For the three months ended September 30, 2021, we had a net income of
$2,907,067, which consists of a change in the fair value warrant liabilities of
$3,149,833 and interest income on marketable securities held in the Trust
Account of $26,161, offset by formation and operational costs of $268,927.
For the nine months ended September 30, 2021, we had a net income of $5,801,913,
which consists of a change in the fair value warrant liabilities of $7,533,833
and interest income on marketable securities held in the Trust Account of
$82,054, offset by transaction cost allocable to warrants of $1,029,081 and
formation and operational costs of $784,893.
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Liquidity and Capital Resources
On January 12, 2021, we consummated the Initial Public Offering of 40,250,000
units (the "Units" and, with respect to the Class A common stock included in the
Units sold, the "Public Shares"), which included the full exercise by the
underwriters of their over-allotment option to purchase an additional 5,250,000
Units, at $10.00 per Unit, generating gross proceeds of $402,500,000.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 800,000 units (the "Placement Units") to the Sponsor and Cantor
Fitzgerald & Co. ("Cantor") at a price of $10.00 per Unit, generating gross
proceeds of $8,000,000.
Following the Initial Public Offering, the full exercise of the over-allotment
option and the sale of the Placement Units, a total of $402,500,000 was placed
in the Trust Account. We incurred $21,598,082 in transaction costs, including
$6,000,000 of underwriting fees, net of $1,000,000 reimbursed from the
underwriters, $15,137,500 of deferred underwriting fees and $460,582 of other
offering costs.
For the nine months ended September 30, 2022, cash used in operating activities
was $830,575. Net income of $10,559,058 was affected by changes in the fair
value warrant liabilities of $9,441,500 and interest income on investments held
in the Trust Account of $2,549,017. Changes in operating assets and liabilities
provided $439,680 of cash from operating activities.
For the nine months ended September 30, 2021, cash used in operating activities
was $1,020,338. Net income of $5,801,913 was affected by changes in the fair
value of warrant liabilities of $7,533,833, interest earned on investments and
marketable securities held in the Trust Account of $82,054 and transaction costs
allocable to warrants of $1,029,081. Changes in operating assets and liabilities
used $235,445 of cash from operating activities.
As of September 30, 2022, we had cash and investments held in the Trust Account
of $404,882,467. Interest income on the balance in the Trust Account may be used
by us to pay taxes. During the nine months ended September 30, 2022, we withdraw
$280,136 of interest earned on the Trust Account to pay for our franchise tax
obligations. 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 deferred underwriting commissions) to complete our Business Combination.
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.
As of September 30, 2022, we had $72,114 of cash held 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 a Business Combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a 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 a Business Combination, we
would repay such loaned amounts out of the proceeds of the Trust Account
released to us. In the event that a 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. The units would be identical to the Placement Units.
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We do not 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 a 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 Business Combination. Moreover, we may need to obtain additional
financing either to complete our Business Combination or because we become
obligated to redeem a significant number of our public shares upon consummation
of our 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 Business Combination. If we are unable
to complete our 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 Business Combination, if cash on hand is
insufficient, we may need to obtain additional financing in order to meet our
obligations.
Going Concern
We have until January 12, 2023 to consummate a Business Combination. It is
uncertain that we will be able to consummate an initial Business Combination by
this time. If a Business Combination is not consummated by this date, there will
be a mandatory liquidation and subsequent dissolution. Management has determined
that the mandatory liquidation, should a Business Combination not occur, and
potential subsequent dissolution raises substantial doubt about our ability to
continue as a going concern through the liquidation date of January 12, 2023. No
adjustments have been made to the carrying amounts of assets or liabilities
should we be required to liquidate after January 12, 2023. In addition, we may
need to raise additional capital through loans or additional investments from
its Sponsor, stockholders, officers, directors or third parties. Our officers,
directors and Sponsor may, but are not obligated to, loan us funds, from time to
time or at any time, in whatever amount they deem reasonable in their sole
discretion, to meet our working capital needs. Accordingly, we may not be able
to obtain additional financing. If we are unable to raise additional capital, we
may be required to take additional measures to conserve liquidity, which could
include, but not necessarily be limited to, curtailing operations, suspending
the pursuit of a potential transaction, and reducing overhead expenses. We
cannot provide any assurance that new financing will be available to it on
commercially acceptable terms, if at all. These conditions raise substantial
doubt about our ability to continue as a going concern through the liquidation
date of January 12, 2023.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2022.
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 our Sponsor a monthly fee of $15,000 for office space, utilities
and secretarial and administrative support. We began incurring these fees on
January 12, 2021 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 (i) 3.5% of the gross
proceeds of the initial 35,000,000 units sold in our Initial Public Offering, or
$12,250,000, and (ii) 5.5% of the gross proceeds from the units sold pursuant to
the over-allotment option, or $2,887,500. The deferred fee will 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.
Critical Accounting Policies
The preparation of 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 Liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. We evaluate all of our financial instruments, including
issued stock purchase warrants, to determine if such instruments are derivatives
or contain features that qualify as embedded derivatives, pursuant to ASC 480
and ASC Topic 815, "Derivatives and Hedging" ("ASC 815"). 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
tore-measurement at each balance sheets date until exercised, and any change in
fair value is recognized in our statements of operations. The fair value of our
private placement warrants was determined using a binomial lattice model
incorporating the Cox-Ross-Rubenstein methodology. The public warrants for
periods where no observable traded price was available are valued using a
binomial lattice model incorporating the Cox-Ross-Rubenstein methodology. 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.
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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 the Financial Accounting Standards Board's
("FASB") ASC Topic 480, "Distinguishing Liabilities from Equity." Shares of
Class A common stock subject to mandatory redemption, if any, are classified as
a liability instrument and are 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 Class A common stock features certain redemption
rights that are considered to be outside of our 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' deficit section of our balance sheets. We recognize changes
in redemption value immediately as they occur and adjust the carrying value of
the Class A common stock subject to possible redemption 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.
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Net Income Per share of Common Stock
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. Net income Per share of Common Stock is computed by dividing
net income by the weighted average number of common shares outstanding for the
period. Accretion associated with the redeemable shares of Class A common stock
is excluded from income Per share of Common Stock as the redemption value
approximates fair value.
Recent Accounting Standards
In August 2020, the 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. As a smaller reporting company, ASU 2020-06 is
effective January 1, 2024 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. We are currently assessing the impact,
if any, that ASU 2020-06 would have on our financial position, results of
operations or cash flows. We have not adopted this guidance as of September 30,
2022.
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 condensed financial statements.
Factors That May Adversely Affect Our Results of Operations
Our results of operations and our ability to complete a 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 the 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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