References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Fusion Acquisition Corp. II. References to our "management"
or our "management team" refer to our officers and directors, and references to
the "Sponsor" refer to Fusion Sponsor II 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" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of 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 Form 10-Q
including, without limitation, statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
completion of the Proposed Business Combination (as defined below), 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, including that the conditions of
the Proposed Business Combination are not satisfied. 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 Annual Report on Form 10-K 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
January 11, 2021 for the purpose of entering into a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses. We intend to effectuate our Business
Combination using cash from the proceeds of the Initial Public Offering and the
sale of the Private Placement Warrants, our capital stock, debt or a combination
of cash, stock and debt.
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 January 11, 2021 (inception) through September 30,
2022, were organizational activities, those necessary to prepare for the initial
public offering, described below, 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.
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For the three months ended September 30, 2022, we had net income of $2,462,702,
which consists of a change in fair value of warrant liabilities of $1,107,709
and interest earned on cash and investments held in the Trust Account of
$2,135,889, offset by general and administrative expenses of $342,087 and
provision for income taxes of $438,809.
For the nine months ended September 30, 2022, we had net income of $14,112,947,
which consists of a change in fair value of warrant liabilities of $13,094,844
and interest earned on cash and investments held in the Trust Account of
$2,737,349, offset by general and administrative expenses of $1,175,130 and
provision for income taxes of $544,116.
For the three months ended September 30, 2021, we had net income of $7,131,269,
which consists of a change in fair value of warrant liabilities of $7,354,051
and interest income on marketable securities held in the Trust Account of
$48,691, offset by operating costs of $271,473.
For the period January 11, 2021 (inception) through September 30, 2021, we had a
net income of $11,527,174, which consists of a change in fair value of warrant
liabilities of $13,726,243 and interest income on marketable securities held in
the Trust Account of $114,260 offset by transaction costs allocated to warrants
of $1,180,711 and operating costs of $1,132,618.
Liquidity and Capital Resources
On March 2, 2021, we completed the Initial Public Offering of 50,000,000 Units,
at $10.00 per Unit, generating gross proceeds of $500,000,000. Simultaneously
with the closing of the Initial Public Offering, we completed the sale of
7,133,333 Private Placement Warrants at a price of $1.50 per Private Placement
Warrant in a private placement to the Sponsor, generating gross proceeds of
$10,700,000.
Following the Initial Public Offering, the partial exercise of the
over-allotment option, and the sale of the Private Placement Warrants, a total
of $500,000,000 was placed in the Trust Account. We incurred $15,688,848 in
transaction costs, including $8,700,000 of cash underwriting fees, 18,800,000 of
deferred underwriting fees and $619,847 of other offering costs.
For the nine months ended September 30, 2022, cash used in operating activities
was $505,359. Net income of $14,112,947 was affected by interest earned on cash
and investments held in the Trust Account of $2,737,349, and a change in fair
value of warrant liabilities of $13,094,844. Changes in operating assets and
liabilities provided $1,213,887 of cash for operating activities.
For the period January 11, 2021 (inception) through September 30, 2021, cash
used in operating activities was $1,596,255. Net income of $11,527,174 was
affected by transaction costs allocated to warrants of $1,180,711, interest
earned on marketable securities held in the Trust Account of 114,260, and a
change in fair value of warrant liabilities of $13,726,243. Changes in operating
assets and liabilities used $463,637 of cash for operating activities.
As of September 30, 2022, we had investments held in the Trust Account of
$502,217,118 (including approximately $1,523,294 of interest income) consisting
of U.S. Treasury Bills with a maturity of 185 days or less. Interest income on
the balance in the Trust Account may be used by us to pay taxes. Through
September 30, 2022, we have withdrawn $693,824 interest earned from 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 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 $372,962 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.
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In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, the Sponsor, or certain of the Company's
officers and directors or their affiliates may, but are not obligated to, loan
us funds as may be required. If we complete a Business Combination, we would
repay the Working Capital Loans out of the proceeds of the Trust Account
released to us. 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, we 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. 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 warrants of the post Business Combination
entity. The warrants would be identical to the Private Placement Warrants.
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.
We will need to raise additional capital through loans or additional investments
from our sponsor or an affiliate of our sponsor or certain of our directors and
officers. Our sponsor or an affiliate of our sponsor or certain of our directors
and officers 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 us on commercially acceptable
terms, if at all.
Going Concern
As of September 30, 2022, we had cash of $372,962 held outside the Trust Account
and available for working capital purposes. We have $1,500,000 available to draw
upon under the Working Capital Loans (as defined below) and may need to raise
additional funds in order to meet the expenditures required for operating its
business. However, if the 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 the business prior to a Business
Combination. Moreover, we may need to obtain additional financing or further
draw on the Working Capital Loans either to complete a Business Combination or
because it becomes obligated to redeem a significant number of the Public Shares
upon consummation of a 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. We have until March 2, 2023, to consummate a Business Combination.
It is uncertain that we will be able to consummate a 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 liquidity concerns and mandatory liquidation, should a Business
Combination not occur, and potential subsequent dissolution raises substantial
doubt about our ability to continue as a going concern. No adjustments have been
made to the carrying amounts of assets or liabilities should we be required to
liquidate after March 2, 2023.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 2022. 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.
Related Party Transactions
Founder Shares
On January 11, 2021, our Sponsor paid $25,000 to cover certain of our offering
costs in exchange for 8,625,000 Founder Shares, or approximately $0.003 per
share. On February 18, 2021, we effected a 1:1.2167 stock split of our Class B
common stock, resulting in our Sponsor holding an aggregate of 10,493,750
Founder Shares. On February 25, 2021, we effected a 1:1.19178 stock split of the
Company's Class B common stock, resulting in the Sponsor holding an aggregate of
12,506,250 Founder Shares. As a result of the underwriters' partial exercise of
their over-allotment option, the Sponsor forfeited 6,250 Founder Shares, which
resulted in the Sponsor holding an aggregate of 12,500,000 Founder Shares.
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The Sponsor has agreed, subject to certain limited exceptions, not to transfer,
assign or sell any of the Founder Shares until the earlier of (A) one year after
the completion of a business combination and (B) subsequent to a business
combination, (x) if the last reported sale price of the Class A common stock
equals or exceeds $12.00 per share (as adjusted for stock splits, stock
reorganizations, recapitalizations and the like) for any 20 trading days within
any 30-trading day period commencing at least 150 days after a business
combination, or (y) the date on which the Company completes a liquidation,
merger, stock exchange, reorganization or other similar transaction that results
in all of the Company's stockholders having the right to exchange their shares
of Class A common stock for cash, securities or other property.
Related Party Loans
On January 11, 2021, the Sponsor issued an unsecured promissory note to the
Company (the "Promissory Note"), pursuant to which the Company could borrow up
to an aggregate principal amount of $300,000. The Promissory Note was
non-interest bearing and payable on the earlier of December 31, 2021, or the
consummation of the Initial Public Offering. The outstanding amount of $173,972
outstanding under the Promissory Note was repaid on March 5, 2021. Borrowings
under the Promissory Note are no longer available.
On March 5, 2021, the Company issued an unsecured convertible promissory note
(the "Sponsor Convertible Note") to the Sponsor, pursuant to which the Company
may borrow up to $1,500,000 from the Sponsor for ongoing expenses reasonably
related to the business of the Company and the consummation of the Business
Combination. All unpaid principal under the Sponsor Convertible Note will be due
and payable in full on the earlier of (i) March 2, 2023 and (ii) the
consummation of a Business Combination (such earlier date, the "Maturity Date").
The Sponsor will have the option, at any time on or prior to the Maturity Date,
to convert any amounts outstanding under the Sponsor Convertible Note into
warrants to purchase shares of the Company's Class A common stock, at a
conversion price of $1.50 per warrant. The warrants would be identical to the
Private Placement Warrants. As of September 30, 2022 and December 31, 2021,
there was $425,360 and $300,000 in borrowings outstanding under the Sponsor
Convertible Note.
On December 3, 2021, the Company issued an unsecured convertible promissory note
(the "Officer Convertible Note") to the Chief Executive Officer, pursuant to
which the Company may borrow up to $300,000 from the Sponsor for ongoing
expenses reasonably related to the business of the Company and the consummation
of the Business Combination. All unpaid principal under the Officer Convertible
Note will be due and payable in full on the earlier of (i) March 2, 2023, and
(ii) the consummation of a Business Combination (such earlier date, the
"Maturity Date"). The Chief Executive Officer will have the option, at any time
on or prior to the Maturity Date, to convert any amounts outstanding under the
Officer Convertible Note into warrants to purchase shares of the Company's Class
A common stock, at a conversion price of $1.50 per warrant. The warrants would
be identical to the Private Placement Warrants. As of September 30, 2022 and
December 31, 2021, there was $200,000 in borrowings outstanding under the
Officer Convertible Note. The total of $625,360 and $500,000 as of September 30,
2022 and December 31, 2022, respectively, in borrowings is outstanding under
both the Sponsor Convertible Note and Officer Convertible Note.
Investments Held in the Trust Account
Our portfolio of investments held in the trust account is comprised of 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 investments in
money market funds that invest in U.S. government securities, or a combination
thereof. The investments held in the trust account are classified as trading
securities. Trading securities are presented on the condensed balance sheets at
fair value at the end of each reporting period. Gains and losses resulting from
the change in fair value of these securities are included in net gain from
investments held in Trust Account on the statements of operations. The estimated
fair values of investments held in the Trust Account are determined using
available market information.
Commitments and Contractual obligations
Administrative Services Agreement
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay the Sponsor
a total of $10,000 per month for office space, secretarial, and administrative
services. We began incurring these fees on February 25, 2021 and will continue
to incur these fees monthly until the earlier of the completion of the business
combination and our liquidation. We also paid $15,000 per month to our former
chief financial officer, Jeffrey Gary, which terminated on December 31, 2021.
Underwriting Agreement
The underwriters are entitled to a deferred fee of $0.35 per Unit, or
$18,800,000 in the aggregate. The deferred fee will be forfeited by the
underwriters solely in the event that the Company fails to complete a business
combination, subject to the terms of the underwriting agreement.
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Registration and Stockholder Rights
The holders of the Founder Shares, Private Placement Warrants, and warrants that
may be issued upon conversion of Working Capital Loans (and any 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) were entitled to
registration rights pursuant to the registration rights agreement signed upon
the effective date of the initial public offering. The holders of these
securities were 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 completion of the initial business combination. We will bear
the expenses incurred in connection with the filing of any such registration
statements.
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 period reported. Actual results could materially
differ from those estimates. We have identified the following critical
accounting policies:
Warrant Liabilities
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 FASB ASC Topic 815, "Derivatives and
Hedging" ("ASC 815"). The Company accounts for the Public Warrants and Private
Placement Warrants (together with the Public Warrants, the "Warrants") in
accordance with the guidance contained in Accounting Standards Codification
815-40, "Derivatives and Hedging - Contracts on an Entity's Own Equity" ("ASC
815-40") and determined that the Warrants do not meet the criteria for equity
treatment thereunder. As such, each Warrant must be recorded as a liability and
is subject to re-measurement at each balance sheet date and any change in fair
value is recognized in the Company's statements of operations.
For issued or modified warrants that meet all of the criteria for equity
classification, the warrants are required to be recorded as a component of
additional paid-in capital at the time of issuance. For issued or modified
warrants that do not meet all the criteria for equity classification, the
warrants are required to be recorded at their initial fair value on the date of
issuance, and each balance sheet date thereafter. Changes in the estimated fair
value of the warrants are recognized as a non-cash gain or loss on the
statements of operations. The fair value of the Private Placement Warrants was
measured by reference from the trading price of the Public Warrants. The Public
Warrants were initially valued using a Monte Carlo Simulation. The Private
Placement Warrants was initial valued using Black Scholes Option Pricing Model.
The subsequent measurements of the Public Warrants after the detachment of the
Public Warrants from the Units were valued using the instrument's publicly
listed trading price. During the three-month period ending September 30, 2022,
the Private Placement Warrants were deemed to be nearly identical to the Public
Warrants and as such were valued using the Public Warrants publicly listed
trading price.
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 Accounting Standards Codification ("ASC") Topic
480 "Distinguishing Liabilities from Equity." Shares of 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 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 condensed
balance sheets. We recognize changes in redemption value immediately as they
occur and adjusts 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.
Net Income Per Common 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 stock is computed by dividing net income
by the weighted average number of common stock outstanding for the period.
Accretion associated with the redeemable shares of Class A common stock is
excluded from earnings per share as the redemption value approximates fair
value.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
unaudited condensed financial statements.
Recent Developments
On November 10, 2022, we were notified by the NYSE that it had determined to
commence proceedings to delist our public warrants from the NYSE and that
trading in the public warrants would be suspended immediately, due to abnormally
low trading price levels pursuant to Section 802.01D of the NYSE Listed Company
Manual. Trading in our Class A common stock and units will continue on the NYSE.
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FUSION ACQUISITION CORP. II 
