UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from ______ to ______
Commission File Number
(Exact name of registrant as specified in its charter)
| ||
(State or other jurisdiction of |
| (IRS Employer |
(Address of principal executive offices including zip code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading |
| Name of each exchange on which |
|
|
| The | |
|
| The | ||
|
| The |
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.
☒ | Accelerated filer | ☐ | |
Non-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). Yes
As of August 9, 2023,
CONX CORP.
FORM 10-Q
For the period ended June 30, 2023
INDEX
|
| Page |
| PART I. FINANCIAL INFORMATION |
|
|
| |
Item 1. | Financial Statements: | |
Condensed Balance Sheets as of June 30, 2023 (unaudited) and December 31, 2022 | 2 | |
3 | ||
4 | ||
Unaudited Condensed Statements of Cash Flows for each of the six months ended June 30, 2023 and 2022 | 5 | |
6 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 21 | |
26 | ||
26 | ||
|
| |
|
| |
28 | ||
28 | ||
28 | ||
28 | ||
28 | ||
28 | ||
29 | ||
30 |
-1-
CONX CORP.
CONDENSED BALANCE SHEETS
June 30, 2023 | December 31, | |||||
| (unaudited) |
| 2022 | |||
Assets: |
| |||||
Current assets: | ||||||
Cash | $ | | $ | | ||
Prepaid expenses |
| | | |||
Cash held in trust account | | | ||||
Total assets | $ | | $ | | ||
Liabilities, Class A Common Stock Subject to Redemption, and Stockholders’ Deficit: | ||||||
Current liabilities: |
|
| ||||
Accounts payable | $ | | $ | | ||
Working capital loan – related party | | — | ||||
Extension notes – related party | | | ||||
Accrued expenses | | | ||||
Income taxes payable |
| | | |||
Deferred legal fees | | | ||||
Deferred underwriting fee payable | | | ||||
Derivative warrant liabilities | | | ||||
Total current liabilities | | | ||||
Commitments and Contingencies |
| |||||
Class A common stock subject to possible redemption, | | | ||||
Stockholders’ Deficit: |
| |||||
Preferred stock, $ |
| |||||
Class A common stock, $ |
| | | |||
Class B common stock, $ |
| | | |||
Accumulated deficit |
| ( | ( | |||
Total Stockholders’ Deficit |
| ( | ( | |||
Total Liabilities, Class A Common Stock Subject to Redemption, and Stockholders’ Deficit | $ | | $ | |
The accompanying notes are an integral part of the unaudited condensed financial statements.
-2-
CONX Corp.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
For the Three Months | For the Three Months | |||||
Ended June 30, | Ended June 30, | |||||
| 2023 |
| 2022 | |||
General and administrative expenses | $ | | $ | | ||
Loss from operations | ( | ( | ||||
Other income (expense) | ||||||
Change in fair value of derivative warrant liabilities | ( | | ||||
Interest income on cash or investments held in Trust Account | — | | ||||
Total other (expense) income | ( | | ||||
(Loss) income before income tax expense | ( | | ||||
Income tax expense | — | | ||||
Net (loss) income | $ | ( | $ | | ||
Weighted average common shares outstanding, basic and diluted |
| |||||
Class A - Common stock | | | ||||
Class B - Common stock | | | ||||
Basic and diluted net (loss) income per common share | ||||||
Class A - Common stock | $ | ( | $ | | ||
Class B - Common stock | $ | ( | $ | |
| For the Six Months |
| For the Six Months | |||
Ended June 30, | Ended June 30, | |||||
2023 | 2022 | |||||
General and administrative expenses | $ | | $ | | ||
Loss from operations |
| ( |
| ( | ||
Other income (expense) |
|
| ||||
Change in fair value of derivative warrant liabilities |
| ( |
| | ||
Interest income on cash or investments held in Trust Account |
| — |
| | ||
Total other income (expense) |
| ( |
| | ||
(Loss) income before income tax expense |
| ( |
| | ||
Income tax expense |
| — |
| | ||
Net (loss) income | $ | ( | $ | | ||
Weighted average common shares outstanding, basic and diluted |
|
| ||||
Class A - Common stock |
| |
| | ||
Class B - Common stock |
| |
| | ||
Basic and diluted net (loss) income per common share |
|
| ||||
Class A - Common stock | $ | ( | $ | | ||
Class B - Common stock | $ | ( | $ | |
The accompanying notes are an integral part of the unaudited condensed financial statements.
-3-
CONX Corp.
UNAUDITED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 | |||||||||||||||||||
| Common Stock |
| Additional | ||||||||||||||||
| Class A |
| Class B |
| Paid-In |
| Accumulated | Stockholders’ | |||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficit | ||||||
Balance—January 1, 2023 | | $ | | | $ | | $ | — | $ | ( | $ | ( | |||||||
Accretion Adjustment |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||
Net loss (as revised) |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||
Balance—March 31, 2023 (unaudited, as revised) | | $ | | | $ | | $ | — | $ | ( | $ | ( | |||||||
Accretion Adjustment | — | — | — | — | — | ( | ( | ||||||||||||
Net loss | — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balance—June 30, 2023 (unaudited) | | $ | | | $ | | $ | — | $ | ( | $ | ( |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 | |||||||||||||||||||
Common Stock | Additional | ||||||||||||||||||
Class A | Class B | Paid-In | Accumulated | Stockholders’ | |||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficit | ||||||
Balance—January 1, 2022 | | $ | | | $ | | $ | — | $ | ( | $ | ( | |||||||
Net income | — | — | — | — | — | | | ||||||||||||
Balance, March 31, 2022 (unaudited) | | | | $ | | — | $ | ( | $ | ( | |||||||||
Net income | — |
| — |
| — |
| — |
| — |
| |
| | ||||||
Balance—June 30, 2022 (unaudited) | | $ | | | $ | | $ | — | $ | ( | $ | ( |
The accompanying notes are an integral part of the unaudited condensed financial statements.
-4-
CONX Corp.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
Six Months | Six Months | |||||
Ended | Ended | |||||
June 30, | June 30, | |||||
| 2023 |
| 2022 | |||
Cash flows from Operating Activities: |
| |||||
Net (loss) income | $ | ( | $ | | ||
Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||
Interest earned on cash or investments held in Trust Account | — | ( | ||||
Change in fair value of derivative warrant liabilities |
| | ( | |||
Changes in operating assets and liabilities: | ||||||
Prepaid expenses | ( | ( | ||||
Accounts payable | | | ||||
Accrued expenses |
| | | |||
Income taxes payable | ( | | ||||
Net cash used in operating activities | ( | ( | ||||
Investing Activities | ||||||
Cash distributed from trust account – redemptions | | — | ||||
Cash contributed to trust account | ( | — | ||||
Net cash provided by investing activities | | — | ||||
Financing Activities | ||||||
Redemption of Class A common stock | ( | — | ||||
Proceeds from Extension notes | | — | ||||
Proceeds from Working Capital Loan | | — | ||||
Net cash used in financing activities | ( | — | ||||
Net change in cash |
| ( | ( | |||
Cash—beginning of the period | $ | | $ | | ||
Cash—end of the period | $ | | $ | | ||
Supplemental Cash Flow Information |
| |||||
Cash paid for income taxes | $ | | $ | — |
The accompanying notes are an integral part of the unaudited condensed financial statements
-5-
CONX Corp.
UNAUDITED NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1—Description of Organization, Business Operations and Basis of Presentation
CONX Corp. (the “Company”) was incorporated in Nevada on August 26, 2020. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with
As of June 30, 2023, the Company had not commenced operations. All activity for the period from August 26, 2020 (inception) through June 30, 2023 relates to the Company’s initial public offering and subsequent search for a potential Business Combination target. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. Prior to October 12, 2022, the Company generated non-operating income in the form of interest income on marketable investments and cash held in a Trust Account (as defined below) from the net proceeds derived from the Initial Public Offering (as defined below). The Company recognizes changes in the fair value of warrant liability as other income (expense). Effective October 12, 2022, the Company converted all of its investments in the Trust Account into cash, which will remain in the Trust Account. The Company no longer intends to invest the net proceeds in securities or interest-bearing accounts prior to an initial business combination. Accordingly, the amount of interest income (which the Company is permitted to use to pay the Company’s taxes and up to $
The Company’s Sponsor is nXgen Opportunities, LLC, a Colorado limited liability company (the “Sponsor”). The registration statement for the Initial Public Offering was declared effective on October 29, 2020. On November 3, 2020, the Company consummated the Initial Public Offering of
Simultaneously with the closing of the Initial Public Offering, the Company consummated the private placement (“Private Placement”) of
Upon the closing of the Initial Public Offering and the Private Placement, a total of $
The Company filed a Form 8-K on November 1, 2022 notifying stockholders of the approval at the meeting of stockholders held on October 31, 2022 (the “First Extension Meeting”) to extend the date by which the Company was required to consummate a business combination from November 3, 2022 to June 3, 2023 (the “First Extension”). Stockholders holding
In connection with the First Extension, the Sponsor agreed to advance to the Company (i) $
-6-
calendar month commencing on December 3, 2022, and on the 3rd day of each subsequent month, or portion thereof, that the Company required to complete a business combination from November 3, 2022 until June 3, 2023 (such advances, the "First Extension Loans"). In connection with the First Extension,
On October 31, 2022, the Company issued a promissory note in the principal amount of up to $
The Company filed a Form 8-K on June 2, 2023, notifying stockholders of the approval at the meeting of stockholders held on June 1, 2023 (the "Second Extension Meeting") to extend the date by which the Company must consummate a business combination from June 3, 2023 to November 3, 2023 (the "Second Extension"). Stockholders holding
In connection with the Second Extension, the Sponsor agreed to advance to the Company (i) $
On June 2, 2023, the Company issued a promissory note in the principal amount of up to $
The Company remains in discussions with DISH Network Corp. (“DISH”) regarding a potential transaction (which we refer to as the “Transaction”). The Company expects to announce additional details regarding the potential business combination if and when a definitive agreement is executed. No assurances can be made that the parties will successfully negotiate and enter into a definitive agreement, or that the Transaction will be consummated or the timeframe for such consummation. Any business combination, including the Transaction, would be subject to, among other things, negotiation between the parties, significant due diligence, appropriate board and shareholder approvals, regulatory approvals and other conditions. We have agreed to obtain an opinion from an independent investment banking firm or a valuation or appraisal firm regarding the fairness to the Company from a financial point of view of a business combination with any entity that is affiliated with our Sponsor or any of the Company’s officers or directors, including the Transaction. In addition, we intend to appoint a special committee of independent and disinterested directors to evaluate and if appropriate negotiate and approve the terms of any Transaction.
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally
-7-
toward consummating a Business Combination. There is no assurance that the Company will be able to complete a Business Combination successfully. The Company must complete
The Company will provide holders of the Company’s outstanding shares of Class A common stock, par value $
The Articles of Incorporation provide that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), is restricted from redeeming its shares with respect to more than an aggregate of
The Sponsor, Messrs. Charles W. Ergen and Jason Kiser (the “initial stockholders”) have agreed not to propose an amendment to the Articles of Incorporation to modify the substance or timing of the Company’s obligation to redeem
If the Company is unable to complete a Business Combination by November 3, 2023, as extended (the “Combination Period”), the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than
-8-
The initial stockholders and independent directors have agreed to waive their rights to liquidating distributions from the Trust Account with respect to the Founder Shares and Independent Director Shares if the Company fails to complete a Business Combination within the Combination Period. However, if the initial stockholders or independent directors acquire Public Shares in or after the Initial Public Offering, they will be entitled to liquidating distributions from the Trust Account with respect to such Public Shares if the Company fails to complete a Business Combination within the Combination Period. The underwriters have agreed to waive their rights to the deferred underwriting commission (see Note 5) held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period and, in such event, such amounts will be included with the other funds held in the Trust Account that will be available to fund the redemption of the Public Shares. 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 only $
Basis of Presentation
The accompanying unaudited condensed financial statements are presented in U.S. dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q. Certain information or footnote disclosures normally included in the unaudited condensed financial statements prepared in accordance with U.S. GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s annual report on Form 10-K, as filed with the SEC on March 1, 2023. The interim results for the six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the period ended December 31, 2023 or for any future periods.
Prior Period Financial Statement Correction of an Immaterial Error
The Company elected the fair value option for valuing its Extension Notes – related party (“Extension Notes”). In connection with the preparation of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023, management re-evaluated the Company’s application of Accounting Standards Codification (“ASC”) 825-10 with respects to the applicability of the fair value option for the Extension Notes and determined that the fair value option was not applicable since the Extension Notes were issued at a substantial premium. After further consideration, management re-evaluated the impact of not adopting the fair value option for the Extension Notes on the Company’s previously issued financial statements and, in consultation with the Company’s audit committee, concluded that such reclassification was not material with respect to certain of the Company’s previously issued financial statements. However, the impact of the error would be material to the financial statements as of and for the period ended June 30, 2023, and as such the error will be corrected in the current and future filings.
-9-
The following tables summarize the effects of the revision on each financial statement line item as of March 31, 2023:
As Previously Reported | |||||||||
Balance sheet as of March 31, 2023 |
| in Form 10-Q |
| Adjustment |
| As Revised | |||
Extension Note – related party | $ | | $ | | $ | | |||
Total Liabilities | $ | | $ | | $ | | |||
Total Stockholders’ Deficit | $ | ( | $ | ( |
| $ | ( | ||
Change in fair value of Extension Note – related party | $ | ( | $ | | $ | — | |||
Net loss | $ | ( | $ | ( | $ | ( | |||
Earnings per Share - Class A | $ | ( | $ | ( | $ | ( | |||
Earnings per Share - Class B | $ | ( | $ | ( | $ | ( |
Going Concern
Subsequent to the consummation of the Initial Public Offering and Private Placement, the Company’s liquidity needs have been satisfied with the proceeds from the consummation of the Private Placement not held in the Trust Account. In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor may, but is not obligated to, provide the Company Working Capital Loans (see Note 4). As of June 30, 2023, the Company had borrowed $
The Company will be required to liquidate and dissolve if the Business Combination is not completed by the end of the Combination Period. Management intends to seek additional financing to the extent current funds are insufficient to meet the Company’s working capital needs until completion of a Business Combination or mandatory liquidation. The Company’s officers, directors and Sponsor may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs. Accordingly, the Company may not be able to obtain additional financing. 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, 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. These conditions raise substantial doubt about the Company’s ability to continue as a going concern through one year from the date of these unaudited condensed financial statements if a Business Combination is not consummated. These unaudited condensed financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
Risks and Uncertainties
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into law. The IR Act provides for, among other things, a new 1% U.S. federal excise tax on certain repurchases (including redemptions) of stock by publicly traded U.S. corporations after December 31, 2022. The excise tax is imposed on the repurchasing corporation itself, not its stockholders from whom the shares are repurchased (although it may reduce the amount of cash distributable in a current or subsequent redemption). The amount of the excise tax is generally 1% of any positive difference between the fair market value of any shares repurchased by the repurchasing corporation during a taxable year and the fair market value of certain new stock issuances by the repurchasing corporation during the same taxable year. In addition, a number of exceptions apply to this excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out, and prevent the abuse or avoidance of, this excise tax.
On December 27, 2022, the Treasury published Notice 2023-2, which provided clarification on some aspects of the application of the excise tax. The notice generally provides that if a publicly traded U.S. corporation completely liquidates in a liquidation to which Section 331 of the Code applies (so long as Section 332(a) of the Code also does not apply), distributions in such complete liquidation and other distributions by such corporation in the same taxable year in which the final distribution in complete liquidation is made are not subject to the excise tax. Consequently, we would not expect the 1% excise tax to apply if there is a complete liquidation of our company under Section 331 of the Code.
Any excise tax that may be imposed on any redemption or other repurchase effected by us, in connection with a business combination, extension vote or otherwise, would be payable by us and not by the redeeming holder, and it could cause a reduction in the value of our Class A Common Stock or cash available for distribution in a subsequent liquidation. Whether and to what extent we would be subject to the excise tax in connection with a business combination will depend on a number of factors, including (i) the structure of the business combination, (ii) the fair market value of the redemptions and repurchases in connection with the business combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with the business combination (or any
-10-
other equity issuances within the same taxable year of the business combination) and (iv) the content of any subsequent regulations, clarifications, and other guidance issued by the Treasury.
Note 2—Summary of Significant Accounting Policies
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times, may exceed the Federal Deposit Insurance Corporation coverage limit of $250,000. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company's financial condition, results of operations, and cash flows.
Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the Balance Sheets, except for the public and private warrants.
See Note 8 for additional information on assets and liabilities measured at fair value on a recurring basis.
Derivative Financial Instruments
The Company evaluated the Public and Private Warrants as either equity-classified or liability-classified instruments based on an assessment of the warrants’ specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The Company’s derivative instruments are recorded at fair value as of the Initial Public Offering (November 3, 2020) and re-valued at each reporting date, with changes in the fair value reported in the Unaudited Condensed Statements of Operations. Derivative assets and liabilities are classified on the Balance Sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the Balance Sheet date. The Company has determined the Warrants are a derivative instrument. As the Warrants meet the definition of a derivative the Warrants are measured at fair value at issuance and at each reporting date in accordance with ASC 820, “Fair Value Measurements and Disclosures,” with changes in fair value recognized in the Unaudited Condensed Statement of Operations in the period of change.
Cash Held in Trust Account
Upon the closing of the Initial Public Offering and the Private Placement, the Company was required to place net proceeds of the Initial Public Offering and certain of the proceeds of the Private Placement in a Trust Account, which had been invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of
Effective October 12, 2022, the Company converted all of its investments in the Trust Account into cash, which will remain in the Trust Account. The Company no longer intends to invest the net proceeds in securities or interest-bearing accounts prior to an initial business combination.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. The determination of the fair value of the warrant liabilities is a significant accounting estimate included in these unaudited condensed financial statements. Such estimates may be subject to change as more current information becomes available and accordingly the actual results could differ significantly from those estimates.
-11-
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company had
Offering Costs Associated with The Initial Public Offering
Offering costs consist of legal, accounting, underwriting commissions and other costs incurred that were directly related to the Initial Public Offering. Offering costs are allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared to total proceeds received. Offering costs associated with derivative warrant liabilities are expensed as incurred, presented as non-operating expenses or income in the Unaudited Condensed Statements of Operations. Offering costs associated with the Class A common stock were charged against the carrying value of the shares of Class A common stock upon the completion of the Initial Public Offering.
Common Stock Subject to Possible Redemption
The Company will provide holders of the Company’s outstanding shares of Class A common stock, par value $
Effective October 31, 2022, the redemption amount was increased (i) $
Effective June 2, 2023, the redemption amount was increased (i) $
The Articles of Incorporation provide that a Public Stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), is restricted from redeeming its shares with respect to more than an aggregate of
Immediately upon the closing of the Initial Public Offering, the Company recognized the accretion from initial book value to redemption amount. If it is probable that the equity instrument will become redeemable, the Company has the option to either accrete
-12-
changes in the redemption value over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of the instrument or to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The Company has elected to recognize the changes immediately. The accretion or remeasurement is treated as a deemed dividend (i.e., a reduction to retained earnings, or in absence of retained earnings, additional paid-in capital).
Net Income (Loss) Per Share of Common Stock
Net income (loss) per share of common stock is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding for the period. Income and losses are shared pro rata between the two classes of shares. Accretion associated with the Class A common stock subject to possible redemption excluded from earnings per share as the redemption value approximates fair value. When calculating its diluted net income (loss) per share, the Company has not considered the effect of the Warrants issued in connection with the (i) Initial Public Offering, and (ii) the Private Placement since the exercise of the Warrants is contingent upon the occurrence of future events. The calculation excludes
Three Months Ended | Six Months Ended | |||||||||||
June 30, 2023 | June 30, 2023 | |||||||||||
| Class A |
| Class B |
| Class A |
| Class B | |||||
Basic and diluted net income (loss) per share |
|
| ||||||||||
Numerator: | ||||||||||||
Allocation of net (loss) | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Denominator: |
| |||||||||||
Basic and diluted weighted average shares outstanding | | | | | ||||||||
Basic and diluted net income (loss) per share | ( | ( | ( | ( |
Three Months Ended | Six Months Ended | |||||||||||
June 30, 2022 | June 30, 2022 | |||||||||||
| Class A |
| Class B |
| Class A |
| Class B | |||||
Basic and diluted net income (loss) per share |
|
|
|
|
|
|
|
| ||||
Numerator: |
|
|
|
|
|
|
|
| ||||
Allocation of net income | $ | | $ | | $ | | $ | | ||||
Denominator: |
|
|
|
|
| |||||||
Basic and diluted weighted average shares outstanding |
| |
| |
| |
| | ||||
Basic and diluted net income (loss) per share | | | | |
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under FASB ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the unaudited condensed financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
FASB ASC 740 prescribes a recognition threshold and a measurement attribute for the unaudited condensed financial statements 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. There were
-13-
Note 3—Initial Public Offering
On November 3, 2020, the Company consummated the Initial Public Offering of
Each Unit consists of
Note 4—Related Party Transactions
Founder Shares
On August 28, 2020, Charles W. Ergen (the “Founder”) purchased an aggregate of
The initial stockholders have agreed, subject to limited exceptions, not to transfer, assign or sell any of the Founder Shares until the earlier to occur of: (i)
Private Placement Warrants
Simultaneously with the closing of the Initial Public Offering, the Company consummated the Private Placement of
Each whole Private Placement Warrant is exercisable for
The Sponsor and the Company’s officers and directors agreed, subject to limited exceptions, not to transfer, assign or sell any of their Private Placement Warrants until
Related Party Loans
IPO Expense Loans
On August 28, 2020, the Founder agreed to loan the Company an aggregate of up to $
-14-
Working Capital Loans
In addition, in order to finance transaction costs in connection with a 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 a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination or, at the lender’s discretion, up to $
On March 1, 2023, our Sponsor agreed to loan the Company an aggregate of up to $
First Extension Note
On October 31, 2022 the Sponsor agreed to loan the Company an aggregate of up to $
Second Extension Note
On June 2, 2023 the Sponsor agreed to loan the Company an aggregate of up to $
Note 5—Commitments and Contingencies
Registration Rights
The holders of Founder Shares, Private Placement Warrants, Independent Director Shares and warrants that may be issued upon conversion of Working Capital Loans, if any (and any shares of Class A common stock issuable upon the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans and upon conversion of the Founder Shares) are entitled to registration rights pursuant to a registration and stockholder rights agreement signed at the effective date of the
-15-
Initial Public Offering. These holders are entitled to certain demand and “piggyback” registration rights. The Company will bear the expenses incurred in connection with the filing of any such registration statements. The registration and stockholder rights agreement neither provides for any maximum cash penalties nor any penalties connected with delays in registering the Company’s common stock.
Underwriting Agreement
The underwriters received an underwriting discount of $
Deferred Legal Fees
The Company obtained legal advisory services in connection with the Initial Public Offering and agreed to pay approximately $
Note 6—Stockholders’ Deficit
Class A Common Stock—The Company is authorized to issue
On October 23, 2020, the Company granted
Class B Common Stock— The Company is authorized to issue
Holders of record of Class A common stock and holders of record of Class B common stock will vote together as a single class on all matters submitted to a vote of our stockholders, with each share of stock entitling the holder to
The Class B common stock will automatically convert into Class A common stock at the time of the initial Business Combination on a
-16-
subject to further adjustment as described herein. In the case that additional shares of Class A common stock or equity-linked securities are issued or deemed issued in connection with the initial Business Combination, the number of shares of Class A common stock issuable upon conversion of the shares of Class B common stock will equal, in the aggregate, on an as-converted basis,
Preferred Stock—The Company is authorized to issue
Note 7—Warrants
As of June 30, 2023 and December 31, 2022, the Company had
If the Company issues additional shares of Class A 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 $
The Private Placement Warrants are identical to the Public Warrants, except that the Private Placement Warrants and the shares of Class A common stock issuable upon exercise of the Private Placement Warrants will not be transferable, assignable or saleable until
-17-
Warrants are held by someone other than the Sponsor or its permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
The Company may call the Public Warrants for redemption:
● | in whole and not in part; |
● | at a price of $ |
● | upon a minimum of |
● | if, and only if, the last sales price (the “closing price”) of the Class A common stock equals or exceeds $ |
In addition, the Company may call the Public Warrants for redemption:
● | in whole and not in part; |
● | at $ |
● | if, and only if, the closing price of Class A common stock equals or exceeds $ |
● | if the closing price of Class A common stock for any |
In no event will the Company be required to net cash settle any warrant. 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.
Note 8—Fair Value Measurements
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 or 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 which are supported by little or no market activity and which are significant to the fair value of the assets or liabilities.
-18-
The following table presents information about the Company’s assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2023 and December 31, 2022 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value. Significant deviations from these estimates and inputs could result in a material change in fair value.
June 30, | |||||
Description |
| Level |
| 2023 | |
Liabilities: |
|
|
|
| |
Private Placement Warrants |
| 2 | $ | | |
Public Warrants | 1 | $ | |
December 31, | |||||
Description |
| Level |
| 2022 | |
Liabilities: |
|
|
|
| |
Private Placement Warrants |
| 2 | $ | | |
Public Warrants |
| 1 | $ | |
Warrant Liabilities
As of June 30, 2023 and December 31, 2022, the Company’s derivative warrant liabilities were valued at $
Measurement
The Warrants are measured at fair value on a recurring basis. The subsequent measurement of the Public Warrants as of June 30, 2023 and December 31, 2022 is classified as Level 1 due to the use of an observable market quote in an active market under the ticker CONXW. As the transfer of Private Placement Warrants to anyone outside of a small group of individuals who are permitted transferees would result in the Private Placement Warrants having substantially the same terms as the Public Warrants, the Company determined that the fair value of each Private Placement Warrant is equivalent to that of each Public Warrant, with an insignificant adjustment for short-term marketability restrictions. As such, the Private Placement Warrants are classified as Level 2 as of June 30, 2023 and December 31, 2022.
The following table presents the changes in fair values during the six months ended June 30, 2023 and June 30, 2022:
Aggregate | |||||||||
Private | Public | Warrant | |||||||
| Warrants |
| Warrants | Liability | |||||
Fair value as of December 31, 2022 | $ | | | | |||||
| |
| |
| | ||||
Fair value as of June 30, 2023 | $ | | | |
(1) | Changes in valuation inputs or other assumptions are recognized in change in fair value of derivative warrant liabilities in the Unaudited Condensed Statements of Operations. |
(2) | During the six months ended June 30, 2023 and December 31, 2022, there were |
-19-
Aggregate | |||||||||
Private | Public | Warrant | |||||||
| Warrants |
| Warrants |
| Liability | ||||
Fair value as of December 31, 2021 | $ | | | | |||||
| ( |
| ( |
| ( | ||||
Fair value as of June 30, 2022 | $ | | | |
(1) | Changes in valuation inputs or other assumptions are recognized in change in fair value of derivative warrant liabilities in the Unaudited Condensed Statements of Operations. |
(2) | During the six months ended June 30, 2022, there were |
Extension Notes – related party
The Extension Notes – related party contain an embedded conversion feature that is not clearly and closely related to the debt agreement, which requires bifurcation and reporting at fair value. Due to the conversion feature being out of the money at inception and as of each reporting period, the value of the embedded conversion option is immaterial.
Note 9—Subsequent Events
The Company evaluated events that have occurred after the Balance Sheet date through the date on which the unaudited condensed financial statements were issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the unaudited condensed financial statements, except as described below.
As of August 9, 2023, the balance on the Second Extension Note was approximately $
-20-
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 CONX Corp. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to nXgen Opportunities, LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of 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 Quarterly Report 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 our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 1, 2023 and Part II, Item 1.A of this Quarterly Report. 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 incorporated in the State of Nevada on August 26, 2020, whose business purpose is to effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses or assets. We intend to effectuate our initial Business Combination utilizing cash from the proceeds of our Initial Public Offering and the sale of the Private Placement Warrants, our capital stock, debt or a combination of cash, stock and debt. Although we are not limited to a particular industry or sector for purposes of consummating a Business Combination, we intend to focus our search on identifying a prospective target that can benefit from our operational expertise in the technology, media and telecommunications (“TMT”) industry, including the wireless communications industry.
Our registration statement for our Initial Public Offering was declared effective on October 29, 2020. On November 3, 2020, we consummated the Initial Public Offering of 75,000,000 Units at a price of $10.00 per Unit, generating gross proceeds of $750.0 million. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 11,333,333 Private Placement Warrants to the Sponsor at a price of $1.50 per warrant, generating gross proceeds of $17 million.
Following the Initial Public Offering and the sale of the Private Placement Warrants, a total of $750.0 million was placed in the Trust Account and we had $130,639 of cash held outside of the Trust Account as of June 30, 2023 and available for working capital purposes and to pay our taxes. We incurred $42.3 million in transaction costs, including $15 million of underwriting fees, $26.3 million of deferred underwriting fees and $1 million of other costs.
Our management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination.
The Company filed a Form 8-K on November 1, 2022 notifying stockholders of the approval at the meeting of stockholders held on October 31, 2022 (the “First Special Meeting”) to extend the date by which the Company was required to consummate a business combination from November 3, 2022 to June 3, 2023 (the “ First Extension”). Stockholders holding 66,651,616 shares of Class A common stock (after giving effect to withdrawals of redemptions) exercised their right to redeem such shares for a pro rata portion of
-21-
the funds in the Trust Account. As a result, approximately $669.9 million (approximately $10.05 per share) was removed from the Trust Account to pay such redeeming holders (the “First Extension Redemptions”).
In connection with the First Extension, the Sponsor agreed to advance to the Company (i) $0.02 for each public share that was not redeemed in connection with the First Extension Meeting plus (ii) $0.02 for each public share that is not redeemed for each subsequent calendar month commencing on December 3, 2022, and on the 3rd day of each subsequent month, or portion thereof, that the Company required to complete a business combination from November 3, 2022 until June 3, 2023 (such advances, the “First Extension Loans”). In connection with the First Extension, 66,651,616 shares of Class A common stock were redeemed and 8,348,384 shares of Class A Common Stock were not redeemed. As a result, the aggregate monthly First Extension Loans payable by the Sponsor to us were $166,968. The Sponsor had advanced a total of $1,168,774 to the Trust Account as of June 30, 2023. The First Extension Loans do not bear interest to the Sponsor or its designee and are repayable by us to the Sponsor or its designee upon the earlier of: (i) the consummation of an initial business combination or (ii) the Company’s liquidation. The Sponsor has waived any and all rights to the monies held in the Trust Account with respect to the First Extension Loans. At the option of the Sponsor, up to $1,500,000 of the First Extension Loans may be converted into warrants identical to the Private Placement Warrants, at $1.50 per warrant.
On October 31, 2022, the Company issued a promissory note in the principal amount of up to $1,168,774 to the Sponsor (the “First Extension Note”), evidencing the Company’s indebtedness with respect to the First Extension Loans. As of June 30, 2023, the balance of the First Extension Note was $1,168,774.
The Company filed a Form 8-K on June 2, 2023, notifying stockholders of the approval at the meeting of stockholders held on June 1, 2023 (the “Second Extension Meeting”) to extend the date by which the Company must consummate a business combination from June 3, 2023 to November 3, 2023 (the “Second Extension”). Stockholders holding 5,650,122 shares of Class A common stock (after giving effect to withdrawals of redemptions) exercised their right to redeem such shares for a pro rata portion of the funds in the Trust Account. As a result, approximately $57.6 million (approximately $10.19 per share) was removed from the Trust Account to pay such redeeming holders (the “Second Extension Redemptions”). The Company remains in discussions with DISH regarding a potential transaction (which we refer to as the “Transaction”). The Company expects to announce additional details regarding the potential business combination if and when a definitive agreement is executed.
No assurances can be made that the parties will successfully negotiate and enter into a definitive agreement, or that the Transaction will be consummated or the timeframe for such consummation. Any business combination, including the Transaction, would be subject to, among other things, negotiation between the parties, significant due diligence, appropriate board and shareholder approvals, regulatory approvals and other conditions. We have agreed to obtain an opinion from an independent investment banking firm or a valuation or appraisal firm regarding the fairness to the Company from a financial point of view of a business combination with any entity that is affiliated with our Sponsor or any of the Company’s officers or directors, including the Transaction. In addition, we intend to appoint a special committee of independent and disinterested directors to evaluate and if appropriate negotiate and approve the terms of any Transaction.
In connection with the Second Extension, the Sponsor agreed to advance to the Company (i) $0.04 for each public share that was not redeemed in connection with the Second Extension Meeting plus (ii) $0.04 for each public share that is not redeemed for each subsequent calendar month commencing on July 3, 2023, and on the 3rd day of each subsequent month, or portion thereof, that the Company requires to complete a business combination from June 3, 2023 until November 3, 2023 (such advances, the “Second Extension Loans”). In connection with the Second Extension Meeting and the approval of the Second Extension Amendment, 5,650,122 shares of Class A common stock were redeemed in the Second Extension Redemptions and 2,698,262 shares of Class A Common Stock were not redeemed. As a result, the aggregate monthly Second Extension Loans payable by the Sponsor to us are approximately $107,930. The Sponsor had made the first such advancement to the Trust Account pursuant to the Second Extension Loans as of June 30, 2023. The Second Extension Loans do not bear interest to the Sponsor or its designee and are repayable by us to the Sponsor or its designee upon the earlier of: (i) the consummation of an initial business combination or (ii) the Company’s liquidation. The Sponsor has waived any and all rights to the monies held in the Trust Account with respect to those Second Extension Loans. The Sponsor or its designee has the sole discretion whether to continue advancing Second Extension Loans for additional calendar months until November 3, 2023 and if the Sponsor determines not to continue advancing Second Extension Loans for additional calendar months, its obligation to make additional Second Extension Loans will terminate. At the option of the Sponsor, up to $300,000 of the Second Extension Loans may be converted into warrants identical to the Private Placement Warrants, at $1.50 per warrant.
-22-
On June 2, 2023, the Company issued a promissory note in the principal amount of up to $539,652.40 to the Sponsor (the “Second Extension Note”), evidencing the Company’s indebtedness with respect to the Second Extension Loans. As of June 30, 2023, the balance under the Second Extension Note was approximately $107,930.
Effective October 12, 2022, the Company converted all of its investments in the Trust Account into cash, which will remain in the Trust Account. The Company no longer intends to invest the net proceeds in securities or interest-bearing accounts prior to an initial business combination. Accordingly, the amount of interest income (which we are permitted to use to pay our taxes and up to $100,000 of dissolution expenses) will no longer increase, which will limit the interest income available for payment of taxes and dissolution expenses for distribution to public shareholders in connection with our liquidation or in connection with the consummation of our business combination.
If we are unable to complete a Business Combination by November 3, 2023, as extended (the “Combination Period”), we will (i) cease all operations except for the purpose 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 interest earned on the funds held in the Trust Account and not previously released to us (less taxes payable and up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish Public Stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any) and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, liquidate and dissolve, subject, in the case of clauses (ii) and (iii), to our obligations under Nevada law to provide for claims of creditors and in all cases subject to the other requirements of applicable law. If we do not complete a Business Combination, there will be no redemption rights or liquidating distributions with respect to warrants to purchase our shares of Class A common stock, which will expire worthless.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities for the three and six months ended June 30, 2023 were associated with the search for 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 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. Additionally, we recognize non-cash gains and losses within other income (expense) related to changes in recurring fair value measurement of our derivative warrant liabilities at each reporting period.
Effective October 12, 2022, the Company converted all of its investments in the Trust Account into cash, which will remain in the Trust Account. The Company no longer intends to invest the net proceeds in securities or interest-bearing accounts prior to an initial business combination. Accordingly, the amount of interest income (which we are permitted to use to pay our taxes and up to $100,000 of dissolution expenses) will no longer increase, which will limit the interest income available for payment of taxes and dissolution expenses for distribution to public shareholders in connection with our liquidation or in connection with the consummation of our business combination.
For the three months ended June 30, 2023, we had a net loss of $920,206 which was related to a change in fair value of derivative warrant liabilities of $580,608, and general and administrative expenses of $339,598.
For the six months ended June 30, 2023, we had a net loss of $2,121,678 which was related to a change in fair value of derivative warrant liabilities of $1,504,166, and general and administrative expenses of $617,512.
For the three months ended June 30, 2022, we had net income of $8,267,223 which was primarily related to a change in fair value of derivative warrant liabilities of $7,972,083 and included interest income of $515,167, partially offset by income tax expense of $116,154 and general and administrative expenses of $103,873.
For the six months ended June 30, 2022, we had net income of $20,995,195, which was primarily related to a change in fair value of derivative warrant liabilities of $20,907,916 and included interest income of $533,664, partially offset by general and administrative expenses of $315,133 and income tax expense of $131,252.
-23-
Liquidity and Capital Resources
Prior to the completion of the Initial Public Offering, our liquidity needs had been satisfied through the receipt of $25,000 from the Founder in exchange for the issuance of the Founder Shares, and a promissory note (the “Note”) issued by the Founder. We repaid the Note on November 3, 2020.
On November 3, 2020, we consummated the Initial Public Offering of 75,000,000 Units at a price of $10.00 per Unit generating gross proceeds of $750.0 million. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 11,333,333 Private Placement Warrants to the Sponsor at a price of $1.50 per warrant, generating gross proceeds of $17 million.
Following the Initial Public Offering and the sale of the Private Placement Warrants, a total of $750.0 million was placed in the Trust Account and we had $130,639 of cash held outside of the Trust Account as of June 30, 2023, and available for working capital purposes and to pay our taxes. We incurred $42.3 million in transaction costs, including $15 million of underwriting fees, $26.3 million of deferred underwriting fees and $1 million of other costs.
For the six months ended June 30, 2023, net cash used in operating activities was $(1,516,657). For the six months ended June 30, 2022, net cash used in operating activities was $(303,575).
For the six months ended June 30, 2023, net cash provided by investing activities was $56,637,518, offset by net cash used in financing activities of $56,387,518.
As of June 30, 2023 we had operating cash of $130,639 and investments held in the Trust Account of $27,605,868. As of June 30, 2022 we had operating cash of $1,397,296 and investments held in the Trust Account of $84,243,386. We intend to utilize substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less deferred underwriting commissions and income taxes payable), to complete our Business Combination. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination.
In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, the initial stockholders or their affiliates may, but are not obligated to, loan us funds as may be required. If we complete a Business Combination, we would repay such loaned amounts. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants identical to the Private Placement Warrants, at a price of $1.50 per warrant at the option of the lender.
On March 1, 2023, our Sponsor agreed to loan the Company an aggregate of up to $250,000 for working capital purposes. This loan is non-interest bearing, unsecured and due at the earlier of the completion of our initial business combination or the Company’s liquidation. The Company issued a promissory note to the Sponsor to evidence the loan. As of June 30, 2023, the Company had borrowed $250,000 under this note.
We may need to raise additional funds in order to meet the expenditures required for operating our business. If our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating and consummating our initial business combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our initial business combination. Moreover, we may need to obtain additional financing either to complete our initial business combination or because we become obligated to redeem a significant number of our public shares upon consummation of our initial business combination, in which case we may issue additional securities or incur debt in connection with such business combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our 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 Account. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial
-24-
doubt about the Company’s ability to continue as a going concern through one year from the date of these financial statements if a Business Combination is not consummated. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern. 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. Lastly, the Company will be required to liquidate and dissolve if the Business Combination is not completed by November 3, 2023. The Company intends to complete a Business Combination before the mandatory liquidation date as it may be extended in accordance with the Company’s Articles.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities.
Registration Rights
The holders of Founder Shares, Private Placement Warrants, and securities that may be issued upon conversion of Working Capital Loans, if any, will be entitled to registration rights pursuant to a registration and stockholder rights agreement dated as of October 29, 2020. These holders are entitled to certain demand and “piggyback” registration rights. We will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The underwriters were paid a cash underwriting discount of $0.20 per unit, or $15 million in the aggregate, upon the closing of the Initial Public Offering. In addition, $0.35 per unit, or approximately $26.3 million in the aggregate, will be payable to the underwriters for deferred underwriting commissions. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that we complete our initial Business Combination, subject to the terms of the underwriting agreement.
Critical Accounting Policies
The preparation of unaudited condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have not identified any critical accounting policies, except as described below.
Warrant Liabilities
We account for our 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 liability classification under ASC 815. 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.
Our Private Placement Warrants meet the criteria as liability classified derivative instruments and are recorded at fair value on the grant date and re-valued at each reporting date, with changes in the fair value reported in the Statements of Operations. We will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the Private Placement Warrants. At that time, the portion of the liability related to the Private Placement Warrants will be reclassified to additional paid-in capital.
Common Stock Subject to Possible Redemption
The Company will provide holders of the Company’s outstanding shares of Class A common stock, par value $0.0001 per share, sold in the Initial Public Offering 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) without a stockholder vote 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 Public Stockholders will be entitled
-25-
to redeem their Public Shares for a pro rata portion of the amount then held in the Trust Account (initially anticipated to be $10.00 per Public Share). The per-share amount to be distributed to Public Stockholders who redeem their Public Shares will not be reduced by the deferred underwriting commissions the Company will pay to the underwriters. These Public Shares were recorded at a redemption value and classified as temporary equity upon the completion of the Initial Public Offering in accordance with ASC 480-10-S99. The Company will proceed with a Business Combination if a majority of the shares voted are voted in favor of the Business Combination. In connection with a Business Combination, the Company will not redeem the Public Shares in an amount that would cause its net tangible assets to be less than $5,000,001. If a stockholder vote is not required by law and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its Articles of Incorporation, conduct the redemptions pursuant to the tender offer rules of the SEC and file tender offer documents with the SEC prior to completing a Business Combination. If, however, stockholder approval of the transaction is required by law, or the Company decides to obtain stockholder approval for business or legal reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. Additionally, each Public Stockholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our unaudited condensed financial statements.
Off-Balance Sheet Arrangements
As of June 30, 2023, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of June 30, 2023, we were not subject to any market or interest rate risk. Following the consummation of our Initial Public Offering, the net proceeds of our Initial Public Offering, including amounts in the Trust Account, were invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government treasury obligations. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk. Effective October 12, 2022, the Company converted all of its investments in the Trust Account into cash, which will remain in the Trust Account.
We have not engaged in any hedging activities since our inception and we do not expect to engage in any hedging activities with respect to the market risk to which we are exposed.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this report, are recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our current chief executive officer (our “Certifying Officer”), the effectiveness of our disclosure controls and procedures as of June 30, 2023, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officer concluded that, due to the material weakness we previously identified in our internal control over financial reporting described below, our disclosure controls and procedures were not effective.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim unaudited condensed financial statements will not be prevented, or detected and corrected on a timely basis.
As previously reported, we changed the classification of our warrants from equity to liability treatment, measured at fair value with changes in fair value each period reported in earnings. Additionally, in connection with the preparation of the Company’s
-26-
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021, management re-evaluated our application of ASC 480-10-S99 with respect to the accounting classification of our redeemable shares of Class A common stock (the “Public Shares”). Upon such re-evaluation, management determined that the Public Shares include redemption provisions that require classification of the Public Shares as temporary equity, regardless of the minimum net tangible asset requirement, and as a result, concluded that certain of our previously issued financial statements should be restated to reflect the reclassification, as discussed in Note 2 to our financial statements in our Annual Report on Form 10-K (Amendment No. 2), filed with the SEC on February 4, 2022. Also, in connection with the change in presentation for the Public Shares, we restated our earnings per share calculation to allocate income and losses shared pro rata between the two classes of shares of our common stock.
As a result of the foregoing, our management concluded that there was a material weakness related to our accounting for complex financial instruments in internal control over financial reporting as of June 30, 2023. While we have processes to identify and appropriately apply applicable accounting requirements, we plan to continue to enhance our system of evaluating and implementing the accounting standards that apply to our accounting for complex financial instruments, including through enhanced analyses by our personnel and third-party professionals with whom we consult regarding complex accounting applications. We can offer no assurance that our remediation plan will ultimately have the intended effects.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting other than management’s remediation efforts described above.
-27-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
As of the date of this Quarterly Report, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 1, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
-28-
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
Exhibit |
| Description |
3.1 | ||
10.1 | ||
31.1 |
| |
32.1* |
| |
101.INS |
| XBRL Instance Document |
101.SCH |
| XBRL Taxonomy Extension Schema Document |
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* | These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing. |
-29-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| CONX CORP. |
|
| (Registrant) |
Date: August 9, 2023 | By: | /s/ Kyle Jason Kiser |
|
| Kyle Jason Kiser |
|
| Chief Executive Officer |
|
| Principal Executive, Financial and Accounting Officer |
-30-