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
Company's final prospectus for its 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.
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
initial 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 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
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 March 31, 2021 were organizational
activities, those necessary to prepare for the Initial Public Offering,
described below, and, subsequent to the Initial Public Offering, identifying a
target company for a 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 March 31, 2021, we had a net income of $6,989,174,
which consists of a change in the fair value warrant liabilities $8,218,000 and
interest income on marketable securities held in the Trust Account of $37,938,
offset by transaction cost allocable to warrants of $1,029,081 and general and
administrative expenses of $237,683.
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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 Epiphany Technology Sponsor
LLC (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 $10,000,000 reimbursed from the
underwriters, $15,137,500 of deferred underwriting fees and $460,582 of other
offering costs.
For the three months ended March 31, 2021, cash used in operating activities was
$708,199. Net income of $6,989,174, was affected by changes in the fair value of
warrant liabilities of $8,218,000, interest earned on investments and marketable
securities held in the Trust Account of $37,938 and transaction costs allocable
to warrants of $1,029,81. Changes in operating assets and liabilities used
$470,516 of cash from operating activities.
As of March 31, 2021, we had investments held in the Trust Account of
$402,500,000. Interest income on the balance in the Trust Account may be used by
us to pay taxes. During the three months ended March 31, 2021, we did not
withdraw 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 initial Business
Combination. 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 March 31, 2021, we had $857,219 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 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 initial Business
Combination. Subject to compliance with applicable securities laws, we would
only complete such financing simultaneously with the completion of our initial
Business Combination. If we are unable to complete our initial Business
Combination because we do not have sufficient funds available to us, we will be
forced to cease operations and liquidate the Trust Account. In addition,
following our initial Business Combination, if cash on hand is insufficient, we
may need to obtain additional financing in order to meet our obligations.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of March 31, 2021.
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 initial 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 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 the Financial Accounting Standards Board's
("FASB") ASC Topic 480 "Distinguishing Liabilities from Equity." Shares of Class
A common stock subject to mandatory redemption are classified as a liability
instrument and are 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 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' equity section of
our balance sheets.
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Net Income (Loss) per Common Share
We apply the two-class method in calculating earnings per share. Net income per
common share, basic and diluted, for Class A redeemable common stock is
calculated by dividing the interest income earned on the Trust Account, net of
applicable franchise and income taxes, by the weighted average number of Class A
redeemable common stock outstanding for the period presented. Net income (loss)
per common share, basic and diluted, for Class A and B non-redeemable common
stock is calculated by dividing the net income, less income attributable to
Class A redeemable common stock, by the weighted average number of Class A and B
non-redeemable common stock outstanding for the period presented.
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 condensed financial statements.
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