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Item 7. Management’s Discussion and Analysis

2022-04-06 compared with 2021-03-31 · 57 added, 33 removed, 30 unchanged (75% of the section changed)

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Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks, uncertainties and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements.

Please see the “Risk Factors” section for a discussion of the uncertainties, risks and assumptions associated with these statements.

We are a blank check company incorporated in Delaware in November 2020 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses.

We have not selected any specific business-combination target and we have not, nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly, with any business-combination target.

We may pursue an initial business combination target in any industry or sector, but given the experience of our management team, we expect to focus on acquiring a business combination target within the financial services industry and related sectors, including potentially the FinTech sector, with an enterprise value of approximately $500 million to $1 billion.

Our management believes that this relative size of target opportunities will enable us to pursue companies that are the most attractive from a return standpoint and are less pursued by larger, more established sources of capital.

We have neither engaged in any operations nor generated any revenues to date.

Our entire activity since inception has been to prepare for our initial public offering, which was consummated on January 28, 2021.

the “Risk Factors” section for a discussion of the uncertainties, risks and assumptions associated with these statements.

For a complete discussion of forward-looking statements, see the section above entitled “Cautionary Note Regarding Forward-Looking Statements;

Risk Factor Summary.”

We are a blank check company incorporated in Delaware in October 2020 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses, which we refer to throughout this Annual Report on Form 10-K as our initial business combination.

We have not selected any specific business-combination target and hawse have not, nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly, with any business-combination target.

As of December 31, 2021, the Company had not yet commenced any operations.

All activity for the period from October 28, 2020 (inception) through December 31, 2021 relates to the Company's formation and the initial public offering ("IPO") described below.

The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest.

The Company will generate non-operating income in the form of interest income on cash and cash equivalents from the proceeds derived from the IPO.

The registration statement for the Company’s IPO was declared effective on January 25, 2021 (the “Effective Date”).

On January 28, 2021, the Company consummated the IPO of 10,350,000 units (the “Units” and, with respect to the shares of Class A common stock included in the Units sold, the “Public Shares”), at $10.00 per Unit, generating gross proceeds of $103,500,000, which offering is further described in Note 2.

Simultaneously with the closing of the IPO, the Company consummated the sale of 5,738,000 warrants (the “Private Placement Warrants”) at a price of $1.00 per Private Placement Warrant in a private placement to LMFAO Sponsor LLC, a Florida limited liability company (the “Sponsor”), generating gross proceeds of $5,738,000.

Transaction costs for the IPO amounted to $6,211,902 consisting of $2,070,000 of underwriting discount, $3,622,500 of deferred underwriting fee, the fair value of the shares issued to the underwriters of $1,000 deemed as underwriters’ compensation, and $518,402 of other offering costs.

In addition, $974,009 of cash was held outside of the Trust Account (as defined below) as of the date of the IPO and became available for working capital purposes at such time.

Following the closing of the IPO on January 28, 2021, an amount of $105,570,000 ($10.20 per Unit) from the net proceeds of the sale of the Units in the IPO and the sale of the Private Placement Warrants was placed in a trust account (“Trust Account”) which will be 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 180 days or less or in any open-ended investment company that holds itself out as a money market fund meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company.

Except with respect to interest earned on the funds held in the Trust Account that may be released to the Company to pay its franchise and income tax obligations (less up to $100,000 of interest to pay dissolution expenses), the proceeds from the IPO and the sale of the Private Placement Warrants will not be released from the Trust Account until the earliest of (a) the completion of the Company’s initial Business Combination, (b) the redemption of any Public Shares properly submitted in connection with a stockholder vote to amend the Company’s amended and restated certificate of incorporation, and (c) the redemption of the Company’s Public Shares if the Company is unable to complete the initial Business Combination within 18 months from the closing of the IPO (or up to 21 months from the closing of the IPO if the Company extends the period of time to consummate a business combination, as described in more detail in the prospectus for the IPO), subject to applicable law.

The proceeds deposited in the Trust Account could become subject to the claims of the Company’s creditors, if any, which could have priority over the claims of the Company’s public stockholders.

COVID-19 Update

The full long-term impact of COVID-19 could adversely affect the economies and financial markets worldwide, and the business of any potential target business with which we consummate a business combination could be materially and adversely affected.

We may be unable to complete a business combination if continued concerns relating to COVID-19 restrict travel, limit the ability to have meetings with potential investors, or the target company’s personnel, vendors, and services providers are unavailable to negotiate and consummate a transaction in a timely manner.

The extent to which COVID-19 impacts our search for a business combination will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.

If the disruptions posed by COVID-19 or other matters of global concern continue for an extensive period of time, our ability to consummate a business combination, or the operations of a target business with which we ultimately consummate a business combination, may be materially adversely affected .

Results of Operations

Our only activities from October 28, 2020 (inception) through December 31, 2020 were organizational activities and those necessary to consummate our initial public offering.

Following our initial public offering, we do not expect to generate any operating revenues until after the completion of our initial business combination.

We expect to generate non-operating income in the form of interest income on cash and marketable securities held after the initial public offering.

We expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as expenses in the pursuit of our acquisition plans.

For the period from October 28, 2020 (inception) through December 31, 2020, we had a net loss of $5,236, which consists of operating and formation costs.

We have neither engaged in any operations nor generated any revenues to date.

Our only activities from October 28, 2020 (inception) through December 31, 2021 were organizational activities, the initial public offering, and since the closing of our initial public offering, the search for a prospective initial 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 cash and marketable securities held in trust account.

We will incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as expenses in the pursuit of our acquisition plans.

For the year ended December 31, 2021, we had net income of approximately $75 thousand, which consisted of approximately $1.2 million gain on warrant liability revaluation, approximately $11 thousand of investment income earned on marketable securities held in trust account, and offset by approximately $1.1 million of operating expenses.

For the period from October 28, 2020 (inception) through December 31, 2020, we had a net loss of approximately $5 thousand, which consisted of operating and formation costs.

The Company did not generate any revenue during the twelve months ended December 31, 2021 or October 28, 2020 (inception) through December 31, 2020.

Operating Expenses

During the year ended December 31, 2021, operating expenses were approximately $1.1 million from $5 thousand for the year ended December 31, 2020.

This change reflects formation, administrative and legal costs during the current year.

Gain on Warrant Liability

During the year ended December 31, 2021, the Company recognized a gain on warrant liability revaluation equal to approximately $1.2 million since the fair market value of the warrants were less than the face redemption value of such warrants.

During the year ended December 31, 2021, investment income earned in the Trust account was $11 thousand compared to $0 thousand for the year ended December 31, 2020.

Income Tax Provision (Benefit)

The Company did not record an income tax benefit or expense for the year ended December 31, 2021 or 2020.

Under ASC 740-10-30-5, Income Taxes , deferred tax assets should be reduced by a valuation allowance if, based on the weight of available evidence, it is more-likely-than-not (i.e., a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized.

The Company considers all positive and negative evidence available in determining the potential realization of deferred tax assets including, primarily, the recent history of taxable earnings or losses.

Based on operating losses reported by the Company during 2020 and 2021, the Company concluded there was not sufficient positive evidence to overcome this recent operating history.

As a result, the Company believes that a valuation allowance continues to be necessary based on the more-likely-than-not threshold noted above.

The Company recorded a valuation allowance of approximately $17 thousand and less than $1 thousand for the year ended December 31, 2021 and 2020, respectively.

During the year ended December 31, 2021, the Company generated net income of $75 thousand as compared to a net loss of $5 thousand for the year ended December 31, 2020 for the reasons mentioned above.

Liquidity and Capital Resources

As of December 31, 2020, we had cash of $38,388.

Until the consummation of the initial public offering, our liquidity needs were satisfied through the receipt of $25,000 from our sale of our founder shares to our sponsor and a $126,413 loan from our sponsor.

On November 6, 2020, our sponsor purchased 2,156,250 shares of our Class B common stock, or founder stock, for $25,000 in cash, or approximately $0.012 per share, in connection with our formation.

Also on November 6, 2020, we issued an unsecured promissory note to our sponsor, pursuant to which we were able to borrow up to an aggregate principal amount of $300,000 to be used for a portion of the expenses of the initial public offering.

This loan was non-interest bearing, unsecured and due at the earlier of June 30, 2021 or the closing of the initial public offering.

As of January 27, 2021, we had drawn down $151,000 under the promissory note with our sponsor to pay for offering expenses.

On January 28, 2021, in connection with the closing of the initial public offering, we repaid the full $151,000 loan to the sponsor.

As of December 31, 2021, we had cash and cash equivalents of approximately $52 thousand compared with $38 thousand at December 31, 2020.

Our material cash requirements as of December 31, 2021 were expenses resulting from being a public

company (for legal, financial reporting, accounting and auditing compliance), as well as expenses incurred in the pursuit of our acquisition plans.

Through December 31, 2021, our liquidity needs have been satisfied through the cash generated from our IPO and held outside the trust account, a payment of $25,000 from our sale of our founder shares to our sponsor, and a loan from our sponsor for $151,413, which we repaid in full on January 28, 2021.

On January 28, 2021, we consummated our initial public offering of 10,350,000 units.

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Transaction costs amounted to $6,211,902, consisting of $2,070,000 in underwriting discount, $3,622,500 in deferred underwriting discount, the fair value of the shares issued to the underwriters of $1,000 deemed as underwriters’ compensation, and $518,402 of other offering costs.

In addition, $974,008 of cash is held outside of the trust account and is available for the payment of offering costs and for working capital purposes.

Net cash used in operations was $1,169 thousand during the year ended December 31, 2021 compared with $113 thousand during the year ended December 31, 2020.

Net cash used in investing activities was approximately $105,570 thousand during the year ended December 31, 2021 as compared to net cash used in investing activities of $0 during the year ended December 31, 2020.

Net cash provided by financing activities was $106,753 thousand during the year ended December 31, 2021 as compared $151 thousand for the year ended December 31, 2020.

We intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on the trust account not previously released to us (less taxes payable) to complete our initial business combination.

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To the extent that our equity or debt is used, in whole or in part, as consideration to complete our initial business combination, 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.

As of December 31, 2021, we had cash of $52 thousand.

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 of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate, complete a business combination, and implement our plan of dissolution.

In order to finance transaction costs in connection with a business combination, our sponsor or an affiliate of the sponsor, or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required.

In order to finance transaction costs in connection with a business combination, our sponsor or an affiliate of the sponsor, or certain of our officers and directors may, but are not obligated to, loan us funds as may be required.

Such loans, or working capital loans, would be convertible into private placement-equivalent warrants at a price of $1.00 per warrant (which, for example, would result in the holders being issued 1,500,000 warrants if $1,500,000 of notes were so converted), at the option of the lender.

Such warrants would be identical to the private placement warrants, including as to exercise price, exercisability and exercise period.

In the event that a business combination does not close, the Company 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.

Except with respect to interest earned on the funds held in the trust account that may be released to the Company to pay its franchise and income tax obligations (less up to $50,000 of interest to pay dissolution expenses), the proceeds from the initial public offering and the sale of the private placement warrants will not be released from the trust account until the earliest of (a) the completion of the Company’s initial business combination, (b) the redemption of any public shares properly submitted in connection with a stockholder vote to amend the Company’s amended and restated certificate of incorporation, and (c) the redemption of the Company’s public shares if the Company is unable to complete the initial business combination within 15 months from the closing of the initial public offering (or up to 21 months from the closing of the initial public offering if the Company extends the period of time to consummate a business combination), subject to applicable law.

The proceeds deposited in the trust account could become subject to the claims of the Company’s creditors, if any, which could have priority over the claims of the Company’s public stockholders.

Our sponsor has agreed to (i) waive its redemption rights with respect to its founder shares and public shares in connection with the completion of the Company’s initial business combination, (ii) waive its redemption rights with respect to

its founder shares and public shares in connection with a stockholder vote to approve an amendment to the Company’s amended and restated certificate of incorporation (A) to modify the substance or timing of the Company’s obligation to redeem 100% of its public shares if the Company does not complete its initial b usiness c ombination within 1 8 months from the closing of the initial public offering (or up to 21 months from the closing of the initial public offering if the Company extends the period of time to co nsummate a business combination ) or (B) with respect to any other provision relating to stockholders’ rights or pre-initial b usiness c ombination activity and (iii) waive its rights to liquidating distributions from the t rust a ccount with respect to its founder shares if the Company fails to complete its initial b usiness c ombination within 1 8 months from the closing of the initial public offering (or up to 21 months from the closing of the initial public offering if the Company extends the period of time to consummate a business combination ) .

In addition , our sponsor has agreed to vote any founder shares held by them and any public shares purchased during or after the initial public offering (including in open market and privately negotiated transactions) in favor of the Company’s initial b usiness c ombination.

We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business prior to our initial business combination.

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 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 completion of our business combination, in which case we may issue additional securities or incur debt in connection with such 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 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.

Off-Balance Sheet Arrangements

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Contractual Obligations

We did not have any long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations or long-term liabilities at December 31, 2020.

We did not have any long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations or long-term liabilities at December 31, 2021 and 2020.

The underwriter of our initial public offering is entitled to underwriting discounts and commissions of 5.5%, of which 2.0% ($2,070,00) was paid at the closing of our initial public offering, and 3.5% ($3,622,500) was deferred.

The deferred underwriting discount will become payable to the underwriter 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.

underwriting discount will become payable to the underwriter 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.

The underwriter is not entitled to any interest accrued on the deferred underwriting discount.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis