UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(MARK ONE)
For
the quarter ended
For the transition period from to
Commission
file number:
(Exact Name of Registrant as Specified in Its Charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(
(Issuer’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Units, each consisting of one share of Common Stock and one redeemable warrant | LEGOU | The Nasdaq Stock Market LLC | ||
| The | ||||
| Redeemable warrants, exercisable for shares of Common Stock at an exercise price of $11.50 per share | LEGOW | The Nasdaq Stock Market LLC |
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of August 13, 2021, there were
LEGATO MERGER CORP.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2021
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
Item 1. Interim Financial Statements.
LEGATO MERGER CORP.
CONDENSED BALANCE SHEETS
June 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Cash and marketable securities held in Trust Account | ||||||||
| Deferred offering costs | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Franchise tax payable | ||||||||
| Notes payable to stockholder | ||||||||
| Total current liabilities | ||||||||
| Warrant liability | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Common stock subject to possible redemption, | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings (Accumulated deficit) | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
| (1) |
The accompanying notes are an integral part of the unaudited condensed financial statements.
1
LEGATO MERGER CORP.
CONDENSED STATEMENTS OF OPERATIONS
| Three months ended June 30, 2021 | Six months ended June 30, 2021 | For the Period from June 26, 2020 (inception) through June 30, 2020 | ||||||||||
| (unaudited) | (unaudited) | (unaudited) | ||||||||||
| General and administrative costs | $ | $ | $ | |||||||||
| Change in fair value of warrants | ||||||||||||
| Financing cost- derivative warrant liabilities | ||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ||||||
| Other income: | ||||||||||||
| Investment income on Trust Account | ||||||||||||
| Income before income tax provision | ( | ) | ( | ) | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Weighted average shares outstanding of common stock, basic and diluted-Public Shares | ||||||||||||
| Basic and diluted net income per share, Public Shares | $ | $ | $ | |||||||||
| Weighted average shares outstanding of common stock, basic and diluted-Founders Shares(1) | ||||||||||||
| Basic and diluted net loss per share, Founders Shares | $ | ( | ) | $ | ( | ) | $ | |||||
| (1) |
The accompanying notes are an integral part of the unaudited condensed financial statements.
2
LEGATO MERGER CORP.
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
| Common Stock | Additional Paid-In | Retained Earnings (Accumulated | Stockholders’ | |||||||||||||||||
| Shares(1) | Amount | Capital | Deficit) | Equity | ||||||||||||||||
| For the Three and Six Months Ended June 30, 2021 (unaudited) | ||||||||||||||||||||
| Balance at December 31, 2020 (audited) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Sale of units in initial public offering | ||||||||||||||||||||
| Offering costs associated with initial public offering | - | ( | ) | ( | ) | |||||||||||||||
| Sale of private placement units | ||||||||||||||||||||
| Initial classification of warrant liability | - | ( | ) | ( | ) | |||||||||||||||
| Common stock subject to possible redemption | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Net income | - | |||||||||||||||||||
| Balance at March 31, 2021 (unaudited) | $ | $ | $ | $ | ||||||||||||||||
| Common stock subject to possible redemption | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2021 (unaudited) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common Stock | Additional Paid-In | Retained Earnings (Accumulated | Stockholders’ | |||||||||||||||||
| Shares(1) | Amount | Capital | Deficit) | Equity | ||||||||||||||||
| For the Period from June 26, 2020 (inception) through June 30, 2020 (unaudited) | ||||||||||||||||||||
| Balance at June 26, 2020 (inception) | $ | $ | ||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2020 (unaudited) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| (1) |
The accompanying notes are an integral part of the unaudited condensed financial statements.
3
LEGATO MERGER CORP.
CONDENSED STATEMENT OF CASH FLOWS
| Six months ended June 30, 2021 | ||||
| (unaudited) | ||||
| Cash flow from operating activities | ||||
| Net income | $ | ( | ) | |
| Adjustments to reconcile net income to net cash used in operating activities: | ||||
| Offering costs attributable to warrants | ||||
| Change in fair value of warrant liability | ||||
| Investment income on Trust Account | ( | ) | ||
| Changes in operating assets and liabilities: | ||||
| Prepaid expenses and other current assets | ( | ) | ||
| Franchise tax payable | ||||
| Net cash used in operating activities | ( | ) | ||
| Cash flow from investing activities | ||||
| Cash deposited in Trust Account | ( | ) | ||
| Net cash used in investing activities | ( | ) | ||
| Cash flows from financing activities | ||||
| Repayment of note payable- related party | ( | ) | ||
| Proceeds from initial public offering | ||||
| Payment of offering costs associated with initial public offering | ( | ) | ||
| Proceeds from private placement units | ||||
| Net cash provided by financing activities | ||||
| Net increase (decrease) in cash | ||||
| Cash at beginning of period | ||||
| Cash at end of period | $ | |||
| Supplemental disclosure of non-cash financing activities: | ||||
| Initial Classification of common stock subject to possible redemption | $ | |||
| Initial classification of warrant liability | $ | |||
| Change in initial value of common stock subject to possible redemption | ||||
The
accompanying notes are an integral part of the unaudited condensed financial statements.
For the period from June 26, 2020 (inception)
through June 30, 2020 there was no cash activity.
4
LEGATO MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
Note 1 — Organization and Plan of Business Operations
Legato Merger Corp. (the “Company”) is a blank check company incorporated in Delaware on June 26, 2020. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business transaction with one or more businesses or assets (a “Business Combination”).
The Company is not limited to a particular industry or sector for purposes of consummating a Business Combination, although it has focused on target businesses in the renewables, infrastructure, engineering and construction and industrial industries. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
All activity through June 30, 2021 relates to the Company’s formation, and the public offering described below and since the public offering, the search for a prospective initial Business Combination and the transaction with Algoma (described below). The Company will generate non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering.
The
registration statement for the Company’s Initial Public Offering was declared effective on January 19, 2021. On January 22, 2021,
the Company consummated the Initial Public Offering of
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 542,500 units, at a price of $10.00 per unit in a private placement to certain holders of the Company’s founder shares (“Initial Stockholders”) and Earlybird Capital, Inc., the representative of the underwriters in the Initial Public Offering (“EBC”), generating gross proceeds of $5,425,000 (“Private Units”), which is described in Note 5.
On
January 25, 2021, the underwriters fully exercised their over-allotment option, resulting in an additional
Transaction
costs associated with the underwriters’ full exercise of their over-allotment option amounted to $
Following
the closing of the Initial Public Offering on January 22, 2021,
5
LEGATO MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
The
Company’s management has broad discretion with respect to the specific application of the net proceeds of its Initial Public
Offering and Private Units, although substantially all of the net proceeds are intended to be applied generally toward consummating
a Business Combination. NASDAQ rules provide that the Company’s initial combination must be with one or more target businesses
that together have a fair market value equal to at least
The
Company will provide its stockholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of a
Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means
of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender
offer will be made by the Company, solely in its discretion. The stockholders will be entitled to redeem their Public Shares for a pro
rata portion of the amount then on deposit in the Trust Account (initially approximately $
The
Company will proceed with a Business Combination if the Company has net tangible assets of at least $
The
Company will also provide its stockholders with the opportunity to redeem all or a portion of their Public Shares in connection with
any stockholder vote to approve an amendment to the Company’s Amended and Restated Certificate of Incorporation that would affect
the substance or timing of the Company’s obligation to redeem
6
LEGATO MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
The
Company will have until the expiration of the Combination Period to consummate its initial Business Combination. If the Company is unable
to consummate a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purposes
of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a
per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including any interest earned on
the Trust Account not previously released to the Company to pay its tax obligations and up to $
The
Insiders have agreed to waive their redemption rights with respect to any Founder Shares and Placement Shares, as applicable, (i) in
connection with the consummation of a Business Combination, (ii) in connection with a stockholder vote to amend the Company’s Amended
and Restated Certificate of Incorporation to modify the substance or timing of the Company’s obligation to allow redemption as
provided in its charter, and (iii) if the Company fails to consummate a Business Combination within the Combination Period. The Insiders
have also agreed to waive their redemption rights with respect to any Public Shares held by them in connection with the consummation
of a Business Combination and in connection with a stockholder vote to amend the Company’s Amended and Restated Certificate of
Incorporation as described above. However, the Insiders will be entitled to redemption rights with respect to Public Shares if the Company
fails to consummate a Business Combination or liquidates within the Combination Period. In the event of such distribution, it is possible
that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than
the initial public offering price per Unit in the Initial Public Offering. Placing funds in the Trust Account may not protect those funds
from third party claims against the Company. Although the Company will seek to have all vendors, service providers (except our independent
registered public accounting firm), prospective target businesses or other entities it engages, execute agreements with the Company waiving
any claim of any kind in or to any monies held in the Trust Account, there is no guarantee that such persons will execute such agreements.
Crescendo Advisors, LLC, an entity affiliated with Mr. Rosenfeld, the Company’s Chief SPAC Officer, has agreed that it will be
liable to ensure that the proceeds in the trust account are not reduced below $
Proposed Business Combination
On May 24, 2021, the Company entered into an Agreement and Plan of Merger (“Merger Agreement”) with 1295908 B.C. Ltd., a British Columbia corporation (“Algoma”), and Algoma Merger Sub, Inc., a Delaware corporation and a direct, wholly-owned subsidiary of Algoma (“Merger Sub”). Pursuant to the Merger Agreement, Merger Sub will merge with and into the Company, with the Company surviving the merger (“Merger”). As a result of the Merger, the Company will become a wholly-owned subsidiary of Algoma, with the stockholders of the Company becoming shareholders of Algoma.
Algoma is the parent holding company of Algoma Steel Inc., a Canadian fully integrated steel producer of hot and cold rolled steel products, including sheet and plate, whose product applications are used in the automotive, construction, energy, defense, and manufacturing sectors.
Concurrently
with the execution of the Merger Agreement, Algoma and the Company entered into subscription agreements with investors for an aggregate
investment in the combined company of $
7
LEGATO MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
The Merger and the other transactions contemplated by the Merger Agreement are expected to be consummated in the third quarter of 2021, following receipt of the required approval by the Company’s stockholders and the fulfilment of certain other conditions set forth in the Merger Agreement.
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC.
The accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s final prospectus for its Initial Public Offering as filed with the SEC on January 21, 2021. The interim results for the three and six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any future interim periods.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of the condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amounts of revenues and expenses during the reporting periods.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statement, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. One of the more significant accounting estimates included in these financial statements is the determination of the fair value of the warrant liability. Such estimates maybe subject to change as more current information becomes available, accordingly the actual results could differ significantly from those estimates.
8
LEGATO MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
Cash and Cash Equivalents
The company considers all short-term investments with an original maturity of three months or less when purchased to be a cash equivalent. The Company had no cash equivalents as of June 30, 2021 and December 31, 2020.
Investments held in Trust Account
The Company’s portfolio of investments is comprised solely 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 Company’s investments held in the Trust Account are classified as trading securities. Trading securities are presented on the balance sheet at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of these securities is included in investment income on Trust Account in the accompanying unaudited condensed statement of operations. The estimated fair values of investments held in the Trust Account are determined using available market information.
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 redemptions (if
any) is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock
that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain
events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified
as stockholders’ equity. The Company’s common stock features certain redemption rights that are considered to be outside
of the Company’s control and subject to occurrence of uncertain future events. Accordingly, at June 30, 2021,
Offering Costs
Offering
costs consist of underwriting, legal, accounting and other expenses incurred through the Initial Public Offering that are directly related
to the Initial Public Offering. Offering costs amounting to $
Warrant Liability
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
9
LEGATO MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
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 warrants was estimated using a Monte Carlo simulation approach.
Income Taxes
The Company complies with the accounting and reporting requirements of ASC Topic 740 “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of January 22, 2021. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
The Company may be subject to potential examination by federal, state and city taxing authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal, state and city tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months. The Company is subject to income tax examinations by major taxing authorities since inception. Deferred tax assets were deemed de minimis as of June 30, 2021 and December 31, 2020.
Net Income (Loss) Per Share
The
Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” Net income
per share is computed by dividing net income applicable to common stockholders by the weighted average number of shares of common stock
outstanding for the period. The Company has not considered the effect of the warrants sold in the Initial Public Offering and Private
Placement to purchase an aggregate of
The Company’s statements of operations includes a presentation of income per share for common stock subject to redemption in a manner similar to the two-class method of income per share. Net income per share, basic and diluted for Public Shares is calculated by dividing the interest income earned on the Trust Account, net of applicable taxes and funds available to be withdrawn from Trust for working capital purposes, by the weighted average number of Public Shares outstanding since the original issuance. Net income per common share, basic and diluted for Founder Shares is calculated by dividing the net income, less income attributable to Public shares, by the weighted average number of Founder Shares outstanding for the periods.
10
LEGATO MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
At June 30, 2021, the Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into ordinary shares and then participate in the earnings.
The following table reflects the calculation of basic and diluted net income (loss) per common share (in dollars, expect per share amounts):
| Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | For the Period from June 26, 2020 (inception) through June 30, 2020 | ||||||||||
| Public Shares | ||||||||||||
| Numerator: Earnings allocable to Public Shares | ||||||||||||
| Investment income on Trust Account | $ | $ | $ | |||||||||
| Less: Company’s portion available to be withdrawn to pay taxes | ( | ) | ( | ) | ||||||||
| Net income attributable to Public Shares | $ | $ | $ | |||||||||
| Denominator: Weighted Averages Public Shares | ||||||||||||
| Public Shares, basic and diluted | ||||||||||||
| Basic and diluted net income per Public Shares | $ | $ | $ | |||||||||
| Founders Shares | ||||||||||||
| Numerator: Net income (loss) less net income allocable to Public Shares | ||||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ( | ) | ||||
| Denominator: Weighted Average Founders Shares | ||||||||||||
| Founders Shares, Basic and Diluted | ||||||||||||
| Basic and diluted net loss per Founder share | $ | ( | ) | $ | ( | ) | $ | |||||
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution,
which, at times, may exceed the Federal Depository Insurance Corporation limit of $
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurements and Disclosures,” approximate the carrying amounts represented in the accompanying balance sheets, primarily due to their short-term nature.
The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
11
LEGATO MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
| Level 1: | Quoted prices in active markets for identical assets and liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
| Level 2: | Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. |
| Level 3: | Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability. |
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed financial statement.
Note 3 — Initial Public Offering
Pursuant
to the Initial Public Offering, the Company sold
On
January 25, 2021, the Company consummated the closing of the sale of an additional
Note 4 — Private Placement
Simultaneously
with the Initial Public Offering, the initial stockholders and EBC purchased an aggregate of
12
LEGATO MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
On
January 25 2021, the Company also consummated the closing of the sale of an additional
Note 5 — Related Party Transactions
Founders Shares
In
August 2020, the Company issued an aggregate of
The holders of the Founder Shares will agree not to transfer, assign or sell any of the Founder Shares (except to certain permitted transferees) until (i) with respect to 50% of the Founder Shares, the earlier of one year after the completion of a Business Combination and the date on which the closing price of the common shares equals or exceeds $12.50 per share (as adjusted for share splits, share capitalizations, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing after a Business Combination and (ii) with respect to the remaining 50% of the Founder Shares, one year after the completion of a Business Combination, or earlier, in either case, if, subsequent to a Business Combination, the Company completes a liquidation, merger, share exchange or other similar transaction which results in all of the Company’s shareholders having the right to exchange their ordinary shares for cash, securities or other property.
Administrative Service Fee
The
Company presently occupies office space provided by an entity controlled by Crescendo Advisors II, LLC. Such entity has agreed that until
the Company consummates a Business Combination, it will make such office space, as well as general and administrative services including
utilities and administrative support, available to the Company as may be required by the Company from time to time. The Company has agreed
to pay an aggregate of $
Promissory Note — Related Party
On
August 11, 2020, Eric Rosenfeld, the Company’s Chief SPAC Officer, issued a $
13
LEGATO MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
Working Capital Loans
In
order to finance transaction costs in connection with a Business Combination, the Initial Shareholders, the Company’s officers and
directors or their affiliates may, but are not obligated to, loan the Company funds from time to time or at any time, as may be required
(“Working Capital Loans”). Each Working Capital Loan would be evidenced by a promissory note. The Working Capital Loans would
either be paid upon consummation of a Business Combination, without interest. In the event that a Business Combination does not close,
the Company may use a portion of the 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. Working Capital Loans may be convertible into units, at a price
of $
Note 6 — Commitments and Contingencies
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations, and/or completion of a business combination, the specific impact is not readily determinable as of the date of the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Registration Rights
The holders of the founders’ shares and representative shares issued and outstanding, as well as the holders of the private units and any units our initial stockholders, officers, directors or their affiliates may be issued in payment of working capital loans made to us (and all underlying securities), will be entitled to registration rights pursuant to an agreement to be signed prior to or on the effective date of this offering. The holders of a majority of these securities are entitled to make up to two demands that the Company register such securities. The holders of the majority of the founders’ shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these shares of common stock are to be released from escrow. The holders of a majority of the representative shares, private units and units issued to our initial stockholders, officers, directors or their affiliates in payment of working capital loans made to us (or underlying securities) can elect to exercise these registration rights at any time after the Company consummates a business combination. Notwithstanding anything to the contrary, EBC may only make a demand on one occasion and only during the five-year period beginning on the effective date of the registration statement of which this prospectus forms a part. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to our consummation of a business combination; provided, however, that EBC may participate in a “piggy-back” registration only during the seven-year period beginning on the effective date of the registration statement of which this prospectus forms a part. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The
Company granted the underwriters a 45-day option from the date of Initial Public Offering to purchase up to
14
LEGATO MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
Business Combination Marketing Agreement
The
Company has engaged EarlyBirdCapital as an advisor in connection with the business combination to assist in holding meetings with the
shareholders to discuss the potential business combination and the target business’ attributes, introduce the Company to potential
investors that are interested in purchasing the Company’s securities in connection with the initial business combination, assist
in obtaining shareholder approval for the business combination and assist with the press releases and public filings in connection with
the business combination. The Company will pay EarlyBirdCapital a cash fee for such services upon the consummation of the initial business
combination in an amount equal to
Additionally,
the Company will pay EarlyBirdCapital a cash fee equal to
Note 7 — Stockholders’ Equity
Preferred Stock
The
Company is authorized to issue
Common Stock
The
Company is authorized to issue
Representative Shares
In
August 2020, the Company has issued to the designees of EBC 234,286 shares of common stock (the “Representative Shares”)
for a nominal consideration (after giving effect to the dividend effected in January 2021). The Company accounted for the Representative
Shares as an offering cost of the Proposed Offering, with a corresponding credit to stockholders’ equity. The Company estimated
the fair value of Representative Shares to be $
15
LEGATO MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
The Representative Shares have been deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following the effective date of the registration statement related to the Proposed Offering pursuant to Rule 5110(e)(1) of FINRA’s NASD Conduct Rules. Pursuant to FINRA Rule 5110(e)(1), these securities will not be the subject of any hedging, short sale, derivative, put or call transaction that would result in the economic disposition of the securities by any person for a period of 180 days immediately following the effective date of the registration statement related to the Proposed Offering, nor may they be sold, transferred, assigned, pledged or hypothecated for a period of 180 days immediately following the effective date of the registration statement related to the Proposed Offering except to any underwriter and selected dealer participating in the Proposed Offering and their bona fide officers or partners.
Note 8 — Warrant Liabilities
As
of June 30, 2021, the Company had
Warrants —
Public Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Public
Warrants. The Public Warrants will become exercisable 30 days after the completion of a Business Combination; provided in that the
Company has an effective registration statement under the Securities Act covering the shares of common stock issuable upon exercise
of the Public Warrants and a current prospectus relating to them is available. The Company has agreed that as soon as practicable,
the Company will use its best efforts to file with the SEC a registration statement for the registration, under the Securities Act,
of the shares of common stock issuable upon exercise of the Public Warrants. The Company will use its best efforts to cause the same
to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto,
until the expiration of the Public Warrants in accordance with the provisions of the warrant agreement. Notwithstanding the
foregoing, if a registration statement covering the shares of common stock issuable upon exercise of the Public Warrants is not
effective 90 days following the consummation of Business Combination, warrant holders may, until such time as there is an effective
registration statement and during any period when the Company shall have failed to maintain an effective registration statement,
exercise warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities Act, provided that
such exemption is available. If that exemption, or another exemption, is not available, holders will not be able to exercise their
warrants on a cashless basis. The Public Warrants will expire
In addition, if (x) the Company issues additional shares of common stock or equity-linked securities for capital raising purposes in connection with the closing of its initial business combination at an issue price or effective issue price of less than $9.20 per share of common stock (with such issue price or effective issue price to be determined in good faith by our board of directors, and in the case of any such issuance to the Company’s initial stockholders or their affiliates, without taking into account any founders’ shares held by them prior to such issuance), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of the initial business combination on the date of the consummation of our initial business combination (net of redemptions), and (z) the volume weighted average trading price of the Company’s common stock during the 20 trading day period starting on the trading day prior to the day on which the Company consummates its initial business combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the greater of (i) the Market Value or (ii) the price at which the Company issues the additional shares of common stock or equity-linked securities.
16
LEGATO MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
The Company may redeem the Public Warrants:
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement.
The exercise price and number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
The warrants included in the Private Units (“Private Warrants”) are identical to the Public Warrants, except that the Private Warrants will be exercisable for cash or on a cashless basis, at the holder’s option, and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants. As of June 30, 2021, the Company had 23,575,000 Public Warrants and 604,000 Private Warrants outstanding. There were no warrants outstanding at December 31, 2020.
Note 9 — Fair Value Measurements
At
June 30, 2021, assets held in the Trust Account were comprised of $
The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value.
17
LEGATO MERGER CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited)
June 30, 2021
| Description | Quoted Price in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||
| Assets: | ||||||||||||
| Investments held in Trust Account | $ | $ | $ | |||||||||
| Liabilities: | ||||||||||||
| Derivative private warrant liabilities | $ | $ | $ | |||||||||
Transfers
to/from Levels 1, 2, and 3 are recognized at the end of the reporting period. There were no transfers to/from Levels 1, 2, and 3
securities at the end of the reporting period. The Company had approximately $
Level 1 instruments include investments in U.S. Treasury securities. The Company uses inputs such as actual trade data, benchmark yields, quoted market prices from dealers or brokers, and other similar sources to determine the fair value of its investments.
The
fair value of the Private Placement Warrants were estimated using a Monte Carlo model using the quoted underlying common stock. For the
three months ended June 30, 2021, the Company recognized an expense on the unaudited condensed statement of operations resulting from
an increase in the fair value of liabilities of $
The estimated fair value of the Private Placement Warrants prior to being separately listed and traded, is determined using Level 3 inputs. The features in the warrants that were analyzed and incorporated into the model included the variable term, the exercise features, the reset provisions, the call options and the fundamental transactions terms. The model simulated the underlying economic factors that influenced which of these events would occur, when they were likely to occur, and the specific terms that would be in effect at the time (i.e., stock price, exercise price, etc.). Probabilities were assigned to each variable such as the timing and pricing of events over the term of the instruments based on management projections. This led to a cash flow simulation over the life of the instrument. A discounted cash flow was completed to determine a value for the derivative liability.
The following table provides quantitative information regarding Level 3 fair value measurements inputs utilized to measure the fair value of the Private Placement Warrants at the measurement dates as of June 30, 2021:
| June 30, 2021 | ||||
| Volatility | % | |||
| Risk Free Rate | % | |||
| Estimated Term Remaining | ||||
The change in the fair value of the derivative warrant liabilities for the three and six months ended June 30, 2021 is summarized as follows:
| Derivative warrant liabilities as of January 1, 2021 | $ | |||
| Issuance of Private warrants | $ | |||
| Change in fair value of derivative warrant liabilities | $ | ( | ) | |
| Derivative warrant liabilities as of March 31, 2021 | $ | |||
| Change in fair value of derivative warrant liabilities | $ | |||
| Derivative warrant liabilities as of June 30, 2021 | $ |
Note 10 — Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed financial statements were issued and have determined there are no such transactions to disclose.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Legato Merger Corp. References to our “management” or our “management team” refer to our officers and directors. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the 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 Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s final prospectus for its Initial Public Offering filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a blank check company formed under the laws of the State of Delaware on June 26, 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 intend to effectuate our Business Combination using cash from the proceeds of the Initial Public Offering and the sale of the Private Units, 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 raise capital or to complete our initial Business Combination will be successful.
19
On May 24, 2021, we entered into an Agreement and Plan of Merger (“Merger Agreement”) with 1295908 B.C. Ltd., a British Columbia corporation (“Algoma”), and Algoma Merger Sub, Inc., a Delaware corporation and a direct, wholly-owned subsidiary of Algoma (“Merger Sub”). Pursuant to the Merger Agreement, Merger Sub will merge with and into our company, with our company surviving the merger (“Merger”). As a result of the Merger, we will become a wholly-owned subsidiary of Algoma, with our stockholders becoming shareholders of Algoma.
Algoma is the parent holding company of Algoma Steel Inc., a Canadian fully integrated steel producer of hot and cold rolled steel products, including sheet and plate, whose product applications are used in the automotive, construction, energy, defense, and manufacturing sectors.
Concurrently with the execution of the Merger Agreement, we and Algoma entered into subscription agreements with investors for an aggregate investment in the combined company of $100,000,000, contingent upon the consummation of the Merger.
The Merger and the other transactions contemplated by the Merger Agreement are expected to be consummated in the third quarter of 2021, following receipt of the required approval by our stockholders and the fulfilment of certain other conditions set forth in the Merger Agreement.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities through June 30, 2021, were organizational activities, those necessary to prepare for the Initial Public Offering and, after our Initial Public Offering, identifying a target company for a Business Combination. We do not expect to generate any operating revenues until after the completion of our Business Combination, at the earliest. We generate non-operating income in the form of interest income on marketable securities held in the Trust Account. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
For the three months ended June 30, 2021, we had a net loss of ($1,244,301), which consisted of operating costs of $375,291, and a change in the value of warrant liability of $875,890, offset by Investment income on Trust Account of $6,880.
For the six months ended June 30, 2021, we had a net loss of ($1,018,778), which consisted of operating costs of $599,728, offering costs attributable to the private placement warrants of $15,748 and a change in the value of warrant liability of $447,248, offset by Investment income on Trust Account Trust Account of $43,946.
Liquidity and Capital Resources
On January 22, 2021, the Company consummated the Initial Public Offering of 20,500,000 units at $10.00 per Unit, generating gross proceeds of $205,000,000 Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 542,500 units, at a price of $10.00 per unit in a private placement to certain holders of the Company’s founder shares (“Initial Stockholders”) and EarlybirdCapital, Inc., the representative of the underwriters in the Initial Public Offering (“EBC”), generating gross proceeds of $5,425,000 (“Private Units”). On January 25, 2021, the underwriters fully exercised their over-allotment option, resulting in an additional 3,075,000 Units issued for an aggregate amount of $30,750,000. In connection with the underwriters’ exercise of their over-allotment option, the Company also consummated the sale of an additional 61,500 private units at $10.00 per unit, generating total proceeds of $615,000.
20
Following the Initial Public Offering and the sale of the Private Units, a total of $235,750,000 was placed in the Trust Account and we had $861,801 of cash held outside of the Trust Account, after payment of costs related to the Initial Public Offering, and available for working capital purposes. We incurred $5,210,204 in transaction costs, including $4,715,000 of underwriting fees and $495,204 of other costs.
At June 30, 2021, we had marketable securities held in the Trust Account of $235,793,946. We intend to use substantially all of the funds held in the Trust Account (excluding deferred underwriting commissions and interest to pay taxes) to acquire a target business or businesses and to pay our expenses relating thereto. To the extent that our common stock is used in whole or in part as consideration to affect our Business Combination, the remaining proceeds held in the Trust Account as well as any other net proceeds not expended will be used as working capital to finance the operations of the target business or businesses.
As of June 30, 2021, the Company had a cash balance of approximately $240,000 and a working capital balance of $255,338, which includes interest income of $43,945 which is available to the Company for tax obligations (as allowed by the Underwriting Agreement). During the six months June 30, 2021, the Company has not withdrawn any interest income to pay its franchise and income taxes.
Until the consummation of a Business Combination, the Company will be using funds held outside of the Trust Account for paying existing accounts payable, 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. If the Company’s estimates 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, the Company may have insufficient funds available to operate its business prior to a Business Combination. Moreover, the Company may need to obtain additional financing either to complete a Business Combination or because it becomes obligated to redeem a significant number of its public shares upon completion of a Business Combination, in which case the Company may issue additional securities or incur debt in connection with such Business Combination. In order to finance transaction costs in connection with a Business Combination, our officers, directors and initial stockholders and their affiliates may, but are not obligated to, loan us funds as may be required. If the Company completes a Business Combination, the Company would repay such loaned amounts. In the event that a Business Combination does not close, the Company may use any funds available to it outside of the Trust Account to repay any such loaned amounts.
If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, suspending the pursuit of a potential transaction. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of June 30, 2021.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have not identified any critical accounting policies.
21
Warrant liabilities
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
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 warrants was estimated using a Monte Carlo simulation approach.
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 redemptions (if any) is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, at June 30, 2021, 22,987,148 shares of common stock subject to possible redemption is presented as temporary equity, outside of the stockholders’ equity section of the Company’s condensed balance sheet.
Net Income (Loss) Per Share
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” Net income per share is computed by dividing net income applicable to common stockholders by the weighted average number of shares of common stock outstanding for the period. The Company has not considered the effect of the warrants and rights sold in the Initial Public Offering and Private Placement to purchase an aggregate of 23,575,000 shares of Public Shares in the calculation of diluted earnings per share, since their inclusion would be anti-dilutive under the treasury stock method. As a result, diluted earnings per share is the same as basic earnings per share for the periods.
The Company’s statements of operations includes a presentation of income per share for common stock subject to redemption in a manner similar to the two-class method of income per share. Net income per share, basic and diluted for Public Shares is calculated by dividing the interest income earned on the Trust Account, net of applicable taxes and funds available to be withdrawn from Trust for working capital purposes, by the weighted average number of Public Shares outstanding since the original issuance. Net income per common share, basic and diluted for Founder Shares is calculated by dividing the net income, less income attributable to Public shares, by the weighted average number of Founder Shares outstanding for the periods.
22
At June 30, 2021, the Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into ordinary shares and then participate in the earnings.
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 condensed financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the fiscal quarter ended June 30, 2021, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation and in light of the SEC Staff Statement, our Certifying Officers concluded that, solely due to the Company’s misapplication of the accounting for the Company’s warrants as liabilities described in in our Quarterly Report on Form 10Q for the fiscal quarter ended March 31, 2021, as filed with the SEC on May 25, 2021, our disclosure controls and procedures were not effective as of June 30, 2021. In light of this material weakness, we performed additional analysis as deemed necessary to ensure that our unaudited interim financial statements were prepared in accordance with GAAP. Accordingly, management believes that the financial statements included in this Quarterly Report present fairly in all material respects our financial position, results of operations and cash flows for the period presented.
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
Other than as described herein, there was no change in our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2021 covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Management has implemented remediation steps to address the material weakness and to improve our internal control over financial reporting. Specifically, we plan to enhance our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our consolidated financial statements. Our plans at this time include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. As of June 30, 2021, this has not been fully remediated.
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PART II - OTHER INFORMATION
Item 1A. Risk Factors
Except as set forth below, as of the date of this Quarterly Report, there have been no material changes with respect to those risk factors previously disclosed in our Final Prospectus, dated January 19, 2021, filed with the SEC. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On January 22, 2021, we consummated the Initial Public Offering of 20,500,000 Units, at a price of $10.00 per Unit, generating total gross proceeds of $205,000,000. EarlyBirdCapital, Inc. acted as the sole book-running manager of the Initial Public Offering and I-Bankers Securities, Inc. acted as co-manager of the Initial Public Offering. The securities in the offering were registered under the Securities Act on registration statements on Form S-1 (Nos. 333-248997 and 333-252240). The Securities and Exchange Commission declared the registration statements effective on January 19, 2021.
Simultaneous with the consummation of the Initial Public Offering, we consummated the private placement of an aggregate of 542,500 Private Units to our initial stockholders and EarlyBirdCapital at a price of $10.00 per Private Unit, generating total proceeds of $5,425,000. The issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
On January 25, 2021, the underwriters fully exercised their over-allotment option, resulting in an additional 3,075,000 Units issued for an aggregate amount of $30,750,000. In connection with the underwriters’ exercise of their over-allotment option, we also consummated the sale of an additional 61,500 Private Units at $10.00 per unit, generating total proceeds of $615,000.
Of the gross proceeds received from the Initial Public Offering including the over-allotment option, and the Private Units, $235,750,000 was placed in the Trust Account.
Transaction costs associated with the underwriters’ full exercise of their over-allotment option amounted to $5,210,204, consisting of $4,715,000 in cash underwriting fees and $495,204 of other costs..
For a description of the use of the proceeds generated in our Initial Public Offering, see Part I, Item 2 of this Form 10-Q.
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Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| * | Filed herewith. |
| ** | Furnished. |
| + | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on May 25, 2021. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| LEGATO MERGER CORP. | ||
| Date: August 13, 2021 | By: | /s/ David D. Sgro |
| Name: | David D. Sgro | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: August 13, 2021 | By: | /s/ Adam Jaffe |
| Name: | Adam Jaffe | |
| Title: | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
26