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Item 2. Management’s Discussion and Analysis

2022-05-16 compared with 2021-11-15 · 91 added, 40 removed, 68 unchanged (66% of the section changed)

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References to the “Company,” “us,” “our” or “we” refer Data Knights Acquisition Corp.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited Condensed Consolidated financial statements and related notes included herein.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited Condensed financial statements and related notes included herein.

Cautionary Note Regarding Forward-Looking Statements

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Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s management.

Actual results could differ materially from those contemplated by the forward- looking statements as a result of certain factors detailed in our filings with the SEC.

Actual results may differ materially due to various factors, including, but not limited to:

● our ability to complete our initial business combination with the Target or an alternative business combination;

● our success in retaining or recruiting, or changes required in, our officers, key employees or directors following our initial business combination;

● our officers and directors allocating their time to other businesses and potentially having conflicts of interest with our business or in approving our initial business combination, as a result of which they would then receive expense reimbursements;

● in the event the Business Combination (as defined below) is consummated, our ability to implement business plans, forecasts, and other expectations regarding the Target after the completion of the proposed transactions and optimize the Target’s business;

● in the event the Business Combination is not consummated, the ability of our officers and directors to generate a number of potential alternative acquisition opportunities;

● our pool of prospective target businesses;

● the ability of our officers and directors to generate a number of potential acquisition opportunities;

● our public securities’ potential liquidity and trading;

● the lack of a market for our securities;

● our continued liquidity and our ability to continue as a going concern;

● the use of proceeds not held in the trust account or available to us from interest income on the trust account balance;

● our financial performance.

All subsequent written or oral forward-looking statements attributable to us or persons acting on the Company’s behalf are qualified in their entirety by this paragraph.

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 Form 10-Q.

Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

The Company is a blank check company formed under the laws of the State of Delaware on February 8, 2021 for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

The Company intends to effectuate its initial Business Combination using cash from the proceeds of Public Offering and the Private Placement, the proceeds of the sale of our securities in connection with our initial Business Combination, our shares, debt or a combination of cash, stock and debt.

The Company intends to effectuate its initial Business Combination using cash from the proceeds of our Initial Public Offering and the Private Placement, the proceeds of the sale of our securities in connection with our initial Business Combination, our shares issued to the owners of the target, debt issued to the bank or other lenders or the owners of the target, or a combination of the foregoing.

The issuance of additional shares in connection with an initial Business Combination to the owners of the target or other investors:

may significantly dilute the equity interest of investors, which dilution would increase if the anti-dilution provisions in the Class B common stock resulted in the issuance of Class A shares on a greater than one -to-one basis upon conversion of the Class B common stock;

may significantly dilute the equity interest of investors, which dilution would increase if the anti-dilution provisions in the Class B common stock resulted in the issuance of Class A Common Stock on a greater than one -to-one basis upon conversion of the Class B common stock;

may subordinate the rights of holders of our common stock if preferred stock is issued with rights senior to those afforded our common stock;

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other purposes and other disadvantages compared to our competitors who have less debt.

We expect to continue to incur significant costs in the pursuit of our initial Business Combination plans.

We cannot assure you that our plans to raise capital or to complete our initial Business Combination will be successful.

We expect to continue to incur significant costs in the pursuit of our initial Business Combination.

We cannot assure you that our plans to complete our initial Business Combination will be successful.

The Merger Agreement

On February 11, 2022, we, Merger Sub, and our Sponsor entered into the Merger Agreement with the Target and Casey.

Pursuant to the Merger Agreement, upon the Closing of the Business Combination, we will effect the merger of Merger Sub with and into the Target, with the Target continuing as the surviving entity (the “Merger”), as a result of which all of the issued and outstanding capital stock of the Target shall be exchanged shares of the Class A Common Stock of the Company upon the terms set forth as follows:

the Target’s shareholders collectively shall be entitled to receive from the Company, in the aggregate, a number of Company’s securities with an aggregate value equal to (a) $200,000,000 minus (b) the amount, if any, by which the Target’s net working capital amount exceeds the net working capital amount (but not less than zero), minus (c) the amount of Closing Net Indebtedness (as defined in the Merger Agreement) minus (d) the amount of any transaction expenses, provided that the merger consideration otherwise payable to the Target’s shareholders is subject to adjustment after the Closing in accordance with the terms of the Merger Agreement.

The obligations of the parties to consummate the Business Combination are subject to the satisfaction or waiver of certain customary closing conditions of the respective parties, including, without limitation:

(a) the representations and warranties of the respective Parties being true and correct subject to the materiality standards contained in the Merger Agreement;

(b) material compliance by the Parties of their respective pre-closing covenants and agreements, subject to the standards contained in the Merger Agreement;

(d) the approval by the Target’s stockholders of the Business Combination;

(e) the absence of any Material Adverse Effect (as defined in the Merger Agreement) with respect to the Company or with respect to the Target since the effective date of the Merger Agreement that is continuing and uncured;

(f) the election of the members of the post-Closing Board consistent with the provisions of the Merger Agreement, a majority of which are to be independent in accordance with the Nasdaq rules;

(g) the Company having at least $5,000,001 in tangible net assets upon the Closing;

(h) the entry into certain ancillary agreements as of the Closing;

(i) the lack of any notice or communication from, or position of, the SEC requiring the Company to amend or supplement the Prospectus and Proxy Statement (as defined below);

and (j) the receipt of certain closing deliverables.

The Merger Agreement and agreements related thereto are further described in the Form 8-K, filed by us on April 25, 2022.

Results of Operations

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

Our only activities from inception to June 30, 2021 were organizational activities, those necessary to prepare for the Initial Public Offering (“Initial Public Offering”) 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 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 that we will 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 in connection with completing a business combination.

For the period from February 8, 2021 (inception) through June 30, 2021, we had a net income of $4,307,307, which consists of interest income on marketable securities held in the Trust Account of $794, change in Fair Value of warrant liability $5,002,911, offset by operating costs of $71,340 and non-operating costs $625,058.

Our only activities from inception to March 31, 2022, were organizational activities, those necessary to prepare for the Initial Public Offering and 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 Accounts.

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 period from February 8, 2021 (inception) through March 31, 2022, we had a net loss of $845 which consists of formation and operating costs of $845.

For the three months ended March 31, 2022, we had a net income of $2,195,508 which consists of unrealized gain from marketable securities held in the Trust Account of $43,053 change in fair value of warrant liabilities of $2,762,640 offset by operating costs of $610,185.

Liquidity and Capital Resources

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Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 585,275 Private Placement Units at $10.00 per Private Placement Unit to our Sponsor, generation gross proceeds of $5,852,750.

For the three months ended March 31, 2022, Cash used in operating activities was $294,018.

Transaction costs of the Initial Public Offering amounted to $6,771,112, consisting of $2,300,000 of underwriting fees, $4,025,000 of deferred underwriting fees (see Note 6) and $446,112 of other costs.

As of September 30, 2021, we had available to us $533,706 of cash on our balance sheet and a working capital of $661,574.

As of March 31, 2022, we had available to us $159,133 of cash on our balance sheet and a working capital deficit of $363,953.

We intend to use the funds held outside of the Trust Account for identifying and evaluating prospective acquisition candidates, performing business due diligence on prospective target businesses, traveling to and from the offices, plants or similar locations of prospective target businesses, reviewing corporate documents and material agreements of prospective target businesses, selecting the target business to acquire and structuring, negotiating and consummating the Business Combination.

The interest income earned on the investments in the Trust Account are unavailable to fund operating expenses.

In order to finance transaction costs in connection with the Business Combination, the 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 (“Working Capital Loans”).

If the Company completes the Business Combination, the Company would repay such loaned amounts.

In the event that the Business Combination does not close, the Company may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from the trust account would be used for such repayment.

Up to $1,500,000 of such loans may be convertible into units at a price of $10.00 per unit at the option of the lender.

The units would be identical to the Private Placement Units issued to the Sponsor.

The terms of such loans by the Company’s officers and directors, if any, have not been determined and no written agreements exist with respect to such loans.

The Company does not expect to seek loans from parties other than the Sponsor or its directors or officers or their respective affiliates as it does 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 the trust account.

If the Company anticipates that it may not be able to consummate a Business Combination within 12 months, the Company may, by resolution of the Company’s board if requested by the Sponsor, extend the period of time to consummate a Business Combination up to two times, each by an additional three months (for a total of up to 18 months to complete a Business Combination), subject to the Sponsor depositing additional funds into the Trust Account as set out below.

Pursuant to the terms of the Company’s amended and restated certificate of incorporation and the trust agreement entered into between the Company and Continental Stock Transfer & Trust Company, in order for the time available for the Company to consummate the initial Business Combination to be extended, the Sponsor or its affiliates or designees, upon five business days advance notice prior to the applicable deadline, must deposit into the Trust Account $1,150,000 since the underwriters’ over-allotment option was exercised in full ($0.10 per unit), on or prior to the date of the applicable deadline, for each of the available three month extensions, providing a total possible Business Combination period of 18 months at a total payment value of $2,300,000 since the underwriters’ over-allotment option was exercised in full ($0.10 per unit) (the “Extension Loans”).

Any such payments would be made in the form of non-interest bearing loans.

If the Company completes its initial Business Combination, the Company will, at the option of the Sponsor, repay the Extension Loans out of the proceeds of the Trust Account released to the Company or convert a portion or all of the total loan amount into units at a price of $10.00 per unit, which units will be identical to the Private Placement Units.

If the Company does not complete a Business Combination, the Company will repay such loans only from funds held outside of the Trust Account.

Furthermore, the letter agreement among the Company and the Company’s officers, directors, and the Sponsor contains a provision pursuant to which the Sponsor will agree to waive its right to be repaid for such loans to the extent there is insufficient funds held outside of the Trust Account in the event that the Company does not complete a Business Combination.

The Sponsor and its affiliates or designees are not obligated to fund the Trust Account to extend the time for the Company to complete the initial Business Combination.

The public stockholders will not be afforded an opportunity to vote on the extension of time to consummate an initial Business Combination from 12 months to 18 months described above or redeem their shares in connection with such extensions.

We have up to 12 months from the closing of our IPO, or until May 11, 2022, to consummate an initial business combination.

On May 5, 2022, the Company issued a press release announcing that its Sponsor has requested that the Company extend the date by which the Company has to consummate a business combination from May 11, 2022 to August 11, 2022 (the “ Extension ”).

The Extension is the first of two three-month extensions permitted under the Company’s governing documents.

The Company will have until August 11, 2022 (or up to November 11, 2022, as applicable) to consummate a Business Combination.

However, if we anticipate that we may not be able to consummate our initial business combination within 15 months, we may, by resolution of our board if requested by our sponsor, extend the period of time to consummate a business combination up to one time with an additional three months (for a total of up to 18 months, or until November 11, 2023, to complete a business combination), subject to the sponsor depositing additional $1,150,000 into the trust account for each three month extensions at a total payment of $2,300,000, providing a total Business Combination period of 18 months.

If our initial business combination is not consummated by August 11, 2022 (or until November 11, 2022 if we extend the period of time to consummate a business combination), then our existence will terminate, and we will distribute all amounts in the trust account.

In order to fund working capital deficiencies or finance transaction costs in connection with our initial 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 our initial Business Combination, we would repay such loaned amounts.

In the event that our initial Business Combination does not close, we may use a portion of the working capital held outside the Trust Accounts to repay such loaned amounts but no proceeds from our Trust Accounts 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.

Moreover, we will 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 have entered into the Securities Purchase Agreements for the additional financing in connection with such Business Combination.

Subject to compliance with applicable securities laws, we expect to 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 Accounts.

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.

If the Company is unable to raise additional capital, the Company 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.

The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all.

The Company intends to complete the proposed Business Combination before August 11, 2022, and we believe we have sufficient arrangements with our vendors to continue to operate until we complete our initial Business Combination.

However, there can be no assurance that the Company will be able to consummate the Business Combination by then.

In the event that we are unable to consummate the Business Combination before August 11, 2022 we anticipate identifying and accessing additional capital resources in order to extend the Business Combination period up to 18 months.

However, there can be no assurance that the Company will have access to sufficient capital to extend the deadline to consummate the Business Combination.

As a result, in connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” it is uncertain that the Company will have sufficient liquidity to fund the working capital needs of the Company beyond August 11, 2022.

Management has determined that given the liquidity condition of the Company, should a Business Combination not occur by August 11, 2022, there is substantial doubt about the Company’s ability to continue as a going concern.

No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate.

Off-Balance Sheet Financing Arrangements

We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements.

We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements as of March 31, 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 any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or entered any non-financial assets.

We have not entered 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.

Contractual Obligations

We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities.

Commencing on the date of the prospectus and until completion of the Company’s Business Combination or liquidation, the Company may reimburse ARC Group Ltd., an affiliate of the Sponsor, up to an amount of $10,000 per month for office space, secretarial and administrative support.

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 the Sponsor a monthly fee up to $10,000 for office space, utilities and secretarial and administrative support services.

We began incurring these fees on May 7, 2021 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation.

From inception to March 31, 2022, we have incurred $11,000 in fees under this agreement.

The Underwriter was paid a cash underwriting fee of 2.0% of gross proceeds of the Public Offering, or $2,300,000.

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Significant inputs into the valuation model are unobservable.

The Company does not have any recurring Level 2 or Level 3 assets or liabilities.

The carrying value of the Company’s financial instruments including its cash and accrued liabilities approximate their fair values principally because of their short-term nature.

Net Loss Per Share of Common Stock

Basic loss per share of common stock is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period.

Consistent with FASB 480, shares subject to possible redemption, as well as their pro rata share of undistributed trust earnings consistent with the two-class method, have been excluded from the calculation of loss per share of common stock for the three months September 30, 2021.

Such shares, if redeemed, only participate in their pro rata share of trust earnings.

Diluted loss per share includes the incremental number of shares of common stock to be issued to settle warrants, as calculated using the treasury method.

For the period from February 8, 2021 (inception) through September 30, 2021, the Company did not have any dilutive warrants, securities or other contracts that could potentially, be exercised or converted into common stock.

As a result, diluted loss per share of common stock is the same as basic loss per share of common stock for all periods presented.

Net Income (Loss) Per Share of Common Stock

Net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common stock shares outstanding for the period.

The calculation of diluted income (loss) per share does not consider the effect of the warrants issued in connection with the Initial Public Offering and warrants issued as components of the Private Placement Units (the “Placement Warrants”) since the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive.

The Company applies the two-class method in calculating earnings per share.

The contractual formula utilized to calculate the redemption amount approximates fair value.

The Class feature to redeem at fair value means that there is effectively only one class of stock.

Changes in fair value are not considered a dividend of the purposes of the numerator in the earnings per share calculation.

Net income per common share is computed by dividing the pro rata net loss between the redeemable shares and the non-redeemable shares by the weighted average number of common shares outstanding for each of the periods.

The calculation of diluted income per common stock does not consider the effect of the warrants issued in connection with the IPO since the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive.

The warrants are exercisable for 11,500,000 shares of common stock in the aggregate.

Derivative Financial Instruments

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Derivative liabilities are classified in the balance sheet as current or non-current based on whether net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.

Common stock subject to possible redemption

Class A Common stock subject to possible redemption

The Company accounts for its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption (if any) is classified as a liability instrument and is measured at fair value.

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The Company’s common stock features certain redemption rights that are outside of the Company’s control and subject to occurrence of uncertain future events.

Accordingly, at September 30, 2021, as there are 585,275 shares of Class A Common Stock outstanding, excluding 11,500,000 shares of Class A Common Stock are subject to possible redemption.

Accordingly, as of March 31, 2022, there were 585,275 shares of Class A Common Stock outstanding, excluding 11,500,000 shares of Class A Common Stock are subject to possible redemption.

Recent Accounting Pronouncements

In August 2020, the FASB issued Accounting Standards Update (“ASU”) No.

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):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current U.S.

The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas.

ASU 2020-06 is effective 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.

The Company is currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations or cash flows.

Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.

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-Q

Item 2. Management’s Discussion and Analysis