You should read the following discussion and analysis of our financial condition
and results of operations together with our historical condensed financial
statements and the related notes thereto appearing elsewhere in this Quarterly
Report. The objective of the following discussion and analysis is to provide
material information relevant to your assessment of the financial condition and
results of operations of our company, including an evaluation of the amounts and
certainty of cash flows from operations and from outside sources, and to better
allow you to view our company from management's perspective. Some of the
information contained in this discussion and analysis or set forth elsewhere in
this Quarterly Report, including information with respect to our plans and
strategy for our business and related financing, includes forwardlooking
statements that involve risks and uncertainties. As a result of many factors,
including those factors set forth in the "Risk Factors" section of this
Quarterly Report and our Annual Report on Form 10-K for the year ended December
31, 2021, our actual results could differ materially from the results described
in or implied by the forwardlooking statements contained in the following
discussion and analysis.
Overview
References in this report to "we," "us," "our," "company" or "our company" are
to Jackson Acquisition Company, to "management" or our "management team" are to
our directors and officers; and to the "sponsor" are to RJ Healthcare SPAC, LLC,
a Delaware limited liability company. References to "founder shares" are to
shares of our Class B Common Stock, par value $0.0001 per share, initially
purchased by our sponsor in a private placement prior to our initial public
offering, and the shares of our Class A Common Stock issued upon the conversion
thereof as provided herein, and references to "initial stockholders" are to
holders of our founder shares prior to our initial public offering. References
to "extension option" are to the option of the sponsor, upon deposit of the
extension fee into the trust account, to cause us to extend the period of time
to consummate our initial business combination by three months, until September
13, 2023.
We are a blank check company, incorporated as a Delaware corporation for the
purpose of effecting a merger, share exchange, asset acquisition, stock
purchase, reorganization or similar business combination with one or more
businesses. While we have engaged in discussions with multiple potential
targets, as of the date hereof we have not entered into a definitive agreement
with respect to an initial business combination. We intend to effectuate our
initial business combination using cash from the proceeds of the Initial Public
Offering and the Private Placements, our capital stock, debt or a combination of
cash, stock and debt.
On December 13, 2021, we completed our Initial Public Offering of 20,000,000
Units and the simultaneous Private Placement of an aggregate of 9,560,000
Private Placement Warrants to our sponsor. On January 6, 2022, the underwriter
partially exercised its option to purchase additional Units to cover
over-allotments, if any, and purchased an additional 2,250,000 Units, generating
gross proceeds of $22,500,000. Also on January 6, 2022, in connection with the
underwriter's partial exercise of its over-allotment option, we completed the
Additional Private Placement of an additional 787,500 Private Placement Warrants
to our sponsor, at a price of $1.00 per Private Placement Warrant, generating
gross proceeds of $787,500. An aggregate of $225,837,500 in proceeds from the
Initial Public Offering, partial exercise of the underwriter's over-allotment
option and the Private Placements has been placed in the Trust Account.
As of March 31, 2022, we had cash of $877,012 and working capital of $358,609.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to raise capital or to
complete our initial business combination will be successful.
Results of Operations and Known Trends or Future Events
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from March 5, 2021 (inception) through March 31, 2022, were
organizational activities, those necessary to prepare for the Initial Public
Offering, and the search for a target company for an initial business
combination. We will not generate any operating revenues until after completion
of our initial business combination. We will generate non-operating income in
the form of interest income on cash and cash equivalents. There has been no
significant change in our financial or trading position and no material adverse
change has occurred since the date of our audited financial statements. We have
incurred and expect to continue to incur increased 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 March 31, 2022, we had a net income of $5,671,572,
which consists of a gain in fair value of the derivative warrant liabilities of
$6,227,025 and interest income on marketable securities held in the trust
account of $21,452 offset by operating costs of $551,793 and transaction costs
related to derivative warrant liabilities of $25,112.
Liquidity and Capital Resources
Until the consummation of our Initial Public Offering, our only source of
liquidity was an initial purchase of Class B Common Stock by our sponsor and
loans from our sponsor, as described in Note 1 to our financial statements. As
of May 6, 2022, the Trust Account had a balance of $225,912,989. In connection
with the Initial Public Offering, including the underwriter's exercise of its
overallotment option on January 6, 2022, and Private Placements, an aggregate of
$225,837,500 in proceeds was placed in the Trust Account. The funds in the Trust
Account have been or will be invested only in U.S. government treasury bills
with a maturity of 185 days or less or in money market funds that meet certain
conditions under Rule 2a-7 under the Investment Company Act and that invest only
in direct U.S. government 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 taxes payable and deferred underwriting
commissions) to complete our initial business combination. Delaware franchise
tax is based on our authorized shares or on our assumed par and non-par capital,
whichever yields a lower result. Under the authorized shares method, each share
is taxed at a graduated rate based on the number of authorized shares with a
maximum aggregate tax of $200,000 per year. Under the assumed par value capital
method, Delaware taxes each $1,000,000 of assumed par value capital at the rate
of $400; where assumed par value would be (1) our total gross assets, divided by
(2) our total issued shares of common stock, multiplied by (3) the number of our
authorized shares. Our annual franchise tax obligation is expected to be capped
at the maximum amount of annual franchise taxes payable by us as a Delaware
corporation of $200,000. Our annual income tax obligations will depend on the
amount of interest and other income earned on the amounts held in the Trust
Account. We expect the only taxes payable by us out of the funds in the Trust
Account will be income and franchise taxes. We expect the interest earned on the
amount in the Trust Account will be sufficient to pay our taxes. 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.
For the three months ended March 31, 2022, net cash used in operating activities
was $1,034,541. Net income was $5,671,572 primarily as a result of the gain in
fair value of the derivative warrant liabilities of $6,227,025 and interest
income of $21,452. These amounts were offset by transaction costs related to
derivative warrant liabilities of $25,112. Net cash used for changes in
operating assets and liabilities was $482,748.
As of March 31, 2022, we held approximately $877,000 outside the Trust Account.
In addition to expenses incurred as a result of being a public company mentioned
above, we expect to use these funds primarily to identify and evaluate target
businesses, perform business due diligence on prospective target businesses,
travel to and from the offices or similar locations of prospective target
businesses or their representatives or owners, review corporate documents and
material agreements of prospective target businesses, structure, negotiate and
complete a business combination, and to pay taxes to the extent the interest
earned on the Trust Account is not sufficient to pay our taxes.
As of March 31, 2022, we had working capital of approximately $359,000. In order
to fund working capital deficiencies or finance transaction costs in connection
with an intended initial business combination, our sponsor, any affiliate of our
sponsor, or our officers or directors may, but none of them is obligated to,
loan us funds as may be required. If we complete our initial business
combination, we would repay such loaned amounts out of the proceeds of the Trust
Account released to us. In the event that our initial 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 warrants at a price of $1.00 per warrant at the option of the
lender. These warrants would be identical to the Private Placement Warrants. The
terms of such loans, if any, have not been determined and no written agreements
exist with respect to such loans. We do not expect to seek loans from parties
other than our sponsor, or another affiliate of our sponsor, or our officers and
directors, as we do not believe third parties will be willing to loan such funds
and provide a waiver against any and all rights to seek access to funds in our
Trust Account.
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We expect our primary liquidity requirements prior to an initial business
combination to include approximately $210,000 for legal, accounting, due
diligence, travel and other expenses in connection with any business
combinations; $160,000 for legal and accounting fees related to regulatory
reporting requirements; $218,000 for the NYSE continued listing fees; $150,000
for office space, administrative and support services; and $80,000 for general
working capital that will be used for miscellaneous expenses and taxes net of
estimated interest income.
These amounts are estimates and may differ materially from our actual expenses.
In addition, we could use a portion of the funds held outside the Trust Account
to pay commitment fees for financing, fees to consultants to assist us with our
search for a target business or as a down payment or to fund a "no-shop"
provision (a provision designed to keep target businesses from "shopping" around
for transactions with other companies or investors on terms more favorable to
such target businesses) with respect to a particular proposed business
combination, although we do not have any current intention to do so. If we
entered into an agreement where we paid for the right to receive exclusivity
from a target business, the amount that would be used as a down payment or to
fund a "no-shop" provision would be determined based on the terms of the
specific business combination and the amount of our available funds at the time.
Our forfeiture of such funds (whether as a result of our breach or otherwise)
could result in our not having sufficient funds to continue searching for, or
conducting due diligence with respect to, prospective target businesses.
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 estimates of
the costs of identifying a target business, undertaking in-depth due diligence
and negotiating an initial 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 completion of our initial business combination, in which case we may
issue additional securities or incur debt in connection with such business
combination. In addition, we may target businesses with enterprise values that
are greater than we could acquire with the net proceeds of our Initial Public
Offering and the Private Placements, and, as a result, if the cash portion of
the purchase price exceeds the amount available from the Trust Account, net of
amounts needed to satisfy redemptions by public stockholders, we may be required
to seek additional financing to complete such proposed initial business
combination. We may also obtain financing prior to the closing of our initial
business combination to fund our working capital needs and transaction costs in
connection with our search for and completion of our initial business
combination. There is no limitation on our ability to raise funds through the
issuance of equity or equity-linked securities or through loans, advances or
other indebtedness in connection with our initial business combination,
including pursuant to forward purchase agreements or backstop arrangements we
may enter into. 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 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.
The net proceeds held in the Trust Account may be used as consideration to pay
the sellers of a target business with which we ultimately complete our initial
business combination and to pay the deferred underwriting commissions. If our
initial business combination is paid for using equity or debt, or not all of the
funds released from the Trust Account are used for payment of the consideration
in connection with our initial business combination or the redemption of our
public shares, we may apply the balance of the cash released to us from the
Trust Account for general corporate purposes, including for maintenance or
expansion of operations of the post-transaction company, the payment of
principal or interest due on indebtedness incurred in completing our initial
business combination, to fund the purchase of other companies or for working
capital.
We believe that amounts not held in trust will be sufficient to pay the costs
and expenses to which such proceeds are allocated through June 13, 2023. This
belief is based on the fact that while we may begin preliminary due diligence of
a target business in connection with an indication of interest, we intend to
undertake in-depth due diligence, depending on the circumstances of the relevant
prospective acquisition, only after we have negotiated and signed a letter of
intent or other preliminary agreement that addresses the terms of a business
combination. However, if our estimate of the costs of undertaking in-depth due
diligence and negotiating a business combination is less than the actual amount
necessary to do so, or if our sponsor exercises its extension option, we may be
required to raise additional capital, the amount, availability and cost of which
is currently unascertainable. If we are required to seek additional capital, we
could seek such additional capital through loans or additional investments from
our sponsor, members of our management team or any of their respective
affiliates, but such persons are not under any obligation to loan funds to, or
otherwise invest in, us.
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Based on the foregoing, management believes that we will have sufficient working
capital and borrowing capacity from our sponsor or an affiliate of our sponsor
or our officers and directors to meet our needs through the earlier of the
consummation of our initial business combination or one year from the date of
this filing.
Off-Balance Sheet Financing Arrangements; Commitments and Contractual
Obligations
For the three months ended March 31, 2022, we did not have any off-balance sheet
arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have
any commitments or contractual obligations.
Critical Accounting Policies
The preparation of 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 expenses during the
periods reported. Actual results could materially differ from those estimates.
We have identified the following critical accounting policies:
Class A Common Stock Subject to Possible Redemption
We account for the Class A Common Stock subject to possible redemption in
accordance with the guidance enumerated in Accounting Standards Codification
("ASC") 480 "Distinguishing Liabilities from Equity". Common stock subject to
mandatory redemption is classified as a liability instrument and is measured at
fair value. Conditionally redeemable common stock (including common stock that
features redemption rights that are either within the control of the holder or
subject to redemption upon the occurrence of uncertain events not solely within
our control) is classified as temporary equity. At all other times, common stock
is classified as stockholders' equity. Our Class A Common Stock features certain
redemption rights that we consider to be outside of our control and subject to
the occurrence of uncertain future events. Accordingly, at March 31, 2022, the
22,250,000 shares of Class A Common Stock subject to possible redemption in the
amount of $225,837,500 is presented as temporary equity, outside of the
stockholders' deficit section of our balance sheet.
We recognize changes in redemption value immediately as they occur and adjust
the carrying value of redeemable Class A Common Stock to equal the redemption
value at the end of each reporting period. Immediately upon the closing of the
Initial Public Offering, we recognized a measurement adjustment from initial
book value to redemption amount value. The change in the carrying value of
redeemable Class A Common Stock resulted in charges against additional paid-in
capital and accumulated deficit.
Net Income Per Share
Net income per share is computed by dividing net income by the weighted average
number of shares of common stock outstanding during the period. We apply the
two-class method in calculating earnings per share. Earnings and losses are
shared pro rata between the two classes of shares. The calculation of diluted
income per share of common stock does not consider the effect of the warrants
issued in connection with the (i) Initial Public Offering and (ii) Private
Placement, because the warrants are contingently exercisable, and the
contingencies have not yet been met. As a result, diluted earnings per common
share is the same as basic earnings per common share for the periods presented.
As of March 31, 2022, the Public Warrants and Private Warrants are exercisable
to purchase an aggregate of 11,125,000 and 10,347,500 shares of Class A common
stock, respectively.
Derivative Financial Instruments
We evaluate our financial instruments to determine if such instruments are
derivatives or contain features that qualify as embedded derivatives in
accordance with ASC Topic 815, "Derivatives and Hedging." Our derivative
instruments are recorded at fair value as of the closing date of the Initial
Public Offering (December 13, 2021) and re-valued at each reporting date, with
changes in the fair value reported in the statements of operations. Derivative
assets and liabilities are classified on the balance sheet as current or
non-current based on whether or not net-cash settlement or conversion of the
instrument could be required within 12 months of the balance sheet date. We have
determined the Public Warrants and the Private Placement Warrants are a
derivative instrument. As the Warrants and the Private Placement Warrants meet
the definition of a derivative, such warrants are measured at fair value at
issuance and at each reporting date in accordance with ASC 820, "Fair Value
Measurement", with changes in fair value recognized in the statement of
operations in the period of change.
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Warrant Instruments
We account for the Public Warrants and the Private Placement Warrants issued in
connection with the Initial Public Offering and the Private Placement in
accordance with the guidance contained in FASB ASC 815, "Derivatives and
Hedging" whereby under that provision, the Public Warrants and the Private
Placement Warrants do not meet the criteria for equity treatment and must be
recorded as a liability. Accordingly, we classify the warrant instrument as a
liability at fair value and adjust the instrument to fair value at each
reporting period. This liability will be re-measured at each balance sheet date
until the Public Warrants and the Private Placement Warrants are exercised or
expire, and any change in fair value will be recognized in our statement of
operations. The fair value at issuance was calculated using a Monte Carlo
simulation model to value the Public Warrants and the Private Placement
Warrants. On March 31, 2022, the Public Warrants were valued using the publicly
available price for the Warrant. The valuation models utilize inputs and other
assumptions and may not be reflective of the price at which they can be settled.
Such warrant classification is also subject to re-evaluation at each reporting
period. Upon issuance of the Private Placement Warrants at the closing of the
Initial Public Offering, we recorded a charge to the statement of operations at
December 31, 2021 of $3,059,200 for the excess fair value of private warrant
liabilities over the proceeds received. Upon issuance of the Private Placement
Warrants at the closing of the partial exercise of the over-allotment option, we
recorded $401,625 to additional paid in capital for the excess proceeds received
over fair value of private warrant liabilities.
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